SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For Quarterly Period Ended September 30, 1997, or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from __________ to __________
Commission File No. 1-500
PORTEC, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 36-1637250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Hundred Field Drive, Suite 120, Lake Forest, Illinois 60045
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(Address of principal executive offices) (Zip Code)
(847) 735-2800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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Number of shares of Registrant's Common Stock ($1 per share par value) issued
and outstanding at November 14, 1997 - 4,401,174.
PART I
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FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS
PORTEC, INC. CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997; DECEMBER 31, 1996; AND SEPTEMBER 30, 1996
(THOUSANDS OF DOLLARS)
(Unaudited) (Unaudited)
9/30/97 12/31/96 9/30/96
--------- -------- --------
CURRENT ASSETS
Cash and cash equivalents $ 4,614 $ 4,979 $ 5,400
Accounts and notes receivable, 4,368 14,816 16,468
less allowances
Inventories 2,972 18,038 15,361
Deferred income tax benefits 3,286 3,286 1,100
Other current assets 193 981 801
Net assets of discontinued operations 34,959 0 0
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Total current assets 50,392 42,100 39,130
--------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 43 220 220
Buildings and improvements 2,999 10,964 11,333
Machinery and equipment 4,648 23,010 22,080
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7,690 34,194 33,633
Less accumulated depreciation (3,766) (19,651) (19,353)
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Total property, plant and equipment 3,924 14,543 14,280
--------- -------- --------
ASSETS HELD FOR SALE 0 2,070 2,070
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INTANGIBLE ASSETS - NET 2,732 4,922 3,687
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NOTES RECEIVABLE AND OTHER ASSETS 429 2,315 3,038
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Total $ 57,477 $ 65,950 $ 62,205
========= ======== ========
CURRENT LIABILITIES
Current portion of long-term debt $ 7,900 $ 3,246 $ 5,546
Accounts payable 406 7,015 5,583
Other accrued liabilities 7,793 9,058 7,964
--------- -------- --------
Total current liabilities 16,099 19,319 19,093
--------- -------- --------
LONG-TERM DEBT 0 7,568 7,580
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DEFERRED CREDITS
Pensions 1,868 1,868 1,923
Deferred income tax 1,220 1,365 0
Other 338 844 677
--------- -------- --------
Total deferred credits 3,426 4,077 2,600
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STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized
10,000,000 shares; issued 4,410,718
4,373,596 and 4,335,596 shares 4,411 4,374 4,336
Additional capital 47,144 46,841 46,662
Cumulative translation adjustment 0 (99) (361)
Accumulated deficit (13,501) (15,968) (17,615)
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38,054 35,148 33,022
Treasury stock, 9,544, 16,421 and
10,021 common shares at cost (102) (162) (90)
--------- -------- --------
Total stockholders' equity 37,952 34,986 32,932
--------- -------- --------
Total $ 57,477 $ 65,950 $ 62,205
========= ======== ========
The accompanying notes are an integral part of these financial statements.
PORTEC, INC.
CONSOLIDATED STATEMENT OF INCOME AND ACCUMULATED DEFICIT
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended 9/30 Nine Months Ended 9/30
-------------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenues
Net sales $ 7,096 $ 5,617 $ 19,261 $ 19,975
Other income 6 15 41 37
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Total 7,102 5,632 19,302 20,012
---------- ---------- ---------- ----------
Costs and expenses
Cost of goods sold 4,294 3,323 11,244 12,530
Selling, general and administrative 2,072 1,713 6,331 5,711
Interest 144 209 533 589
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Total 6,510 5,245 18,108 18,830
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Income from continuing operations
before provision for income tax 592 387 1,194 1,182
Income tax provision 237 - 485 94
---------- ---------- ----------- ----------
Net income from continuing operations 355 387 709 1,088
Income from discontinued operations,
net of income taxes 842 621 2,811 3,814
---------- ---------- ----------- ----------
Net income 1,197 1,008 3,520 4,902
Cash dividends paid - - (1,053) -
Accumulated deficit - beginning of period (14,698) (18,623) (15,968) (22,517)
---------- ----------- ----------- ----------
Accumulated deficit - end of period (13,501) (17,615) (13,501) (17,615)
========== =========== =========== ==========
Earnings Per Share
- ------------------
Net income from continuing operations $0.08 $0.08 $0.16 $0.24
----- ----- ----- -----
Income from discontinued operations,
net of income taxes $0.18 $0.14 $0.62 $0.83
----- ----- ----- -----
Net Income $0.26 $0.22 $0.78 $1.07
===== ===== ===== =====
Dividends per common share $ - $ - $0.24 $ -
===== ===== ===== =====
Average Common Shares outstanding 4,558,289 4,574,739 4,531,271 4,575,311
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
PORTEC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(THOUSANDS OF DOLLARS)
(UNAUDITED)
9 MONTHS ENDED 9/30
----------------------
1997 1996
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Cash flows from Continuing Operating Activities:
Net income from continuing operations $ 709 $ 1,088
Adjustments to reconcile net income from continuing
operations to net cash provided by operating
activities of continuing operations:
Depreciation and amortization 552 452
Decrease (increase) in receivables (334) 111
Increase in inventories (121) (29)
Decrease (increase) in other net assets
and deferred charges 201 (506)
Increase (decrease) in deferred credits (506) 154
Increase (decrease) in accounts payable
and accruals 654 (1,507)
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Net cash provided (used) by operating
activities of continuing operations 1,155 (237)
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Cash flows from Investing Activities of Continuing
Operations:
Acquisitions (200) (500)
Capital expenditures (615) (619)
Proceeds from disposal of property,
plant and equipment 3 2
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Net cash used by investing
activities of continuing operations (812) (1,117)
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Cash flows from Financing Activities of Continuing
Operations:
Net borrowing (repayment) of revolving credit
agreement (2,800) 3,000
Issuance of common stock 189 16
Payment of cash dividend (1,053) -
Receipt of cash dividend 1,085 -
Purchase of treasury stock (371) (168)
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Net cash provided (used) by financing
activities of continuing operations (2,950) 2,848
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Cash flow from discontinued operations 2,242 429
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Net increase (decrease) in cash and
cash equivalents (365) 1,923
Cash and cash equivalents at beginning of year 4,979 3,477
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Cash and cash equivalents at end of period $ 4,614 $ 5,400
======= ========
The accompanying notes are an integral part of these financial statements.
PORTEC, INC.
NOTES TO FINANCIAL STATEMENT - SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
1. Financial statements for the nine months ended September 30, 1997 are
subject to audit adjustments.
2. On October 16, 1997, the Company entered into a definitive agreement to
sell the net assets of its Construction Equipment segment to Astec
Industries, Inc. and on November 6, 1997 a definitive agreement was
entered into by the Company for the sale of the net assets of its Railway
Products segment to Rail Products Acquisition, Corp. Net sales of these
two segments for the quarters ended September 30, 1997 and September 30,
1996 were $18,721 and $15,390, respectively. For the nine months ended
September 30, 1997, net sales of the Construction Equipment and Railway
Products segments were $59,987 compared with $56,907 for the same period
last year.
The book value of the assets and liabilities of the Construction Equipment
and the Railway Products segment to be sold are included in the
accompanying September 30, 1997 consolidated balance sheet in net assets
of discontinued operations and consist of the following:
Receivables $12,926
Inventory 13,533
Net property, plant and equipment 12,453
Intangibles and deferred charges 3,073
Other 504
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Total Assets $42,489
Liabilities 7,530
-------
Net Assets of Discontinued Operations $34,959
=======
Both agreements are subject to adjustments for certain changes in the
balance sheet as of the date of close. It is anticipated that these
transactions will be consumated during the fourth quarter of 1997, and
that a gain will be realized on the transactions.
3. Inventories at September 30, 1997; December 31, 1996; and September 30,
1996 were:
9/30/97 12/31/96 9/30/96
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Raw Materials and Supplies $ 1,720 $ 6,361 $ 5,131
Work-in-Process 958 3,468 3,601
Finished Goods 294 8,209 6,629
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$ 2,972 $ 18,038 $15,361
======= ======== =======
4. The accompanying financial statements reflect all adjustments which
were, in the opinion of management, necessary to a fair statement of the
results for the period presented, and all of these adjustments were of a
normal recurring nature. For full disclosure of significant accounting
policies, see Note 1 of the PORTEC, Inc. 1996 Annual Report.
5. Certain amounts in the Consolidated Balance Sheets as of December 31, 1996
and September 30, 1996 have been reclassified to conform to those of
September 30, 1997.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Continuing Operations
Third Quarter of 1997 Compared with
Third Quarter of 1996
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Net sales were $7,096,000 for the quarter ended September 30, 1997 or 26
percent above the net sales of $5,617,000 for the quarter ended September 30,
1996. The increase in sales was due to continued strong performance in the
traditional power turn products and the addition of subcontract work on a U.S.
post office project.
While income before tax from continuing operations for the three months ended
September 30, 1997 was up $205,000 over prior year, the net income from
continuing operations was down $32,000 from the 1997 comparable net income of
$387,000. The tax provision in the third quarter of 1997 was $237,000
compared with zero in the same period last year, reflecting the 1996
utilization of all remaining tax loss carryforward.
For the third quarter of 1997, gross margins were down as a percent of sales
from the prior period due to changes in product mix. Selling, general and
administrative expense was 29 percent of sales as compared with 30 percent in
the prior year and interest expense was down for the quarter ended September
30, 1997 due to a reduction in the debt.
Results of Continuing Operations
First Nine Months of 1997 Compared with
First Nine Months of 1996
- ---------------------------------------
Net sales and the corresponding net income from continuing operations for the
nine months ended September 30, 1997 were $19,261,000 and $709,000,
respectively, compared with net sales of $19,975,000 and net income from
continuing operations of $1,088,000 for the first nine months of 1996. Sales
for the period were 4 percent below the prior year due to a significant
decrease in shipments of recycling equipment. A substantial portion of these
decreased sales were offset by increased sales of the traditional power turns
and by postal project work. Net income from continuing operations was down
from the prior year due to an increase in the tax provision of $391,000 since
the Company no longer has tax loss carryforward available. Gross margins were
improved and interest expense was reduced for the nine months ended September
30, 1997 while selling, general and administrative expense was up over the
same period last year.
The significant reduction in property, plant and equipment, intangible assets,
notes receivable and current liabilities was due to the signing of definitive
agreements to sell the Construction Equipment and Rail Products segments of
the Company. The net assets to be sold are included in the September 30, 1997
consolidated balance sheet as Net assets of discontinued operations. (See
Item 5. Dispositions for details of these transactions.)
Accounts receivable from continuing operations increased $463,000 from
September 30, 1996 due to increased sales volume in the third quarter. Other
current assets decreased from December 31, 1996 as a result of lower prepaid
insurance.
Fixed asset acquisitions by continuing operations were $615,000 during the
first nine months of 1997 versus $619,000 during the same period last year.
Depreciation and amortization for continuing operations of $552,000 was up
$100,000 over that of last year. Goodwill of $200,000 was recorded as a
result of the payment of an earnout on the Countec acquisition.
Current liabilities of the continuing operations were up $5,891,000 and
$5,732,000 from December 31, 1996 and September 30, 1996, respectively, due to
the reclassification of long term debt to current debt partially offset by
decreases in accounts payable and accrued expenses. Long-term debt was
reclassified in the Consolidated Balance Sheets of December 31, 1996 and
September 30, 1996 to conform to the classification of the Consolidated
Balance Sheet of September 31, 1997. Deferred credits were down from December
31, 1996 due to lower deferred income taxes and the reclassification of a
$300,000 note payable to short term debt.
The increase in stockholders' equity of $2,657,000 from December 31, 1996 to
September 30, 1997 was attributable to net income and the exercise of stock
options. These were partially offset by the payment of cash dividends of 8
cents per quarter for the first three quarters of 1997. The $4,711,000
increase in stockholders' equity from September 30, 1996 to September 30, 1997
was due to net income during the last quarter of 1996 and the first three
quarters of 1997 and the exercise of stock options. The payment of cash
dividends of 8 cents per quarter for the last quarter of 1996 and the first
three quarters of 1997 partially offset the above increase.
The Company received new orders of $6,249,000 during the third quarter of 1997
compared with $4,929,000 for the third quarter of 1996. The 27 percent
increase was attributable to a significant increase in bookings in the power
turn business as well as automated guidance business. The order backlog was
$8,827,000 at September 30, 1997 compared with $6,413,000 and $7,783,000 at
December 31, 1996 and September 30, 1996, respectively.
In February 1997, the FASB issued SFAS NO. 128, "Earnings per Share." SFAS
No. 128 requires public companies to present basic earnings per share and, if
applicable, diluted earnings per share, instead of primary and fully diluted
earnings per share. Adoption of SFAS 128 is required from interim and annual
periods ending after December 15, 1997 and earlier application is not
permitted. The Company has determined that the effect of adopting SFAS 128
will not be significant.
Liquidity
- ---------
On February 12, 1993, the Company entered into a credit agreement with a bank
which was amended on April 26, 1994, June 13, 1995 and June 2, 1997. The
amended agreement provides up to $17,000,000 of credit available as either
cash or letters of credit. The provisions of the agreement include
restrictive covenants relating to minimum net worth, interest coverage, net
working capital and leverage ratio requirements and limit cash dividend
payments and additional indebtedness. The Company does not have available
lines of credit beyond its existing bank agreement.
Due to the seasonal fluctuation in the Company's working capital needs and the
limitations on borrowing, the Company continues to exert careful cash
controls. However, management believes its existing line of credit, proceeds
from the sale of the Construction Equipment and Rail Products segments and
anticipated operating results will provide the Company with sufficient funds
for working capital, capital expenditures and acquisitions. The Company's
working capital ratios were 3.1, 2.2 and 2.0 to 1 at September 30, 1997,
December 31, 1996 and September 30, 1996, respectively. At September 30,
1997, the Company had available $8,849,000 of unused credit under its loan
agreement, plus cash and cash equivalents of $4,614,000. This compared with
$4,350,000 and $2,050,000 of unused credit and $4,979,000 and $5,400,000 of
cash and cash equivalents at December 31, 1996 and September 30, 1996,
respectively.
PART 11 - OTHER INFORMATION
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ITEM 5. DISPOSITION
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On October 16, 1997, the Company announced that it had entered into a
definitive agreement to sell the net assets of the Construction Equipment
segment of the business to Astec Industries, Inc. and on November 6, 1997
announced that it had entered into a definitive agreement to sell the net
assets of the Railway Products segment to Rail Products Acquisition, Corp.
It further announced that the Company had engaged the services of Wasserstein
Perella & Co. to assist it in evaluating strategic alternatives, including,
among others, the sale of its remaining business in Materials Handling or
continuation as a public company. No decision has yet been made as to the
alternatives to be pursued.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits:
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11 The Company's statement regarding computation of per share
earnings.
(b) Reports on Form 8-K
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During the quarter ended September 30, 1997, the Company did not
file any reports on Form 8-K.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PORTEC, Inc.
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Registrant
Dated: November 14, 1997 By: /s/ Nancy A. Kindl
---------------------------------
Nancy A. Kindl
Vice President, Treasurer,
Secretary and Chief Financial
Officer
EXHIBIT INDEX
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Page No.
Within
Sequential
Numbering
System of
Exhibit
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Exhibit Description
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11 Registrant's statement regarding 11
computation of per share earnings.