SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 1, 1996
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 number 1-5034
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CORE INDUSTRIES INC
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(Exact name of registrant as specified in its charter)
Nevada 38-1052434
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P. O. Box 2000, Bloomfield Hills, Michigan 48304
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 642-3400
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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 [ ]
Common Stock outstanding at March 31, 1996 - 10,708,622 shares.
-1-
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Second Quarter Ended Six Months Ended
------------------------------ ------------------------------
Feb. 28, 1995 March 1, 1996 Feb. 28, 1995 March 1, 1996
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Net sales $ 44,819,000 $ 58,322,000 $ 88,006,000 $ 104,759,000
Cost of sales, exclusive of depreciation
and amortization $ 28,745,000 $ 38,173,000 $ 56,469,000 $ 68,172,000
Depreciation and amortization 1,051,000 1,529,000 2,043,000 2,739,000
Selling, general and administrative expenses 10,807,000 13,237,000 21,176,000 23,997,000
Interest expense 853,000 1,205,000 1,749,000 2,010,000
Other income (274,000) (334,000) (568,000) (461,000)
------------- ------------- ------------- -------------
$ 41,182,000 $ 53,810,000 $ 80,869,000 $ 96,457,000
------------- ------------- ------------- -------------
Earnings from continuing operations
before taxes on income $ 3,637,000 $ 4,512,000 $ 7,137,000 $ 8,302,000
Taxes on income 1,321,000 1,650,000 2,571,000 3,030,000
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Earnings from continuing operations $ 2,316,000 $ 2,862,000 $ 4,566,000 $ 5,272,000
Income (loss) from discontinued
operations (net of income tax) $ 46,000 -- ($ 183,000) --
------------- ------------- ------------- -------------
Net earnings $ 2,362,000 $ 2,862,000 $ 4,383,000 $ 5,272,000
============= ============= ============= =============
Net earnings (loss) per share:
Continuing operations $ .24 $ .27 $ .47 $ .52
Discontinued operations -- -- (.02) --
------------- ------------- ------------- -------------
Net earnings $ .24 $ .27 $ .45 $ .52
============= ============= ============= =============
Dividends per share $ .06 $ .06 $ .12 $ .12
============= ============= ============= =============
Average shares of stock outstanding 9,809,000 10,576,000 9,809,000 10,199,000
============= ============= ============= =============
<FN>
See notes to financial statements
</FN>
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CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Aug. 31, 1995 March 1, 1996
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,135,000 $ 911,000
Accounts receivable, less collection allowances of
$1,020,000 at August 31 and $1,220,000 at March 1 44,214,000 56,007,000
Inventories 41,276,000 53,544,000
Prepaid expenses 157,000 1,973,000
Deferred taxes on income 5,447,000 4,187,000
Net assets held for disposition 16,089,000 17,322,000
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TOTAL CURRENT ASSETS $108,318,000 $133,944,000
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PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $ 896,000 $ 896,000
Buildings 17,746,000 17,778,000
Machinery and equipment 36,532,000 39,558,000
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Total $ 55,174,000 $ 58,232,000
Less accumulated depreciation 32,332,000 33,592,000
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TOTAL PROPERTY, PLANT AND EQUIPMENT $ 22,842,000 $ 24,640,000
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OTHER ASSETS:
Excess of cost over net assets of companies acquired $ 6,774,000 $ 22,536,000
Investment in real estate partnership 1,323,000 1,266,000
Note receivable 1,500,000 1,370,000
Prepaid pensions and other 5,490,000 5,826,000
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TOTAL OTHER ASSETS $ 15,087,000 $ 30,998,000
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$146,247,000 $189,582,000
LIABILITIES & STOCKHOLDERS' EQUITY
Aug. 31, 1995 March 1, 1996
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(Unaudited)
CURRENT LIABILITIES:
Notes payable $ 787,000 $ 21,100,000
Accounts payable 7,581,000 13,834,000
Accrued payroll and other expenses 12,385,000 13,310,000
Dividends payable 589,000 643,000
Taxes on income 2,041,000 1,540,000
Long-term debt due within one year 4,610,000 4,610,000
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TOTAL CURRENT LIABILITIES $ 27,993,000 $ 55,037,000
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LONG-TERM DEBT, less amount due within one year 32,609,000 32,543,000
DEFERRED TAXES ON INCOME 1,690,000 1,850,000
ACCRUED EMPLOYEE BENEFITS 2,942,000 3,413,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1:
Authorized - 100,000 shares; issued - none
Common stock, par value $1:
Authorized - 20,000,000 shares
Issued - 11,237,341 shares at August 31
and 11,261,499 shares at March 1 $ 11,237,000 $ 11,261,000
Additional paid-in capital 999,000 8,570,000
Retained earnings 74,499,000 78,539,000
Cumulative translation adjustments 976,000 995,000
Treasury stock (1,410,160 shares at August 31 and
552,877 shares at March 1) - at cost (6,698,000) (2,626,000)
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TOTAL STOCKHOLDERS' EQUITY $ 81,013,000 $ 96,739,000
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$ 146,247,000 $ 189,582,000
<FN>
See notes to financial statements
</FN>
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CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustments Stock
------------ ------------ ------------ ------------ ------------
Balance, August 31, 1995 $ 11,237,000 $ 999,000 $ 74,499,000 $ 976,000 ($ 6,698,000)
Net earnings 5,272,000
Cash dividends declared,
$.12 per share (1,232,000)
Exercise of stock options 24,000 69,000
Treasury shares issued
re: acquisition (Note D) 7,502,000 4,072,000
Foreign currency adjustments 19,000
------------ ------------ ------------ ------------ ------------
Balance, March 1, 1996 $ 11,261,000 $ 8,570,000 $ 78,539,000 $ 995,000 ($ 2,626,000)
============ ============ ============ ============ ============
<FN>
See notes to financial statements
</FN>
-4-
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
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Feb. 28, 1995 March 1, 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,383,000 $ 5,272,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation $ 1,870,000 $ 2,410,000
Amortization 173,000 329,000
Discontinued operations 183,000 --
(Increase) decrease in assets:
Accounts receivable (5,988,000) (6,289,000)
Inventories (5,338,000) (4,275,000)
Prepaid expenses 142,000 (1,785,000)
Taxes on income (829,000) (501,000)
Deferred taxes on income 350,000 1,420,000
Increase (decrease) in liabilities:
Accounts payable 237,000 3,215,000
Accrued payroll and other expenses (260,000) (143,000)
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TOTAL ADJUSTMENTS ($ 9,460,000) ($ 5,619,000)
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NET CASH USED FOR OPERATING ACTIVITIES ($ 5,077,000) ($ 347,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 2,834,000) ($1,595,000)
Acquisition of businesses (3,505,000) (8,642,000)
Discontinued operations (463,000) (1,233,000)
Other 84,000 (22,000)
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NET CASH USED IN INVESTING ACTIVITIES ($ 6,718,000) ($11,492,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on short-term notes -- $ 12,913,000
Reductions in long-term debt ($ 76,000) (66,000)
Cash dividends paid (1,177,000) (1,232,000)
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NET CASH FROM (USED IN) FINANCING ACTIVITIES ($ 1,253,000) $ 11,615,000
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NET DECREASE IN CASH AND CASH EQUIVALENTS (13,048,000) (224,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,643,000 1,135,000
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,595,000 $ 911,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 1,738,000 $ 2,129,000
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Income taxes paid $ 3,353,000 $ 2,280,000
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<FN>
See notes to financial statements
</FN>
-5-
CORE INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A
The accompanying consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the information presented therein, and such adjustments are of a
normal recurring nature. Effective in Fiscal 1996, the Company changed its
accounting periods to a fixed 13 weeks per quarter.
NOTE B
Reference is made to the Company's Annual Report on Form 10-K for the
year ended August 31, 1995, for a description of accounting policies and other
detailed footnote information.
NOTE C - Inventories
August 31, March 1,
1995 1996
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Raw materials and supplies $17,734,000 $22,205,000
Work in process 8,225,000 8,797,000
Finished goods 15,317,000 22,542,000
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$41,276,000 $53,544,000
NOTE D - Acquisitions
During the second quarter, the Company acquired two companies.
Effective December 2, 1995, the Company acquired the common stock of CMB
Industries, a privately held producer of specialty valves, with annual revenues
of approximately $30 million. Effective January 1, 1996, the Company purchased
Davis Filters, Ltd., a manufacturer of pipeline strainers located near
Birmingham, England, with annual sales of approximately $1 million.
These acquisitions were accounted for as purchases, and accordingly,
the operating results of the acquired businesses have been included in the
Company's financial statements from their acquisition dates. The pro forma
results of operations, as if the operations of the acquired businesses had been
included from September 1, 1995, would not differ materially from the amounts
reported in the statement of earnings. The total cost of these acquisitions
included a combination of cash, debt assumptions and notes payable issued
totaling approximately $14.3 million plus 857,283 shares of the Company's common
stock, which stock was valued at $13.50 per share.
NOTE E - Statement of Cash Flows
In connection with the acquisition of CMB Industries and Davis Filters
in the second quarter of fiscal 1996, the Company issued 857,283 shares of its
common stock from treasury valued at approximately $11,574,000, and issued notes
payable totaling $7,400,000.
NOTE F - Subsequent Event
On March 28, 1996, a major portion of the Company's discontinued
Cherokee operation was sold for cash and notes payable, to a group led by the
senior management of Cherokee. It is anticipated that the provision established
in the fourth quarter of FY 1995 for Cherokee's disposition should be adequate
based on the anticipated proceeds from the sale.
-6-
NOTE G - Product Segment Information
The Company classifies its products and services into three general
segments. Financial information by segment is summarized below.
1995
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Earnings
Before
Net Sales Income Taxes
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Second quarter ended Feb. 28, 1995:
Fluid Controls and Construction Products $ 19,119,000 $ 2,579,000
Test, Measurement and Control 14,780,000 1,308,000
Farm Equipment 10,920,000 1,454,000
Corporate unallocated -- (851,000)
Interest expense -- (853,000)
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Total $ 44,819,000 $ 3,637,000
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Six months ended Feb. 28, 1995:
Fluid Controls and Construction Products $ 38,332,000 $ 5,288,000
Test, Measurement and Control 28,398,000 2,465,000
Farm Equipment 21,276,000 2,964,000
Corporate unallocated -- (1,831,000)
Interest expense -- (1,749,000)
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Total $ 88,006,000 $ 7,137,000
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1996
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Earnings
Before
Net Sales Income Taxes
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Second quarter ended March 1, 1996:
Fluid Controls and Construction Products $ 30,720,000 $ 3,805,000
Test, Measurement and Control 16,267,000 1,671,000
Farm Equipment 11,335,000 1,313,000
Corporate unallocated -- (1,073,000)
Interest expense -- (1,204,000)
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Total $ 58,322,000 $ 4,512,000
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Six months ended March 1, 1996:
Fluid Controls and Construction Products $ 51,546,000 $ 6,811,000
Test, Measurement and Control 32,491,000 3,289,000
Farm Equipment 20,722,000 2,249,000
Corporate unallocated -- (2,037,000)
Interest expense -- (2,010,000)
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Total $104,759,000 $ 8,302,000
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-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the first half of fiscal 1996, sales of $104,759,000 were up 19%
over fiscal 1995's first half sales of $88,006,000. Net earnings of $5,272,000,
or $.52 per share, rose 20% from net earnings of $4,383,000, or $.45 per share
($.47 per share from continuing operations), for the first half of last year.
For the second quarter of fiscal 1996, sales rose 30% to $58,322,000
from $44,819,000 for the second quarter of fiscal 1995. Earnings from continuing
operations increased 24% to $2,862,000 or $.27 per share, from $2,316,000 or
$.24 per share, for the prior year.
For the first six months of fiscal 1996, the Company's Fluid Controls
and Construction Products Group provided 49% of total sales; the Test,
Measurement and Control Group, 31% of total sales; and the Farm Equipment Group,
20% of sales. The Fluid Controls and Construction Products Group had significant
improvements in both this year's second quarter and first half compared with
last year, with sales and earnings for the first six months 34% and 29% higher,
respectively. This Group's performance benefited from four recent acquisitions
in the Fluid Controls product line. The Test, Measurement and Control Group also
had improved second quarter and first half results with sales and earnings for
the first six months 14% and 33% higher, respectively, compared with last year.
The Farm Equipment Group, as anticipated, had a decline in both sales and
operating earnings, primarily due to the effects of a softening farm economy
brought about by difficult weather conditions last year.
Overall gross profit margins on net sales for the first half of fiscal
1996 decreased to 34.9% from 35.8% last year as a result of product mix changes.
Selling, general and administrative expenses decreased to 22.9% of sales for
this year's first half compared to 24.1% last year, primarily due to relatively
lower sales expenses.
Interest expense was 41% higher in this year's second quarter compared
with last year due to increased borrowings to finance recent acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At March 1, 1996, the Company had working capital of $78.9 million and
a current ratio of 2.4 to 1, and the Company's capital employed (total debt and
equity) amounted to $155 million, with capital consisting of 38% debt and 62%
equity.
Effective on December 2, 1995, the beginning of the Company's second
quarter, the Company acquired CMB Industries in a merger transaction, and
effective January 1, 1996, purchased the net assets of Davis Filters. Both
transactions were treated as purchases for accounting purposes. The capital
investments included a combination of debt assumptions and notes payable issued
totaling approximately $14.3 million plus 857,283 shares of the Company's common
stock, which stock was valued at $13.50 per share. The necessary cash to
facilitate the transaction was borrowed under the Company's $20 million
unsecured bank line of credit.
On March 28, 1996, in the Company's third quarter, the previously
announced divestiture of its Cherokee unit was completed. The Company received
$14.8 million in cash and a long-term note receivable of $5.9 million.
Management believes its current cash position, cash flows from
operations, along with its borrowing capacity, are adequate to fund its
strategies for future growth, including working capital, expenditures for
manufacturing expansion and efficiencies, and acquisition activities. At the
Company's current dividend rate of $.06 per share, annual dividend payments
would approximate $2.6 million. Under the Company's debt agreement with
insurance companies, retained earnings of approximately $23 million are
available for dividends, subject to future earnings levels.
-8-
PART II - OTHER INFORMATION
Items 1 through 5 of Part II are omitted because they are not
applicable or because they are not required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A report on the annual meeting of shareholders of the Company held
on January 9, 1996 was published on January 10, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) With respect to the Company's acquisition of CMB Industries,
a Form 8-K was filed on December 22, 1995 and a Form 8-K/A
was filed on February 22, 1996.
-9-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CORE INDUSTRIES INC
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(Registrant)
Date: April 12, 1996 /s/ RAYMOND H. STEBEN, JR.
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Raymond H. Steben, Jr.
Vice President-Finance and Chief Financial Officer
Date: April 12, 1996 /s/ THOMAS G. HOOPER
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Thomas G. Hooper
Treasurer and Controller
-10-
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
*27 Financial Data Schedule
*Filed herewith