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 May 31, 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 CORE INDUSTRIES INC (Exact name of registrant as specified in its charter) Nevada 38-1052434 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P. O. Box 2000, Bloomfield Hills, Michigan 48304 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (810) 642-3400 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 May 31, 1996 - 10,708,622 shares. -1- CORE INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Third Quarter Ended Nine Months Ended ------------------------------ ------------------------------ May 31, 1995 May 31, 1996 May 31, 1995 May 31, 1996 ------------- ------------- ------------- ------------- Net sales $ 52,426,000 $ 63,124,000 $ 140,432,000 $ 167,883,000 Cost of sales, exclusive of depreciation and amortization $ 34,269,000 $ 41,525,000 $ 90,738,000 $ 109,697,000 Depreciation and amortization 1,050,000 1,506,000 3,093,000 4,245,000 Selling, general and administrative expenses 11,388,000 13,721,000 32,564,000 37,718,000 Interest expense 808,000 1,020,000 2,557,000 3,030,000 Other income (29,000) (348,000) (597,000) (809,000) ------------- ------------- ------------- ------------- $ 47,486,000 $ 57,424,000 $ 128,355,000 $ 153,881,000 ------------- ------------- ------------- ------------- Earnings from continuing operations before taxes on income $ 4,940,000 $ 5,700,000 $ 12,077,000 $ 14,002,000 Taxes on income 1,917,000 2,080,000 4,488,000 5,110,000 ------------- ------------- ------------- ------------- Earnings from continuing operations $ 3,023,000 $ 3,620,000 $ 7,589,000 $ 8,892,000 Income (loss) from discontinued operations (net of income tax) $ 110,000 -- ($ 73,000) -- ------------- ------------- ------------- ------------- Net earnings $ 3,133,000 $ 3,620,000 $ 7,516,000 $ 8,892,000 ============= ============= ============= ============= Net earnings per share: Continuing operations $ .30 $ .34 $ .77 $ .86 Discontinued operations .02 -- -- -- ------------- ------------- ------------- ------------- Net earnings $ .32 $ .34 $ .77 $ .86 ============= ============= ============= ============= Dividends per share $ .06 $ .06 $ .18 $ .18 ============= ============= ============= ============= Average shares of stock outstanding 9,809,000 10,709,000 9,809,000 10,369,000 ============= ============= ============= ============= <FN> See notes to financial statements </FN> -2- CORE INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS Aug. 31, 1995 May 31, 1996 ------------- ------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 1,135,000 $ 1,449,000 Accounts receivable, less collection allowances of $1,020,000 at August 31 and $1,260,000 at May 31 44,214,000 54,564,000 Inventories 41,276,000 52,373,000 Prepaid expenses 157,000 1,597,000 Deferred taxes on income 5,447,000 2,057,000 Net assets held for disposition 16,089,000 2,688,000 ------------- ------------- TOTAL CURRENT ASSETS $ 108,318,000 $ 114,728,000 ------------- ------------- PROPERTY, PLANT AND EQUIPMENT: Land and land improvements $ 896,000 $ 896,000 Buildings 17,746,000 17,809,000 Machinery and equipment 36,532,000 40,612,000 ------------- ------------- Total $ 55,174,000 $ 59,317,000 Less accumulated depreciation 32,332,000 34,872,000 ------------- ------------- TOTAL PROPERTY, PLANT AND EQUIPMENT $ 22,842,000 $ 24,445,000 ------------- ------------- OTHER ASSETS: Excess of cost over net assets of companies acquired $ 6,774,000 $ 22,362,000 Investment in real estate partnership 1,323,000 1,260,000 Note receivable 1,500,000 1,300,000 Prepaid pensions and other 5,490,000 5,862,000 ------------- ------------- TOTAL OTHER ASSETS $ 15,087,000 $ 30,784,000 ------------- ------------- $ 146,247,000 $ 169,957,000 ============= ============= LIABILITIES & STOCKHOLDERS' EQUITY Aug. 31, 1995 May 31, 1996 ------------- ------------- (Unaudited) CURRENT LIABILITIES: Notes payable $ 787,000 $ 8,500,000 Accounts payable 7,581,000 11,657,000 Accrued payroll and other expenses 12,385,000 13,162,000 Dividends payable 589,000 643,000 Taxes on income 2,041,000 32,000 Long-term debt due within one year 4,610,000 4,610,000 ------------- ------------- TOTAL CURRENT LIABILITIES $ 27,993,000 $ 38,604,000 ------------- ------------- LONG-TERM DEBT, less amount due within one year 32,609,000 26,543,000 DEFERRED TAXES ON INCOME 1,690,000 1,680,000 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 May 31 $ 11,237,000 $ 11,261,000 Additional paid-in capital 999,000 8,570,000 Retained earnings 74,499,000 81,516,000 Cumulative translation adjustments 976,000 996,000 Treasury stock (1,410,160 shares at August 31 and 552,877 shares at May 31) - at cost (6,698,000) (2,626,000) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY $ 81,013,000 $ 99,717,000 ------------- ------------- $ 146,247,000 $ 169,957,000 ============= ============= <FN> See notes to financial statements </FN> -3- 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 8,892,000 Cash dividends declared, $.18 per share (1,875,000) Exercise of stock options 24,000 69,000 Treasury shares issued re: acquisition (Note D) 7,502,000 4,072,000 Foreign currency adjustments 20,000 ------------ ------------ ------------ ------------ ------------ Balance, May 31, 1996 $ 11,261,000 $ 8,570,000 $ 81,516,000 $ 996,000 ($ 2,626,000) ============ ============ ============ ============ ============ <FN> See notes to financial statements </FN> -4- CORE INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended -------------------------------- May 31, 1995 May 31, 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 7,516,000 $ 8,892,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation $ 2,857,000 $ 3,693,000 Amortization 301,000 552,000 Discontinued operations 73,000 -- (Increase) decrease in assets: Accounts receivable (2,758,000) (4,847,000) Inventories (5,454,000) (3,103,000) Prepaid expenses 413,000 (1,409,000) Taxes on income (89,000) (2,009,000) Deferred taxes on income 370,000 3,380,000 Increase (decrease) in liabilities: Accounts payable 191,000 1,038,000 Accrued payroll and other expenses 330,000 (291,000) ------------ ------------ TOTAL ADJUSTMENTS ($ 3,765,000) ($ 2,996,000) ------------ ------------ NET CASH FROM OPERATING ACTIVITIES $ 3,750,000 $ 5,896,000 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ($ 3,982,000) ($2,691,000) Acquisition of businesses (3,515,000) (15,643,000) Discontinued operations (1,071,000) 13,402,000 Other 280,000 (22,000) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES ($ 8,288,000) ($ 4,954,000) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on short-term notes -- $ 7,313,000 Reductions in long-term debt ($ 6,027,000) (6,066,000) Cash dividends paid (1,766,000) (1,875,000) ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES ($ 7,793,000) ($ 628,000) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,331,000) 314,000 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,643,000 1,135,000 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,312,000 $ 1,449,000 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid $ 3,113,000 $ 3,644,000 ============ ============ Income taxes paid $ 4,435,000 $ 3,981,000 ============ ============ <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, May 31, 1995 1996 ----------- ----------- Raw materials and supplies $17,734,000 $22,605,000 Work in process 8,225,000 8,847,000 Finished goods 15,317,000 20,921,000 ----------- ----------- $41,276,000 $52,373,000 =========== =========== NOTE D - Acquisitions During this year's 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 a note payable totaling $400,000. NOTE F - Sale of Discontinued Operation On March 28, 1996, the 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 remaining 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 --------------------------- Earnings Before Net Sales Income Taxes ------------ ------------ Third quarter ended May 31, 1995: Fluid Controls and Construction Products $ 21,890,000 $ 2,724,000 Test, Measurement and Control 17,943,000 2,104,000 Farm Equipment 12,593,000 1,905,000 Corporate unallocated -- (985,000) Interest expense -- (808,000) ------------ ------------ Total $ 52,426,000 $ 4,940,000 ============ ============ Nine months ended May 31, 1995: Fluid Controls and Construction Products $ 60,222,000 $ 8,012,000 Test, Measurement and Control 46,341,000 4,569,000 Farm Equipment 33,869,000 4,869,000 Corporate unallocated -- (2,816,000) Interest expense -- (2,557,000) ------------ ------------ Total $140,432,000 $ 12,077,000 ============ ============ 1996 --------------------------- Earnings Before Net Sales Income Taxes ------------ ------------ Third quarter ended May 31, 1996: Fluid Controls and Construction Products $ 32,656,000 $ 4,320,000 Test, Measurement and Control 17,036,000 1,724,000 Farm Equipment 13,432,000 1,555,000 Corporate unallocated -- (879,000) Interest expense -- (1,020,000) ------------ ------------ Total $ 63,124,000 $ 5,700,000 ============ ============ Nine months ended May 31, 1996: Fluid Controls and Construction Products $ 84,202,000 $ 11,131,000 Test, Measurement and Control 49,527,000 5,013,000 Farm Equipment 34,154,000 3,804,000 Corporate unallocated -- (2,916,000) Interest expense -- (3,030,000) ------------ ------------ Total $167,883,000 $ 14,002,000 ============ ============ -7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales for the first nine months of fiscal 1996 increased 20% rising to $167,883,000 from $140,432,000. Net earnings of $8,892,000 rose 18% from net earnings of $7,516,000 for the first nine months last year. Net earnings per share increased 12% to $.86 from $.77 in the first nine months reflecting the effect of issuing 857,283 shares of Core stock, along with some cash and debt securities, to acquire CMB Industries. For the third quarter of fiscal 1996, sales and earnings from continuing operations were up 20% over last year. Sales for the third quarter of fiscal 1996 were $63,124,000 compared with $52,426,000 a year ago. Earnings from continuing operations increased to $3,620,000, or $.34 per share, from $3,023,000, or $.30 per share, last year. For the first nine months of fiscal 1996, the Company's Fluid Controls and Construction Products Group provided 50% of total sales; the Test, Measurement and Control Group, 30% 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 third quarter and first nine months compared with last year, with sales and earnings for the first nine months 40% and 39% higher, respectively. This Group's performance benefited from both improvements in its base businesses and the recent acquisition, CMB Industries. The Test, Measurement and Control Group had improved sales and earnings for the first nine months this year although its third quarter this year was unfavorably impacted by late winter weather in the Northeast and an inventory adjustment program at a key customer. The Farm Equipment Group had a decline in both sales and operating earnings, primarily due to the effects of the near dust bowl conditions in the lower Great Plains and higher grain prices. Overall gross profit margins on net sales for the first nine months of fiscal 1996 decreased to 34.7% from 35.4% last year as a result of product mix changes. Selling, general and administrative expenses decreased to 22.5% of sales for this year's first nine months compared to 23.2% last year, primarily due to lower sales expenses. Interest expense was 26% higher in this year's third quarter compared with last year due to increased borrowings to finance recent acquisitions. LIQUIDITY AND CAPITAL RESOURCES At May 31, 1996, the Company had working capital of $76.1 million and a current ratio of 3.0 to 1, and the Company's capital employed (total debt and equity) amounted to $139 million, with capital consisting of 28% debt and 72% equity. During May, 1996, the Company reduced its 10% long-term debt by $6 million under maximum allowable prepayment options. Effective 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. The capital investments included a combination of debt assumptions, notes payable issued, and cash totaling approximately $14.3 million and 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 -8- 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 $25 million are available for dividends, subject to future earnings levels. -9- 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 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) With respect to the Company's sale of its discontinued Cherokee operation, a Form 8-K was filed on April 8, 1996. -10- 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 ------------------------------------------ (Registrant) Date: July 8, 1996 /s/ LAWRENCE J. MURPHY ------------ ------------------------------------------ Lawrence J. Murphy Executive Vice President and Secretary Date: July 8, 1996 /s/ THOMAS G. HOOPER ------------ ------------------------------------------ Thomas G. Hooper Treasurer and Controller -11- INDEX TO EXHIBITS EXHIBIT DESCRIPTION *27 Financial Data Schedule *Filed herewith