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 February 28, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
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Commission file number 1-5034
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, 1997 - 10,722,931 shares.
-1-
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In 000s, except per share data)
Second Quarter Ended Six Months Ended
----------------------- -----------------------
02/28/97 03/01/96 02/28/97 03/01/96
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Net sales $ 58,231 $ 58,322 $ 116,255 $ 104,759
Cost of sales $ 38,365 $ 39,207 $ 76,217 $ 70,121
Selling, general and administrative
expenses 14,329 13,653 28,678 24,695
Interest expense 745 1,205 1,499 2,010
Other income (528) (255) (667) (369)
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$ 52,911 $ 53,810 $ 105,727 $ 96,457
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Earnings before taxes on income $ 5,320 $ 4,512 $ 10,528 $ 8,302
Taxes on income 1,990 1,650 3,900 3,030
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Net earnings $ 3,330 $ 2,862 $ 6,628 $ 5,272
========= ========= ========= =========
Net earnings per share $ 0.31 $ 0.27 $ 0.62 $ 0.52
========= ========= ========= =========
Dividends per share $ 0.06 $ 0.06 $ 0.12 $ 0.12
========= ========= ========= =========
Average shares of stock outstanding 10,723 10,576 10,720 10,199
========= ========= ========= =========
<FN>
See notes to financial statements
</FN>
-2-
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in 000s)
ASSETS
02/28/97
(Unaudited) 08/31/96
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CURRENT ASSETS:
Cash and cash equivalents $ 481 $ 572
Accounts receivable, less collection allowances of
$1,410 at February 28 and $1,260 at August 31 55,050 56,923
Inventories 58,548 51,935
Prepaid expenses 2,102 1,199
Deferred taxes on income 1,957 2,167
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TOTAL CURRENT ASSETS $ 118,138 $ 112,796
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PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $ 1,351 $ 896
Buildings 18,165 17,552
Machinery and equipment 44,541 43,173
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Total $ 64,057 $ 61,621
Less accumulated depreciation 36,155 35,715
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TOTAL PROPERTY, PLANT AND EQUIPMENT $ 27,902 $ 25,906
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OTHER ASSETS:
Excess of cost over net assets of companies acquired $ 21,911 $ 22,251
Investment in real estate partnership 1,231 1,273
Notes receivable 4,409 4,311
Restricted cash 3,362 --
Prepaid pensions and other 6,865 6,412
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TOTAL OTHER ASSETS $ 37,778 $ 34,247
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$ 183,818 $ 172,949
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LIABILITIES & STOCKHOLDERS' EQUITY
02/28/97
(Unaudited) 08/31/96
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CURRENT LIABILITIES:
Notes payable $ 9,500 $ 5,100
Accounts payable 10,849 13,016
Accrued payroll and other expenses 14,846 15,721
Dividends payable 643 643
Taxes on income 1,185 1,090
Long-term debt due within one year 4,610 4,610
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TOTAL CURRENT LIABILITIES $ 41,633 $ 40,180
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LONG-TERM DEBT, less amount due within one year 28,410 24,520
DEFERRED TAXES ON INCOME 2,380 2,250
ACCRUED EMPLOYEE BENEFITS 3,536 3,355
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1:
Authorized - 100,000 shares
Issued - none
Common stock, par value $1:
Authorized - 20,000,000 shares
Issued - 11,276,000 shares at February 28
and 11,261,000 at August 31 $ 11,276 $ 11,261
Additional paid-in capital 8,701 8,570
Retained earnings 90,264 84,922
Cumulative translation adjustments 244 517
Treasury stock (553,000 shares) - at cost (2,626) (2,626)
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TOTAL STOCKHOLDERS' EQUITY $ 107,859 $ 102,644
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$ 183,818 $ 172,949
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<FN>
See notes to financial statements
</FN>
-3-
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in 000s)
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustment Stock
-------- ---------- --------- ----------- --------
Balance, August 31, 1996 $ 11,261 $ 8,570 $ 84,922 $ 517 ($ 2,626)
Net earnings 6,628
Cash dividends declared,
$.12 per share (1,286)
Stock issued - compensation
plans 15 131
Foreign currency adjustments (273)
-------- ---------- --------- ----------- --------
Balance, February 28, 1997 $ 11,276 $ 8,701 $ 90,264 $ 244 ($ 2,626)
======== ========== ========= =========== ========
<FN>
See notes to financial statements
</FN>
-4-
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in 000s)
Six Months Ended
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02/28/97 03/01/96
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 6,628 $ 5,272
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,302 2,739
Deferred taxes on income 340 1,420
Discontinued operations -- (1,233)
Net changes in:
Accounts receivable 1,873 (6,289)
Inventories (6,613) (4,275)
Prepaid expenses (903) (1,785)
Taxes on income 94 (501)
Accounts payable (2,167) 3,215
Accrued payroll and other expenses (875) (143)
Other non-current assets and liabilities (611) (74)
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NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES $ 1,068 ($ 1,654)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($4,928) ($ 1,595)
Acquisition of businesses -- (8,642)
Other 127 52
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NET CASH USED IN INVESTING ACTIVITIES ($4,801) ($10,185)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on short-term notes $ 4,400 $ 12,913
Industrial Development Bond financing 4,000 --
Restricted cash re: bond financing (3,362) --
Reductions in long-term debt (110) (66)
Cash dividends paid (1,286) (1,232)
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NET CASH FROM FINANCING ACTIVITIES $ 3,642 $ 11,615
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NET DECREASE IN CASH AND CASH EQUIVALENTS (91) (224)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 572 1,135
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 481 $ 911
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 1,447 $ 2,129
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Income taxes paid $ 3,731 $ 2,280
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<FN>
See notes to financial statements
</FN>
-5-
CORE INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in 000s unless otherwise stated)
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.
NOTE B
Reference is made to the Company's Annual Report on Form 10-K for the year
ended August 31, 1996, for a description of accounting policies and other
detailed footnote information.
NOTE C - Inventories
02/28/97 08/31/96
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Raw materials and supplies $ 29,654 $ 24,399
Work in process 8,013 7,864
Finished goods 20,881 19,672
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$ 58,548 $ 51,935
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NOTE D - Segment Information
Second Quarter Ended
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02/28/97 03/01/96
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Net Sales
Fluid Controls and Construction Products $ 27,770 $ 30,720
Test, Measurement and Control 16,996 16,267
Farm Equipment 13,465 11,335
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Total $ 58,231 $ 58,322
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Earnings Before Income Taxes
Fluid Controls and Construction Products $ 3,416 $ 3,805
Test, Measurement and Control 1,850 1,671
Farm Equipment 1,769 1,314
Corporate unallocated (970) (1,073)
Interest expense (745) (1,205)
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Total $ 5,320 $ 4,512
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Six Months Ended
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02/28/97 03/01/96
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Net Sales
Fluid Controls and Construction Products $ 55,076 $ 51,546
Test, Measurement and Control 33,423 32,491
Farm Equipment 27,756 20,722
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Total $116,255 $104,759
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Earnings Before Income Taxes
Fluid Controls and Construction Products $ 6,828 $ 6,811
Test, Measurement and Control 3,471 3,289
Farm Equipment 3,835 2,249
Corporate unallocated (2,107) (2,037)
Interest expense (1,499) (2,010)
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Total $ 10,528 $ 8,302
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-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the first half of fiscal 1997, sales of $116,255,000 were up 11% over
$104,759,000 in the first half of fiscal 1996. The record first half net
earnings of $6,628,000 or $.62 per share were up 26% over the first half of
fiscal 1996 net earnings of $5,272,000 or $.52 per share. There were 5% more
shares outstanding during this year's first half compared to last year,
primarily related to acquisitions.
For the second quarter of fiscal 1997, sales were $58,231,000, compared
with $58,322,000 for the same quarter of last year. The net earnings for the
quarter rose 16% to a record $3,330,000 ($.31 per share) from $2,862,000 ($.27
per share) for the second quarter of fiscal 1996.
For the first six months of fiscal 1997, the Company's Fluid Controls and
Construction Products Segment provided 47% of total sales; the Test, Measurement
and Control Segment, 29% of total sales; and the Farm Equipment Segment, 24% of
sales. The Farm Equipment Segment followed up a very strong first quarter with a
strong second quarter as sales and earnings before income taxes for the first
six months were ahead of last year by 34% and 71%, respectively. The Farm
Equipment Segment's improvement was helped by both the strong grain market and
favorable acceptance of new products, although sales in the second quarter were
hurt by blizzard conditions in much of the Upper Plains states. The Test,
Measurement and Control Segment also had improved second quarter and first half
results with sales and earnings before taxes for the first six months up 3% and
6%, respectively, over last year's first half. Results, however, were negatively
affected by relocating portions of the GSE, Inc. operations to improve ongoing
efficiencies. Net sales and earnings before income taxes for the second quarter
in the Fluid Controls and Construction Products Segment both decreased 10%
compared with last year's second quarter, after first quarter favorable
comparisons with last year. "Project revenue" (at OGASCO, CMB Industries and
Robert Carter Company) could not match last year's strong second quarter
performance.
Overall gross margins on net sales for the half of fiscal 1997 improved to
34.4% from 33.1% as a result of favorable product mix changes. Selling, general
and administrative (SG & A) expenses increased to 24.7% of sales in this year's
first half from 23.6% last year, primarily due to higher sales expenses at CMB
Industries. CMB (acquired at the beginning of the second quarter of fiscal
1996), traditionally has had higher selling expenses than Core due to its higher
distribution costs. The Robert Carter Company's lower second quarter sales, with
relatively fixed SG & A expenses, also contributed to the higher percentage of
SG & A expenses to sales.
Interest expense declined 25% in this year's first half compared with last
year due to reduced borrowings. The increase in other income for the first half
compared with last year relates primarily to higher interest income.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1997, the Company had working capital of $77 million and a
current ratio of 2.8 to 1, and the Company's capital employed (total debt and
equity) amounted to $150 million. The debt to capital ratio improved to 27% from
38% a year ago. Over the past 12 months, strong cash flow from operations,
combined with the initial proceeds from the sale of discontinued operations in
March, 1996, allowed the Company to increase capital spending to support future
sales growth and to reduce debt by $15.7 million.
In January, 1997 the Company replaced a $20 million line of credit facility
with a $50 million unsecured revolving agreement with a major domestic bank.
Management believes that this new committed borrowing facility, together with
the Company's expected cash flows from operations, is adequate to fund its
strategies for future growth, including working capital, expenditures for
manufacturing expansion and efficiencies, and new product development.
In December, 1996 the Company obtained $4,000,000 in low interest
industrial development revenue bond financing. These funds are being used to
support expansion at the Company's Sunflower Manufacturing facility in Beloit,
Kansas.
At the Company's current dividend rate of $.06 per share, annual dividend
payments would approximate $2.6 million. Under the Company's debt agreements
with insurance companies, retained earnings of approximately $31 million are
available for dividends, subject to future earnings levels.
-8-
PART II - OTHER INFORMATION
Items 1, 2 and 3 of Part II are omitted because they are not applicable or
because they are not required.
ITEM 4. A SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on January 14, 1997. In
voting for directors to serve for a term of three years, Lawrence J. Murphy,
Robert G. Stone, Jr., and Lloyd E. Reuss were elected with 9,704,758 votes for
and 113,908 votes withheld. Other directors continuing in office are Harold M.
Marko, Alan E. Schwartz, Richard P. Kughn, and David R. Zimmer.
ITEM 5. OTHER INFORMATION
On March 26, 1997, the Company's Board of Directors approved executive
severance agreements which create certain liabilities in the event of the
termination of the covered executives following a change of control of the
Company. Additionally, should a change in control occur, restrictions on certain
stock options would lapse. In connection with these agreements, the executives
agreed to not compete with the Company for two years.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(k)(1) Change in Control Agreement with David R. Zimmer
10(k)(2) Change in Control Agreement with Lawrence J. Murphy
10(k)(3) Change in Control Agreement with James P. Dixon
10(k)(4) Change in Control Agreement with Thomas G. Hooper
(b) There were no reports on Form 8-K filed for the quarter ended February
28, 1997.
-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 10, 1997 /s/ MARK J. MACGUIDWIN
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Mark J. MacGuidwin
Vice President-Finance and Chief Financial Officer
Date: April 10, 1997 /s/ THOMAS G. HOOPER
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Thomas G. Hooper
Treasurer and Controller
-10-
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
10(k)(1) Change in Control Agreement with David R. Zimmer
10(k)(2) Change in Control Agreement with Lawrence J. Murphy
10(k)(3) Change in Control Agreement with James P. Dixon
10(k)(4) Change in Control Agreement with Thomas G. Hooper
27 Financial Data Schedule