1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1995
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: 0-16249
CIMCO, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)
265 Briggs Avenue, Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
33-0251163 (I.R.S. Employer Identification No.)
Registrant's telephone number, including area code:
(714) 546-4460
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 ninety (90) days.
Yes X No
--- ---
The registrant had 2,960,481 shares of common stock outstanding
as of September 13, 1995.
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CIMCO, INC. AND SUBSIDIARIES
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
July 31, 1995 (Unaudited) and April 30, 1995 3
Consolidated Statements of Operations (Unaudited) -
Three Months Ended July 31, 1995 and 1994 4
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 1995 and 1994 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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CIMCO INC. AND SUBSIDIARIES
PART 1- FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 31, 1995 April 30, 1995
------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,056,708 $ 802,887
Short-term cash investments -- --
Accounts receivable, less allowance for doubtful accounts of
$209,000 at July 31, 1995 and $204,000 at April 30, 1995 17,400,502 16,451,712
Federal income tax receivable 761,000 761,000
Inventories - at lower of cost or market
Raw materials 7,046,497 6,234,425
Work in process 1,246,243 1,010,435
Finished goods 3,825,647 4,014,030
------------ -----------
12,118,387 11,258,890
Prepaid expenses 345,363 408,132
------------ -----------
Total current assets 32,681,960 29,682,621
PROPERTY, PLANT AND EQUIPMENT - at cost
Land 3,459,712 3,459,712
Buildings 10,015,875 9,959,966
Machinery and equipment 33,359,123 33,375,057
Leasehold improvements 2,007,141 2,077,330
------------ -----------
48,841,851 48,872,065
Less accumulated depreciation and amortization 22,670,174 22,570,610
------------ -----------
26,171,677 26,301,455
OTHER ASSETS
Other 2,262,307 2,598,734
------------ -----------
$ 61,115,944 $58,582,810
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 13,819,450 $ 14,390,500
Notes payable to bank 4,389,327 3,816,327
Accounts payable 13,487,535 10,177,863
Accrued expenses 2,236,070 2,427,811
Income taxes payable 40,661 325,950
------------ -----------
Total current liabilities 33,973,043 31,138,451
LONG-TERM DEBT, net of current portion -- --
DEFERRED INCOME TAXES 2,129,000 2,129,000
COMMITMENTS -- --
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value; authorized 5,000,000 shares;
issued and outstanding, none -- --
Preferred stock - Series A Junior Participating - $.01 par value;
authorized 100,000 shares; issued and outstanding, none -- --
Common stock - $.01 par value; authorized 10,000,000 shares;
issued and outstanding, 2,960,481 shares at July 31, 1995 and
April 30, 1995 29,605 29,605
Capital in excess of par value 7,258,757 7,258,757
Retained earnings 17,924,035 18,323,858
Foreign currency translation adjustment 73,767 (24,598)
------------ -----------
25,286,164 25,587,622
Less note receivable from Employee Stock Ownership Plan (272,263) (272,263)
------------ -----------
25,013,901 25,315,359
------------ -----------
$ 61,115,944 $58,582,810
============ ===========
The accompanying notes are an integral part of these statements.
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CIMCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
July 31,
------------------------------
1995 1994
----------- -----------
Net sales $25,212,788 $18,267,693
Costs and expenses:
Manufacturing costs 21,889,607 15,751,934
Engineering and tooling expenses 1,261,388 1,132,051
Selling, general and administrative expenses 2,287,218 2,024,105
Operating loss (225,425) (640,397)
Interest income (12,123) (19,724)
Interest expense 370,521 269,006
----------- -----------
358,398 249,282
----------- -----------
Loss before benefit for income taxes (583,823) (889,679)
Benefit for income taxes (184,000) (320,000)
----------- -----------
Net loss $ (399,823) $ (569,679)
=========== ===========
Loss per common share $ (.14) $ (.19)
=========== ===========
The accompanying notes are an integral part of these statements.
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CIMCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
July 31,
-----------------------------
1995 1994
------------- -------------
Increase (decrease) in cash and cash equivalents
Cash flow from operating activities:
Net earnings (loss) $ (399,823) $ (569,679)
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 908,683 845,371
(Gain) loss on sale of property, plant and equipment (5,576) (10,712)
Provision for bad debts 5,000 -
(Increase) decrease in accounts receivable (953,790) (1,562,225)
(Increase) decrease in federal income tax receivable - (505,026)
(Increase) decrease in inventories (859,497) (389,337)
(Increase) decrease in prepaid expenses 62,769 (47,076)
(Increase) decrease in other assets 769,127 (61,471)
Increase (decrease) in accounts payable 3,309,672 1,269,451
Increase (decrease) in accrued expenses (191,741) (5,967)
Increase (decrease) in income taxes payable (285,289) (3,660)
Increase (decrease) in deferred income taxes - -
------------ -----------
Net cash provided by (used in) operating activities 2,359,535 (1,040,331)
------------ -----------
Cash flow from investing activities:
Proceeds from the sale of property, plant and equipment 182,071 852,152
Redemption of short-term cash investments - 7,000
Purchase of short-term cash investments - (11,058)
Capital expenditures (1,388,100) (596,471)
------------ -----------
Net cash used in investing activities (1,206,029) 251,623
------------ -----------
Cash flow from financing activities:
Net increase (decrease) in short-term borrowings 573,000 (941,589)
Proceeds from issuance of common stock - -
Proceeds from issuance of long-term debt - 500,000
Principal payments on long-term debt (571,050) (444,841)
Repurchase of common stock - -
Loan to Employee Stock Ownership Program - -
------------ -----------
Net cash provided by (used in) financing activities 1,950 (886,430)
------------ -----------
Foreign currency translation gain (loss) 98,365 (26,829)
------------ -----------
Net increase (decrease) in cash and cash equivalents 1,253,821 (1,701,967)
Cash and cash equivalents at beginning of the year 802,887 2,284,191
----------- -----------
Cash and cash equivalents at end of the year $ 2,056,708 $ 582,224
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 371,528 $ 264,607
Income taxes $ 35,180 $ 2,328
The accompanying notes are an integral part of these statements.
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CIMCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF INTERIM INFORMATION
The consolidated balance sheet as of July 31, 1995 and the related
consolidated statements of operations and cash flows for the three-month
periods ended July 31, 1995 and 1994 are unaudited; in the opinion of
management, all adjustments for a fair presentation of such financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative of results for
a full year.
The financial statements and notes are presented as permitted by Form
10-Q, and do not contain certain information included in the Company's audited
financial statements and notes for the fiscal year ended April 30, 1995.
2. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common equivalent share are based on the weighted
average number of shares of common stock and common stock equivalents (dilutive
stock options) outstanding during the related periods. The weighted average
number of common stock equivalent shares includes shares issuable upon the
assumed exercise of stock options less the number of shares assumed purchased
with the proceeds available from such exercise. Fully diluted net earnings per
share does not differ materially from net earnings per common share and common
share equivalent.
Weighted average shares outstanding were 2,960,481 and 2,980,566 for
the three-month periods ended July 31, 1995 and 1994, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
A. RESULTS OF OPERATIONS
Three Months Ended July 31, 1995 vs. July 31, 1994
The following table shows the amounts of certain items included in the
Company's statements of operations and percentages of these items as they
relate to net sales for the three months ended July 31, 1995 and 1994; also
shown are the amounts and percentages of increase or decrease of these items in
the current period as compared to the corresponding period in the preceding
year.
Amounts and Percentages of Certain Items
(Dollars in Thousands)
Three Months Ended Increase
-------------------------------- (Decrease)
July 31, 1995 July 31, 1994 1995 vs. 1994
--------------- --------------- ---------------
Amount % Amount % Amount %
--------------- --------------- ---------------
Net sales $25,213 100.0 $18,268 100.0 $6,945 38.0
------- ----- ------- ----- ------
Manufacturing costs 21,890 86.8 15,752 86.2 6,138 39.0
Engineering and tooling expenses 1,261 5.0 1,132 6.2 129 11.4
Selling expenses 863 3.4 639 3.5 224 35.1
General and administrative expenses 1,425 5.7 1,386 7.6 39 2.8
Interest expense, net 358 1.4 249 1.4 109 43.1
------- ----- ------- ----- ------
Loss before benefit for income taxes (584) (2.3) (890) (4.9) 306 34.4
Benefit for income taxes (184) (0.7) (320) (1.8) 136 42.5
------- ----- ------- ----- ------
Net loss $ (400) (1.6) $ (570) (3.1) $ 170 29.9
======= ===== ======= ===== ======
Net sales increased 38.0% to $25,213,000 in the current quarter from
$18,268,000 in the first quarter of fiscal 1995 after eliminating intersegment
sales of $271,000 and $976,000, respectively, in those quarters. Costs and
expenses did not increase at the same rate as sales, largely for the reasons
discussed below.
Gross sales of the Commercial/Industrial Segment decreased 23.8% to
$5,396,000 in the current quarter from $7,077,000 of a year ago. The decrease
was largely the result of the continued downward trend of sales to the
segment's three largest customers, partially offset by price increases. The
operating loss for the current quarter was $1,706,000 versus a loss of $558,000
for the same quarter last fiscal year. Underutilization of molding plant
capacity, resulting from the previously mentioned decrease in sales volume, as
well as increases in workers' compensation expense, loss on sale of obsolete
inventory and employee relocation expenses, reduced operating profit for the
current quarter.
The Medical Segment's gross sales increased 3.9% to $2,881,000 in the
current quarter from $2,774,000 during the same period last year. The increase
was due to volume and price increases related to several of the Segment's
existing customers, partially offset by a decrease in sales to the Segment's
largest customer. The operating loss for the current quarter was $121,000
compared to a loss of $330,000 for the same quarter last year. The reduction
in operating loss in the current quarter was primarily due to decreases, as a
percentage of sales, in raw materials, outside costs, and direct labor. A
reduction in general and administrative expenses further
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contributed to the reduction of the operating loss. The loss on disposition of
leasehold improvements relating to a restructuring, partially offset the
improvements in operating profit described above.
The Compounding Segment's gross sales were $17,207,000 for the first
quarter of this year, up 83.2% from $9,393,000 during the same quarter last
year. The greater sales were primarily the result of higher sales volumes and
prices to the Segment's largest customer and its molders. Sales to several
other customers also increased, but not to the same magnitude as sales to the
largest customer. Sales were up at all of the Compounding Segment's
facilities, particularly Singapore and Corona. Operating profit increased
546.0% to $1,602,000 in the current quarter versus $248,000 for the first
quarter a year ago. The increase in operating profit is primarily attributable
to the increase in sales as noted above, and the resulting greater utilization
of plant capacity. All major manufacturing cost components, as well as
selling, general and administrative expenses, increased at a lesser rate than
did gross sales.
Engineering and tooling expenses increased 11.4% to $1,261,000 in the
current quarter from $1,132,000 during the same quarter last year as tooling
sales increased 13.1%.
Selling expenses increased 35.1% to $863,000 in the current quarter
from $639,000 in the same quarter last year. The increase resulted primarily
from greater sales and commission expense in connection with the 38.0% increase
in sales. The expenses were 3.4% of net sales in the current quarter and 3.5%
of net sales for the quarter last year.
General and administrative expenses increased 2.8% to $1,425,000 in
the current quarter from $1,386,000 the same quarter last year. The expenses
decreased to 5.7% of net sales in the current quarter from 7.6% for the same
quarter last year.
Net interest expense increased to $358,000 or 1.4% of net sales in the
current quarter from $249,000 or 1.4% of net sales in the same quarter a year
ago. Interest expense increased as a result of greater debt and higher costs
of borrowed funds in the first quarter of this year.
The decreased tax benefit in the current quarter versus the same
quarter a year ago was the result of the decreased pre-tax loss in the current
quarter versus a year ago.
The net loss for the first quarter of the current year was $400,000
versus net loss of $570,000 for the same quarter last year. The current
period's reduced net loss resulted primarily from the continued trend of
increased sales and operating profit of the Compounding Segment, partially
offset by the continued trend of declining sales and resulting underutilization
of the Commercial/Industrial Segment's plant capacity.
B. LIQUIDITY AND CAPITAL RESOURCES
The Company has previously financed its capital expenditures and
working capital requirements from operating cash flow, trade credit, cash
reserves, and borrowings under its line of credit. In fiscal 1994, the Company
borrowed $5,625,000 through an industrial development revenue bond ("IDRB")
issued by the state of Nevada. The proceeds of this bond were used to
construct and equip the new molding facility in Dayton, Nevada.
On February 1, 1995, the Company replaced its credit agreement with
its bank. The credit agreement ("Credit Agreement") provides for a $6,000,000
revolving line of credit expiring September 15, 1995 ("Line of Credit"), a
$7,500,000 term loan ("Term Loan"), and a standby letter of credit in the
amount of $5,736,000 which secures the $5,625,000 IDRB discussed above. As of
July 31, 1995, the Company had borrowed $4,389,000 under the Line of Credit,
which bears interest at the bank's prime rate plus 1/4%. The Term Loan is
payable in forty-eight equal monthly installments commencing March 1, 1995, and
bears interest at the bank's prime rate plus
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1/2%. Borrowings under the Credit Agreement are collateralized by
substantially all of the Company's assets, except for certain of the Costa Mesa
land and buildings and all of the Singapore assets. In addition to the
borrowings described above the Company has a standby letter of credit in favor
of the State of California for Workers' Compensation, as well as various other
letters of credit.
The Credit Agreement contains various covenants that, among other
things, require the maintenance of certain balance sheet ratios, minimum levels
of net worth (as defined in the agreement), restrictions which limit the
payment of dividends to $100,000 annually, and limitations on the acquisition
of, or investment in, other entities. At July 31, 1995, the Company was not in
compliance with certain financial covenants of the Credit Agreement.
On August 24, 1995, the Company amended the Credit Agreement with its
bank which extends the expiration of the Credit Agreement until November 1,
1995, waives financial covenant requirements, provides for additional revolving
borrowings of $1,800,000 at the banks' prime rate plus 2%, and requires the
Company to pledge 100% of the outstanding capital stock of Compounding
Technology, Inc.
Available sources of funds at July 31, 1995 consisted of approximately
$2,057,000 in cash and cash equivalents, and $152,000 in unused lines of credit
with its bank.
Statement of Financial Accounting Standards No. 78 (SFAS No. 78)
requires that long-term obligations that are callable by the creditor within a
one year period subsequent to year end be classified as current liabilities.
Accordingly, the Company has reclassified all long-term debt to the current
portion of long-term debt, resulting in a working capital deficit. Working
capital was $(1,291,000) at July 31, 1995 versus $(1,456,000) at April 30,
1995.
Capital expenditures aggregated $1,388,000 and $596,000 in the first
three months of the current and last fiscal year. New molding machines
comprised the majority of the Commercial/Industrial Segment's $1,067,000 of
capital expenditures. The balance of the expenditures were used to upgrade
machinery and equipment in the other two segments. The Compounding Segment has
made a commitment to establish a facility in Saint Etienne, France, which will
require approximately $2,000,000 in capital expenditures in fiscal 1996, the
major source of which will be derived from the additional credit availability
described above.
The Company has sustained substantial losses from operations in fiscal
1994, fiscal 1995, and the first quarter of fiscal 1996, used cash in its
operations in fiscal 1995, and at July 31,1995, had a deficit in working
capital caused by a reclassification of debt as per SFAS No. 78. The Company's
continuation as a going concern is dependent upon its ability to secure
sufficient additional financing. Management has implemented measures to reduce
operating costs and is continuing discussions with the Company's primary lender
and others regarding extension and expansion of the Company's credit
facilities. Of the alternatives available management believes that bank
financing is the most desirable option at this time. Subject to the Company's
ability to secure additional financing and successfully replace its existing
credit facility, management believes that financial resources will be adequate
to support working capital requirements and planned capital expenditures during
the next twelve months. However, there can be no assurance that the Company
will be successful in securing additional financing and replacing
its existing credit facility.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
10.23 First Amendment dated June 9, 1995 to Credit
Agreement between Wells Fargo Bank, National
Association and Registrant.
10.24 Second Amendment dated August 24, 1995 to Credit
Agreement between Wells Fargo Bank, National
Association and Registrant.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter covered by
this report.
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SIGNATURES
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.
CIMCO, INC.
(Registrant)
Date: September 13, 1995 /s/ RUSSELL T. GILBERT
-------------------------------------------
Russell T. Gilbert
President and Chief Executive Officer
Date: September 13, 1995 /s/ L. RONALD TREPP
--------------------------------------------
L. Ronald Trepp
Chief Financial Officer
(Principal Financial and Accounting Officer)
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