FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report under Section 13 of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 1996 Commission File No. 1-4290 ANTHONY INDUSTRIES, INC. (exact name of registrant as specified in its charter) DELAWARE 95-2077125 (State of Incorporation) (I.R.S. Employer Identification No.) 4900 South Eastern Avenue Los Angeles, California 90040 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (213) 724-2800 Former name, former address and former fiscal year, if changed since last report: Not applicable 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X - Indicate the number of shares outstanding of each of the issuer's classes of common stock as of April 30, 1996. Common Stock, par value $1 16,560,089 Shares FORM 10-Q QUARTERLY REPORT PART - 1 FINANCIAL INFORMATION Item 1. Financial Statements STATEMENTS OF CONSOLIDATED INCOME (condensed) (In thousands except for per share figures) (Unaudited) Three months ended March 31 ---------------------------- 1996 1995(a) ---------------------------- Net Sales $ 158,853 $ 138,021 Cost of products sold 117,470 103,689 ---------- ---------- Gross profit 41,383 34,332 Selling expenses 19,132 15,037 General and administrative expenses 13,074 11,698 ---------- ---------- Operating income 9,177 7,597 Interest expense 2,432 2,832 Other income, net (297) (262) ---------- ---------- Income before provision for income taxes 7,042 5,027 Provision for income taxes 2,255 1,430(b) ---------- ---------- Income from continuing operations 4,787 3,597 Discontinued operations, net of taxes (1,510) ---------- ---------- Net Income $ 4,787 $ 2,087 ========== ========== Per share Continuing operations $ 0.29 $ 0.30 Discontinued operations (0.13) ---------- ---------- Net Income $ 0.29 $ 0.17 ========== ========== Cash dividend $ 0.11 $ 0.11 Average shares outstanding 16,731 11,957 (a) Information has been restated to reflect the sale of the assets and business of the swimming pool and motorized pool cover business. (b) Reduced by $259, or 2 cents per share, foreign tax settlement. See notes to consolidated condensed financial statements. 2 CONSOLIDATED BALANCE SHEETS (condensed) (dollars in thousands) March 31 December 31 1996 1995 ---------- ----------- (Unaudited) Assets ------ Current Assets Cash and cash equivalents $ 5,294 $ 7,357 Accounts receivable, less allowances of $6,353 in 1996 and $8,235 in 1995 151,807 140,202 Inventories Finished goods 90,119 97,193 Work in process 16,021 9,700 Raw materials 31,876 38,668 -------- -------- 138,016 145,561 Less LIFO reserve 5,940 4,882 -------- -------- 132,076 140,679 Deferred taxes 6,340 6,683 Prepaid expenses and other current assets 5,195 5,534 -------- -------- Total current assets 300,712 300,455 Property, Plant and Equipment 144,305 139,706 Less allowance for depreciation and amortization 83,789 82,599 -------- -------- 60,516 57,107 Intangibles, principally goodwill 13,959 14,108 Net assets of discontinued operations 5,702 8,650 Other 2,974 4,103 -------- -------- Total Assets $383,863 $384,423 ======== ======== See notes to consolidated condensed financial statements. 3 CONSOLIDATED BALANCE SHEETS (condensed) (dollars in thousands) March 31 December 31 1996 1995 ----------- ----------- (Unaudited) Liabilities and Shareholders' Equity ------------------------------------ Current Liabilities Bank loans $ 46,403 $ 50,219 Accounts payable 25,865 27,985 Accrued payroll and related 18,101 21,443 Other accruals 15,566 16,031 Current portion of long-term debt 4,863 4,855 -------- -------- Total current liabilities 110,798 120,533 Long-Term Debt 81,463 75,071 Deferred Taxes 13,003 13,003 Shareholders' Equity Preferred Stock $1 par value, authorized 12,500,000 shares, none issued Common Stock, $1 par value, authorized 40,000,000 shares, issued shares - 17,079,773 in 1996 and 17,064,065 in 1995 17,080 17,064 Additional paid-in capital 131,144 130,995 Retained earnings 40,083 37,121 Employee Stock Ownership Plan and stock option loans (4,306) (4,778) Treasury shares at cost, 481,059 shares (4,189) (4,189) Cumulative translation adjustments (1,213) (397) -------- -------- Total Shareholders' Equity 178,599 175,816 -------- -------- Total Liabilities and Shareholders' Equity $383,863 $384,423 ======== ======== See notes to consolidated condensed financial statements. 4 STATEMENTS OF CONSOLIDATED CASH FLOWS (condensed) (dollars in thousands) Three months ended March 31 ------------------------- 1996 1995 ------------------------- (unaudited) Operating Activities Income from continuing operations $ 4,787 $ 3,597 Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization 2,525 2,222 Deferred taxes 343 466 Changes in operating assets and liabilities: Accounts receivable (11,605) (13,759) Inventories 8,603 (2,904) Prepaid expenses and other current assets 339 (1,215) Accounts payable (2,120) 591 Payrolls and other accruals (835) (430) -------- -------- Net cash provided by (used in) operating activities 2,037 (11,432) Investing Activities Property, plant & equipment expenditures (4,670) (4,434) Disposals of property, plant & equipment 12 486 Other items, net (201) (874) -------- -------- Net cash used in investing activities (4,859) (4,822) Financing Activities Borrowings under long-term debt and revolving lines of credit 4,500 1,000 Payments of long-term debt and revolving lines of credit (100) (771) Net increase (decrease) in short-term bank loans (1,816) 17,095 Dividends paid (1,825) (1,306) -------- -------- Net cash provided by financing activities 759 16,018 -------- -------- Net decrease in cash and cash equivalents from continuing operations (2,063) (236) Discontinued Operations Loss from discontinued operations (1,510) Adjustments to reconcile loss to net cash used in discontinued operations Depreciation and amortization 146 Capital expenditures (34) Other items, net (253) -------- Cash used in discontinued operations (1,651) -------- Net decrease in cash and cash equivalents (2,063) (1,887) Cash and cash equivalents at beginning of year 7,357 7,700 -------- -------- Cash and cash equivalents at end of period $ 5,294 $ 5,813 ======== ======== Supplemental disclosure of cash flow information: Interest paid $ 1,367 $ 1,920 Income taxes paid 220 147 -------- ------- $ 1,587 $ 2,067 ======== ======= See notes to consolidated condensed financial statements. 5 ANTHONY INDUSTRIES, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 31, 1996 NOTE 1 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the Consolidated Financial Statements and Notes to Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. NOTE 2 - Summary of Significant Accounting Policies The Company maintains its books using a 52/53 week year ending on the last Sunday of December. For purposes of the consolidated financial statements, the yearend is stated as December 31. The year ending December 31, 1996 will consist of 52 weeks and each of the quarters will consist of 13 weeks. The year ended in 1995 consisted of 53 weeks with the additional week included in the first quarter ended March 31, 1995. NOTE 3 - Newly Issued Accounting Standard On January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which requires that impaired assets or assets to be disposed of be accounted for at the lower of carrying amount or fair value of the assets less cost of disposal. The adoption of the new standard did not have a material effect on the Company's financial statements. NOTE 4 - Discontinued Operations On March 5, 1996 the Company completed the sale of substantially all of the assets and business of its swimming pool and motorized pool cover business ("Division") to General Aquatics, Inc. As a result of the sale, the Company reclassified the accompanying prior year's financial statements to show the Division as a discontinued operation. 6 ANTHONY INDUSTRIES, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 31, 1996 NOTE 5 - Borrowings The $85 million credit facility and the $40 million 364-day unsecured revolving short-term facility are subject to an agreement which, among other things, restricts amounts available for payment of cash dividends by the Company. As of March 31, 1996, retained earnings were free of such restrictions. On April 22, 1996, the Company amended its $40 million facility to extend the termination date to May 30, 1996. NOTE 6 - Stock Offering On June 1, 1995, the Company completed its public offering of 4.6 million primary shares of its common stock. The net proceeds of $67.2 million were used to reduce amounts outstanding under the $85 million credit facility ("Credit Facility"). The Company may reborrow amounts repaid under the Credit Facility for general corporate purposes, which may include the financing of product sales growth, the development of new products and strategic acquisitions. Assuming the offering had been completed on January 1, 1995, earnings per share from continuing operations were 29 cents for the 1996 first quarter versus 27 cents for the year-earlier quarter on a proforma basis. 7 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations A. Comparative First Quarter Results of Operations Net sales from continuing operations for the quarter ended March 31, 1996 increased 15.1% to $158.9 million compared to $138.0 million in the corresponding 1995 quarter. First quarter 1995 income from continuing operations rose 33.3% to a record $4.8 million from $3.6 million in the first quarter of 1994. Earnings per share from continuing operations, reflecting the completion on June 1, 1995 of the Company's public offering of 4.6 million shares, was $.29 per share as compared with $.30 per share in the year-ago quarter. Earnings in the prior year quarter were boosted by a $0.3 million foreign tax settlement. Net income for the quarter was $4.8 million, or $.29 per share, as compared with $2.1 million, or $.17 per share in 1995, after deducting a loss from continuing operations of $1.5 million, or $.13 per share. Net Sales. In the sporting goods and other recreational products group, net sales increased 23.6% to $108.4 million in the 1996 quarter compared to $87.7 million in 1995. Leading the improvement was a rise in sales of K2 Exotech in- line skates, primarily in the international markets. Shakespeare fishing tackle further boosted the quarter's sales growth with increased shipments of the Ugly Stik fishing rods and kits and combos together with sales of promotional products. Sales of Stearns active water products as well as continued popularity of the ProFlex full-suspension mountain bike also contributed to the increase. Additionally, Dana Design backpacks, a 1995 acquisition, supported the higher sales. Sales of the industrial products group increased by a net of 0.2% to $50.4 million in the first three months of 1996 compared to $50.3 million in the comparable period of 1995. Increases were achieved in paperweaving monofilaments, fiberglass utility and ornamental light poles and string trimmer line. Partially offsetting these sales increases was a decline in sales of paperboard building products and other products. Gross profit. Gross profit increased 20.7% to $41.4 million, or 26.1% of net sales, in the first quarter of 1996 as compared to $34.3 million, or 24.9% of net sales, in the first quarter of 1995. The improvement of gross profit as a percentage of net sales resulted from improved sales mix and gains in efficiency, particularly at K2 and Stearns. Overall gross profit improved despite higher manufacturing costs in the fiberglass light pole business. In addition, the 1995 period included higher costs of recycled corrugated scrap paper, which unfavorably affected margin and gross profit. Costs and Expenses. In the first three months of 1996, selling expenses increased 27.3% to $19.1 million, or 12.0% of net sales from $15.0 million, or 10.9% of net sales in the same period of 1995. The increase was attributable to higher spending in support of new products in the in-line skate, snowboard and apparel businesses. General and administrative expenses increased 12.0% to $13.1 million in the first quarter of 1996 compared to $11.7 million in 1995, although as a percentage of net sales they were comparable to the prior year period. Spending increased to support growth. 8 Operating Income. Operating income improved by 21.1% to $9.2 million, or 5.8% of net sales, in the three months ended March 31, 1996 compared to $7.6 million, or 5.5% of net sales, in the comparable 1995 period. The percentage increase was due to a higher gross profit margin and slightly lower general and administrative expenses as a percentage of net sales, which was partially offset by the increase in selling expenses as a percentage of net sales. Interest Expense. Interest expense in the first quarter of 1996 decreased by $0.4 million compared to the first quarter of 1995. Lower interest rates accounted for $0.3 million of the decrease, and $5.1 million reduced levels of average borrowings accounted for the remainder. Income Taxes. The provision for income taxes for the first quarter of 1995 was reduced as a result of a credit received from a $0.3 million foreign tax settlement. B. Financial Condition The Company's continuing operations provided $2.0 million of cash during the three months ended March 31, 1996 as compared with $11.4 million of cash used during the three months ended March 31, 1995. The cash provided during the current period reflects improved inventory management during the period as the Company made more efficient use of its inventories, primarily with respect to new products. Consistent with prior years, the allowance for doubtful items decreased as a result of a seasonal reduction in the allowance for volume discount. Net cash used for investment activities of $4.9 million in the three-months ended March 31, 1996 was comparable to the prior year's period. No material commitments for capital expenditures existed at March 31, 1996. Net cash provided by financing activities during the three-month period ended March 31, 1996 was $0.8 million as compared with $16.0 million in the three month period a year ago. The Company's operating activities provided improved cash flow, therefore less borrowing under the short-term facilities was necessary. The Company anticipates its remaining cash needs in 1996 will be provided from operations and borrowings under its $85 million Credit Line, its $40 million Short-Term Facility and from any extension, renewal or replacement of existing facilities. 9 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (c) At the Annual Meeting of the Stockholders of the Company held May 2, 1996, the following actions were taken: (1) The Company's Certificate of Incorporation was amended to change the Company's name to K2 Inc.: 12,330,403 voted for, 898,061 voted against and 82,579 votes abstained. (2) The Company's Certificate of Incorporation was amended to permit a Board of Directors consisting of from eight to eleven directors: 10,681,401 voted for, 985,991 voted against and 85,281 votes abstained. (3) The following directors were elected: Jerry E. Goldress - 12,456,519 voted for and 854,524 votes were withheld; John H. Offermans - 12,506,428 voted for and 804,615 votes were withheld; John B. Simon - 12,503,302 voted for and 807,741 votes were withheld. (4) The election by the Board of Directors to approve Ernst & Young as the Company's independent auditors for the 1996 year was ratified: 13,176,277 voted for, 42,341 voted against and 92,425 votes abstained. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.01 First Amendment to Credit Agreement (364-Day Facility), dated April 22, 1996. 27 Financial Data Schedule (a) March 31, 1996 Financial Data Schedule (b) March 31, 1995 Restated Financial Data Schedule (b) Reports on Form 8-K filed in the first quarter ended March 31, 1996 Form 8-K dated March 5, 1996. 10 Item 5. Sale of substantially all of the assets of the Anthony Pools and Poolsaver pool cover business to General Aquatics, Inc. 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. ANTHONY INDUSTRIES, INC. (registrant) Date: May 13, 1996 /s/ RICHARD M. RODSTEIN -------------------------- Richard M. Rodstein President and Chief Executive Officer Date: May 13, 1996 /s/ JOHN J. RANGEL ------------------ John J. Rangel Senior Vice President - Finance 11