SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended December 31, 1995 Commission file number 0-12450
CAPITAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1359190
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8900 Keystone Crossing, Suite 1150
Indianapolis, Indiana 46240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-844-3722
The registrant has not changed its name, address or fiscal year during
the period covered by this report.
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 ___
The number of shares outstanding of the registrant's common stock, as
of February 27, 1996 was 273,879.
There are 14 pages in this report.
1
INDEX
CAPITAL INDUSTRIES, INC., AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Without Audit)
Condensed consolidated balance sheets -- December 31, 1995
and March 31, 1995 3
Condensed consolidated statements of operations and retained
earnings -- Three months ended December 31, 1995 and 1994;
Nine months ended December 31, 1995 and 1994 5
Condensed consolidated statements of cash flows -- Nine
months ended December 31, 1995 and 1994 6
Notes to condensed consolidated financial statements --
December 31, 1995 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
PART I. FINANCIAL INFORMATION
ITEM 1. FIANCIAL STATEMENTS
CAPITAL INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31, March 31,
1995 1995
(Unaudited) (Note)
------------ ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,932 $ 6
Prepaid expenses 26 12
Current assets of discontinued operation 310 8,562
------------ -----------
TOTAL CURRENT ASSETS 2,268 8,580
PROPERTY AND EQUIPMENT- NET 2 6
PROPERTY AND EQUIPMENT OF DISCONTINUED
OPERATION - NET 333 1,784
OTHER ASSETS -0- 65
OTHER ASSETS OF DISCONTINUED OPERATION
Assets in escrow 756 -0-
Sundry -0- 503
------------ -----------
$ 3,359 $ 10,938
============ ===========
Note: The balance sheet at March 31, 1995, has been derived from the audited
financial statements at that date, with reclassifications for discontinued
operation.
SEE Notes to Condensed Consolidated Financial Statements.
3
CAPITAL INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(dollars in thousands)
December 31, March 31,
1995 1995
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $ 20 $ 36
Current liabilities of discontinued
operation 169 4,857
------------ ------------
TOTAL CURRENT LIABILITIES 189 4,893
------------ ------------
CONVERTIBLE SUBORDINATED DEBENTURES -0- 2,500
STOCKHOLDERS' EQUITY
Common stock 1,195 1,195
Paid-in capital 1,552 1,552
Retained earnings 423 798
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,170 3,545
------------ ------------
$ 3,359 $ 10,938
============ ============
Note: The balance sheet at March 31, 1995, has been derived from the audited
financial statements at that date, with reclassifications for operation.
SEE Notes to Condensed Consolidated Financial Statements.
4
CAPITAL INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(in thousands except per share data)
Quarter Ended Nine Months Ended
December 31 December 31
1995 1994 1995 1994
Net sales $ -0- $ -0- $ -0- $ -0-
Cost of sales -0- -0- -0- -0-
----- ----- ----- -----
Gross profit -0- -0- -0- -0-
Selling, administrative &
general 56 109 290 334
Depreciation and amortization 1 2 1 5
----- ----- ----- -----
Total operating expenses 57 111 291 339
----- ----- ----- -----
Loss from operations
before other income (expense)
and income taxes (57) (111) (291) (339)
Other income (expense) 34 -0- 31 (1)
Interest expense (13) (63) (138) (189)
----- ----- ----- -----
21 (63) (107) (190)
----- ----- ----- -----
Loss from continuing
operations before income
taxes (benefit) (36) (174) (398) (529)
Income taxes (benefit) -0- (11) (27) (32)
----- ----- ----- -----
Loss from continuing
operations (36) (163) (371) (497)
Income (loss) from discontinued
operation, net of tax -0- (35) 761 449
Loss on sale of discontinued
operation, net of tax (80) -0- (765) -0-
----- ----- ----- -----
Net (loss) (116) (198) (375) (48)
Retained earnings at
beginning of period 539 917 798 767
----- ----- ----- -----
Retained earnings at end
of period $ 423 $ 719 $ 423 $ 719
===== ===== ===== =====
Net income (loss) per share:
Continuing $ (0.13) $ (0.59) $ (1.35) $ (1.81)
Discontinued (0.29) (0.13) (0.02) 1.64
------- -------- ------- -------
$ (0.42) $ (0.72) $ (1.37) $ (0.17)
======= ======== ======= =======
5
CAPITAL INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Nine Months Ended
December 31,
1995 1994
---------------------
Cash flows from operating activities:
Net loss from continuing operation $ (371) $ (497)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 1 5
Increase in prepaid expenses (14) (7)
(Increase) decrease in other assets 65 5
Increase (decrease) in accrued expenses (16) 63
---------- -----------
Cash used by continuing operations (335) (431)
--------- -----------
Net (loss) Income from discontinued operation (4) 449
Adjustments to reconcile to cash provided
(used) by discontinued operation:
Loss on disposition of discontinued operation 765 -0-
Increase in net assets of discontinued
operation (1,004) (1,082)
---------- -----------
Cash used by discontinued
operation (243) (633)
---------- -----------
Net cash used by operating activities (578) (1,064)
---------- -----------
Cash flows from investing activities:
Proceeds from sale of discontinued operation 5,511 0
Disposals of property & equipment, net 3 0
Capital expenditures 0 (2)
--------- -----------
Net cash provided (used) by investing
activities 5,514 (2)
--------- -----------
Cash flows from financing activities:
Net line of credit borrowings
(repayments) (430) 1,188
Payments on long term liabilities (80) (135)
Redemption of Convertible Subordinated
Debentures (2,500) -0-
--------- -----------
Net cash provided (used) by financing
activities (3,010) 1,053
--------- -----------
Net increase (decrease) in cash 1,926 (13)
Cash at beginning of period 6 15
--------- -----------
Cash at end of period $ 1,932 $ 2
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 219 $ 271
========= ===========
6
CAPITAL INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 1995
Note A - 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 Rule 10-01 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 nine-month period ended December 31,
1995, are not necessarily indicative of the results that may be expected for the
year ending March 31, 1996. For further information, refer to the financial
statements as of and for the year ended March 31, 1995, and footnotes thereto,
included in the 1995 10-K.
Note B - Discontinued Operation
Effective September 30, 1995, Capital Industries, Inc., (the Company) sold
substantially all of the operating assets of its Truckpro Parts & Service, Inc.,
(Truckpro), subsidiary, including cash, accounts receivable, inventories,
certain prepaid expenses, equipment and certain real property. The buyer also
assumed certain liabilities of Truckpro, including accounts payable and certain
accrued expenses. The buyer paid less than book value for inventory, paid fair
market value for real property and paid book value for all other purchased
assets. The liabilities were assumed at book value. After expenses related to
the sale, the Company realized a loss of $765,000.
At closing, the Company received $5,511,295 cash. This amount was an estimated
purchase price based upon the August 31, 1995, net book value of the assets
purchased, as adjusted. According to the sale agreement, the amount of the final
purchase price shall be determined based upon the September 30, 1995, audited
net book value of the assets purchased, as adjusted. The buyer has contested
this adjustment.
Proceeds from the sale were first used to repay bank indebtedness. By November
1, 1995, the Company had redeemed all of the $2,500,000 aggregate 10%
Convertible Subordinated Debentures. During the current fiscal year the Company
has begun the process of dissolution, and ultimately will make cash
distributions to shareholders.
7
The assets and liabilities of Truckpro as of December 31, 1995 and March 31,
1995, have been reclassified in the balance sheet as assets and liabilities of
discontinued operation and consist of the following:
December 31, March 31,
1995 1995
-----------------------------
Cash $ -0- $ 160
Accounts receivable -0- 3,405
Other receivables 310 -0-
Inventories -0- 4,831
Prepaid expenses -0- 166
------ ------
Current assets of discontinued
operation $ 310 $8,562
====== ======
Property and equipment $ 502 $2,584
Accumulated depreciation (169) (800)
------ ------
Property and equipment of
discontinued operation, net $ 333 $1,784
====== ======
Assets in escrow $ 756 $ -0-
Sundry -0- 503
------ ------
Other assets of discontinued
operation $ 756 $ 503
====== ======
Bank line of credit $ -0- $ 430
Other debt -0- 80
Accounts payable -0- 3,406
Accrued expenses 169 941
------ ------
Current liabilities of
discontinued operation $ 169 $4,857
====== ======
The following table presents operating results of Truckpro for the quarter and
nine month periods ended December 31, 1995 and 1994.
Quarter Ended Nine Months Ended
December 31 December 31
1995 1994 1995 1994
------------------- -------------------
Net sales $ -0- $ 6,253 $14,102 $20,480
======= ======= ======= =======
Income (loss) from operations $ -0- $ (35) $ 761 $ 449
======= ======= ======= =======
8
CAPITAL INDUSTRIES, INC., AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 1995
RESULTS OF OPERATIONS
Net sales of Truckpro, the Company's only operating subsidiary, were
$14,102,000 in the nine month period ended December 31, 1995. These sales were
all generated prior to the sale of this subsidiary on September 30, 1995.
Truckpro reported net income from operations of $761,000 for the period. This
amount is classified as income from discontinued operation on the Company's
financial statements.
Continuing operations administrative expenses totalled $57,000 and $291,000
for the quarter and nine months ended December 31, 1995, respectively. These
expenses were lower than expenses of $111,000 and $339,000 reported in the same
periods of the prior year. A decrease in salaries expense accounted for most of
this change.
Other income and expense totalled $34,000 in the December, 1995 quarter and
$31,000 for the nine month period. These figures predominantly represent
interest income earned on the net cash proceeds from the sale of Truckpro as
discussed below.
Interest expense decreased to $13,000 for the third fiscal quarter and
$138,000 for the nine months ended December 31, 1995 from $63,000 and $189,000
for the same periods the prior year, respectively, because of the redemption of
the Company's 10% Convertible Subordinated Debentures as discussed below.
Continuing operations reported a net loss of $36,000 for the December, 1995
quarter and a net loss of $371,000 for the nine months ended December 31, 1995
compared to net losses of $163,000 and $497,000 for the quarter and nine months
ended December 31, 1994, respectively.
SALE OF SUBSIDIARY
As discussed in Note B to the financial statements, the Company sold
substantially all of the operating assets of its only subsidiary, Truckpro,
effective September 30, 1995, for cash. The net purchase price was $5,602,324
based upon the audited September 30, 1995 values of the net assets sold as
adjusted per the sale agreement.
9
The buyer paid book value for cash, certain prepaid expenses and deposits
with book values at September 30, 1995 totalling $338,215. Accounts receivable
were also sold at book value of $3,276,162. Inventories, with a book value of
$4,697,565 were sold for $4,310,613. Property and equipment with a net book
value of $1,398,269 were sold at fair market value of $1,712,901. Accounts
payable and certain accrued expenses of $4,035,567 were assumed by the buyer at
book value. At closing, the Company received $5,511,295 cash representing the
estimated purchase price of the net assets sold based upon the August 31, 1995,
net book value of the assets sold, as adjusted. The purchase price adjustment
due the Company from the buyer of $91,029 has been recorded as a receivable and
classified in the balance sheet as current assets of discontinued operation. The
buyer has disputed the values of certain reserves and receivables relating to
inventory returns to vendors, and has therefore not paid the purchase price
adjustment. The exact amount being disputed cannot be determined at this time.
The buyer and the Company are making good faith efforts to resolve the dispute.
After expenses of the sale, the Company recognized a loss of $765,000 in
the nine month period ended December 31, 1995. This amount included $80,000 of
expenses incurred in the December 31 quarter, including legal expenses, expenses
of concluding employee benefit plans and adjustments resulting from the audit of
the September 30, 1995 values of the Truckpro net assets sold.
FINANCIAL CONDITION AND LIQUIDITY
Concurrent with the sale, the Company repaid all bank indebtedness and on
or before November 1, 1995, had redeemed all $2,500,000 aggregate 10%
Convertible Subordinated Debentures. The Company currently has no debt.
The remaining assets of Truckpro on the books of the company include a
$91,029 receivable relating to the purchase price adjustment as discussed above,
$219,000 in receivables due from a trade asociation, real estate which the
Company is attempting to sell and cash and notes totalling $756,000 being held
in an escrow trust account pursuant to the terms of the Asset Purchase and Sale
Agreement.
The purpose of the escrow is to provide a fund for a period of three years
from the date of the sale, for satisfaction of indemnification claims of the
buyer, if any, pursuant to the Asset Purchase and Sale Agreement.
According to the escrow trust agreement, distributions of available cash
shall be made from the escrow trust account to the Company on December 31, 1996,
December 31, 1997 and September 30, 1998, subject to adjustment for
indemnification claims of the buyer, if any, pursuant to the Asset Purchase and
Sale Agreement.
The Company has previously reported that a plan of dissolution has begun,
and ultimately will make cash distributions to shareholders after all necessary
approvals have been obtained. The Company expects to make the first of these
distributions soon after receiving shareholder approval of the plan for
dissolution of the Company and subsequent cash distributions, if any, on or
about December 31, 1996, December 31, 1997 and September 30, 1998.
10
ESTIMATED DISTRIBUTIONS IF THE PLAN IS ADOPTED
Based on the assumptions that, as of the record date for the liquidating
distributions: (i) the Company will have 273,879 shares of its Common Stock
outstanding and (ii) the Company will have reduced its contingent liabilities to
$333,000, the Liquidating Trust will initially be funded with the Company's net
cash of $5.10 for each share of the Company's Common Stock outstanding.
Depending upon the amount of net cash proceeds which the Company ultimately
realizes upon the liquidation of non-cash assets and the amount of the Company's
and its subsidiary's contingent liabilities which become actual liabilities as
well as adminstrative costs incurred in connection with such liquidation and
administration of the Liquidating Trust, the interests of the Company's
shareholders in the Liquidating Trust may be worth $9.22 for each share of the
Company's Common Stock outstanding or have little or no value. THERE CAN BE NO
ASSURANCES AS TO THE AMOUNT OF THE COMPANY'S NET CASH PROCEEDS FROM NON-CASH
ASSETS OR THE AMOUNT OF THE COMPANY'S CONTINGENT LIABILITIES, THE SIZE OF THE
LIQUIDATING TRUST, OR THE VALUES SET FORTH ABOVE, WHICH ARE PRESENTED FOR
ILLUSTRATIVE PURPOSES ONLY. ACTUAL VALUES MAY VARY SUBSTANTIALLY BECAUSE THE
ACTUAL VALUE OF THE COMPANY'S ASSETS MAY BE MATERIALLY LESS THAN THOSE PRESENTED
IN THIS DISCLOSURE.
ACCOUNTING TREATMENT OF THE PLAN
The financial statements of the Company included herein reflect the
necessary reclassifications for discontinued operations following the sale of
Truckpro. If the plan is adopted, such financial statements will reflect the
transactions necessary to liquidate the Company. The Company will realize income
to the extent that such liquidation proceeds exceed the net book value of the
assets liquidated and the Company will realize loss to the extent that the
liquidation proceeds are less than the net book value of the assets liquidated.
Assuming that the projected liquidation proceeds reflected in the Company's
estimate included herein under "---Estimated Distributions if the Plan is
Adopted" are correct, the Company would realize an additional loss in the
liquidation.
The Company's balance sheet will be impacted by the liquidation of its
assets and an increase in cash to the extent of proceeds received. The Company's
stockholder's equity will be reduced by any losses in the liquidation and also
by the distributions paid to the shareholders.
11
PART II. OTHER INFORMATION
CAPITAL INDUSTRIES, INC., AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 5. OTHER INFORMATION
Change in Transfer Agent and Registrar
Effective November 1, 1995, the Transfer Agent and Registrar for
Capital Industries, Inc. Common Stock is
American Stock Transfer and Trust Company
40 Wall Street New York, NY 10005
Phone: 800-937-5449
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27
(b) Reports on Form 8-K:
On October 10, 1995, a report on Form 8-K/A was filed. The item
covered by the report was:
Item 2. Acquisition or Disposition of Assets.
12
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.
CAPITAL INDUSTRIES, INC.
Date: March 4, 1996 /s/ O.U. Mutz
--------------------------------------
O.U. Mutz
Chairman
Date: March 4, 1996 /s/ Phillip A. Gough
--------------------------------------
Phillip A. Gough
Vice President and Treasurer
13