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 April 30, 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 0-19540
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CUSTOM CHROME, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-171638
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(State or other jurisdiction of incorporation IRS Employer Identification
or organization)
16100 Jacqueline Court, Morgan Hill, California 95037
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(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code 408-778-0500
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Former name, former address and former fiscal year, if changed since last
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 .
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class April 30, 1996
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Common Stock, $.001 par value 5,247,860
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CUSTOM CHROME, INC.
FORM 10-Q
FOR THE THREE-MONTH PERIOD ENDED APRIL 30, 1995
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets at
April 30, 1996 and January 31, 1996 3
Consolidated Statements of Operations for the
three month periods ended April 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
three months period ended April 30, 1996 and 1995 5
Notes to Condensed 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 9
Signature 10
Exhibit 11 Statement Regarding Computation of Earnings Per Share 11
Exhibit 27 Financial Data Schedule 12
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CUSTOM CHROME, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 30, January 31,
1996 1996
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 2,607 $ 312
Accounts receivable, net . . . . . . . . . . . . . . 12,224 9,529
Merchandise inventories. . . . . . . . . . . . . . . 48,865 51,165
Deferred income taxes. . . . . . . . . . . . . . . . 2,115 2,115
Prepaid income taxes . . . . . . . . . . . . . . . . 635 1,709
Deposits and prepaid expenses. . . . . . . . . . . . 2,524 2,564
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68,970 67,394
Property and equipment, net. . . . . . . . . . . . . . 14,497 14,066
Other assets . . . . . . . . . . . . . . . . . . . . . 8,213 8,252
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$91,680 $89,712
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations . . . . . . . . . . . . . $ 138 $ 263
Bank borrowings. . . . . . . . . . . . . . . . . . . 12,973 14,766
Accounts payable . . . . . . . . . . . . . . . . . . 2,861 4,587
Accrued expenses and other liabilities . . . . . . . 1,546 2,068
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17,518 21,684
Long-term debt and capital lease obligations . . . . . 19,279 19,489
Deferred income taxes. . . . . . . . . . . . . . . . . 567 567
Shareholders' equity:
Common stock, $.001 par value: 20,000,000
shares authorized: 5,247,860 and 5,090,385
shares issued and outstanding . . . . . . . . . . . 6 5
Additional paid-in capital . . . . . . . . . . . . . 31,096 27,761
Retained earnings. . . . . . . . . . . . . . . . . . 23,214 20,206
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54,316 47,972
Commitments and contingencies
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$91,680 $89,712
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See accompanying note to condensed consolidated financial statements.
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CUSTOM CHROME, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the three months ended
April 30,
1996 1995
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Sales, net . . . . . . . . . . . . . . . . . $ 30,627 $ 24,493
Cost of sales. . . . . . . . . . . . . . . . 17,635 13,964
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Gross profit. . . . . . . . . . . . . . . 12,992 10,529
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Operating expenses:
Selling, general and administrative . . . 6,804 5,544
Product development . . . . . . . . . . . 520 446
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7,324 5,990
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Operating income. . . . . . . . . . . . . 5,668 4,539
Interest expense . . . . . . . . . . . . . . 627 341
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Income before income taxes. . . . . . . . 5,041 4,198
Income taxes . . . . . . . . . . . . . . . . 2,033 1,653
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Net income. . . . . . . . . . . . . . . . $ 3,008 $ 2,545
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Per share data:
Net income per share. . . . . . . . . . . $ 0.58 $ 0.50
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Weighted average shares outstanding. . . . . 5,230 5,105
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See accompanying note to condensed consolidated financial statements.
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CUSTOM CHROME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the three months ended
April 30,
1996 1995
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Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,008 $ 2,545
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 528 446
Deferred income taxes . . . . . . . . . . . . . . . . . . . -- 24
Changes in items affecting operations:
Accounts receivable. . . . . . . . . . . . . . . . . . . . (2,695) (1,960)
Merchandise inventories. . . . . . . . . . . . . . . . . . 2,300 (4,200)
Deposits & prepaid expenses. . . . . . . . . . . . . . . . 1,082 1,006
Accounts payable, accrued expenses & other liabilities . . (2,248) 1,024
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Net cash provided (used) by operating activities . . . . . . . . 1,975 (1,115)
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Cash flows from investing activities:
Additions to property and equipment. . . . . . . . . . . . . . (888) (1,821)
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Cash flows from financing activities:
Bank (repayment) borrowings, net . . . . . . . . . . . . . . . (1,793) 432
Borrowing (repayment) on capital lease obligations and
long-term debt. . . . . . . . . . . . . . . . . . . . . . . . (335) 248
Issuance of common stock . . . . . . . . . . . . . . . . . . . 3,336 89
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Net cash provided by financing activities. . . . . . . . . . . . 1,208 769
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Net change in cash and cash equivalents. . . . . . . . . . . . . 2,295 (2,167)
Cash and cash equivalents at beginning of period . . . . . . . . 312 8,957
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Cash and cash equivalents at end of period . . . . . . . . . . . $2,607 $6,790
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Supplemental disclosures of cash paid during the period:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 327 $ 28
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Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 499 $ 0
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See accompanying note to condensed consolidated financial statements.
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NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
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The accompanying unaudited interim condensed consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles, consistent with those applied in and should be read
in conjunction with, the audited consolidated financial statements for the
fiscal year ended January 31, 1996 included in the Annual Report on Form 10-K
filed by Custom Chrome, Inc. (the "Company") with the Securities and Exchange
Commission.
The interim financial information is unaudited, but reflects all normal
recurring adjustments which are, in the opinion of management, necessary to
provide a fair statement of results for the interim periods presented. The
results for the interim periods are not necessarily indicative of results to
be expected for the fiscal year.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Except for historical information contained herein, the matters set
forth in this report are forward-looking statements that are dependent on
certain risks and uncertainties including, among other things, the risk
factors listed in the Company's Report on Form 10-K filed with the Securities
and Exchange Commission.
RESULTS OF OPERATIONS
Net sales increased 25.0% to $30,627,000 for the three months ended
April 30, 1996 when compared to the same period of last year. The growth in
product shipments was largely the result of higher sales levels to customers
who initiated business with the Company last year, higher sales to the
European market (primarily West Germany), and improved growth in sales to
customers in the states of California and Arizona where delivery service was
improved by the opening of the Company's Visalia, CA distribution center in
October 1994.
Gross profits increased 23.4% for the three months ended April 30, 1996
when compared to the same period of last year. The increase was principally
the result of higher shipment levels. Gross profit as a percentage of sales
was 42.4% in the three months ended April 30, 1996 compared to 43.0% in the
same period last year. The decrease in gross profit as a percentage of sales
for the current quarter, compared to last year, is the result of sales
discounts and sales price decreases responding to price competition from
smaller competitors in non-proprietary product lines.
Selling, general and administrative expenses increased 22.7% to
$6,804,000 when compared to the same period last year. This increase was
principally a result of higher compensation related to staff additions to
support the Company's growth and higher advertising and promotion costs,
including freight incentives. These costs as a percentage of sales were
22.2% for the three months ended April 30, 1996 as compared to 22.6% for the
same period last year.
Product development expenses increased 16.6% to $520,000 for the three
months ended April 30, 1996. The increase in product development expenses
primarily resulted from higher compensation costs and the Company's intention
to increase the introduction of new proprietary products. These expenses as
a percentage of sales were 1.7% for the three months ended April 30, 1996
compared with 1.8% in the same period last year.
Interest expense increased 83.9%, or $286,000, to $627,000 in the three
months ended April 30, 1996 when compared to the same period last year. The
increased interest costs were the result of higher average working capital
borrowings during the period, compared to last year, to support higher
inventory stocking levels.
The Company's effective income tax rate was 40.3% for the three months
ended April 30, 1996 as compared with 39.4% in the same period of the prior
year.
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LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a $20,000,000 working capital line of credit and a
$10,000,000 foreign exchange facility with a bank. The working capital line
of credit will reduce to $15,000,000 in August 1996 and the line will expire
on June 30, 1997. The Company uses the working capital line of credit, which
is subject to certain restrictions and covenants, for seasonal cash
requirements, which typically peak during the Company's fourth fiscal quarter
when inventories are increased in anticipation of sales in the first and
second fiscal quarters. Borrowings under the working capital line of credit
bear interest at the bank's prime rate. Under the working capital line of
credit, the bank will create short term fixed borrowings at the Company's
request. As of April 30, 1996, there were outstanding short term fixed
borrowings in the principal amount of $10,000,000. In addition, the Company
was contingently liable under letters of credit in the amount of $182,000 at
April 30, 1996.
On December 19, 1994 the Company issued $15,000,000 in Senior Secured
Notes to a life insurance company, which are repayable, as to principal, in
five annual payments in the years 1997 to 2001. The Notes carry an interest
rate of 8.01% and are secured by substantially all of the assets of the
Company. Proceeds from the issuance of the Notes are being used to support
the Company's working capital requirements and other corporate purposes.
In the month of April 30, 1996, the Company made capital expenditures
for an expansion to its Louisville, Kentucky distribution location, tooling
for new products, computer equipment and for equipment purchases at its
warehouses in Visalia, CA, Louisville, KY and Harrisburg, PA.
Net cash provided by operating activities in the three months ended
April 30, 1996, was $1,975,000 compared with $1,115,000 used by operating
activities in the prior year.
The Company believes that cash flow from operations and funds from the
working capital line of credit will be adequate to meet its capital and cash
requirements for the foreseeable future.
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CUSTOM CHROME, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11 - Statement Regarding Computation of Earnings Per
Share
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
A report on Form 8-K was filed with the Securities and
Exchange Commission on March 20, 1996 disclosing important
factors that could cause the Company's actual results to
differ materially from those described in forward-looking
statements made by or on behalf of the Company.
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SIGNATURE
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.
CUSTOM CHROME, INC.
Date: June 12, 1996 /s/ James J. Kelly, Jr.
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James J. Kelly, Jr.
Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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