SECURITIES & EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
Commission File Number: 0-21345
CONTROL DEVICES, INC.
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(Exact name of Registrant as specified in Charter)
Indiana 01-0490335
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(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation of organization
228 Northeast Road Standish, Maine 04084
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(Address of principal executive offices) (Zip Code)
The Company's telephone number, including area code: (207) 642-4535
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 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Shares, no par value: 4,963,249 shares as of April 15, 1997.
CONTROL DEVICES, INC.
INDEX
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Page(s)
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PART I: FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996 3
Statements of Income for the Three Months Ended March 31, 1997 and 1996 (Unaudited) 4
Statement of Shareholders' Equity (Unaudited) for the Three Months Ended March 31, 1997 5
Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1997 and 1996 6
Notes to Financial Statements 7-9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-11
PART II: OTHER INFORMATION
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ITEMS 1-5: OTHER INFORMATION 12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 12
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2
CONTROL DEVICES, INC.
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CONSOLIDATED BALANCE SHEETS
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(Thousands of dollars, except share and per share amounts)
March 31, December 31,
1997 1996
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ASSETS (Unaudited)
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CURRENT ASSETS:
Cash and cash equivalents $ 6,676 $ 6,238
Receivables, less allowance for doubtful
accounts of $514 and $467, respectively 9,505 9,475
Inventories 6,091 5,943
Other current assets 1,891 1,431
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Total current assets 24,163 23,087
PROPERTY, PLANT AND EQUIPMENT, net 13,608 13,484
GOODWILL, net 7,624 7,672
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$45,395 $44,243
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Current portion of long term debt $ 673 $ 713
Short-term debt 365 482
Accounts payable 4,780 4,691
Accrued employee benefits 3,948 4,809
Accrued expenses 2,783 1,631
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Total current liabilities 12,549 12,326
LONG-TERM DEBT 827 1,320
OTHER LIABILITIES 2,299 2,268
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS EQUITY:
Common Shares, no par value; 16,000,000 authorized and
4,963,249 issued and outstanding 19,917 19,917
Foreign currency translation adjustment (459) (314)
Retained earnings 10,262 8,726
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Total shareholders' equity 29,720 28,329
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$45,395 $44,243
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The accompanying notes are an integral part of these balance sheets.
3
CONTROL DEVICES, INC.
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CONSOLIDATED STATEMENTS OF INCOME
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(Thousands of dollars, except share and per share amounts)
(UNAUDITED)
Three Months ended
March 31,
1997 1996
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Net sales $ 17,287 $ 10,772
Cost of sales 10,814 6,919
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Gross profit 6,473 3,853
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Selling, general and administrative expenses 2,751 1,075
Research and development 1,082 959
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3,833 2,034
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Operating income 2,640 1,819
Interest expense 87 312
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Income before income taxes 2,553 1,507
Income tax provision 1,017 580
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Net income 1,536 927
Preferred share dividends - 66
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Net income applicable to common shareholders $ 1,536 $ 861
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Earnings per share $0.30 $0.34
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Weighted average number of common shares and
equivalents outstanding 5,076,987 2,564,049
The accompanying notes are an integral part of these statements.
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CONTROL DEVICES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Thousands of dollars)
(UNAUDITED)
Foreign
Currency
Common Translation Retained
Shares Adjustment Earnings Total
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BALANCE, at December 31, 1996 $19,917 $(314) $ 8,726 $ 28,329
Net Income - - 1,536 1,536
Foreign currency translation adjustment - (145) - (145)
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BALANCE, at March 31, 1997 $19,917 $(459) $10,262 $ 29,720
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The accompanying notes are an integral part of this statement.
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CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
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CASH FLOWS FROM OPERATIONS:
Net income $1,536 $ 927
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization 607 454
Deferred income taxes (55) 117
Amortization of debt discount - 6
Changes in assets and liabilities:
(Increase) decrease in receivables (421) (1,497)
(Increase) decrease in inventories (366) (319)
(Increase) decrease in other current assets (390) (31)
Increase (decrease) in accounts payable 411 413
Increase (decrease) in accrued employee benefits (680) (218)
Increase (decrease) in accrued expenses 1,173 27
Increase (decrease) in other long-term liabilities 38 -
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Cash provided by operations 1,853 (121)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (864) (253)
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Cash used in investing activities (864) (253)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (459) (1,500)
Net change in short-term debt (82) 750
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Cash used in financing activities (541) (750)
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EFFECT OF EXCHANGE RATES ON CASH (10) -
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Increase (decrease) in cash and cash equivalents 438 (1,124)
CASH AND CASH EQUIVALENTS, beginning of period 6,238 10,459
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CASH AND CASH EQUIVALENTS, end of period $6,676 $ 9,335
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The accompanying notes are an integral part of these statements.
6
CONTROL DEVICES, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(All information as of March 31, 1997 and for the three months
ended March 31, 1997 and 1996 is unaudited.)
(1) Organization and Basis of Presentation:
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Control Devices, Inc. ("CDI"), which was organized on June 10, 1994,
designs, manufactures and markets circuit breakers, electronic ceramic
components parts and electronic sensors used by original equipment
manufacturers ("OEMs") in the automotive, appliance and telecommunications
markets. On April 1, 1996, CDI purchased Realisations et Diffusion pour
l'industrie ("RDI"), which distributes these and other products in the
Northern European market from its headquarters near Paris, France. The
accompanying financial statements include the results of CDI and RDI from
the date of acquisition. The "Company" refers to both CDI and RDI unless the
context otherwise requires.
The consolidated balance sheet as of March 31, 1997, the consolidated
statements of operations for the three months ended March 31, 1997 and
1996 and the consolidated statement of shareholders' equity for the three
months ended March 31, 1997 and cash flows for the three months ended March
31, 1997 and 1996 have been prepared by the Company and are unaudited. In
the opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at March 31, 1997
and 1996 have been made and all such adjustments are of a normal recurring
nature. The accounting policies followed during the interim periods reported
on are in conformity with generally accepted accounting principles and are
consistent with those applied for annual periods. The results of operations
for the three month period ended March 31, 1997 and 1996 are not necessarily
indicative of the operating results for the full year.
(2) Debt:
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Debt consists of the following as of March 31, 1997 and December 31, 1996
(in thousands):
1997 1996
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RDI Notes $ 738 $1,108
RDI fixed rate loans 762 925
RDI short-term debt 365 482
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Total Debt $ 1,865 $2,515
Less: Current portion of long-term debt 673 713
Short-term debt 365 482
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Total Long-term Debt $ 827 $1,320
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The RDI Notes bear interest at 8% per annum and are due in three equal annual
installments commencing on April 1, 1997. CDI has the right to prepay the
RDI notes at any time without premium.
7
The RDI fixed rate loans bear interest at the weighted average rate of 7.7%
and are secured by certain assets of RDI.
On October 8, 1996, Fleet Bank of Maine ("Fleet Bank") and the Company
entered into an agreement, pursuant to which Fleet Bank has agreed to provide
a $15.0 million revolving line of credit facility to the Company to fund
strategic acquisitions and, if needed, for working capital. The facility has
a maturity date of September 30, 1998. The facility has three interest rate
options consisting of (i) Fleet Bank's prime rate for daily rate borrowings,
(ii) Fleet Bank's cost of funds rate plus 1.5% for borrowings of 30 days or
less, or (iii) the corresponding London Interbank Offering Rate (LIBOR) plus
1.5% for borrowings of 30, 60, 90 or 180 days. The line of credit is
unsecured and contains certain financial and other covenants including but
not limited to, minimum tangible net worth, debt to net worth, and minimum
cash flow coverage. The financial covenants are to be met on a quarterly
basis. The Company is in compliance with all covenants as of March 31, 1997
and believes that the covenants will not restrict its future operations. To
date, there have been no borrowings under this line of credit facility.
RDI has various credit facilities available to it totaling $0.8 million with
rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. As
of March 31, 1997, RDI had borrowings aggregating $0.4 million under these
facilities.
(3) Commitments and Contingencies:
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The Company has various claims and contingent liabilities arising in the
ordinary conduct of business. In the opinion of management, they are not
expected to have a material adverse effect on the financial position of the
Company.
(4) Inventories:
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Inventories are stated at the lower of cost or market value. Cost of
inventories is determined by the first-in, first-out ("FIFO") method of
inventory valuation. Classes of inventories as of March 31, 1997 and
December 31, 1996 are as follows ( in thousands):
1997 1996
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Raw materials and supplies $1,357 $1,163
Work - in - process 946 941
Finished goods 3,788 3,839
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$6,091 $5,943
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(5) Statement of Financial Accounting Standards:
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SFAS No. 128, Earnings per Share, was released in February 1997. The
standard will be adopted for 1997 year-end reporting purposes. The standard
will require the restatement of prior years' earnings per share. While early
adoption is not permitted, disclosure of the effect of the adoption of the
standard is required. If the standard were applied to the three month
periods ended March 31, 1997 and 1996, the earnings per share would be as
follows:
Three Months
Ended
March 31,
1997 1996
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Basic earnings per common share $0.31 $0.34
Diluted earnings per common share $0.30 $0.34
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales were $17.3 million for the three months ended March 31, 1997, an
increase of $6.5 million, or 60.5% as compared to the three months ended March
31, 1996. Net sales increased primarily as a result of the acquisition of RDI
combined with growth in sensors and ceramics. Sales of other products
distributed by RDI contributed $5.2 million to net sales for the three months
ended March 31, 1997. Sensor sales increased 29.8% to $2.6 million for the
three months ended March 31, 1997, as a result of increased solar and steering
sensor shipments. Ceramic sales increased 84.5% to $1.5 million for the three
months ended March 31, 1997 from $0.8 million in 1996 primarily due to increased
Personal Communication System (PCS) related orders.
Gross profit in the three months ended March 31, 1997 was $6.5 million, an
increase of $2.6 million, or 68.0%, compared to the same period in 1996. As a
percentage of net sales, gross profit in the three months ended March 31, 1997
was 37.4% as compared to 35.8% for the same period in 1996. The increase in
gross profit, as a percentage of net sales, was primarily the result of
increased volume.
Selling, general and administrative expenses in the three months ended March 31,
1997 were $2.8 million, an increase of $1.7 million as compared to the three
months ended March 31, 1996. The increase consisted primarily of RDI expenses
of $1.5 million. As a distributor, RDI on a historical basis, has incurred
selling, general and administrative expenses higher, as a percentage of net
sales, than the base Company. As a percentage of net sales, selling, general
and administrative expenses were 15.9% for the first three months of 1997 as
compared to 10.0% for the same period in 1996.
Research and development expenses in the three months ended March 31, 1997 were
$1.1 million, an increase of $0.1 million, or 12.8%, as compared to the three
months ended March 31, 1996. As a percentage of net sales, research and
development expenses were 6.3% in 1997 as compared to 8.9% in 1996. Due to the
distribution nature of RDI's business, research and development is a minimal
expense for RDI.
Operating income in the three months ended March 31, 1997 was $2.6 million
compared to $1.8 million for the three months ended March 31, 1996, an increase
of 45.1%. As a percentage of net sales, operating income was 15.3% in the three
months ended March 31, 1997 as compared to the 16.9% for the three months in
1996. The decrease in operating income as a percentage of net sales resulted
primarily from the higher selling, general and administrative expenses of RDI.
Interest expense was $0.1 million in the three months ended March 31, 1997 a
decrease of $0.2 million from $0.3 million in the three months ended March 31,
1996. The decrease was due to the reduction of debt as a result of the initial
public offering, partially offset by the addition of RDI interest expense of
$0.1 million.
The provision for income tax was $1.0 million for the three months ended March
31, 1997, compared to $0.6 million for the three months ended March 31, 1996.
The effective tax rate was 39.8% in the three months ended March 31, 1997
compared to 38.5% in the same period of 1996.
Net income was $1.5 million in the three months ended March 31, 1997, an
increase of $.6 million, or 65.7%, compared to the three months ended March 31,
1996. The increase in net income was a result of the acquisition of RDI and the
improvement in operating income and reduction in interest expenses. As a
percentage of net sales, net income was 8.9% in the three months ended March 31,
1997 as compared to 8.6% in the three months ended March 31, 1996.
10
SEASONALITY
The Company's performance is dependent primarily on automotive vehicle
production which is seasonal in nature. The Company's revenues tend to be
somewhat lower in the third and fourth quarters as automotive OEM's schedule
plant tooling changeovers, vacations and holiday shutdowns.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation and initial capitalization, the Company has financed its
operations and investments in property, equipment and the RDI acquisition
primarily through cash generated from operations, the issuance of RDI Notes and
RDI Convertible Notes and bank borrowings. In October 1996 the Company sold
2,300,000 Common Shares in connection with its initial public offering and
received net proceeds of approximately $18.2 million. The net proceeds were
used to repay certain bank borrowings and preferred shares outstanding as a
result of the initial capitalization.
Cash and cash equivalents totaled $6.7 million as of March 31, 1997 compared to
$6.2 million as of December 31, 1996.
RDI has various credit facilities available to them totaling $0.8 million with
rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. As of
March 31, 1996, RDI had borrowings aggregating $0.4 million under these
facilities.
On October 8, 1996, Fleet Bank of Maine ("Fleet Bank") and the Company entered
into an agreement, pursuant to which Fleet Bank has agreed to provide a $15.0
million revolving line of credit facility to the Company to fund strategic
acquisitions and, if needed, for working capital. The facility has a maturity
date of September 30, 1998. The facility has three interest rate options
consisting of (i) Fleet Bank's prime rate for daily rate borrowings, (ii) Fleet
Bank's cost of funds rate plus 1.5% for borrowings of 30 days or less, or (iii)
the corresponding London Interbank Offering Rate (LIBOR) plus 1.5% for
borrowings of 30, 60, 90 or 180 days. The line of credit is unsecured and
contains certain covenants. To date there have been no borrowings under this
line of credit facility.
This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, cyclicality of automotive and
appliance industries, reliance on OEM's, risk of customer labor interruptions,
and competing technologies.
11
PART II OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 6: Exhibits and Reports on Form 8-K
(2) Exhibits
11 Statement regarding computation of per share earnings
27 Financial Data Schedule.
(b) Reports on Form 8-K
none
Pursuant to the requirements to the Security Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Control Devices, Inc.
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(Registrant)
Date: May 5, 1997 By /s/ Jeffrey G. Wood
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Name: Jeffrey Wood
Vice President,
Chief Financial Officer,
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