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 June 30, 1997
Commission File Number: 0-21345
Control Devices, Inc.
------------------------------------------------
(Exact name of Registrant as specified in Charter)
Indiana 01-0490335
- ---------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation of organization)
228 Northeast Road Standish, Maine 04084
- ---------------------------------- -----------------
(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 July 25, 1997.
CONTROL DEVICES, INC.
INDEX
Page(s)
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PART I: FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1997 (Unaudited) and December 31, 1996 3
Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 1997 and 1996 4
Statements of Shareholders' Equity (Unaudited) for the Six Months Ended June 30, 1997 and 1996 5
Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 1997 and 1996 6-7
Notes to Financial Statements 8-9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-12
PART II: OTHER INFORMATION
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ITEMS 1-5: OTHER INFORMATION 13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 13
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2
CONTROL DEVICES, INC.
---------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of dollars, except share and per share amounts)
June 30, December 31,
1997 1996
--------------- ---------------
ASSETS (Unaudited)
------
CURRENT ASSETS:
Cash and cash equivalents $ 7,787 $ 6,238
Receivables, less allowance for doubtful accounts
of $480 and $467, respectively 11,657 9,475
Inventories 5,735 5,943
Other current assets 1,287 1,431
-------------- --------------
Total current assets 26,466 23,087
PROPERTY, PLANT AND EQUIPMENT, net 13,505 13,484
GOODWILL, net 7,575 7,672
-------------- --------------
$47,546 $44,243
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long term debt $ 657 $ 713
Short-term debt 362 482
Accounts payable 4,898 4,691
Accrued employee benefits 4,233 4,809
Accrued expenses 2,998 1,631
-------------- --------------
Total current liabilities 13,148 12,326
LONG-TERM DEBT 747 1,320
OTHER LIABILITIES 2,311 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 (528) (314)
Retained earnings 11,951 8,726
-------------- --------------
Total shareholders' equity 31,340 28,329
-------------- --------------
$47,546 $44,243
============== ==============
The accompanying notes are an integral part of these balance sheets.
3
CONTROL DEVICES, INC.
---------------------
CONSOLIDATED STATEMENTS OF INCOME
----------------------------------
(Thousands of dollars, except share and per share amounts)
(UNAUDITED)
Three Months ended Six Months ended
June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales $ 18,811 $ 17,408 $ 36,098 $ 28,180
Cost of sales 11,766 10,951 22,580 17,870
------------ ------------ ------------ ------------
Gross profit 7,045 6,457 13,518 10,310
------------ ------------ ------------ ------------
Selling, general and administrative expenses 3,057 3,082 5,807 4,157
Research and development 1,207 921 2,290 1,880
------------ ------------ ------------ ------------
4,264 4,003 8,097 6,037
------------ ------------ ------------ ------------
Operating income 2,781 2,454 5,421 4,273
Interest expense 60 516 147 828
------------ ------------ ------------ ------------
Income before income taxes 2,721 1,938 5,274 3,445
Income tax provision 1,032 742 2,049 1,322
------------ ------------ ------------ ------------
Net income 1,689 1,196 3,225 2,123
Preferred share dividends - 66 - 132
------------ ------------ ------------ ------------
Net income applicable to common shareholders $ 1,689 $ 1,130 $ 3,225 $ 1,991
============ ============ ============ ============
Earnings per share $0.33 $0.44 $0.64 $0.78
============ ============ ============ ============
Weighted average number of common shares and
equivalents outstanding 5,070,969 2,564,094 5,074,111 2,564,094
The accompanying notes are an integral part of these statements.
4
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 and 1996
(Thousands of dollars)
(UNAUDITED)
Foreign
Class A Class B Currency
Common Common Common Translation Retained
Shares Shares Shares Warrants Adjustment Earnings Total
------------- ---------- ----------- ----------- ------------- ----------- ----------
BALANCE, at December 31, $ - $520 $145 $180 $ - $ 4,660 $ 5,505
1995
Net Income - - - - - 1,991 1,991
Foreign currency - - - - (222) - (222)
translation adjustment
BALANCE, at June 30, 1996 $ - $520 $145 $180 $ (222) $ 6,651 $ 7,274
============= ========== =========== =========== ============= ========== ==========
BALANCE, at December 31, $19,917 $ - $ - $ - $ (314) $ 8,726 $ 28,329
1996
Net Income - - - - - 3,225 3,225
Foreign currency - - - - (214) - (214)
translation adjustment
------------- ---------- ----------- ----------- ------------- ----------- ----------
BALANCE, at June 30, 1997 $19,917 $ - $ - $ - $ (528) $ 11,951 $ 31,340
============= ========== =========== =========== ============= ========== ==========
The accompanying notes are an integral part of these statements.
5
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(UNAUDITED)
Six Months Ended
June 30,
1997 1996
---------------- ----------------
CASH FLOWS FROM OPERATIONS:
Net income $ 3,225 $ 2,123
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization 1,220 987
Deferred income taxes 131 395
Amortization of debt discount - 12
Changes in assets and liabilities:
(Increase) decrease in receivables (2,751) (1,507)
(Increase) decrease in inventories (92) (324)
(Increase) decrease in other current assets 26 265
Increase (decrease) in accounts payable 659 (251)
Increase (decrease) in accrued employee benefits (340) 643
Increase (decrease) in accrued expenses 1,412 616
Increase (decrease) in other long-term liabilities 67 18
---------------- ----------------
Cash provided by operations 3,557 2,977
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of RDI (including transaction fees and
expenses), net of cash acquired - (7,232)
Capital expenditures (1,400) (1,086)
---------------- ----------------
Cash used in investing activities (1,400) (8,318)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (530) (1,685)
Net change in short-term debt (68) 293
---------------- ----------------
Cash used in financing activities (598) (1,392)
---------------- ----------------
---------------- ----------------
EFFECT OF EXCHANGE RATES ON CASH (10) (2)
---------------- ----------------
Increase (decrease) in cash and cash equivalents 1,549 (6,735)
CASH AND CASH EQUIVALENTS, beginning of period 6,238 10,459
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 7,787 $ 3,724
================ ================
6
SUPPLEMENTAL CASH FLOW INFORMATION:
Six Months Ended
June 30,
1997 1996
--------- --------
Cash paid for interest $ 162 $ 929
Cash paid for income taxes $1,456 $ 803
The accompanying notes are an integral part of these statements.
7
CONTROL DEVICES, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(All information as of June 30, 1997 and for the three and six months ended
June 30, 1997 and 1996 is unaudited.)
(1) Organization and Basis of Presentation:
---------------------------------------
Control Devices, Inc. ("CDI") 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 June 30, 1997, the consolidated
statements of income for the three and six months ended June 30, 1997 and
1996 and the consolidated statement of shareholders' equity for the six
months ended June 30, 1997 and 1996 and cash flows for the six months ended
June 30, 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 June 30,
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 and six month periods ended June 30,
1997 and 1996 are not necessarily indicative of the operating results for
the full year.
(2) Debt:
-----
Debt consists of the following as of June 30, 1997 and December 31, 1996
(in thousands):
1997 1996
------- -------
RDI Notes $ 738 $1,108
RDI fixed rate loans 666 925
RDI short-term debt 362 482
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Total Debt $1,766 $2,515
Less: Current portion of long-term debt 657 713
Short-term debt 362 482
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Total Long-term Debt $ 747 $1,320
======= =======
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.
The RDI fixed rate loans bear interest at the weighted average rate of 7.7%
and are secured by certain assets of RDI.
8
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 June 30, 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 June 30, 1997, RDI had borrowings aggregating $0.4 million
under these facilities.
(3) Commitments and Contingencies:
------------------------------
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:
------------
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 June 30, 1997 and
December 31, 1996 are as follows (in thousands):
1997 1996
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Raw materials and supplies $1,353 $1,163
Work - in - process 1,070 941
Finished goods 3,312 3,839
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$5,735 $5,943
======= =======
(5) Statement of Financial Accounting Standards:
--------------------------------------------
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 and
six month periods ended June 30, 1997 and 1996, the earnings per share
would be as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------ ----------------
Basic earnings per common share $0.34 $0.44 $0.65 $0.78
Diluted earnings per common share $0.33 $0.44 $0.64 $0.78
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Net sales were $18.8 million for the three months ended June 30, 1997, an
increase of $1.4 million, or 8.1% as compared to the three months ended June 30,
1996. The increases in net sales was in part due to stronger automotive related
sales. Sensor sales increased 40.8% to $2.8 million for the three months ended
June 30, 1997, as a result of increased solar and steering sensor shipments.
Ceramic sales increased 95.9% to $2.1 million for the three months ended June
30, 1997 from $1.1 million in 1996 primarily due to increased Personal
Communication System (PCS) related orders.
Gross profit in the three months ended June 30, 1997 was $7.0 million, an
increase of $0.6 million, or 9.1%, compared to the same period in 1996. As a
percentage of net sales, gross profit in the three months ended June 30, 1997
was 37.5% as compared to 37.1% 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 June 30,
1997 were $3.1 million, equal to the three months ended June 30, 1996. As a
percentage of net sales, selling, general and administrative expenses were 16.3%
for the first three months of 1997 as compared to 17.7% for the same period in
1996.
Research and development expenses in the three months ended June 30, 1997 were
$1.2 million, an increase of $0.3 million, or 31.1%, as compared to the three
months ended June 30, 1996. The increased research and development expenses was
primarily a result of increased staffing and expenses required to develop
products for introduction in 1997 - 1999 period. As a percentage of net sales,
research and development expenses were 6.4% in 1997 as compared to 5.3% in 1996.
Operating income in the three months ended June 30, 1997 was $2.8 million
compared to $2.5 million for the three months ended June 30, 1996, an increase
of 13.3%. As a percentage of net sales, operating income was 14.8% in the three
months ended June 30, 1997 as compared to the 14.1% for the three months in
1996. The increase in operating income was a result of higher sales volume,
partially offset by increased research and development expenses.
Interest expense was $0.1 million in the three months ended June 30, 1997
compared to $0.5 million in the three months ended June 30, 1996. The decrease
was due to the reduction of debt as a result of the initial public offering.
The provision for income tax was $1.0 million for the three months ended June
30, 1997, compared to $0.7 million for the three months ended June 30, 1996. The
effective tax rate was 37.9% in the three months ended June 30, 1997 compared to
38.3% in the same period of 1996.
Net income was $1.7 million in the three months ended June 30, 1997, an increase
of $.5 million, or 41.2%, compared to the three months ended June 30, 1996. The
increase in net income was a result of the increased sales volume, the
improvement in operating income and the reduction in interest expenses. As a
percentage of net sales, net income was 9.0% in the three months ended June 30,
1997 as compared to 6.9% in the three months ended June 30, 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net sales were $36.1 million for the six months ended June 30, 1997, an increase
of $7.9 million, or 28.1% as compared to the six months ended June 30, 1996. Net
sales increased primarily as a result of the acquisition of RDI combined with
growth in sensors and ceramics. Sensor sales increased 35.3% to $5.4 million for
the six months ended June 30, 1997, as a result of increased solar and steering
sensor shipments. Ceramic sales
10
increased 91.0% to $3.6 million for the six months ended June 30, 1997 from $1.9
million in 1996 primarily due to increased Personal Communication System (PCS)
related orders.
Gross profit in the six months ended June 30, 1997 was $13.5 million, an
increase of $3.2 million, or 31.1%, compared to the same period in 1996. As a
percentage of net sales, gross profit in the six months ended June 30, 1997 was
37.4% as compared to 36.6% 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 six months ended June 30,
1997 were $5.8 million, an increase of $1.7 million as compared to the six
months ended June 30, 1996. The increase was primarily a result of the April 1,
1996 acquisition of RDI. 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 16.1% for the first six months of 1997 as
compared to 14.8% for the same period in 1996.
Research and development expenses in the six months ended June 30, 1997 were
$2.3 million, an increase of $0.4 million, or 21.8%, as compared to the six
months ended June 30, 1996. As a percentage of net sales, research and
development expenses were 6.3% in 1997 as compared to 6.7% in 1996. Due to the
distribution nature of RDI's business, research and development is a minimal
expense for RDI.
Operating income in the six months ended June 30, 1997 was $5.4 million compared
to $4.3 million for the six months ended June 30, 1996, an increase of 26.9%. As
a percentage of net sales, operating income was 15.0% in the six months ended
June 30, 1997 as compared to the 15.2% for the six 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 six months ended June 30, 1997 a
decrease of $0.7 million from $0.8 million in the six months ended June 30,
1996. The decrease was due to the reduction of debt as a result of the initial
public offering.
The provision for income tax was $2.0 million for the six months ended June 30,
1997, compared to $1.3 million for the six months ended June 30, 1996. The
effective tax rate was 38.9% in the six months ended June 30, 1997 compared to
38.4% in the same period of 1996.
Net income was $3.2 million in the six months ended June 30, 1997, an increase
of $1.1 million, or 51.9%, compared to the six months ended June 30, 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 six months ended June 30,
1997 as compared to 7.5% in the six months ended June 30, 1996.
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
11
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 $7.8 million as of June 30, 1997 compared to
$6.2 million as of December 31, 1996.
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.
Effect of FASB Pronouncements:
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" were released in July
of 1997 and will be adopted for year end reporting. The pronouncements will have
no significant impact on the Company's financial statements.
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.
12
PART II OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
a) At the annual meeting of shareholders on April 25, 1997, the following
items were voted on and approved:
1) Election of directors
Director For Withheld
--------------- --------- --------
Whitney 4,148,440 5,297
Brennan 4,153,214 523
Atkinson 4,148,040 5,697
Cooke 4,148,540 5,197
Futterknecht 4,152,914 823
Ramey 4,152,914 823
Mossberg 4,148,440 5,297
Scolnik 4,148,440 5,297
2) Approval of the Control Devices, Inc. Employee Stock Purchase plan.
Broker
For Against Abstain Non-Vote
--------- ------- ------- --------
3,721,740 372,554 59,443 0
3) Election of Arthur Andersen, LLP as independent Public Accountants
Broker
For Against Abstain Non-Vote
--------- ------- ------- --------
4,149,615 1,229 2,893 0
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.
-----------------------------------
(Registrant)
Date: August 6, 1997 By /s/ Jeffrey G. Wood
---------------------------------
Name: Jeffrey Wood
Vice President,
Chief Financial Officer,
13