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 September 30, 1998
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: 8,299,524 shares as of October 9, 1998.
CONTROL DEVICES, INC.
INDEX
Page(s)
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PART I: FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997 3
Consolidated Statements of Income (Unaudited) for the Three and
Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Shareholders' Equity (Unaudited) for
the Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 1998 and 1997 6-7
Notes to Consolidated Financial Statements 8-12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13-16
PART II: OTHER INFORMATION
- ---------------------------
ITEMS 1-5: OTHER INFORMATION 17
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 17
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2
CONTROL DEVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share amounts)
September 30, December 31,
1998 1997
------------- -----------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $12,379 $ 9,996
Receivables, less allowance for doubtful
accounts of $507 and $468, respectively 14,058 11,311
Inventories 9,133 6,414
Other current assets 2,027 1,595
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Total current assets 37,597 29,316
PROPERTY, PLANT AND EQUIPMENT, net 13,469 14,262
GOODWILL, net 8,820 7,471
------- -------
$59,886 $51,049
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long term debt $ 546 $ 612
Short-term debt 594 320
Accounts payable 6,452 5,706
Accrued employee benefits 5,114 4,250
Accrued expenses 4,471 3,403
------- -------
Total current liabilities 17,177 14,291
LONG-TERM DEBT 171 640
OTHER LIABILITIES 2,431 2,029
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS EQUITY:
Common Shares, no par value; 16,000,000 authorized;
8,295,836 and 8,284,451 in 1998 and 1997, respectively
issued and outstanding 20,135 20,014
Foreign currency translation adjustment (290) (554)
Retained Earnings 20,262 14,629
------- -------
Total shareholders' equity 40,107 34,089
------- -------
$59,886 $51,049
======= =======
3
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars, except share and per share amounts)
(UNAUDITED)
Three Months ended Nine Months ended
September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
Net sales $ 18,990 $ 16,042 $ 58,116 $ 52,140
Cost of sales 12,228 10,456 37,372 33,036
--------- --------- -------- ---------
Gross profit 6,762 5,586 20,744 19,104
Selling, general and
administrative expenses 3,006 2,438 8,684 8,245
Research and development 1,422 1,073 4,053 3,363
--------- --------- -------- ---------
4,428 3,511 12,738 11,608
--------- --------- -------- ---------
Operating income 2,334 2,075 8,007 7,496
Interest expense (income), net (89) 92 (193) 239
--------- --------- -------- ---------
Income before income taxes 2,423 1,983 8,200 7,257
Income tax provision 615 769 2,234 2,818
--------- --------- -------- ---------
Net income $ 1,808 $ 1,214 $ 5,966 $ 4,439
========= ========= ======== =========
Earnings per share:
Basic $ 0.22 $ 0.15 $ 0.72 $ 0.54
Diluted $ 0.21 $ 0.14 $ 0.68 $ 0.52
Weighted average number of
common shares and equivalents
outstanding
Basic 8,295,836 8,272,004 8,292,093 8,272,004
Diluted 8,794,127 8,538,811 8,779,842 8,487,691
The accompanying notes are an integral part of these statements.
4
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997
(Thousands of dollars)
(UNAUDITED)
Foreign
Currency
Common Translation Retained
Shares Adjustment Earnings Total
------ ----------- -------- -----
BALANCE at December 31, 1996 $19,917 $(314) $ 8,726 $28,329
Net income -- -- 4,439 4,439
Foreign currency translation
adjustment -- (226) -- (226)
-------------------------------------------
BALANCE at September 30, 1997 $19,917 $(540) $13,165 $32,542
===========================================
BALANCE at December 31, 1997 $20,014 $(554) $14,629 $34,089
Net income -- -- 5,966 5,966
Foreign currency translation
adjustment -- 264 -- 264
Payment of Dividends (333) (333)
Issuance of Common Shares 121 121
-------------------------------------------
BALANCE at September 30, 1998 $20,135 $(290) $20,262 $40,107
===========================================
5
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(UNAUDITED)
Nine Months Ended
September 30,
1998 1997
------ ------
CASH FLOWS FROM OPERATIONS:
Net income $ 5,966 $ 4,439
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization 2,177 1,801
Deferred income taxes 202 (56)
Changes in assets and liabilities:
(Increase) decrease in receivables (937) (2,025)
(Increase) decrease in inventories (1,726) (757)
(Increase) decrease in other current assets (28) (58)
Increase (decrease) in accounts payable (204) 584
Increase (decrease) in accrued employee benefits 74 (28)
Increase (decrease) in accrued expenses 622 1,508
Increase (decrease) in other long-term liabilities (22) 117
-------- --------
Cash provided by operations 6,124 5,525
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Arnould (including transaction
fees and expenses), net of cash acquired (2,100) --
Capital expenditures (1,152) (2,532)
-------- --------
Cash used in investing activities (3,252) (2,532)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (552) (599)
Net change in short-term debt 235 (201)
Payment of dividends (333) --
Proceeds from issuance of common shares 120 --
-------- --------
Cash used in financing activities (530) (800)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH 41 (8)
-------- --------
Increase (decrease) in cash and cash equivalents 2,383 2,185
-------- --------
CASH AND CASH EQUIVALENTS, beginning of period 9,996 6,238
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 12,379 $ 8,423
======== ========
The accompanying notes an an integral part of these statements.
6
SUPPLEMENTAL CASH FLOW INFORMATION:
Nine Months Ended
September 30,
1998 1997
------------ ------------
(Thousands of dollars)
Cash paid for interest $ 188 $ 235
Cash paid for income taxes $ 1,320 $ 2,432
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING ACTIVITIES:
On September 11, 1998 Control Devices paid a quarterly dividend on its
outstanding common shares equal to $0.02 per share to shareholders of record on
August 28, 1998.
7
CONTROL DEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information as of September 30, 1998 and for the three and nine months
ended September 30, 1998 and 1997 is unaudited.)
(1) Organization and Basis of Presentation:
---------------------------------------
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
July 29, 1994, CDI purchased certain assets and liabilities (the "Business")
of GTE Control Devices Incorporated and Dominican Overseas Trading Company
(collectively, the "Seller"), indirect wholly-owned subsidiaries of GTE
Corporation.
On April 1, 1996, CDI purchased Realisations et Diffusion pour l'Industrie
("RDI"), which distributes CDI's circuit breakers, electronic sensors and
other manufacturers products to the Northern European market from its
headquarters near Paris, France.
On June 26, 1998, CDI purchased Arnould Electro Industrie SA ("AEI"), which
distributes electronic components to the Northern European market from its
headquarters near Paris, France. The "Company" refers to CDI, RDI, AEI and
CDI's other consolidated subsidiaries.
The consolidated balance sheet as of September 30, 1998, the consolidated
statements of operations for the three and nine months ended September 30,
1998 and 1997, and the consolidated statements of shareholders' equity and
cash flows for the nine months ended September 30, 1998 and 1997 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 September 30, 1998 and 1997 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 nine
month periods ended September 30, 1998 and 1997 are not necessarily
indicative of the operating results for the full year.
(2) Acquisition of AEI:
-------------------
On June 26, 1998, CDI purchased all of the issued and outstanding stock of
AEI for $2.6 million. CDI paid $2.1 million from existing cash on hand and
delivered a promissory note totaling $0.5 million, payable within a year.
The purchase method was used to account for the acquisition. In preparing
AEI's financial information, the aggregate purchase price has been allocated
to the assets and liabilities of AEI based on preliminary estimates of fair
market value and are subject to change. Any adjustments resulting from the
final purchase price allocation, which could result in changes to the
carrying values of assets and liabilities, including goodwill, are not
expected to be material to the financial statements.
8
The net assets acquired after allocating the purchase price are as follows
(Thousands of dollars):
Cash $ 531
Receivables 1,349
Inventories 751
Other current assets 342
Goodwill 1,403
Property, plant and equipment 101
Accounts payable (650)
Accrued expenses (1,196)
-------
$ 2,631
=======
The unaudited pro forma results of operations for the nine months ended
September 30, 1998 and 1997, respectively, had the acquisition of AEI
occurred at January 1, 1998 and January 1, 1997, respectively, are provided
in the following table. These pro forma results include adjustments for
depreciation and amortization of assets acquired based on their estimated
fair market values at the acquisition date, adjustments for the elimination
of interest income on excess cash balances, reduction of selling, general and
administrative expenses associated with duplication of duties, and the
related income tax effect. The unaudited pro forma information does not
necessarily represent what the results of operations would have been in such
periods and is not intended to be indicative of future results
Nine Months
Ended
September 30,
1998 1997
------------- ------------
(Unaudited - Thousands of dollars,
except per share amounts)
Net sales $61,935 $56,096
Net income 6,216 4,684
Earnings per share:
Basic $ 0.75 $ 0.57
Diluted $ 0.71 $ 0.55
Weighted average number of common
shares and equivalents outstanding
Basic 8,292 8,272
Diluted 8,780 8,488
9
(3) Debt:
-----
Debt consists of the following as of September 30, 1998 and
December 31, 1997 (Thousands of dollars):
1998 1997
-------- --------
RDI Notes $ 369 $ 738
RDI fixed rate loans 348 514
RDI short-term debt 594 320
--------- --------
Total debt $1,311 $1,572
Less: Current portion of long-term debt 546 612
Short-term debt 594 320
--------- --------
Total long-term debt $ 171 $ 640
========= ========
The outstanding notes, issued by CDI in connection with the acquisition of
RDI (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.
Fleet Bank of Maine ("Fleet Bank") and the Company are parties to a loan
agreement, pursuant to which Fleet Bank has agreed to provide a $20.0 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, 2000. 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 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 September 30, 1998 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 September 30, 1998, RDI had borrowings aggregating under $0.1 million,
under these facilities.
In connection with the acquisition of AEI, the Company delivered a promissory
note totaling
3.2 million FF ($0.6 million at current exchange rates), due six months after
the closing of the acquisition. There is no interest obligation associated
with this note.
(4) 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.
10
(5) 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 September 30, 1998 and
December 31, 1997 are as follows ( Thousands of dollars).
1998 1997
-------- --------
Raw materials and supplies $2,074 $1,345
Work - in - process 1,938 1,333
Finished goods 5,121 3,736
------ ------
$9,133 $6,414
====== ======
(6) Comprehensive Income:
---------------------
The Company adopted SFAS No. 130. "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income and
its components. The following table reports comprehensive income for the
three and nine months ended September 30, 1998 and 1997 are as follows
(Thousands of dollars).
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------ -------------
Net income $1,808 $1,214 $5,966 $4,439
------ ------ ------ ------
Other comprehensive income (expense), net of tax:
Foreign currency translation adjustments 345 (12) 264 (226)
------ ------ ------ ------
Other comprehensive income (expense) 345 (12) 264 (226)
------ ------ ------ ------
Comprehensive income $2,153 $1,202 $6,230 $4,213
====== ====== ====== ======
11
(7) Earnings Per Common Share:
--------------------------
The reconciliation of basic and diluted per-share computation are as follows
(Thousands of dollars, except share and per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
Net income $1,808 $1,214 $5,966 $4,439
Weighted Average Common
Shares Outstanding - Basic 8,296 8,272 8,292 8,272
Dilutive effect of outstanding 498 267 488 216
options
Weighted Average Common
Shares Outstanding - Diluted 8,794 8,539 8,780 8,488
======= ======= ======= =======
Earnings per share:
Basic $ 0.22 $ 0.15 $ 0.72 $ 0.54
======= ======= ======= =======
Diluted $ 0.21 $ 0.14 $ 0.68 $ 0.52
======= ======= ======= =======
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTbHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales in the three months ended September 30, 1998 were $19.0 million, an
increase of $2.9 million or 18.4% compared to the same period in 1997, this
increase was primarily a result of continued growth in the automotive sensor
product area, an introduction of a new circuit breaker product, and the
continued growth in sales at RDI. Sensor sales grew 8.0% to $3.2 million for the
three months ended September 30, 1998 compared to the three months ended
September 30, 1997, as a result of continued volume increases in recently
introduced sensor products. Circuit breaker sales increased 10.0% to $7.8
million, primarily as a result of an introduction of a circuit breaker used in
battery powered riding toys. Net RDI sales (gross RDI sales less inter-company
sales) increased 46.1% in the three months ended September 30, 1998 compared to
the same period in 1997, primarily as a result of the recent acquisition of AEI.
Ceramic sales in the third quarter of 1998 decreased 1.8% to $1.5 million
compared to the third quarter of 1997. The decrease in ceramics sales was
primarily a result a slowdown in the wireless telecommunications market.
Gross profits in the three months ended September 30, 1998 were $6.8 million, an
increase of $1.2 million or 21.1% compared to the same period in 1997. As a
percentage of net sales, gross profits for the three months ended September 30,
1998 were 35.6%, compared to 34.8% for the same period in 1997. This increase
is primarily due to the higher new sensor start-up expenses in the prior period.
Selling, general and administrative ("SG&A") expenses in the three months ended
September 30, 1998 were $3.0 million, an increase of $0.6 million or 23.3% as
compared to the three months ended September 30, 1997. As a percentage of net
sales, SG&A expenses were 15.8% for the three months ended September 30, 1998 as
compared to 15.2% for the same period in 1997. This increase was primarily the
result of the increased expenses associated with the AEI acquisition.
Research and development ("R&D") expenses in the three months ended September
30, 1998 were $1.4 million, an increase of $0.3 million or 32.5% as compared to
the three months ended September 30, 1997. As a percentage of net sales,
research and development expenses were 7.5% in 1998 compared to 6.7% in the same
period of 1997. The increase in R&D expense was primarily the result of higher
spending on prototype tooling and materials associated with new product
development efforts.
Operating income in the three months ended September 30, 1998 was $2.3 million,
an increase of $0.3 million from the same period in 1997. As a percentage of
net sales, operating income was 12.3% in the three months ended September 30,
1998 compared to 12.9% for the third quarter 1997.
Interest income for the three months ended September 30, 1998 was $0.1 million
compared to $0.1 million of interest expense in the three months ended September
30, 1997. The decrease was due to the reduction of debt and increased income
from cash reserves.
The provision for income tax was $0.6 million for the three months ended
September 30, 1998 compared to $0.8 million for the three months ended September
30, 1997. The effective tax rate was 25.4% in the three months ended September
30, 1998 compared to 38.8% in the same period of 1997. The reduction in the
effective tax rate for the second quarter can primarily be attributed to the
benefit of the international reorganization, which took place on January 1,
1998, which resulted in certain income being taxed at lower rates.
13
Net income was $1.8 million in the three months ended September 30, 1998, an
increase of $0.6 million or 48.9%, compared to the three months ended September
30, 1997. As a percentage of net sales, net income was 9.5% in the three months
ended September 30, 1998, compared to 7.6% for the three months ended September
30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Net sales in the nine months ended September 30, 1998 were $58.1 million, an
increase of $6.0 million or 11.5%, compared to the same period in 1997, which
was primarily a result of growth in the automotive sensor product area and
growth in sales at RDI. Sensor sales increased 31.1% to $11.0 million for the
nine months ended September 30, 1998, compared to the same period in 1997. Net
RDI sales (gross RDI sales less inter-company sales) increased 19.1% in the nine
months ended September 30, 1998 compared to the same period in 1997, as a result
of the recent acquisition of AEI coupled with the strengthening of the European
markets.
Gross profits in the nine months ended September 30, 1998 were $20.7 million, an
increase of $1.6 million or 8.6% compared to the same period in 1997. As a
percentage of net sales, gross profits for the nine months ended September 30,
1998 were 35.7% compared to 36.6% for the same period in 1997. The gross profits
percentage has been impacted by pricing pressures and lower margins associated
with new sensor products.
Selling, general and administrative expenses in the nine months ended September
30, 1998 were $8.7 million, an increase of $0.4 million or 5.3% compared to the
nine months ended September 30, 1997. As a percentage of net sales, SG&A
expenses were 14.9% for the nine months ended September 30, 1998, compared to
15.8% for the same period in 1997. The increase in R&D expense was primarily the
result of higher spending on prototype tooling and materials associated with new
product development efforts.
Research and development expenses in the nine months ended September 30, 1998
were $4.1 million, an increase of $0.7 million or 20.5% as compared to the nine
months ended September 30, 1997. As a percentage of net sales, research and
development expenses were 7.0% in 1998 compared to 6.4% for the same period of
1997.
Operating income in the nine months ended September 30, 1998 was $8.0 million an
increase of $0.5 million or 6.8% as compared to the nine months ended September
30, 1997. As a percentage of net sales, operating income was 13.8% in the nine
months ended September 30, 1998 as compared to 14.4% for the nine months in
1997. The decrease in operating income, as a percentage of net sales, was
primarily a result of the lower gross margins.
Interest income for the nine months ended September 30, 1998 was $0.2 million
compared to $0.2 million of interest expense in the nine months ended September
30, 1997. The decrease was due to the reduction of debt and increased income
from cash reserves.
The provision for income tax was $2.2 million for the nine months ended
September 30, 1998 compared to $2.8 million for the nine months ended September
30, 1997. The effective tax rate was 27.2% in the nine months ended September
30, 1998 compared to 38.8% in the same period of 1997. The reduction in the
effective tax rate can be attributed to the benefit of the international
reorganization, which took place on January 1, 1998, and resulted in certain
income being taxed at lower rates.
Net income was $6.0 million in the nine months ended September 30, 1998 an
increase of $1.5 million or 34.4% as compared to the nine months ended September
30, 1997. As a percentage of net sales, net income was 10.3% in the nine months
ended September 30, 1998 compared to 8.5% in the nine months ended September 30,
1997.
14
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 acquisitions primarily
through cash generated from operations.
Cash and cash equivalents totaled $12.4 million as of September 30, 1998
compared to $10.0 million as of December 31, 1997.
On June 26, 1998, CDI purchased all of the issued and outstanding stock of AEI
for $2.6 million. CDI paid $2.1 million from existing cash on hand and
delivered a promissory note totaling 3.2 million FF ($571,000 at current
exchange rates), payable within a year.
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
September 30, 1998 and December 31, 1997 RDI had borrowings aggregating under
$0.1 million and $0.3 million, respectively, under these facilities.
Fleet Bank of Maine ("Fleet Bank") and the Company are parties to a loan
agreement, pursuant to which Fleet Bank has agreed to provide a $20.0 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, 2000. The line of credit contains certain covenants. To date there
have been no borrowings under this line of credit facility.
The Company believes its current cash and cash equivalents, together with
existing credit facilities and cash flows from operations, will be sufficient to
meet the Company's cash requirements for at least the next twelve months.
EFFECT OF FASB PRONOUNCEMENTS:
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" was released in July of 1997 and will be adopted for 1998 year-end
reporting purposes.
YEAR 2000 COMPLIANCE:
Over the next two years, most companies will face a potentially serious business
problem because many software applications and business equipment developed in
the past may not properly recognize calendar dates beginning in the year 2000.
This problem could cause systems to become unstable, stop working altogether or
provide incorrect data based upon dates.
In 1997, the Company began modifying its existing computer system programming to
process transactions in the year 2000 and beyond. The Company is also surveying
all significant suppliers to determine their compliance with the year 2000 issue
and what impact, if any, their efforts will have on the Company's business. All
material systems within the Company are expected to be compliant by June 30,
1999. Anticipated spending for this modification, expected to cost roughly
$75,000, will be expensed as incurred and is not expected to have a significant
impact on the Company's ongoing results of operations.
15
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
CAUTIONARY STATEMENT:
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, changes to U.S. and foreign tax laws
and regulations, the percentage of the Company's profits generated by foreign
operations, risk of customer labor interruptions, cyclicality of automotive and
appliance industries, reliance on OEM's, and competing technologies.
16
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
(a) Exhibits
10.18 Amended Employment Agreement with Michel Hauser-Kauffmann
10.19 Termination Benefits Agreement with Jeffrey G. Wood
10.20 Termination Benefits Agreement with Bruce D. Atkinson
10.21 Loan Agreement dated September 22, 1998 between the Company and
Fleet Bank of Maine.
27.1 Financial Data Schedule for the nine months ended September 30,
1998 and 1997.
27.2 Restated FDS for the three months ended March 31, 1997 and 1996.
27.3 Restated FDS for the six months ended June 30, 1997 and 1996.
27.4 Restated FDS for the nine months ended September 30, 1997 and
1996.
(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: October 16, 1998 By /s/ Jeffrey G. Wood
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Name: Jeffrey G. Wood
Vice President and
Chief Financial Officer
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