SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
June 30, 1996 0-23752
OVERHEAD DOOR CORPORATION
(Exact Name of Registrant as Specified in its Charter)
INDIANA 35-0564120
(State of Incorporation) (I.R.S. Employer
Identification Number)
6750 LBJ Freeway 75240
Dallas, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 233-6611
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 report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
There were 1,000 shares of the Registrant's Common Stock, $1 par value,
outstanding as of August 2, 1996.
1
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
Part I Financial Information
---------------------
Item 1. Financial Statements (unaudited)
--------------------
Condensed Consolidated Statements of Operations - 3
Three months ended June 30, 1996 and 1995, and six
months ended June 30, 1996 and 1995.
Condensed Consolidated Statements of 4
Financial Condition - June 30, 1996
and December 31, 1995.
Condensed Consolidated Statements of 5
Cash Flows - Six months ended
June 30, 1996 and 1995.
Notes to Condensed Consolidated Financial 6
Statements.
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
---------------------------------------------
Part II Other Information 12
-----------------
Signatures 12
2
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except Three Months Six Months
per share data) Ended June 30, Ended June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net Sales $139,758 $132,025 $266,000 $258,199
Costs and Expenses
Cost of products sold 111,032 106,836 213,341 208,935
Selling, general & administrative 16,754 15,615 33,213 30,795
Amortization 2,000 2,046 3,999 4,085
-------- -------- -------- --------
Total Costs and Expenses 129,786 124,497 250,553 243,815
-------- -------- -------- --------
Operating Income 9,972 7,528 15,447 14,384
Interest Expense (6,542) (7,363) (13,244) (14,643)
Other Income (Expense), Net (959) (97) (1,433) (457)
-------- -------- -------- --------
Income (Loss) Before Income Taxes 2,471 68 770 (716)
Income Tax Expense (1,052) (463) (294) (637)
-------- -------- -------- --------
Net Income (Loss) $ 1,419 $ (395) $ 476 $ (1,353)
======== ======== ======== ========
Net Income (Loss) Per Common Share $ 1,419 $ (395) $ 476 $ (1,353)
======== ======== ======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
(in thousands except number of shares and per share data) 1996 1995
----------- ------------
(Unaudited) (See Note)
ASSETS
Current Assets
Cash and cash equivalents $ 235 $ 2,604
Notes and accounts receivable, less allowances
(1996-$5,434; 1995-$5,824) 88,666 90,914
Inventories, net 78,995 81,037
Prepayments and other current assets 7,448 7,569
-------- --------
Total Current Assets 175,344 182,124
Property, Plant and Equipment
Land and buildings 48,106 48,094
Machinery and equipment 67,018 66,757
Construction in progress 4,047 2,458
Accumulated depreciation (48,852) (43,862)
-------- --------
Total Property, Plant and Equipment 70,319 73,447
Cost in excess of net assets of businesses acquired,
less amortization (1996-$13,601; 1995-$11,559) 148,412 150,454
Other assets 68,355 69,405
-------- --------
$462,430 $475,430
-------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 54,201 $ 71,815
Accrued liabilities 26,266 30,408
Current maturities of long-term debt 17,560 15,077
-------- --------
Total Current Liabilities 98,027 117,300
Long-term Debt, Less Current Maturities 217,326 209,730
Deferred Income Taxes 33,923 35,287
Other Long-term Liabilities 11,390 11,831
-------- --------
Total Noncurrent Liabilities 262,639 256,848
Shareholder's Equity
Common stock, par value $1 per share;
1,000 shares authorized and outstanding 1 1
Additional capital 100,492 100,492
Currency translation adjustment (569) (575)
Retained earnings 1,840 1,364
-------- --------
Total Shareholder's Equity 101,764 101,282
-------- --------
$462,430 $475,430
-------- --------
NOTE: The condensed consolidated statement of financial condition at December
31, 1995 has been derived from the audited financial statements at that
date.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------
(in thousands) 1996 1995
-------- --------
OPERATING ACTIVITIES
Income (Loss) from Operations $ 476 $ (1,353)
Adjustments to reconcile net income (loss) to
net cash flows used for operating activities:
Depreciation and amortization 9,003 8,843
(Increase) in net operating assets (19,795) (15,405)
-------- --------
Net Cash Flows Used for Operating Activities (10,316) (7,915)
INVESTING ACTIVITIES
Proceeds from sale of a business 998 -
Proceeds from sales of property, plant
and equipment 3 6
Expenditures for property, plant and equipment (1,973) (3,632)
(Increase) in other assets (905) (328)
-------- --------
Net Cash Flows Used for Investing Activities (1,877) (3,954)
FINANCING ACTIVITIES
Net proceeds from long-term borrowings on revolver 13,900 14,500
Net proceeds from other long-term borrowings - 150
Principal payments on long-term debt (3,821) (6,176)
Additional capital contribution - 7
-------- --------
Net Cash Flows Provided by Financing Activities 10,079 8,481
EFFECT OF EXCHANGE RATE CHANGES ON CASH (255) -
-------- --------
Decrease in Cash and Cash Equivalents (2,369) (3,388)
CASH AND CASH EQUIVALENTS
Beginning of period 2,604 4,477
-------- --------
End of period $ 235 $ 1,089
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
Note A - Basis of Presentation
------------------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. Although the Company believes the
disclosures made are adequate to make the information presented not
misleading, these condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's annual report for the year ended December 31, 1995.
In the opinion of the Registrant, all adjustments, which are of a normal
recurring nature, necessary to present the information fairly have been made.
The results of operations for such interim periods are not necessarily
indicative of results for a full year.
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current presentation.
Note B - Inventories
--------------------
Substantially all inventories are valued on the LIFO method. The accounting
records for any interim period do not reflect inventory values as between raw
materials, work-in-process and finished goods. The June 30, 1996 amounts
represent an estimated breakdown between raw materials, work-in-process, and
finished goods inventories, based upon each category's proportionate share at
December 31, 1995. The cost of material included in cost of products sold
during the interim periods is determined by using estimated material cost
rates. Inventories are classified as follows:
June 30, December 31,
1996 1995
-------- ------------
(in thousands)
At current cost:
Raw materials $36,866 $38,420
Work in process 17,589 18,330
Finished goods 28,283 29,475
------- -------
82,738 86,225
Excess of current cost over LIFO (3,743) (5,188)
------- -------
Inventories, net $78,995 $81,037
======= =======
Current cost of inventories is determined using the first-in, first-out (FIFO)
method of inventory accounting, which approximates current cost.
6
Note C. Litigation and Other Contingencies
- -------------------------------------------
The Company is a defendant in a number of lawsuits in which the plaintiffs seek
damages for personal injuries alleged to have been incurred in handling
"Jifflox" converter dollies previously manufactured by the Company. Currently,
five such cases are pending. These converter dollies are used to connect truck
trailers in tandem. As a result of a separate product line divestiture and the
resultant closing of the manufacturing facility where that product and the
Jifflox converter dollies were manufactured, Jifflox production was discontinued
in the second quarter of 1987. The plaintiffs are truck drivers or truck yard
employees who allege they have suffered personal injuries in moving a Jifflox
dolly. The lawsuits allege various theories of liability, including negligence,
warranty, failure to warn and strict liability. The lawsuits allege that
Jifflox dollies are defectively designed so as to preclude safe maneuvering in
truck yards or that they are too heavy or that they do not contain adequate
warnings against misuse. Unspecified damages are claimed. The Company denies
liability in each of the lawsuits.
The Company is a defendant in a number of lawsuits in which damages are sought
for property damage alleged to have been caused or contributed to by aluminum
windows manufactured by Premier Products, a former division of the Company which
was divested in 1989. At June 30, 1996, 57 such cases were pending, all of
which are venued in state courts in California. The cases typically involved
multi-family residences. The general contractor and all subcontractors who were
originally involved in the construction of these residences, including the
Company, are typically joined as defendants or cross-defendants. The suits
allege various theories of liability, including negligence and contract under
California's ten year construction defect statute of limitations. The Company
denies liability in each of the lawsuits.
The Company is a defendant in a lawsuit filed in May 1995, in the United States
District Court for the Central District of California, which alleges that
certain revolving doors manufactured by the Company's Horton Automatics division
infringe four patents owned by a competitor of Horton. The parties have reached
a tentative settlement which, if finalized, would not have a material adverse
effect on the Company's results of operations or financial condition.
The Company filed a Complaint for Declaratory Judgment in August 1995, in the
United States District Court for the Northern District of Texas against The
Chamberlain Group, Inc. The Complaint requests a declaratory judgment that a
new line of residential garage door openers which the Company has recently
introduced does not infringe a particular patent owned by Chamberlain.
Chamberlain has filed a counterclaim against the Company alleging that such
openers do infringe its patent and that such infringement is willful. An
injunction and unspecified damages are requested.
The Company is a defendant in a lawsuit filed in November 1995, in the United
States District Court for the District of Connecticut. The Complaint alleges
that an executive hired by the Company in August 1995, misappropriated
confidential information of his prior employer, a competitor of the Company, and
used it for the Company's benefit. The suit requests an injunction as well as
unspecified compensatory and punitive damages. The Company considers the suit
to be entirely without merit.
In addition, the Company is a defendant in various other legal proceedings
arising in the ordinary course of business.
The Company is self-insured with respect to a portion of its potential losses
relating to product and general liability and workers' compensation claims. The
Company is responsible for the first $0.5 million of loss related to each
product or general liability claim and the first $0.3 million of loss related to
each worker's
7
Note C. Litigation and Other Contingencies (continued)
- -------------------------------------------------------
compensation claim. Third-party insurance, up to $50.0 million, is maintained
for losses in excess of these amounts. The Company maintains reserves for
anticipated self insurance losses.
Although the results of any litigation or claims cannot be predicted with
certainty, management believes that the outcome of pending litigation and
claims, when considered in conjunction with self insurance reserves established
therefore ($14.1 million at December 31, 1995 and $14.6 million at June 30,
1996) will not have a material adverse effect on the Company's results of
operations or financial condition.
The Company has been determined by the United States Environmental Protection
Agency (the "EPA") to be a potentially responsible party concerning a Superfund
third-party waste disposal site near Syracuse, New York. This determination was
made because of alleged disposal at the site of certain waste material generated
by a manufacturing operation that formerly had been operated by the Company near
the site. In December 1989, the Company and two other potentially responsible
parties entered into an administrative order on consent with the EPA to perform
a Remedial Investigation and Feasibility Study (RI/FS) at the site. The EPA
subsequently issued an administrative order to four additional companies and one
individual requiring them to participate with the three consenting companies in
the implementation of the RI/FS. Two of these additional companies have entered
into an agreement with the three consenting companies to so participate. In
1992, the participating companies brought a lawsuit against 13 nonparticipating
companies in the United States District Court, Northern District of New York.
The suit seeks to have each of the defendants declared to be jointly and
severally liable with the plaintiffs for all past and future expenses. Two
defendants have been voluntarily dismissed by the plaintiffs, and two new
defendants were subsequently added. One defendant has filed for Chapter 11
bankruptcy protection. The RI/FS has been submitted to the EPA, but has not yet
been accepted by the EPA. The EPA and the participating companies have agreed
that the participating companies will perform some limited additional site
investigation before the EPA accepts the RI/FS and issues a Record of Decision
for the site.
A preliminary engineering investigation prepared in 1987 for the State of New
York estimated that the cost of remediation efforts at this site could range
from $24 million to $29 million. However, this estimate, which is nine years
old, was based only on a preliminary investigation and made certain assumptions
about the nature and extent of the remediation required. Until the EPA issues a
Record of Decision for this site, it is not possible to know what, if any,
activities the EPA may attempt to require at the site or which companies may be
named as potentially responsible parties in connection with any such
requirements. Five parties have participated in the implementation of the RI/FS
but the ultimate number of companies that may be jointly and severally liable
could be between five and 18 and the portion of any liability for which any one
party may be responsible is not necessarily a pro rata amount. How any
liability is ultimately allocated cannot now be determined.
Due to all the foregoing uncertainties, it is not possible at this time to
determine what the Company's future liability (if any) in connection with this
site will be. However, with the limited information currently available, the
Company estimates that its liability at this site could be between $1.5 million
and $6.0 million depending on the type and scope of the remediation, the number
of responsible parties and how the liability is shared. Any such liability to
the Company would probably be payable over three to five years. For the
foregoing reasons, the Company has created a reserve for environmental
liabilities for the site of $1.5 million. This reserve may need to be changed
from time to time as more information becomes available, and there can be no
assurance that the existing reserves will be adequate for the intended purpose.
After consideration of this reserve, the
8
Note C. Litigation and Other Contingencies (continued)
- -------------------------------------------------------
above stated estimated liability is not expected to have a material adverse
effect on the Company's results of operations, financial condition or liquidity.
Genie's manufacturing sites at Shenandoah, Virginia and Alliance, Ohio have been
contaminated as a result of the former operations at these facilities. Pursuant
to the terms of a 1990 asset purchase agreement between Genie and North American
Philips Corporation ("NAPC"), NAPC, a former owner of Genie, agreed to
investigate and remediate any pre-closing contamination at these sites. NAPC
also agreed to fully indemnify Genie for all environmental liabilities arising
out of such pre-closing contamination, including third party lawsuits. The
Company has not expended any funds, nor does it expect to expend any, for
investigation and remediation at these sites because of NAPC's contractual
assumptions of liability.
As of December 31, 1995 and June 30, 1996, accounts receivable from companies
in the construction industry totaled $81.6 million and $79.4 million,
respectively. The Company extends credit and requires collateral, if necessary,
based on the evaluation of each customer's financial condition. Credit losses
are provided for in the financial statements and consistently have been within
management's expectations.
Note D - Income Taxes
- ---------------------
The principal differences between the U.S. federal income tax rate and the
Company's effective income tax rate for the six months ended June 30, 1996 are
state income taxes and amortization of goodwill.
At June 30, 1996, the total deferred tax liability for taxable temporary
differences was $44.4 million and the total deferred tax asset for deductible
temporary differences and operating loss carryforwards was $15.5 million net of
a $2.3 million valuation allowance. The net noncurrent deferred tax liability
totaled $33.9 million and the net current deferred tax asset which is included
in Prepayments and Other Current Assets totaled $5.0 million.
Note E - Subsequent Event
- ---------------------------
On July 18, 1996, all of the outstanding common stock of Overhead Door
Incorporated, a privately held Indiana corporation ("ODI"), the Company's
parent, was acquired (the "Acquisition") by Sanwa Shutter Corporation of Japan
("Sanwa"). The total consideration paid or assumed was approximately $710
million, including $470 million in cash to acquire ODI's common stock, options,
and warrants and to redeem its preferred stock. The Acquisition will be
accounted for by the purchase method of accounting. Sanwa also caused ODC to
refinance its outstanding bank debt of approximately $155 million including
accrued interest. Sanwa USA Inc. ("Sanwa USA"), a newly formed Delaware
corporation which is wholly owned by Sanwa and which now holds all of the common
stock of ODI, loaned to the Company the amounts necessary to fully repay and
terminate the Credit Agreement which had represented all of the Company's
outstanding bank debt, in accordance with the terms of a new Loan Agreement
between Sanwa USA and the Company. The Loan Agreement also covers any future
revolving loans which may be made to the Company for working capital purposes.
ODC's $85 million of 12.25% Unsecured Senior Notes due February 1, 2000,
remained outstanding on the Acquisition date. Noteholders have the right to put
their notes to ODC at a price of 101% during a certain period following the
Acquisition.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales during the first six months of 1996 increased by $7.8 million (or
3.0%) to $266.0 million from $258.2 million for the same period in 1995. Upward
acting door and door opener sales increased due to higher volume and to a lesser
extent higher selling prices. These increases along with volume increases in
automatic pedestrian entrances were partially offset by lower sales of
vehicular products and loading dock equipment.
Gross profit increased by $3.4 million (or 6.9%) from $49.3 million in the first
six months of 1995 to $52.7 million for the same period in 1996. As a
percentage of net sales, gross profit increased to 19.8% in 1996 from 19.1% in
1995. As the result of a LIFO inventory liquidation, approximately $1.0 million
of income was recognized in the second quarter of 1996. Higher volume, selected
price increases and stable material costs were additional factors contributing
to this improvement. For interim reporting purposes, the cost of material
included in cost of products sold during the interim periods is determined using
estimated material cost rates and the results from physical inventories taken
during all quarters of the year.
Operating income for the first six months of 1996 was $15.4 million, an increase
of $1.0 million from the $14.4 million reported in 1995. The improved gross
profit noted above was offset by higher selling, general and administrative
expenses.
Interest expense decreased to $13.2 million in the first six months of 1996 from
$14.6 million for the same period in 1995. The decrease is mainly due to the
lower remaining balance on the term loans. Other expense increased to $1.4
million for the first six months of 1996 from $0.5 million in 1995, due mainly
to the write-off of the remaining costs related to a potential public offering
which is no longer anticipated because of the acquisition of the company by
Sanwa Shutter Corporation on July 18, 1996 (See Note E).
The provision for income taxes of $0.3 million in 1996 compares to a provision
of $0.6 million in 1995. The 1996 provision is based on the estimated effective
tax rate for the year while the 1995 tax provision was calculated on the actual
effective rate for the first six months of 1995.
See Note C of Notes to Condensed Consolidated Financial Statements for
disclosure on Litigation and Other contingencies.
10
Financial Condition
- -------------------
The Company used a Revolving Credit Facility to help fund seasonal cash flow
requirements. The outstanding balance of the Revolving Credit Facility at June
30, 1996 was $42.9 million. Availability under the Revolving Credit Facility at
June 30, 1996 was $27.0 million. Due to the seasonal nature of the Company's
business, borrowings to fund working capital needs generally increase beginning
late in the second quarter and begin to decline late in the fourth quarter.
Effective September 30, 1994, the Company purchased a two year interest rate cap
to cover the notional principal amounts of its floating rate debt with the LIBOR
rate capped at 7.0%. In the first six months of 1996, prior to the acquisition
by Sanwa, the Company repaid $3.8 million of bank term loans. (See Note E
regarding new credit agreements since the acquisition.)
Capital expenditures totaled $2.0 million in the first six months of 1996, a
$1.6 million decrease over the same period in 1995. Last year's capital
expenditures included a new commercial operator facility and equipment for a new
retail product.
For the six months ended June 30, 1996, net cash flows used for operating
activities totaled $10.3 million compared with $7.9 million for the first six
months of 1995. The higher use of funds in 1996 was mainly to reduce accounts
payable levels. The Company has a historical seasonal pattern of improved
results over the last half of a calendar year when compared to the first half of
a year. While there is no way of assuring that this pattern will continue, the
Company has no reason to believe that construction industry patterns will change
in the foreseeable future.
The Company believes that the cash flow generated by its operations, together
with borrowings under credit agreements (see Note E), should be sufficient to
fund its cash needs during the balance of the year.
11
Part II. Other Information
-----------------
Item 1. Incorporated by reference to Note C, Litigation and Other
Contingencies, in Part I of this report.
Item 2-5. All items are either inapplicable or would be responded to in the
negative.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits as shown in the Exhibit Index on page 13 are
filed as part of this report.
(b) (i) On July 1, 1996, the Company filed a Report on Form 8-K
reporting that Sanwa Shutter Corporation ("Sanwa") of
Japan and Overhead Door Incorporated ("ODI"), the
Company's parent, had entered into an agreement for
Sanwa to acquire all of ODI's common stock.
(ii) On July 18, 1996, the Company filed a Report on Form 8-
K reporting that the previously announced sale of all
of ODI's common stock to Sanwa had been closed.
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.
OVERHEAD DOOR CORPORATION
-------------------------
(Registrant)
Date: August 12, 1996 By: /s/ John C. Macaulay
----------------- ---------------------------------------
John C. Macaulay
Vice President/Controller
(Chief Accounting Officer)
By: /s/ James F. Brum
---------------------------------------
James F. Brum
Executive Vice President
(Chief Financial Officer)
12
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT PAGE NUMBER
- ------- ------- -----------
10.1 Loan Agreement dated as of July 18,
1996, by and between Sanwa USA Inc.
and Overhead Door Corporation. 14
13