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
September 30, 1997 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: (972) 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 November 7, 1997.
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
Part I Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Operations
Three months ended September 30, 1997 (Successor)
and period from July 18, 1996 to September 30, 1996 (Successor)
and period from July 1, 1996 to July 17, 1996 (Predecessor)...... 1
Condensed Consolidated Statements of Operations
Nine months ended September 30, 1997 (Successor)
and period from July 18, 1996 to September 30, 1996 (Successor)
and period from January 1, 1996 to July 17, 1996 (Predecessor)... 2
Condensed Consolidated Statements of
Financial Condition - September 30, 1997
and December 31, 1996............................................ 3
Condensed Consolidated Statements of
Cash Flows - Nine months ended September 30, 1997 (Successor)
and period from July 18, 1996 to September 30, 1996 (Successor)
and period from January 1, 1996 to July 17, 1996 (Predecessor)... 4
Notes to Condensed Consolidated Financial
Statements....................................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 9
Part II Other Information................................................... 11
Signatures............................................................... 11
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Period from Period from
Three Months Ended July 18, 1996 to July 1,1996 to
September 30, 1997 September 30, 1996 July 17, 1996
------------------- ------------------- ---------------
(Successor) (Successor) (Predecessor)
Net Sales $155,195 $127,696 $ 15,621
Costs and Expenses
Cost of Products Sold 125,009 102,132 14,581
Selling, General & Administrative 18,958 13,172 2,943
Research and Development 1,717 1,321 275
Compensation Paid for Cancellation of
Options and Warrants - - 35,640
Amortization 5,412 4,153 366
-------- -------- --------
Total Costs and Expenses 151,096 120,778 53,805
-------- -------- --------
Operating Income (Loss) 4,099 6,918 (38,184)
Interest Expense 4,566 4,900 19,564
Other Expense, Net 549 1,233 280
-------- -------- --------
Income (Loss) Before Income Taxes (1,016) 785 (58,028)
Income Tax Expense (Benefit) 7,362 369 (22,149)
-------- -------- --------
Net Income (Loss) $ (8,378) $ 416 $(35,879)
======== ======== ========
Net Income (Loss) Per Common Share $ (8,378) $ 416 $(35,879)
======== ======== ========
Weighted Average Common
Shares Outstanding 1,000 1,000 1,000
======== ======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Period from Period from
Nine Months Ended July 18, 1996 to January 1, 1996 to
September 30, 1997 September 30, 1996 July 17, 1996
------------------- ------------------- -------------------
(Successor) (Successor) (Predecessor)
Net Sales $428,498 $127,696 $281,621
Costs and Expenses
Cost of Products Sold 347,988 102,132 226,626
Selling, General & Administrative 52,004 13,172 34,473
Research and Development 4,998 1,321 3,254
Compensation Paid for Cancellation of
Options and Warrants - - 35,640
Amortization 16,245 4,153 4,365
-------- -------- --------
Total Costs and Expenses 421,235 120,778 304,358
-------- -------- --------
Operating Income (Loss) 7,263 6,918 (22,737)
Interest Expense 13,831 4,900 32,808
Other Expense, Net 2,312 1,233 1,713
-------- -------- --------
Income (Loss) Before Income Taxes (8,880) 785 (57,258)
Income Tax Expense (Benefit) 154 369 (21,855)
-------- -------- --------
Net Income (Loss) $ (9,034) $ 416 $(35,403)
======== ======== ========
Net Income (Loss) Per Common Share $ (9,034) $ 416 $(35,403)
======== ======== ========
Weighted Average Common
Shares Outstanding 1,000 1,000 1,000
======== ======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(iN THOUSANDS, EXCEPT SHARE DATA)
September 30 December 31,
1997 1996
------------- -------------
(Unaudited) (See Note)
ASSETS
Current Assets
Cash and cash equivalents $ 5,099 $ 2,276
Notes and accounts receivable, less allowances
(1997-$7,256; 1996-$7,482) 87,493 88,670
Inventories, net 74,579 81,019
Prepayments and other current assets 13,806 26,407
-------- --------
Total Current Assets 180,977 198,372
Property, Plant and Equipment
Land and buildings 45,381 44,182
Machinery and equipment 46,725 43,706
Construction in progress 7,352 4,491
Accumulated depreciation (10,290) (4,134)
-------- --------
Total Property, Plant and Equipment 89,168 88,245
Cost in excess of net assets of businesses acquired,
less accum. amortization (1997-$14,823; 1996-$5,598) 476,975 486,200
Other assets 75,889 73,443
-------- --------
Total Assets $823,009 $846,260
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 49,090 $ 52,441
Accrued liabilities 28,878 29,403
Current maturities of long-term debt 32,007 28,023
-------- --------
Total Current Liabilities 109,975 109,867
Long-term Debt, Less Current Maturities 191,234 206,336
Deferred Income Taxes 43,406 44,763
Other Long-term Liabilities 13,069 10,793
-------- --------
Total Noncurrent Liabilities 247,709 261,892
Shareholder's Equity
Common stock, par value $1 per share;
1,000 shares authorized and outstanding 1 1
Additional capital 472,860 472,860
Currency translation adjustment 120 262
Retained earnings (deficit) (7,656) 1,378
-------- --------
Total Shareholder's Equity 465,325 474,501
-------- --------
Total Liabilities and Shareholder's Equity $823,009 $846,260
======== ========
NOTE: The condensed consolidated statement of financial condition at December
31, 1996 has been derived from the audited financial statements at that
date.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Period from Period from
Nine Months Ended July 18, 1996 to January 1, 1996 to
September 30, 1997 September 30, 1996 July 17, 1996
------------------ ------------------ ------------------
(Successor) (Successor) (Predecessor)
OPERATING ACTIVITIES
Net Income (Loss) $ (9,034) $ 416 $(35,403)
Adjustments to reconcile net income (loss) to net
cash flows provided by (used for) operating
activities:
Depreciation and amortization 22,555 6,207 9,850
(Increase) decrease in net operating assets 7,133 (10,890) 12,999
-------- --------- --------
Net Cash Flows Provided by (Used for) Operating
Activities 20,654 (4,267) (12,554)
INVESTING ACTIVITIES
Proceeds from sale of a business - - 998
Proceeds from sales of property, plant and equipment 261 1,605 3
Expenditures for property, plant and equipment (7,233) (886) (2,251)
(Increase) in other assets (1,864) (812) (755)
-------- --------- --------
Net Cash Flows Used for Investing Activities (8,836) (93) (2,005)
FINANCING ACTIVITIES
Retire Term Loan Facility - (106,785) -
Proceeds from Sanwa USA Term Note - 122,000 -
Net proceeds from long-term borrowings on revolver 6,150 (2,600) 17,000
Principal payments on long-term debt (15,003) (752) (3,822)
-------- --------- --------
Net Cash Flows Provided by (Used for) Financing
Activities (8,853) 11,863 13,178
EFFECT OF EXCHANGE RATE CHANGES ON CASH (142) 56 (263)
-------- --------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 2,823 7,559 (1,644)
CASH AND CASH EQUIVALENTS
Beginning of period 2,276 960 2,604
-------- --------- --------
End of period $ 5,099 $ 8,519 $ 960
======== ========= ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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 on Form 10-K for the year ended December 31, 1996.
In the opinion of the Registrant, all adjustments, which are of a normal
recurring nature, necessary to present the information fairly have been made.
Due to the seasonal nature of the Company's business the results of operations
for 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.
The consolidated financial statements include the accounts of Overhead Door
Corporation and its consolidated subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Overhead Door Incorporated
(the Parent) is a non-operating company whose only asset is its ownership of
100% of the outstanding common stock of Overhead Door Corporation (Overhead
Door). See Note B for the acquisition of the Parent as of July 18, 1996. The
accompanying financial statements subsequent to July 17, 1996 ("Successor"
financial statements) reflect the new basis of assets and liabilities acquired
as of July 18, 1996 including additional goodwill and the indebtedness
incurred to finance the acquisition. Financial statements for the periods
prior to July 18, 1996 ("Predecessor" financial statements) reflect the
basis of assets and liabilities of the previous owners of the Company.
Note B - Sanwa Shutter Acquisition
-----------------------------------
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 "Sanwa Acquisition") by Sanwa Shutter Corporation,
of Tokyo, Japan ("Sanwa"). Sanwa USA Inc. ("Sanwa USA"), a newly formed
Delaware corporation which is wholly owned by Sanwa, now holds all of the
outstanding common stock of ODI. The total consideration paid or assumed was
approximately $710 million, including $470 million in cash to acquire ODI's
common stock, cancel options and warrants, and to redeem its preferred stock.
The Sanwa Acquisition was accounted for by the purchase method of accounting
and the excess of the purchase price over the fair value of the net assets
acquired is included in cost in excess of net assets of businesses acquired
in the consolidated statements of financial condition. The Company refinanced
its outstanding bank debt of approximately $154 million including
accrued interest.
5
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
Sanwa USA 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 bridge loan
agreement between Sanwa USA and the Company.
The condensed consolidated financial statements of the Company reflect the
Sanwa Acquisition from its July 18, 1996 effective date.
Prior to the Sanwa Acquisition, the Company paid $35.6 million to certain
employees and officers for the cancellation of outstanding ODI common stock
options and warrants. This charge is included in the statement of operations
as compensation expense for the Predecessor period. Additionally, a
participating financial institution in the Company's previously outstanding
credit facilities was paid $18.3 million for the cancellation of ODI common
stock warrants. This charge is included in interest expense in the statement
of operations for the Predecessor period.
Note C - Litigation and Other Contingencies
--------------------------------------------
The Company is a defendant in various legal proceedings arising in the
ordinary course of business. The following discussion should be read in
conjunction with the litigation and other contingencies footnote included in
the Company's annual report on Form 10-K for the year ended December 31, 1996.
At September 30, 1997, the Company was a defendant in 54 cases, all pending in
the state courts in California, 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. 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 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
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 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 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 claim cannot be predicted with
certainty, management believes that the outcome of pending litigation and
claims, when considered in conjunction with self insurance reserves
established therefor ($13.4 million at September 30, 1997 and $13.2 million at
December 31, 1996) will not have a material adverse effect on the Company's
results of operations or financial condition.
6
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
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. No Record
of Decision has been issued for this site by the EPA, and due to the
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 has estimated its
liability at this site and has created a reserve in a prior year in the amount
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 above stated estimated liability is not
expected to have a material adverse effect on the Company's results of
operations, financial condition or liquidity.
At September 30, 1997 and December 31, 1996, accounts receivable from
companies in the construction industry totaled $78.7 million and $82.2
million, respectively. The Company extends credit and requires collateral, if
necessary, based on the evaluation of each customer's financial condition.
Note D- 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 September 30, 1997 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, 1996. 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:
September 30, December 31,
1997 1996
-------------- ------------
(in thousands)
At current cost:
Raw materials $30,853 $33,245
Work in process 13,323 14,356
Finished goods 30,541 32,908
------- -------
74,717 80,509
Difference between current cost and LIFO (138) 510
------- -------
Inventories, net $74,579 $81,019
======= =======
Current cost of inventories is determined using the first-in, first-out (FIFO)
method of inventory accounting, which approximates current cost.
7
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
Note E - Income Taxes
---------------------
The principal differences between the U.S. Federal income tax rate and the
Company's effective income tax rate for the nine months ended September 30,
1997 are amortization of goodwill and state income taxes. The tax expense or
benefit is recorded in interim periods using an estimated yearly effective tax
rate.
At September 30, 1997 the total deferred tax liability for taxable temporary
differences was $53.5 million and the total deferred tax asset for deductible
temporary differences and operating loss carryforwards was $21.9 million, net
of a $2.3 million valuation allowance. The net noncurrent deferred tax
liability totaled $43.4 million and the net current deferred tax asset which
is included in Prepayments and Other Current Assets totaled $11.8 million.
Note F - Statements of Cash Flows Supplementary Disclosures
-----------------------------------------------------------
Nine Months Ended
September 30,
-------------
1997 1996
---- ----
Non-cash investing and financing activities:
Obligations incurred for costs of
long-term contract $7,680 $ -
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
The following discussion of 1996 reflects the results of operations for the
combined Predecessor period and Successor period.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net sales increased $11.9 million (8.3%) to $155.2 million for the three
months ended September 30, 1997 from $143.3 million in the three months ended
September 30, 1996. Net sales increases were recorded in all product groups
except loading dock equipment.
Gross profit increased to $30.2 million for the three months ended September
30, 1997, a $3.6 million increase from $26.6 million in the same period of
1996. Gross profit as a percentage of net sales increased to 19.5% in the
third quarter of 1997 from 18.6% in the third quarter of 1996. The primary
cause of this increase is higher sales volume. For interim reporting
purposes, the cost of material included in cost of products sold is determined
using estimated material cost rates and the results from physical inventories
taken during all quarters of the year.
Operating income for the third quarter of 1997 was $4.1 million as compared to
$4.4 million in the third quarter of 1996 after excluding compensation expense
related to the Sanwa acquisition of $35.6 million. As a result of the Sanwa
Acquisition and the related goodwill recorded, 1997 includes $.9 million of
additional amortization expense. Higher gross profits were also offset by
increased advertising and legal expenses.
Interest expense decreased to $4.6 million for the three months ended
September 30, 1997 from $24.5 million for the three months ended September 30,
1996. The three months ended September 30, 1996 includes $18.3 million for
the cancellation of stock warrants related to the predecessor company. The
remaining decrease is primarily due to lower interest rates on outstanding
debt and amortization of a bond premium recorded in connection with the Sanwa
Acquisition.
Income tax expense of $7.4 million was recorded for the third quarter of 1997
as compared to a tax benefit of $21.8 million in the 1996 quarter. The tax
expense or benefit is recorded in interim periods using an estimated effective
income tax rate. The Company's effective income tax rate is significantly
higher than the U. S. Federal tax rate due to goodwill amortization that is
not deductible for tax purposes and state income taxes.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net sales during the first nine months of 1997 increased $19.2 million (4.7%)
to $428.5 million from $409.3 million recorded in the same period in 1996.
While unit sales increased, higher product discounts as a result of increasing
competition in the door market and higher sales of lower priced products
contributed to the small increase in net sales.
Gross profit was virtually unchanged at $80.5 million for the first nine
months of 1997 compared to the same period in 1996. As a percentage of net
sales, gross profit declined to 18.8 % in the first
9
nine months of 1997 from 19.7% in the first nine months of 1996. A shift in
product mix to sales of lower margin products accounted for most of the
decline and to a lesser extent lower price realization in the door market.
For interim reporting purposes, the cost of material included in cost of
products sold 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 nine months of 1997 was $7.3 million, a
decrease of $12.5 million from the $19.8 million reported in 1996 after
excluding compensation expense related to the Sanwa acquisition of $35.6
million. The decline is mainly due to the higher amortization expense as a
result of the Sanwa Acquisition. Amortization was $7.7 million higher for the
nine months of 1997 as compared to the nine months of 1996. Higher
expenditures for advertising, information systems, and legal fees also
contributed to the lower operating income.
Interest expense decreased to $13.8 million in the first nine months of 1997
from $37.7 million in the first nine months of 1996. The nine months ended
September 30, 1996 includes $18.3 million for the cancellation of stock
warrants related to the predecessor company. The remaining decrease is due to
amortization of a bond premium recorded at the time of the Sanwa Acquisition
and lower interest rates on outstanding debt.
The income tax expense of $0.2 million in the first nine months of 1997
compares to a benefit of $21.5 million in the first nine months of 1996. The
tax expense or benefit is recorded in interim periods using an estimated
effective income tax rate. The Company's effective income tax rate is
significantly higher than the U. S. Federal tax rate due to goodwill
amortization that is not deductible for tax purposes and state income taxes.
Financial Condition
-------------------
The Company uses a Revolving Credit Facility to help fund seasonal cash flow
requirements. The outstanding balance of the Revolving Credit Facility at
September 30, 1997 was $34.5 million. Availability under the Revolving Credit
Facility at September 30, 1997 was $13.4 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. In the first nine months of 1997 the Company repaid $15.0
million of term loans. The Company has a $10.0 million principal payment due
December 31, 1997 on its term loan.
Capital expenditures were $7.2 million during the first nine months of 1997 as
compared to $3.1 million in the first nine months of 1996. The increase
includes tooling costs for new product manufacturing and upgrades in technical
systems and facilities in support of the Company's business.
For the nine months ended September 30, 1997, net cash flows provided by
operating activities totaled $20.7 million compared with $16.8 million used
for operating activities in the first nine months of 1996. 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 the Revolving Credit Facility,
should be sufficient to fund its cash needs during the balance of the year.
10
OVERHEAD DOOR CORPORATION AND SUBSIDIARIES
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) None
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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
-------------------------
Date: November 5, 1997 By: /s/ John C. Macaulay
----------------------- --------------------------
John C. Macaulay
Vice President/Controller
(Chief Accounting Officer)
11