Exhibit 13
Common Stock Prices
The Company's common stock is traded on the American Stock Exchange. The
following table sets forth the high and low sales prices on the American Stock
Exchange for each quarterly period during fiscal 1996 and 1995. As of October
1, 1996, there were 292 shareholders of record of the Company.
The Company declared dividends of $1.00 per share in each of fiscal 1996 and
fiscal 1995.
High/Low High/Low
1996/1995 Price Range 1995/1994 Price Range
1st Qtr. ended 10/31/95 26-3/4 - 24-1/4 1st Qtr. ended 10/31/94 30-1/4 - 27-1/4
2nd Qtr. ended 1/31/96 25-1/4 - 23-5/8 2nd Qtr. ended 1/31/95 28 - 26-1/4
3rd Qtr. ended 4/30/96 27-7/8 - 23-5/8 3rd Qtr. ended 4/30/95 30 - 26
4th Qtr. ended 7/31/96 31-3/4 - 25-7/8 4th Qtr. ended 7/31/95 31 - 26-1/2
2
Balance Sheets
As of July 31, 1996 and 1995
1996 1995
Assets
Current Assets:
Cash and cash equivalents (including interest
bearing instruments of $3,986,484 in 1996
and $2,465,471 in 1995) $ 4,660,050 $ 2,979,374
Marketable securities, at cost (approximates market) 0 850,066
Accounts receivable 5,855,052 7,789,259
Unbilled die costs 812,055 296,113
Inventories (Note 2):
Work in process and finished goods 6,757,359 3,889,090
Raw materials 888,378 1,378,131
Total 7,645,737 5,267,221
Prepaid expenses and other assets 1,472,434 746,051
Deferred tax asset - current (Note 3) 59,000 4,000
Total current assets 20,504,328 17,932,084
Property, Plant and Equipment:
Land 76,200 76,200
Buildings and improvements 3,528,518 3,384,684
Machinery and equipment 19,345,445 18,073,621
Total 22,950,163 21,534,505
Less accumulated depreciation 15,180,642 13,920,608
Net property, plant and equipment 7,769,521 7,613,897
Total Assets $ 28,273,849 $25,545,981
<FN>
See notes to financial statements.
4
1996 1995
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 5,620,751 $ 3,420,655
Accrued wages and benefits 1,199,819 769,973
Accrued expenses 504,039 597,671
Accrued insurance 372,738 376,660
Taxes on income 41,420 30,199
Total current liabilities 7,738,767 5,195,158
Other Long-Term Liabilities (Notes 7, 9 and 10) 1,450,630 1,136,424
Deferred Tax Liability - Noncurrent (Note 3) 124,000 106,000
Shareholders' Investment:
Preferred stock, $1 par value; 250,000 shares
authorized, none outstanding
Common stock, no par value;
authorized 2,500,000 shares;
622,738 shares outstanding as of
July 31, 1996 and 1995
(Note 11) 593,584 593,584
Retained earnings 18,366,868 18,514,815
Total shareholders' investment 18,960,452 19,108,399
Total Liabilities and Shareholders' Investment $ 28,273,849 $25,545,981
<FN>
See notes to financial statements.
5
Statements of Operations
Years Ended July 31, 1996, 1995 and 1994
1996 1995 1994
Net Sales (Note 8) $79,211,000 $62,635,405 $63,004,461
Cost and Expenses:
Cost of products sold, other than items listed below 72,356,066 55,856,885 53,667,625
Depreciation 1,435,354 1,231,295 1,103,032
Pension expense (Note 4) 266,594 311,896 183,926
Selling and administrative expenses 4,445,464 4,121,134 4,056,140
Provision for plant consolidation (Note 9) 0 (800,000) 1,900,000
Total cost and expenses 78,503,478 60,721,210 60,910,723
Operating earnings 707,522 1,914,195 2,093,738
Interest income - net 121,173 285,010 495,275
Other income (86,904) 77,613 101,939
Earnings Before Income Taxes 741,791 2,276,818 2,690,952
Taxes on Income (Note 3) (267,000) (720,000) (882,000)
Earnings after Income Taxes, before Cumulative Effect of
Change in Method of Accounting for Income Taxes 474,791 1,556,818 1,808,952
Cumulative Effect of Change in Method of Accounting for
Income Taxes (Note 1) 240,000
Net Earnings $ 474,791 $ 1,556,818 $2,048,952
Earnings per Share after Income Taxes,
before Cumulative Effect of Change in
Method of Accounting for Income Taxes $ .76 $ 2.21 $ 2.09
Earnings per Share on Cumulative Effect of
Change in Method of Accounting for Income Taxes .28
Net Earnings per Common Share $ .76 $ 2.21 $ 2.37
Average Common Shares Outstanding 622,738 704,443 864,738
<FN>
See notes to financial statements.
6
Statements of Cash Flows
Years Ended July 31, 1996, 1995 and 1994
1996 1995 1994
Cash Flows from Operating Activities:
Earnings after income taxes, before
cumulative effect of change in method of
accounting for income taxes $ 474,791 $ 1,556,818 $ 1,808,952
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation 1,435,354 1,231,295 1,103,032
Gain on sale of equipment (22,259) (35,661) (32,415)
Provision for deferred taxes (37,000) 457,000 (794,000)
Change in operating assets and liabilities:
Accounts receivable 1,934,207 (497,596) (1,032,401)
Unbilled die costs (515,942) (227,112) 404,829
Inventories (2,378,516) 1,588,712 (1,102,691)
Prepaid expenses (726,383) 44,092 (160,925)
Accounts payable and accrued expenses 2,846,594 (1,311,493) 2,642,569
Taxes on income 11,221 (199,258) 205,898
Net cash provided by operating activities 3,022,067 2,606,797 3,042,848
Cash Flows from Investing Activities:
Proceeds from sale of marketable securities 4,485,879
Maturity of marketable securities 850,066 2,044,968
Proceeds from sale of equipment 114,000 88,900 97,140
Capital expenditures (1,682,719) (3,479,071) (1,186,516)
Net cash provided by (used in)
investing activities (718,653) (1,345,203) 3,396,503
Cash Flows from Financing Activities:
Repurchase of stock (7,260,000)
Dividends paid (622,738) (683,238) (864,738)
Net cash used in financing activities (622,738) (7,943,238) (864,738)
Increase (Decrease) in Cash and Cash Equivalents 1,680,676 (6,681,644) 5,574,613
Cash and Cash Equivalents at Beginning of Year 2,979,374 9,661,018 4,086,405
Cash and Cash Equivalents at End of Year $ 4,660,050 $ 2,979,374 $ 9,661,018
<FN>
See notes to financial statements.
7
Statements of Shareholders' Investment
Years Ended July 31, 1996, 1995 and 1994
Common Stock Issued Retained
and Outstanding Earnings
Shares Amount
Balance, August 1, 1993 864,738 $824,255 $ 23,486,350
Cash dividends ($1.00 per share) (864,738)
Net earnings 2,048,952
Balance, July 31, 1994 864,738 824,255 24,670,564
Cash dividends ($1.00 per share) (683,238)
Net earnings 1,556,818
Repurchase of stock (Note 11) (242,000) (230,671) (7,029,329)
Balance, July 31, 1995 622,738 593,584 18,514,815
Cash dividends ($1.00 per share) (622,738)
Net earnings 474,791
Balance, July 31, 1996 622,738 $593,584 $ 18,366,868
<FN>
See notes to financial statements.
Notes to Financial Statements
Years Ended July 31, 1996, 1995 and 1994
Note 1. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
Howell Industries, Inc. (the "Company") in the preparation of the financial
statements.
Investments are classified as held-to-maturity based on the Company's intended
use of the securities.
Inventories are stated at the lower of cost or market. The cost of raw
material and the material content of work-in-process and finished goods is
determined by the last-in, first-out method (lifo). The cost of the remaining
components of inventory, approximately 47% and 36% as of July 31, 1996 and
1995, respectively, is determined by the first-in, first-out method (fifo).
Property, Plant, and Equipment are recorded at cost. The Company provides
depreciation and amortization of plant and equipment by annual charges against
earnings, generally on the straight-line method at rates based on the
estimated useful lives of the respective depreciable assets. Estimated useful
lives are generally as follows:
Years
Buildings and improvements 10-25
Machinery and equipment 5-25
Automobiles and trucks 3-5
Taxes on Income - Effective August 1, 1993, the Company adopted on a
prospective basis the provisions of Statement of Financial Accounting
Standards (sfas) No. 109, "Accounting for Income Taxes," which requires an
asset liability approach and reporting for income taxes. Deferred income tax
assets and liabilities are recorded for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The effect of the
adoption of this statement was to increase earnings by approximately $240,000,
shown as a cumulative effect of an accounting change.
8
Statements of Cash Flows - For purposes of the statements of cash flows, the
Company considers all highly liquid investments with an original maturity
of three months or less from the date of purchase to be cash equivalents.
New Accounting Standards - In December 1991, the Financial Accounting
Standards Board (the "fasb") issued sfas No. 107, "Disclosures about Fair
Value of Financial Instruments." sfas No. 107 provides guidelines for
disclosures of fair value information about financial instruments, both assets
and liabilities recognized and not recognized in the statement of financial
position. Additionally, sfas No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," was issued in October
1994, and expands fair value disclosures for financial instruments. Both
statements were adopted by the Company during the year ended July 31, 1996 and
resulted in disclosure only impact on the financial statements.
sfas No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," issued in March 1995, requires
long-lived assets and intangibles to be reviewed for impairment whenever
events or circumstances indicate their carrying amount may not be recoverable.
This treatment does not differ from that previously employed by the Company.
This statement was adopted by the Company during the year ended July 31, 1996
and resulted in no financial statement impact.
The fasb also issued sfas No. 123, "Accounting for Stock-Based Compensation,"
which establishes a fair-value based method of accounting for stock-based
compensation plans and sfas No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which uses a
financial components approach that focuses on control to determine the proper
accounting for financial asset transfers. Neither statement is expected to
have a significant impact on the financial statements upon adoption during the
year ended July 31, 1997.
Use of Estimates in Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications have been made to the prior year financial statements to
conform to the presentation in 1996.
Note 2. Inventories
On a supplemental basis, if all inventories had been valued on the fifo
method, the inventory balance would have been higher by approximately
$1,506,000 in 1996 and $1,936,000 in 1995.
Note 3. Taxes on Income
Taxes on income are comprised of the following:
Year Ended July 31 1996 1995 1994
Current:
Federal $ 304,000 $253,000 $1,510,000
State and local 10,000 166,000
Deferred (credit) debit (37,000) 457,000 (794,000)
Total $ 267,000 $720,000 $ 882,000
A reconciliation of the income tax provision to that which would result by
applying the United States statutory tax rate (34%) to earnings before taxes
follows:
Year Ended July 31 1996 1995 1994
Tax based on statutory tax rate $ 252,000 $774,000 $ 915,000
Tax-exempt income (41,000) (86,000) (96,000)
Tax deductible esop dividend (26,000) (30,000) (33,000)
State and local income taxes,
net of federal income tax benefit (7,000) 110,000
Other 82,000 69,000 (14,000)
Taxes on income $ 267,000 $720,000 $ 882,000
9
Temporary differences and carryforwards which give rise to significant
deferred tax assets and liabilities are:
Year Ended July 31 1996 1995
Deferred tax assets:
Reserves recorded for financial accounting purposes,
not deductible for tax purposes until paid $459,000 $382,000
Employee benefits and payroll related deferrals 235,000 195,000
Total deferred tax assets 694,000 577,000
Current portion 87,000 23,000
Noncurrent portion - deferred tax assets $607,000 $554,000
Deferred tax liabilities:
Employee benefits and payroll related deferrals $ 60,000 $ 28,000
Use of straight-line depreciation for book purposes
and accelerated methods for tax purposes 671,000 632,000
Other 28,000 19,000
Total deferred tax liabilities 759,000 679,000
Current portion 28,000 19,000
Noncurrent portion - deferred tax liabilities $731,000 $660,000
Note 4. Employee Benefit Plans
The Company has three noncontributory defined benefit pension plans covering
substantially all of its employees and an unfunded noncontributory defined
contribution plan for certain officers. Benefits, which differ by plan, are
based on years of service and/or the employee's five-year average
compensation. The Company's funding policy, for its defined benefit plans, is
to contribute annually an amount necessary to meet or exceed the Employee
Retirement Income Security Act's (erisa) minimum funding standards.
As a result of the plant consolidation (see Note 9), in 1995 the Company
recognized a curtailment in one of its pension plans. The curtailment
approximated $80,000 and was accrued in 1994 as part of the plant
consolidation reserve. This amount was reclassified in 1995 from plant
consolidation reserve to net pension liability and is reflected in the funded
status table below.
The components of net pension cost are as follows:
Year Ended July 31 1996 1995 1994
Defined benefit plans:
Service cost - benefits earned during the year $ 194,643 $192,459 $159,944
Interest cost on projected benefit obligation 294,634 251,724 236,258
Actual return on plan assets (322,177) (372,711) (54,517)
Net amortization and deferral and other 62,910 194,711 (183,448)
Total 230,010 266,183 158,237
Defined contribution plan 36,584 45,713 25,689
Net pension costs $ 266,594 $311,896 $183,926
10
The following table sets forth the funded status and amounts recognized in the
balance sheets for the defined benefit plans:
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
July 31, 1996
Actuarial present value of benefit
obligation:
Vested benefit obligation $1,154,165 $2,534,402
Unvested benefit obligation 85,410 179,130
Accumulated benefit obligation 1,239,575 2,713,532
Effect of future salary increases 692,695
Projected benefit obligation for services
rendered to date 1,932,270 2,713,532
Plan assets at fair value 2,153,554 2,162,481
Contribution adjustment 31,312
Plan assets greater (less) than projected benefit
obligation 221,284 (519,739)
Items not recognized in earnings:
Unrecognized net loss (gain) (156,698) 48,316
Prior service cost not yet recognized in net periodic
pension 150,096 398,426
Unrecognized net (asset) obligation at July 31, 1996 (118,760) 97,619
Adjustment required to recognize minimum liability (544,361)
Net prepaid pension cost (pension liability) recognized in
the balance sheet $ 95,922 $ (519,739)
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
July 31, 1995
Actuarial present value of benefit
obligation:
Vested benefit obligation $1,010,422 $2,086,999
Unvested benefit obligation 77,729 89,494
Accumulated benefit obligation 1,088,151 2,176,493
Effect of future salary increases 785,716
Projected benefit obligation for services
rendered to date 1,873,867 2,176,493
Plan assets at fair value 1,854,509 1,969,793
Plan assets less than projected benefit obligation (19,358) (206,700)
Items not recognized in earnings:
Unrecognized net loss (gain) 33,879 (47,381)
Prior service cost not yet recognized in net periodic pension 169,339 129,342
Unrecognized net (asset) obligation at July 31, 1995 (143,502) 110,980
Adjustment required to recognize minimum liability (192,941)
Net prepaid pension cost (pension liability) recognized
in the balance sheet $ 40,358 $ (206,700)
The actuarial assumptions used in determining the present value of the
projected benefit obligations are:
Year Ended July 31 1996 1995 1994
Weighted average discount rate 7.6% 7.6% 7.5%
Increase in future compensation levels 5.0 5.0 5.0
The expected long-term rate of return on assets ranged from 7.50% to 7.25% in
1996, 1995 and 1994. Plan assets are invested in a portfolio of cash, income
and equity securities and a diversified fund with guaranteed returns.
The Company also maintains an Employee Stock Ownership Plan (esop) and an
Employee Savings Plan (401(k) plan) covering substantially all employees not
covered by a collective bargaining agreement.
At July 31, 1996 and 1995, the esop owned 67,447 and 85,933 shares of common
stock, respectively, all of which had been allocated to individual
participants.
11
Contributions to the esop are authorized at the discretion of the Board of
Directors. No contributions were charged to expense during 1996, 1995 or 1994.
There were no amounts accrued at July 31, 1996, 1995 or 1994 for such
contributions.
The Employee Savings Plan provides for participants to contribute up to 10% of
their annual compensation each year. In addition, the Company contributes an
amount equal to 25% of the first $1,000 contributed by the employee, plus
$200. Company contributions amounted to approximately $25,400 in 1996, $24,200
in 1995, and $27,300 in 1994.
Note 5. Supplemental Cash Flows Disclosure
Cash paid for income taxes was $990,000 in 1996, $768,000 in 1995 and
$1,495,000 in 1994.
Note 6. Line of Credit
In 1995, the Company converted its $2,000,000 unsecured line of credit into a
$4,000,000 unsecured line of credit with a 5% compensating balance agreement.
The Company did not borrow under either of these lines of credit in 1996, 1995
or 1994.
Note 7. Other Long-term Liabilities
Other long-term liabilities are comprised of the following at July 31:
1996 1995
Reserve for plant consolidation (Note 9) $ 120,000 $ 120,000
Environmental reserve (Note 10) 1,003,552 706,045
Other 327,078 310,379
Total $1,450,630 $1,136,424
Note 8. Segment Information and Certain Concentrations
The Company is an original equipment manufacturer of structural components for
the automotive industry. Sales to the Company's major customers were
$45,247,000 and $32,689,000 in 1996, $34,161,000 and $26,617,000 in 1995, and
$31,161,000 and $28,484,000 in 1994. Discontinuation of business with the
Company's major customers could affect operating results adversely.
The Company's primary raw material in the manufacture of structural components
is steel. Although steel is available in an adequate supply, a significant
increase in the price of this raw material could affect operating results
adversely.
Note 9. Plant Consolidation
In 1995, the Company substantially completed the consolidation of its
manufacturing operations which resulted in moving the majority of production
from the Lapeer, Michigan plant to the Masury, Ohio plant. The estimated costs
of this process including severance pay, increased medical and other fringe
benefits, increased pension costs due to a curtailment of one of the hourly
pension plans, press moves and consulting fees, were accrued during the third
quarter of 1994. Total expense of $1,900,000 was recorded (tax effect of
$646,000). During 1995, $800,000 of these costs were returned to income after
a determination that they would not be incurred. Approximately $765,000 was
paid during 1995 primarily for severance pay and the press moves and $37,000
was paid during 1994 related to the consolidation of the manufacturing plants.
Note 10. Contingencies
At July 31, 1996, the Company had an accrued liability of approximately
$1,004,000 relating to environmental matters. In one matter, the Company has
been identified by a group of companies as a potentially responsible party
related to a contaminated landfill along with numerous other potentially
responsible parties. Although it is difficult to estimate the liability to the
Company related to this matter, management believes that the amount accrued is
reasonable based upon the information currently available and that eventual
amounts paid for this matter will not have a materially adverse effect upon
its financial condition.
The Company also is defendant in lawsuits brought in July 1994 by a purchaser
of a plant site, previously owned by the Company, and in September 1995 by the
city in which the plant was located, alleging that the site was contaminated.
In 1996, the Company agreed to pay $575,000 in settlement of the litigation,
subject to government approvals. Management has accrued for this settlement
amount during the year ended July 31, 1996.
12
Note 11. Stock Repurchase
In fiscal 1995, the Company repurchased and retired 242,000 shares of common
stock from certain major shareholders at a total cost of $7,260,000.
Note 12. Operating Leases
The Company rents its corporate headquarters and a warehouse under
noncancelable operating leases. Total rent expense under these leases was
$174,000 in 1996, $114,000 in 1995 and $92,000 in 1994. Aggregate minimum
rental commitments under existing leases as of July 31, 1996 total $51,000 and
are payable in the year ended July 31, 1997.
Note 13. Research and Development Expense
The Company performs research and development for the design of new products.
Total research and development expense was $16,000 in 1996, $162,000 in 1995
and $142,000 in 1994.
Note 14. Fair Value of Financial Instruments
The carrying values of the Company's financial instruments, chiefly cash and
cash equivalents, marketable securities, accounts receivable, prepaid expenses
and other assets, accounts payable, accrued expenses and other long-term
liabilities, approximated their fair values at July 31, 1996 and 1995, based
on their short-term maturities.
Independent Auditors' Report
Shareholders and Board of Directors
Howell Industries, Inc.
Southfield, Michigan
We have audited the accompanying balance sheets of Howell Industries, Inc. as
of July 31, 1996 and 1995, and the related statements of operations,
shareholders' investment, and cash flows for each of the three years in the
period ended July 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Howell Industries, Inc. as of July 31,
1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended July 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective August 1, 1993
Howell Industries, Inc. changed its method of accounting for income taxes.
/s/ Deloitte & Touche, LLP
September 13, 1996
13
Selected Financial Data
Years ended July 31 1996 1995 1994 1993 1992
Net sales $79,211,000 $62,635,405 $63,004,461 $45,385,637 $39,434,334
Cost of products sold 72,356,066 55,856,885 53,667,625 38,165,826 32,781,437
Depreciation 1,435,354 1,231,295 1,103,032 1,068,054 1,066,812
Provision for plant consolidation -- (800,000) 1,900,000 -- --
Interest income 121,393 287,498 496,286 573,632 845,923
Interest expense 220 2,488 1,011 42,767 --
Taxes on income 267,000 720,000 882,000 885,000 848,000
Earnings after income taxes, before
cumulative effect of change in method
of accounting for income taxes 474,791 1,556,818 1,808,952 2,220,915 2,032,387
Cumulative effect of change in method
of accounting for income taxes -- -- 240,000 -- --
Net earnings 474,791 1,556,818 2,048,952 2,220,915 2,032,387
Earnings per share after income taxes,
before cumulative effect of change in
method of accounting for income taxes .76 2.21 2.09 2.56 2.28
Earnings per share on cumulative effect
of change in method of accounting for
income taxes -- -- 0.28 -- --
Net earnings per common share .76 2.21 2.37 2.56 2.28
Total assets 28,273,849 25,545,981 33,733,152 29,983,471 29,747,713
Dividends per share 1.00 1.00 1.00 1.00 1.00
Quarterly Earnings Data
Quarter ended October 31, Quarter ended January 31,
1995 1994 1996 1995
Net sales $16,660,990 $17,465,568 $17,493,837 $14,465,928
Gross profit 1,408,881 1,772,373 1,458,346 1,486,489
Net earnings 311,197 574,221 301,471 479,247
Earnings per share 0.50 0.66 0.48 0.74
Quarter ended April 30, Quarter ended July 31,
1996 1995 1996 1995
Net sales $25,871,817 $15,929,143 $19,184,356 $14,774,766
Gross profit 2,411,315 1,363,501 252,662 995,805
Net earnings (loss) 523,179 231,317 (661,056) 272,033
Earnings (loss) per share 0.84 0.37 (1.06) 0.44
14
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations 1996 versus 1995:
The Company reported net earnings of $474,791 ($.76 per share) for the year
ended July 31, 1996 compared to net earnings of $1,556,818 ($2.21 per share)
for the year ended July 31, 1995. The reduction in net earnings is primarily
a result of continued manufacturing inefficiencies at the Company's Masury
plant. The inefficiencies were related to the start-up of production of a new
part, sustained high production levels and carrying large inventories.
Additionally, net earnings for 1995 included $800,000 returned to income for
the reversal of previously recorded restructuring costs. Net sales increased
27% over the prior year, from $62,635,405 for the year ended July 31, 1995 to
$79,211,000 for the year ended July 31, 1996 chiefly due to production of two
significant parts and continued strength of light duty trucks sales. The
sales increase was accompanied by increased product costs, which rose from 89%
of sales in 1995 to 91% of sales in 1996.
Selling and administrative expenses increased 8% during the year ended July
31, 1996 compared to the year ended July 31, 1995. The increase is due mainly
to general salary increases and consulting fees incurred during fiscal 1996.
Net interest income declined from $285,010 for the year ended July 31, 1995 to
$121,173 for the year ended July 31, 1996 due to a concentration on
short-term, liquid investments in 1996, resulting in lower returns.
Additionally, other income declined from $77,613 at July 31, 1995 to ($86,904)
at July 31, 1996. Settlement of litigation charges and lower prototype sales
in 1996 versus 1995 were chiefly responsible for the decline over the prior
year.
1995 versus 1994:
The decrease in net earnings in fiscal 1995 over 1994 was primarily the result
of manufacturing inefficiencies at the Masury plant stemming from the
consolidation efforts and increases in raw material costs, resulting in a 4%
increase in cost of products sold as a percentage of net sales.
Interest income decreased in fiscal 1995 due to the lower average balance of
investments during the year in comparison to fiscal 1994. Lower investments
were maintained as the Company utilized funds to retire Company stock during
the second quarter of 1995. Other income decreased due to additional charges
for environmental matters. Additionally, plant consolidation reserves of
$800,000 were reversed in fiscal 1995 due to the determination that $550,000
related to estimated workers' compensation claims and other amounts related to
severance costs were unnecessary.
Liquidity and Capital Resources
During fiscal 1996, the Company provided cash from operating activities of
$3,022,067, up 16% over 1995. The increase in cash from operating activities
results from increases in depreciation and accounts payable and a decrease in
accounts receivable net of increases in inventory over fiscal 1995. The
Company has a $4,000,000 unsecured line of credit, converted from a $2,000,000
line of credit in fiscal 1995. No borrowings were made under these lines of
credit in fiscal 1995 or 1996. The Company anticipates meeting its current
demands with funds from operations.
15