1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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OR
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ____________________
Commission file number 1-6322
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Medalist Industries, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0873294
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10850 West Park Place, Suite 150
Milwaukee, Wisconsin 53224
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(Address of principal executive offices)
(Zip Code)
(414) 359-3000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
/X/ Yes / / No
Number of shares of common stock outstanding as of September 30, 1995:
3,868,387 par value $1.00 per share
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial statements.
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. 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 such rules and regulations. The Company believes that its review
of estimates and accruals each quarter, and the disclosures included herein,
are adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
Annual Report on Form 10-K.
Financial statements presented are:
Consolidated balance sheets -- September 30, 1995 and December 31,
1994.
Consolidated statement of operations for the three and nine months
ended September 30, 1995 and 1994.
Consolidated statement of cash flows for the nine months ended
September 30, 1995 and 1994.
Notes to condensed consolidated financial statements -- September
30, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Revenues of $29 million for the third quarter ended September 30, 1995
were down $2.6 million when compared to the same period in 1994. However, last
year's results included $1.9 million of revenues from the Company's former
Redi-Bolt operation, previously included in the Hardware Division, which was
sold at year end 1994. Revenues for the remaining operations in the Hardware
Division were flat period to period. The Company's C-Tech Division's sales
growth slowed during the quarter as the Division reported a modest 2% increase
in revenues over the same period last year. Reduced customer requirements and
longer than expected new customer start-up times were the primary causes of
this slowdown. The Industrial Fastener Division, although benefiting from
increased automotive sales, continued to experience reduced overall revenues
(95.5% of same period 1994 levels).
Revenues were $95.8 million for the first nine months of 1995 compared to
$100.9 million in the same period of 1994. However, since the Redi-Bolt
operation contributed $5.3 million to 1994 nine months revenues, revenues for
the first nine months were flat period to period. While the Company's C-Tech
and Hardware Divisions reported increases in year to date revenues, 8% and 4%
respectively, the Company's Industrial Fastener Division experienced a 3%
decrease in the nine month's revenue when compared to last year.
The gross margin percentage for the three month period ended September 30,
1995 was 25.4%, as compared to 23.3% for the same period last year. The
Industrial Fastener Division showed significant improvement in its gross
margin, increasing from 19.1% in the third quarter of 1994 to 25.4% in the
third quarter of 1995. This improvement was the result of selling price
increases, better plant utilization and overall cost reductions. The Company's
C-Tech and Hardware Divisions' gross margins both decreased from prior year
levels, with both divisions being adversely affected by increased material
costs. Overall for the first nine months, consolidated gross margins were
relatively flat period to period.
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Selling, general and administrative expenses for the third quarter were
13% lower than the third quarter of 1994 and 9% lower for the year to date
period. The Company's C-Tech Division experienced an increase over 1994 in
operating expenses for the quarter, due to start-up costs of two additional
branches and increased employment. The Division's SG & A expenses are expected
to be more in line at the end of the calendar year. The Industrial Fastener
Division reported a 13% decrease in SG & A costs, reflecting the Division's
continuing efforts to streamline its operations.
Interest expense for the third quarter was down 4% compared to the third
quarter of last year, but up 14% for the first nine months. The third quarter
decrease reflects the Company's reduced level of bank borrowings for this
period. However, higher interest rates throughout the current year were
responsible for the year to date increase.
Net loss for the current quarter was $46,000 versus a net loss of $1.063
million last year. The current quarter benefited from a $225,000 reversal of
accruals, which Company management deemed to exceed requirements. Net income
for the nine months was $995,000 versus a net loss of $258,000 for the same
period last year. The Company had no provision for income taxes in 1995 or
1994 due to utilization of net operating loss carryforwards.
CHANGES IN FINANCIAL CONDITION
The Company's working capital decreased by $2.0 million from December 31,
1994 to $27.8 million at September 30, 1995. A $.9 million decrease in cash,
used to pay down long term debt, and a $1.0 million reduction in inventories
were the major contributors to the working capital decrease. The inventory
decrease was concentrated at the Industrial Fastener Division, where management
continued to meet current customer demand with reduced inventory levels. The
Industrial Fastener Division's decrease in inventories was partially offset by
increased inventory levels at the C-Tech operation. The Company had no
material outstanding commitments for capital expenditures at September 30,
1995. Capital expenditures of $975,000 for the first nine months of 1995 were
$1.9 million less than the same period a year ago.
Although the Company has significantly reduced its long term debt during
the first nine months of the year, down $4.8 million from December 31, 1994, it
was not able to meet its income, interest and fixed charge coverage ratios
under the covenants of its credit facility for the third quarter of 1995. The
Company's bank group has issued waivers on these violations.
Management believes that the Company's ability to generate funds through
operations and its existing credit facilities are sufficient to provide the
necessary funding to continue its operations through the end of 1995.
Management also believes that the Company's bank group will establish
achievable covenants for the 1996 year under its existing credit arrangement,
which should provide adequate capital through 1996 and beyond.
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Consolidated balance sheets
Dollars in thousands (unaudited)
September 30, December 31,
1995 1994
------------ ------------
Assets
Current assets:
Cash $ 906 $ 1,765
Accounts receivable, less allowance
for doubtful accounts of $653 and $1,229 15,186 15,501
Inventories 29,022 30,066
Prepaid expenditures 3,009 2,625
Assets held for sale 187 255
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Total current assets 48,310 50,212
Other assets:
Intangibles less accumulated amortization
of $5,182 and $4,284 20,976 21,874
Other noncurrent assets 5,647 5,375
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Total other assets 26,623 27,249
Plant and equipment, at cost:
Land & buildings 593 590
Machinery and equipment 26,810 25,983
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Total 27,403 26,573
Less accumulated depreciation 12,482 10,330
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Net plant and equipment 14,921 16,243
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Total assets $ 89,854 $ 93,704
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 11,081 $ 10,967
Accrued liabilities 4,493 4,773
Current maturities of debt and capital leases 3,020 3,030
Liabilities of discontinued operations 1,956 1,675
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Total current liabilities 20,550 20,445
Long-term liabilities:
Long-term debt 27,873 32,140
Obligations under capital leases 35 49
Convertible subordinated debentures 7,242 7,760
Other liabilities 3,279 3,631
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Total long-term liabilities 38,429 43,580
Stockholders' equity
Common stock ($1.00 par value), authorized
10,000,000 issued 3,868,387 shares
September 30, 1995 and 3,837,054 shares
December 31, 1994 3,868 3,837
Capital in excess of par value 17,104 16,934
Retained earnings 9,903 8,908
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Total stockholders' equity 30,875 29,679
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Total liabilities and stockholders' equity $ 89,854 $ 93,704
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Consolidated statement of operations
Dollars in thousands except per share data (unaudited)
Periods ended September 30, 1995
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Three months Nine months
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1995 1994 1995 1994
-------- ------- ------- --------
Net sales $ 29,082 $ 31,693 $ 95,786 $100,915
Cost of products sold 21,698 24,315 71,768 76,432
Selling, general & administration 6,472 7,440 20,014 22,093
--------- -------- -------- --------
Operating income 912 (62) 4,004 2,390
Interest expense 958 1,001 3,009 2,648
--------- -------- -------- --------
Income (loss) before income taxes (46) (1,063) 995 (258)
Provision for income taxes 0 0 0 0
--------- -------- -------- --------
Net income (loss) $ (46) $ (1,063) $ 995 $ (258)
========= ======== ======== ========
Earnings (loss) per share
(based on average outstanding
common stock and common
stock equivalents)
Primary
Net income (loss) $ (0.01) $ (0.28) $ 0.26 $ (0.07)
========= ======== ======== ========
Assuming full dilution
Net income (loss) $ (0.01) $ (0.28) $ 0.26 $ (0.07)
========= ======== ======== ========
Average shares outstanding:
Primary 3,872,624 3,826,490 3,860,721 3,848,996
Full Dilution 3,872,624 3,826,490 3,863,550 3,848,996
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Consolidated statement of cash flows
Dollars in thousands (unaudited)
Periods ended September 30
--------------------------
Nine months
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1995 1994
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Cash flows from operating activities
Net income $ 995 $ (258)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 2,242 2,017
Amortization 898 1,109
(Gain)/loss on disposal of plant and equipment (4) 26
Changes in
Accounts receivable 315 (1,761)
Inventories 1,044 (1,242)
Prepaid expenditures (384) (159)
Accounts payable and accrued liabilities (166) 2,442
Noncurrent assets and liabilities (624) (1,247)
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Net cash provided by continuing operations 4,316 927
Cash flows provided (used) by
discontinued operations 349 (7)
Cash flows from investing activities
Purchases of plant and equipment (975) (2,874)
Proceeds from disposal of plant and equipment 59 0
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Net cash used by investing activities (916) (2,874)
Cash flows from financing activities
Net bank debt increase(decrease) (4,277) 2,664
Net subordinated debenture (decrease) (518) (510)
Net capital lease (decrease) (14) (33)
Proceeds from sale of common stock 201 133
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Net cash provided (used) by
financing activities (4,608) 2,254
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Net increase (decrease) in cash (859) 300
Cash at beginning of period 1,765 472
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Cash at end of period $ 906 $ 772
============ ============
Cash paid for:
Interest $ 2,720 $ 2,196
Income taxes $ 9 $ 80
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Notes to condensed financial statements
Dollars in thousands (unaudited)
1. The statements presented herein reflect all normal recurring adjustments
which, in the opinion of management, are necessary for a fair statement of the
results of the interim periods shown. Operating results for the period ending
September 30, 1995 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1995.
2. Inventories are stated at the lower of last-in-first-out cost or market.
Inventory cost includes material, labor, and all work associated with
production. The major classes of inventory are not segregated on the books of
the Company as to raw materials, work in process, and finished products,
except at the date of a physical inventory, which are at interim dates for
most divisions. However, a reasonable estimate of these allocations of
inventory are as follows:
September 30, December 31,
1995 1994
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Raw materials $ 4,359 $ 3,955
Work in process 4,512 4,425
Finished product 20,151 21,686
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Total $ 29,022 $ 30,066
=========== ===========
3. The earnings per common share computation for the periods ended
September 30, are as follows:
Three months ended September 30,
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1995 1994
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Shares Earnings Shares Earnings
--------- -------- --------- --------
Average shares outstanding 3,864,814 3,826,490
Net (loss) $ (46) $(1,063)
Assumed issuance of stock upon
the exercise of stock options 7,810 0 0 0
--------- -------- --------- --------
Basis of primary computation 3,872,624 $ (46) 3,826,490 $(1,063)
========= ======== ========= ========
(Loss) per share $ (0.01) $ (0.28)
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Fully diluted
Average shares outstanding 3,864,814 3,826,490
Net (loss) $ (46) $(1,063)
Assumed issuance of stock upon
the exercise of stock options 7,810 0 0 0
--------- -------- --------- --------
Basis of fully-diluted computation 3,872,624 $ (46) 3,826,490 $(1,063)
========= ======== ========= ========
(Loss) per share $ (0.01) $ (0.28)
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Nine months ended September 30,
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1995 1994
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Shares Earnings Shares Earnings
--------- -------- --------- --------
Average shares outstanding 3,859,331 3,821,554
Net income (loss) $ 995 $ (258)
Assumed issuance of stock upon
the exercise of stock options 1,390 0 27,442 0
--------- -------- --------- --------
Basis of primary computation 3,860,721 $ 995 3,848,996 $ (258)
========= ======== ========= ========
Earnings (loss) per share $ 0.26 $ (0.07)
======== ========
Fully diluted
Average shares outstanding 3,859,331 3,821,554
Net income (loss) $ 995 $ (258)
Assumed issuance of stock upon
the exercise of stock options 4,219 0 27,442 0
--------- -------- --------- --------
Basis of fully-diluted computation 3,863,550 $ 995 3,848,996 $ (258)
========= ======== ========= ========
Earnings (loss) per share $ 0.26 $ (0.07)
======== ========
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PART II -- OTHER INFORMATION
Item 1. Legal proceedings. N/A
Item 2. Changes in securities. N/A
Item 3. Defaults upon senior securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information.
On October 24, 1995 the Company announced that its Board of
Directors, at a regularly scheduled meeting, unanimously elected Mark Train to
its Board.
Item 6. Exhibits and reports on Form 8-K. N/A
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1995.
EXHIBITS
(99.1) Memoranda from Harris Bank, as agent for the Company's lenders,
to the Company regarding waiver of compliance with Section 7.8 (Income
Covenant), Section 7.9 (Interest Coverage Ratio) and Section 7.11 (Fixed Charge
Ratio) of the Company's amended loan agreement.
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.
Medalist Industries, Inc.
By: /s/ James S. Dahlke 11/14/95 /s/ John T. Paprocki 11/14/95
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James S. Dahlke Date John T. Paprocki Date
President and Chief Executive Officer Chief Financial Officer
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(EXHIBIT (99.1) Status of Waiver of Compliance with Loan Agreement)
November 10, 1995
Medalist Industries, Inc.
Two Park Plaza
10850 West Park Place, Suite 150
Milwaukee, WI 53224
Attention: Chief Financial Officer
Re: Financial Covenant Waivers
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement dated as of January 29,
1993 between Medalist Industries, Inc. (the "Company"), the Lenders and Harris
Trust and Savings Bank, as Agent for the Lenders, as amended by those certain
First, Second, Third and Fourth Amendments to Credit Agreement dated as of May
17, 1993, July 1, 1994, August 31, 1994, and January 17, 1995, respectively
(such Credit Agreement as so amended being referred to as the "Credit
Agreement"). Capitalized terms used herein without definition shall have the
same meanings herein as they have in the Credit Agreement.
The Company has requested that the Lenders waive compliance with (i)
Section 7.8 of the Credit Agreement whereby the Company promises to maintain a
certain Consolidated Pre-Tax Income as set forth therein, (ii) Section 7.9 of
the Credit Agreement whereby the Company promises to maintain a certain ratio
of EBIT to Interest Expense as set forth therein and (iii) Section 7.11 of the
Credit Agreement whereby the Company promises to maintain a certain Fixed
Charge Coverage Ratio as set forth therein. Accordingly, the Lenders hereby
waive (but only for the period ending September 30, 1995) the Company's
compliance with Sections 7.8, 7.9 and 7.11 of the Credit Agreement. From and
after October 1, 1995, the Lenders expect and require that the Company comply
with the express terms of Sections 7.8, 7.9 and 7.11 of the Credit Agreement.
This waiver is limited to the matters expressly stated herein and shall
become effective only upon the Company's and the Lenders' acceptance hereof in
the manner provided below. By accepting this waiver, the Company agrees that
it remains obligated to comply with the terms of the Credit Agreement and
related documents, including without limitations Sections 7.8, 7.9 and 7.11 of
the Credit Agreement, and that the Lenders shall not be obligated in the future
to waive any provision of the Credit Agreement. Except as specifically waived
hereby, all of the terms and conditions of the Credit Agreement shall stand and
remain in full force and effect. This waiver shall be governed by the internal
laws of the State of Illinois.
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Medalist Industries, Inc.
Page 2
Very truly yours,
HARRIS TRUST AND SAVINGS BANK,
individually and as Agent
By /s/ Andrew K. Peterson
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Its Vice President
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LASALLE NATIONAL BANK
By /s/ Roger Pillsbury
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Its Senior Vice President
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BANK ONE, MILWAUKEE, NA
By /s/ Jack V. West, Jr.
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Its Vice President
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SHAWMUT CAPITAL CORPORATION
(formerly known as Barclays
Business Credit, Inc.)
By /s/ Robert J. Lund
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Its Vice President
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Accepted as of the date last written above.
MEDALIST INDUSTRIES, INC.
By /s/ John T. Paprocki
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Its Chief Financial Officer
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