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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 0-10023
SUDBURY, INC.
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(Exact name of Registrant as specified in its Charter)
DELAWARE 34-1546292
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30100 CHAGRIN BOULEVARD, SUITE 203
CLEVELAND, OHIO 44124
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (216) 464-7026
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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.
YES X NO ______
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO ___ __
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: COMMON SHARES,
$0.01 PAR VALUE, AS OF SEPTEMBER 30, 1994: 10,042,771
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INDEX
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SUDBURY, INC. AND SUBSIDIARIES
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of August 31, 1994 and May 31, 1994 3 - 4
Condensed Consolidated Statements of
Operations for the three-month periods
ended August 31, 1994 and August 31,
1993 5
Condensed Consolidated Statements of
Cash Flows for the three-month periods
ended August 31, 1994 and August 31,
1993 6
Notes to Condensed Consolidated
Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9 - 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
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PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
SUDBURY, INC. AND SUBSIDIARIES
ASSETS
AUGUST 31, MAY 31,
1994 1994
(UNAUDITED) (AUDITED)
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(Dollars in thousands)
CURRENT ASSETS
Cash $ 1,839 $ 1,885
Accounts receivable, net of allowance 38,458 39,272
Inventories 20,923 18,592
Prepaid expenses and other 2,850 2,380
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TOTAL CURRENT ASSETS 64,070 62,129
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 2,234 2,191
Buildings 17,175 17,163
Machinery and equipment 40,512 38,534
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59,921 57,888
Less accumulated depreciation 13,185 11,450
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NET PROPERTY, PLANT AND EQUIPMENT 46,736 46,438
OTHER ASSETS
Notes receivable 408 408
Net assets of businesses held for sale 2,000 2,000
Intangible pension asset 1,359 1,359
Other assets 950 1,866
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TOTAL OTHER ASSETS 4,717 5,633
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$115,523 $114,200
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<FN>
See notes to condensed consolidated financial statements.
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PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - (CONTINUED)
SUDBURY, INC. AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31, MAY 31,
1994 1994
(UNAUDITED) (AUDITED)
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(Dollars in thousands)
CURRENT LIABILITIES
Trade accounts payable $ 20,395 $ 18,504
Accrued compensation and employee benefits 7,575 10,000
Other accrued expenses 12,705 11,658
Current maturities of long-term debt 2,304 2,300
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TOTAL CURRENT LIABILITIES 42,979 42,462
LONG-TERM DEBT 27,632 29,961
OTHER LONG-TERM LIABILITIES 12,824 12,367
STOCKHOLDERS' EQUITY
Common Stock - par value $0.01 per
share; authorized 20,000,000 shares;
10,305,059 (10,233,932 at May 31,
1994) shares issuable and
deemed outstanding 103 102
Additional paid-in capital 20,682 20,224
Retained earnings 11,857 9,638
Minimum pension liability adjustment - net (554) (554)
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TOTAL STOCKHOLDERS' EQUITY 32,088 29,410
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$115,523 $114,200
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<FN>
See notes to condensed consolidated financial statements.
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PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
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AUGUST 31, AUGUST 31,
1994 1993
(UNAUDITED) (UNAUDITED)
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(Dollars in thousands, except per share amounts)
Net sales:
Ongoing operations $ 67,720 $ 54,444
Businesses held for sale - 315
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Total 67,720 54,759
Costs and expenses:
Costs of products sold:
Ongoing operations 57,245 47,201
Businesses held for sale - 151
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Total 57,245 47,352
Selling and administrative expenses:
Ongoing operations 6,167 5,433
Businesses held for sale - 164
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Total 6,167 5,597
OPERATING INCOME 4,308 1,810
Interest expense - net (800) (961)
Other (expense) income (7) 276
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Income before income taxes 3,501 1,125
Income tax expense (1,282) (43)
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NET INCOME $ 2,219 $ 1,082
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Net income per share:
Primary $ .18 $ .09
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Fully diluted $ .18 $ .09
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Common shares and common share equivalents:
Primary 12,563 12,073
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Fully diluted 12,563 12,073
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<FN>
See notes to condensed consolidated financial statements.
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PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SUDBURY, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
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AUGUST 31, AUGUST 31,
1994 1993
(UNAUDITED) (UNAUDITED)
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(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 2,219 $ 1,082
Items included not affecting cash:
Depreciation and amortization:
Ongoing operations 2,107 2,021
Businesses held for sale - 47
Deferred taxes and other 1,311 121
Changes in operating assets and liabilities:
Ongoing operations (1,474) 130
Businesses held for sale - (28)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 4,163 3,373
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,080) (1,814)
Proceeds from collection of notes receivable - 2,000
Proceeds from sale of businesses - 666
Contingent payments to former owners
of acquired businesses - (188)
Proceeds from sale of property, plant,
equipment and other - net 28 127
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NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (2,052) 791
FINANCING ACTIVITIES:
Borrowings, refinancings and repayments:
Short and long-term borrowings 69,541 58,658
Reductions of debt (71,978) (66,515)
Common stock issued 280 1
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NET CASH USED IN FINANCING ACTIVITIES (2,157) (7,856)
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DECREASE IN CASH (46) (3,692)
Cash at beginning of period 1,885 5,284
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CASH AT END OF PERIOD $ 1,839 $ 1,592
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<FN>
See notes to condensed consolidated financial statements.
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PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
period ended August 31, 1994 are not necessarily indicative of the results that
may be expected for the fiscal year ending May 31, 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
May 31, 1994.
NOTE B -- INVENTORIES
The components of inventories are summarized as follows (in thousands):
August 31, May 31,
1994 1994
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Raw materials and supplies $ 8,592 $ 8,315
Work in process 8,282 6,995
Finished products 4,543 3,664
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Total at FIFO 21,417 18,974
Less excess of FIFO cost over LIFO values 494 382
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$20,923 $18,592
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NOTE C -- CONTINGENCIES
The Company is party to a number of lawsuits and claims arising out of
the conduct of its business, including those relating to commercial
transactions, product liability and environmental, safety and health matters.
All operating locations acquired by the Company since 1984 operate in a
variety of locations and industries where environmental situations could exist
based on current or past operations. Certain operating and non-operating
subsidiaries of the Company have been named as potentially responsible parties
("PRPs") liable for cleanup of known environmental conditions. For known
situations, the Company, with the assistance of environmental engineers and
consultants, has accrued amounts to cover estimated future environmental
expenditures. The Company has initiated corrective action and/or preventative
environmental projects to ensure the safe and lawful operation of its
facilities. It is possible, however, that future environmental expenditures
may be more or less than accrued amounts, or there could exist unknown
environmental situations at existing or previously owned businesses for which
the future cost is not known or accrued at August 31, 1994.
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PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE C -- CONTINGENCIES - CONTINUED
While the ultimate result of the above contingencies cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
Under the terms of the January 1992 employment agreement with Jacques
R. Sardas, Chairman, President and Chief Executive Officer of the Company, if
Mr. Sardas' employment is terminated for cause, or due to Mr. Sardas' death,
disability or voluntary resignation before the end of his employment agreement
in January 1996, the Company is obligated to pay to Mr. Sardas, in cancellation
of his 1,764,706 stock options which are currently exercisable at $.01 per
share, the appraised value of the shares underlying the options, less the
exercise price thereof. In addition, the Company would also be obligated to
pay to Mr. Sardas a cash bonus, which is based on 5% of the net fair value of
the Company in excess of $35 million. Based on the closing price of the
Company's Common Stock on August 31, 1994, the obligation for the options and
bonus would total approximately $13.6 million in the aggregate. The Company is
the beneficiary of a key-may life insurance policy on Mr. Sardas' life in the
amount of $14 million. The proceeds of this policy would be used to fulfill
the Company's obligation in the event of Mr. Sardas' death.
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PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS - THREE MONTHS ENDED AUGUST 31, 1994 COMPARED TO THREE
MONTHS ENDED AUGUST 31, 1993
SALES. The Company's net sales from ongoing operations for the first
quarter of fiscal 1995 increased by 24% to $67.7 million from $54.4 million in
the prior year's quarter. The Company experienced sales growth in all of its
businesses, with the largest sales dollar increases coming from Wagner Castings
Company ("Wagner") and Industrial Powder Coatings, Inc. ("IPC"), which sell
predominantly to the automotive industry. As a result of the strong increase
in automotive industry demands for the quarter, the Company was able to
increase sales of existing products by $8.8 million. In addition, sales
increased by $4.5 million from net new business.
GROSS PROFIT. Gross profit from ongoing operations as a percentage of
net sales was 15.5% in the first quarter of fiscal 1995 compared to 13.3% in
the prior year quarter. The increase in margin rate came from higher sales
volumes and a $.5 million favorable difference in scrap steel prices at Wagner.
In the first quarter of fiscal 1994, Wagner's margins were negatively impacted
by $.2 million due to significant price increases in scrap steel which is the
principal raw material used at Wagner. By contrast, in the current period
Wagner recognized a $.3 million benefit from a decrease in the price of scrap
steel which occurred in the first two months of the quarter. The price of
scrap steel subsequently rose in August 1994, therefore, Wagner is not
currently benefiting from scrap steel price differential.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses from ongoing operations as a percentage of net sales decreased from
10% in the prior year quarter to 9.1% for the current quarter principally due
to higher sales. In terms of dollars, expenses increased by $.7 million due
principally to: (1) a contractual bonus accrual for Jacques R. Sardas,
Chairman, President and Chief Executive Officer of the Company, (2) an increase
in sales commissions as a result of higher revenues, and (3) higher operating
costs at Wagner's Havana, Illinois plant which was in its start-up phase in the
prior year.
INTEREST EXPENSE. Interest expense decreased by $.2 million due to
reductions in debt as a result of the Company's cash flow from profitability.
Partially offsetting this reduction was an increase in the Company's interest
rate on the bank indebtedness due to increases in the prime rate.
OTHER. Other income decreased by $.3 million as the Company received
miscellaneous proceeds from asset sales which were recorded as income in the
prior year's quarter which were non-recurring.
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PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS - THREE MONTHS ENDED AUGUST 31, 1994 COMPARED TO THREE
MONTHS ENDED AUGUST 31, 1993 - continued
INCOME TAX EXPENSE. Income tax expense in the current period of $1.3
million (an effective tax rate of 36.6%) represented a significant increase
over the prior year's expense of $43,000 (an effective rate of 3.8%). The
expense in the current period arose from the utilization of net operating loss
carryforwards that were established as deferred tax assets under Statement of
Financial Accounting Standards No. 109.
AUTOMOTIVE AND LIGHT TRUCK MARKETS. As approximately 60% of the
Company's sales are dependent on the automotive and light truck markets in the
United States and Europe, related profits will be dependent on sales of
vehicles in these markets in the coming year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position continued to improve during the first
quarter of fiscal 1995 as operating activities provided cash of $4.2 million
compared to $3.4 million in the first quarter of fiscal 1994. This improvement
came principally from higher profitability.
Long-term debt (including current maturities) at August 31, 1994 was
$30.0 million, a decrease of $2.3 million from May 31, 1994. Long-term debt
represents 48% of long-term debt plus stockholders' equity at August 31, 1994
compared to 52% at May 31, 1994. At August 31, 1994 the Company had the
ability to borrow an additional $21.8 million under its revolving credit
facility.
Capital expenditures were $2.1 million in fiscal 1995 compared with
$1.8 million in the prior year quarter. The increase in capital expenditures
was mainly due to the purchase of equipment to be used in IPC's new powder
coating facility in Riverport, Kentucky.
The Company believes that funds available under its current bank
facility and funds generated from operations will be sufficient to satisfy its
anticipated operating needs and capital improvements for the remainder of
fiscal 1995.
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PART II OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS
Certain litigation was described in the Company's annual report on Form
10-K for the year ended May 31, 1994. There have been no material developments
in the described cases for the fiscal quarter ended August 31, 1994.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three
months ended August 31, 1994.
EXHIBIT INDEX
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EXHIBIT SEQUENTIAL PAGE NUMBER
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(4)(a) Fifth Amendment to Loan and Security
Agreement dated September 12, 1994
among the financial institutions named
therein and BA Business Credit, Inc.,
as Agent, and Sudbury, as the Parent,
and Cast-Matic Corporation, Frisby Mfg.
Co., Industrial Powder Coatings, Inc.,
Iowa Mold Tooling Co., Inc., South Coast
Terminals, Inc. and Wagner Castings Company.
(4)(b) Sixth Amendment to Loan and Security
Agreement dated September 12, 1994 among
the financial institutions named therein
and BA Business Credit, Inc., as Agent,
and Sudbury, as the Parent, and Cast-Matic
Corporation, Frisby Mfg. Co., Industrial
Powder Coatings, Inc., Iowa Mold Tooling
Co., Inc., South Coast Terminals, Inc.
and Wagner Castings Company.
(11) Statement re: Computation of Per Share Earnings
(27) Financial Data Schedule
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SIGNATURES
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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.
SUDBURY, INC.
(Registrant)
By: /s/ Jacques R. Sardas
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Jacques R. Sardas
Chairman of the Board
and Chief Executive Officer
By: /s/ Mark E. Brody
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Mark E. Brody
Vice President of Finance and Controller
(Chief Accounting Officer)
Date: October 11, 1994
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