1
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 November 30, 1994
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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
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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
----- -----
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
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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 JANUARY 4, 1995: 10,056,166
2
INDEX
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SUDBURY, INC. AND SUBSIDIARIES
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of November 30, 1994 and May 31, 1994 3 - 4
Condensed Consolidated Statements of
Operations for the three-month periods
ended November 30, 1994 and November 30,
1993 5
Condensed Consolidated Statements of
Operations for the six-month periods
ended November 30, 1994 and November 30,
1993 6
Condensed Consolidated Statements of
Cash Flows for the six-month periods
ended November 30, 1994 and November 30,
1993 7
Notes to Condensed Consolidated
Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
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PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
SUDBURY, INC. AND SUBSIDIARIES
ASSETS
NOVEMBER 30, MAY 31,
1994 1994
(UNAUDITED) (AUDITED)
(Dollars in thousands) ----------- ---------
CURRENT ASSETS
Cash $ 1,852 $ 1,885
Accounts receivable, net of allowance 41,753 39,272
Inventories 19,907 18,592
Prepaid expenses and other 3,181 2,380
-------- --------
TOTAL CURRENT ASSETS 66,693 62,129
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 2,257 2,191
Buildings 17,196 17,163
Machinery and equipment 44,935 38,534
-------- --------
64,388 57,888
Less accumulated depreciation 14,875 11,450
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 49,513 46,438
OTHER ASSETS
Net assets of businesses held for sale 2,000 2,000
Intangible pension asset 1,359 1,359
Notes receivable and other assets 442 2,274
-------- --------
TOTAL OTHER ASSETS 3,801 5,633
-------- --------
$120,007 $114,200
======== ========
<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
NOVEMBER 30, MAY 31,
1994 1994
(UNAUDITED) (AUDITED)
----------- ---------
(Dollars in thousands)
CURRENT LIABILITIES
Trade accounts payable $ 22,853 $ 18,504
Accrued compensation and employee benefits 7,752 10,000
Other accrued expenses 12,571 11,658
Current maturities of long-term debt 2,286 2,300
-------- --------
TOTAL CURRENT LIABILITIES 45,462 42,462
LONG-TERM DEBT 24,477 29,961
OTHER LONG-TERM LIABILITIES 13,143 12,367
DEFERRED INCOME TAXES 1,004 -
STOCKHOLDERS' EQUITY
Common Stock - par value $0.01 per
share; authorized 20,000,000 shares;
10,388,320 (10,233,932 at May 31,
1994) shares issuable and deemed
outstanding 104 102
Additional paid-in capital 21,089 20,224
Retained earnings 15,282 9,638
Minimum pension liability adjustment - net (554) (554)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 35,921 29,410
-------- --------
$120,007 $114,200
======== ========
<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
------------------------------------
NOVEMBER 30, NOVEMBER 30,
1994 1993
(UNAUDITED) (UNAUDITED)
----------- -----------
(In thousands, except per share amounts)
Net sales $ 74,355 $ 60,584
Costs of products sold 61,777 51,508
-------- --------
GROSS PROFIT 12,578 9,076
Selling and administrative expenses 6,479 5,496
-------- --------
OPERATING INCOME 6,099 3,580
Interest expense - net (759) (968)
Other income 59 162
-------- --------
Income before income taxes 5,399 2,774
Income tax expense (benefit) 1,974 (458)
-------- --------
NET INCOME $ 3,425 $ 3,232
======== ========
Net income per share:
Primary and fully diluted $ .27 $ .26
======== ========
Common shares and common share equivalents:
Primary 12,722 12,217
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Fully diluted 12,722 12,258
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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
SIX MONTHS ENDED
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NOVEMBER 30, NOVEMBER 30,
1994 1993
(UNAUDITED) (UNAUDITED)
----------- -----------
(In thousands, except per share amounts)
Net sales $142,075 $115,343
Costs of products sold 119,022 98,862
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GROSS PROFIT 23,053 16,481
Selling and administrative expenses 12,646 11,116
-------- --------
OPERATING INCOME 10,407 5,365
Interest expense - net (1,559) (1,905)
Other income 52 439
-------- --------
Income before income taxes 8,900 3,899
Income tax expense (benefit) 3,256 (415)
-------- --------
NET INCOME $ 5,644 $ 4,314
======== ========
Net income per share:
Primary $ .45 $ .36
======== ========
Fully diluted $ .45 $ .35
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Common shares and common share equivalents:
Primary 12,641 12,148
======== ========
Fully diluted 12,641 12,270
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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
SIX MONTHS ENDED
----------------------------------
NOVEMBER 30, NOVEMBER 30,
1994 1993
(UNAUDITED) (UNAUDITED)
----------- -----------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 5,644 $ 4,314
Items included not affecting cash:
Depreciation and amortization 4,239 4,156
Deferred taxes 2,359 -
Other 835 131
Changes in operating assets and liabilities (1,583) (2,243)
-------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 11,494 6,358
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (6,713) (3,466)
Proceeds from collection of notes receivable 100 2,249
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 102 134
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,511) (605)
FINANCING ACTIVITIES:
Borrowings, refinancings and repayments:
Short and long-term borrowings 140,952 117,175
Reductions of debt (146,677) (126,106)
Common stock issued 598 30
Tax benefit from stock option transactions 111 -
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (5,016) (8,901)
-------- --------
DECREASE IN CASH (33) (3,148)
Cash at beginning of period 1,885 5,284
-------- --------
CASH AT END OF PERIOD $ 1,852 $ 2,136
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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 of a normal recurring nature considered necessary for a fair
presentation have been included. Operating results for the three and six-month
periods ended November 30, 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):
November 30, May 31,
1994 1994
------------ -------
Raw materials and supplies $ 8,014 $ 8,315
Work in process 7,996 6,995
Finished products 4,413 3,664
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Total at FIFO 20,423 18,974
Less excess of FIFO cost over LIFO values 516 382
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$19,907 $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 November 30, 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. Based on the closing price of the Company's Common
Stock on November 30, 1994 and assuming that such price is equal to the
appraised value of the Common Stock, the obligation for the options would total
approximately $11 million. The Company is the beneficiary of a key-man 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 NOVEMBER 30, 1994 COMPARED TO THREE
- ------------------------------------------------------------------------------
MONTHS ENDED NOVEMBER 30, 1993
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SALES. The Company's net sales for the second quarter of fiscal 1995
increased by 23% to $74.4 million from $60.6 million in the prior year quarter.
The Company experienced sales growth in all of its businesses, with the largest
sales dollar increases coming from Wagner Castings Company ("Wagner"), which
sells predominantly to the automotive industry, and from Iowa Mold Tooling
("IMT"), which sells predominantly to various construction-related markets.
For the quarter, the Company was able to increase sales of existing products by
$8.1 million. In addition, sales increased by $5.0 million from net new
business and $.7 million as a result of price increases.
GROSS PROFIT. Gross profit as a percentage of net sales was 16.9% in
the second quarter of fiscal 1995 compared to 15.0% in the prior year quarter.
The increase in margin rate came from higher sales volumes, improved operating
efficiencies and a $.3 million favorable difference in scrap steel prices at
Wagner.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales decreased from 9.1% in the prior year
quarter to 8.7% for the current quarter principally due to higher sales. In
terms of dollars, such expenses increased by $1.0 million due principally to:
(1) a contractual bonus accrual for Jacques R. Sardas, Chairman, President and
Chief Executive Officer of the Company and (2) an increase in costs associated
with higher revenues.
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 its bank indebtedness due to increases in the base interest rates.
INCOME TAX EXPENSE. Income tax expense in the current period of $2.0
million (an effective tax rate of 36.6%) represented a significant increase
over the prior year benefit of $.5 million. The benefit in the prior year
period was the result of a refund received from the favorable resolution of a
state tax issue. During the current period the post-change net operating loss,
not subject to valuation allowance, was fully utilized. The reduction in the
deferred tax asset resulted in the tax expense for the period.
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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 - SIX MONTHS ENDED NOVEMBER 30, 1994 COMPARED TO SIX
- --------------------------------------------------------------------------
MONTHS ENDED NOVEMBER 30, 1993
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SALES. The Company's net sales for the current six month period
increased by 23% to $142.1 million from $115.3 million in the prior year
period. The Company experienced sales growth in all of its businesses, with
the largest sales dollar increases coming from Wagner, from Industrial Powder
Coatings, Inc. ("IPC"), which sells predominantly to the automotive industry,
and from IMT. For the quarter, the Company was able to increase sales of
existing products by $17.3 million. In addition, sales increased by $8.4
million from net new business and $1.1 million as a result of price increases.
GROSS PROFIT. Gross profit as a percentage of net sales was 16.2% for
the current six month period compared to 14.3% in the prior year period. The
increase in margin rate came from higher sales volumes, improved operating
efficiencies and a $.8 million favorable difference in scrap steel prices at
Wagner. In the first six months of fiscal 1994, Wagner's margins were
negatively impacted by $.7 million due to significant price increases in scrap
steel which is the principal raw material used at Wagner. In the current six
month period, Wagner's margins were favorably impacted by $.1 million due to a
temporary price decrease in scrap steel in the beginning of the fiscal year.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales decreased from 9.6% in the prior year
period to 8.9% for the current period principally due to higher sales. In
terms of dollars, such expenses increased by $1.5 million due principally to:
(1) a contractual bonus accrual for Jacques R. Sardas, Chairman, President and
Chief Executive Officer of the Company and (2) an increase in costs associated
with higher revenues.
INTEREST EXPENSE. Interest expense decreased by $.3 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 its bank indebtedness due to increases in the base interest rates.
INCOME TAX EXPENSE. Income tax expense in the current period of $3.3
million (an effective tax rate of 36.6%) represented a significant increase
over the prior year benefit of $.4 million. The benefit in the prior year
period was the result of a refund received from the favorable resolution of a
state tax issue. During the current period the post-change net operating loss,
not subject to valuation allowance, was fully utilized. The reduction in the
deferred tax asset resulted in the tax expense for the period.
OTHER INCOME. Other income in the prior year six month period of $.4
million related principally to the receipt of miscellaneous contingent
proceeds and escrows relating to the sale of assets in prior years.
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PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
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 next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's financial position continued to improve during the first six
months of fiscal 1995 as operating activities provided cash of $11.5 million
compared to $6.4 million in the first six months of fiscal 1994. This
improvement came principally from higher profitability and the utilization of
net operating loss carryforwards previously discussed.
Long-term debt (including current maturities) at November 30, 1994 was
$26.8 million, a decrease of $5.5 million from May 31, 1994. Long-term debt
represents 43% of long-term debt plus stockholders' equity at November 30, 1994
compared to 52% at May 31, 1994. At November 31, 1994, the Company had the
ability to borrow an additional $23.8 million under its revolving credit
facility.
For the six months ended November 30, 1994, capital expenditures were $6.7
million compared with $3.5 million in the prior year period. 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 next twelve
months.
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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 November 30, 1994.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Annual Meeting of Stockholders of the Company held on October 13,
1994, the stockholders considered and voted on: (1) the election of seven
directors for one-year terms expiring in 1995 or until their successors have
been duly elected and qualified and (2) a resolution proposed by the Board of
Directors that the stockholders ratify the action of the Board of Directors in
selecting and appointing Ernst & Young LLP as independent auditors for the
Company for the fiscal year ending May 31, 1995.
All of management's nominees for directors as listed in the proxy
statement were elected by the following votes:
Cloyd J. Abruzzo For 7,630,501
Withheld 10,114
Jerry A. Cooper For 7,630,501
Withheld 10,114
Preston Heller, Jr. For 7,630,480
Withheld 10,135
James A. Karman For 7,614,642
Withheld 25,973
David A. Preiser For 7,626,154
Withheld 14,461
Jacques R. Sardas For 7,618,135
Withheld 22,480
Thomas F. Slater For 7,630,451
Withheld 10,164
The proposal to ratify the appointment of Ernst & Young LLP as the
Company's independent auditors was passed by the following vote:
Shares Voted For 7,601,770
Shares Voted Against 28,581
Abstentions 10,264
Broker Non-Votes 0
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 November 30, 1994.
EXHIBIT EXHIBIT INDEX SEQUENTIAL PAGE NUMBER
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(11) Statement re: Computation of
Per Share Earnings 15
(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
-----------------------------------
Jacques R. Sardas
Chairman of the Board
and Chief Executive Officer
By: /S/MARK E. BRODY
-----------------------------------
Mark E. Brody
Vice President and
Chief Financial Officer
(Chief Accounting Officer)
Date: January 11, 1995
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