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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 February 28, 1995
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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
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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
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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
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value, as of April 4, 1995: 10,109,781
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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 February 28, 1995 and May 31, 1994 3 - 4
Condensed Consolidated Statements of
Operations for the three-month periods
ended February 28, 1995 and February 28,
1994 5
Condensed Consolidated Statements of
Operations for the nine-month periods
ended February 28, 1995 and February 28,
1994 6
Condensed Consolidated Statements of
Cash Flows for the nine-month periods
ended February 28, 1995 and February 28,
1994 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 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
FEBRUARY 28, MAY 31,
1995 1994
(UNAUDITED) (AUDITED)
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(Dollars in thousands)
CURRENT ASSETS
Cash $ 206 $ 245
Accounts receivable, net of allowance 48,557 39,272
Inventories 19,148 18,592
Prepaid expenses and other 5,338 4,020
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TOTAL CURRENT ASSETS 73,249 62,129
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 2,263 2,191
Buildings 17,252 17,163
Machinery and equipment 49,681 38,534
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69,196 57,888
Less accumulated depreciation 16,640 11,450
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NET PROPERTY, PLANT AND EQUIPMENT 52,556 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 388 2,274
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TOTAL OTHER ASSETS 3,747 5,633
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$129,552 $114,200
======== ========
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
FEBRUARY 28, MAY 31,
1995 1994
(UNAUDITED) (AUDITED)
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(Dollars in thousands)
CURRENT LIABILITIES
Trade accounts payable $ 23,495 $ 18,504
Accrued compensation and employee benefits 11,015 10,000
Other accrued expenses 13,269 11,658
Current maturities of long-term debt 2,291 2,300
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TOTAL CURRENT LIABILITIES 50,070 42,462
LONG-TERM DEBT 28,092 29,961
OTHER LONG-TERM LIABILITIES 11,466 12,367
DEFERRED INCOME TAXES 740 -
STOCKHOLDERS' EQUITY
Common Stock - par value $0.01 per
share; authorized 20,000,000 shares;
10,439,689 (10,233,932 at May 31,
1994) shares issuable and deemed
outstanding 104 102
Additional paid-in capital 21,337 20,224
Retained earnings 18,297 9,638
Minimum pension liability adjustment - net (554) (554)
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TOTAL STOCKHOLDERS' EQUITY 39,184 29,410
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$129,552 $114,200
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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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FEBRUARY 28, FEBRUARY 28,
1995 1994
(UNAUDITED) (UNAUDITED)
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(In thousands, except per share amounts)
Net sales $ 76,247 $ 60,765
Costs of products sold 64,507 51,727
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GROSS PROFIT 11,740 9,038
Selling and administrative expenses 6,462 5,774
Special charges - 5,956
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OPERATING INCOME (LOSS) 5,278 (2,692)
Interest expense - net (708) (884)
Settlement of preconfirmation liabilities - 846
Other income 177 90
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Income (loss) before income taxes 4,747 (2,640)
Income tax expense 1,732 13
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NET INCOME (LOSS) $ 3,015 $ (2,653)
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Net income (loss) per share:
Primary and fully diluted $ .24 $ (.21)
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Common shares and common share equivalents:
Primary 12,603 12,483
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Fully diluted 12,633 12,510
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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
NINE MONTHS ENDED
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FEBRUARY 28, FEBRUARY 28,
1995 1994
(UNAUDITED) (UNAUDITED)
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(In thousands, except per share amounts)
Net sales $218,322 $176,108
Costs of products sold 183,529 150,589
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GROSS PROFIT 34,793 25,519
Selling and administrative expenses 19,108 16,890
Special charges - 5,956
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OPERATING INCOME 15,685 2,673
Interest expense - net (2,267) (2,789)
Settlement of preconfirmation liabilities - 846
Other income 229 529
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Income before income taxes 13,647 1,259
Income tax expense (benefit) 4,988 (402)
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NET INCOME $ 8,659 $ 1,661
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Net income per share:
Primary $ .69 $ .14
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Fully diluted $ .69 $ .13
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Common shares and common share equivalents:
Primary 12,633 12,246
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Fully diluted 12,633 12,502
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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
NINE MONTHS ENDED
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FEBRUARY 28, FEBRUARY 28,
1995 1994
(UNAUDITED) (UNAUDITED)
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(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 8,659 $ 1,661
Items included not affecting cash:
Depreciation and amortization 6,448 6,217
Special charges - 5,956
Settlement of preconfirmation liabilities - (846)
Deferred taxes 2,095 -
Other (1,319) 164
Changes in operating assets and liabilities (3,542) (2,556)
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NET CASH PROVIDED BY OPERATING
ACTIVITIES 12,341 10,596
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (11,648) (4,787)
Proceeds from collection of notes receivable 470 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 146 141
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NET CASH USED IN INVESTING ACTIVITIES (11,032) (1,919)
FINANCING ACTIVITIES:
Borrowings, refinancings and repayments:
Short and long-term borrowings 215,440 175,406
Reductions of debt (217,666) (183,252)
Common stock issued 690 512
Tax benefit from stock option transactions 188 -
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NET CASH USED IN FINANCING ACTIVITIES (1,348) (7,334)
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(DECREASE) INCREASE IN CASH (39) 1,343
Cash at beginning of period 245 (1,115)
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CASH AT END OF PERIOD $ 206 $ 228
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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
nine-month periods ended February 28, 1995 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.
Certain May 31, 1994 amounts have been reclassified to conform to the
presentation at February 28, 1995.
NOTE B -- INVENTORIES
The components of inventories are summarized as follows (in thousands):
February 28, May 31,
1995 1994
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Raw materials and supplies $ 8,635 $ 8,315
Work in process 6,984 6,995
Finished products 4,192 3,664
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Total at FIFO 19,811 18,974
Less excess of FIFO cost over LIFO values 663 382
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$19,148 $18,592
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NOTE C -- SPECIAL CHARGES
Special charges of $5,956,000 for the three and nine month periods
ended February 28, 1994 relate to accruals recorded in connection with the
achievement of certain performance targets established in the January 1992
employment agreement ("Agreement") with Jacques R. Sardas, Chairman, President
and Chief Executive Officer of the Company.
NOTE D -- SETTLEMENT OF PRECONFIRMATION LIABILITIES
Two lawsuits which had been pending in United States Bankruptcy Court
against the Company and several of its former officers and directors were
settled in February 1994. The lawsuits related to events which occurred prior
to the Company's entry into, and emergence from, bankruptcy. The Company also
resolved an insurance-related bankruptcy claim in February 1994. As a result
of these two settlements, the Company recognized an $846,000 benefit as such
settlements were for less than the amount reserved for such claims.
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PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE E -- 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 February 28, 1995.
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, results of
operations, or liquidity 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 February 28, 1995 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 FEBRUARY 28, 1995 COMPARED TO THREE
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MONTHS ENDED FEBRUARY 28, 1994
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SALES. The Company's net sales for the third quarter of fiscal 1995
increased by 25% to $76.2 million from $60.8 million in the prior year quarter.
The Company experienced sales growth in all of its businesses, the largest of
which was a 36% increase at Wagner Castings Company ("Wagner"), which sells
predominantly to the automotive industry. For the quarter, the Company was
able to increase sales of existing products by $8.9 million. In addition,
sales increased by $5.4 million from net new business and $1.1 million as a
result of price increases.
GROSS PROFIT. For the third quarter of fiscal year 1995, gross profit
increased by $2.7 million over the prior year period. Gross profit as a
percentage of net sales was 15.9% in the third quarter of fiscal 1995 compared
to 14.9% in the prior year quarter. The increase in margin rate came from
higher sales volumes, improved operating efficiencies and a $.2 million
favorable difference in scrap steel prices at Wagner.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales decreased to 8.5% in the current year
quarter from 9.5% for the prior quarter principally due to higher sales. In
terms of dollars, such 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 and (2) an increase in selling expenses
associated with higher revenues.
SPECIAL CHARGES. There were no special charges in the three month
period ended February 28, 1995. As described in Note C--Special Charges of the
financial statements, special charges of $6.0 million in the prior year period
related to accruals recorded in connection with the achievement of certain
performance targets established in the January 1992 employment agreement with
Jacques R. Sardas, Chairman, President and Chief Executive Officer of the
Company.
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 $1.7
million (an effective tax rate of 36.5%) represented a significant increase
over the prior year expense of $13,000 as the Company has fully utilized its
post-change net operating loss carryforwards and is therefore currently subject
to income taxes on its earnings.
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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 - NINE MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO NINE
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MONTHS ENDED FEBRUARY 28, 1994
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SALES. The Company's net sales for the current nine month period
increased by 24% to $218.3 million from $176.1 million in the prior year
period. The Company experienced sales growth in all of its businesses, with
the largest sales dollar increases coming from (1) Wagner and Industrial
Powder Coatings, Inc. ("IPC"), who sell predominantly to the automotive
industry and (2) Iowa Mold Tooling, which sells predominantly to various
construction-related markets. For the nine month period, sales increased by
$42.2 million due to an increase in sales of existing products of $27.0
million, an increase of $13.0 million from net new business and $2.2 million of
price increases.
GROSS PROFIT. For the current nine month period, gross profit improved
by $9.3 million over the prior year period. Gross profit as a percentage of net
sales was 15.9% for the current nine month period compared to 14.5% in the
prior year period. The increase in margin rate came from higher sales volumes,
improved operating efficiencies and a $1.0 million favorable difference in
scrap steel prices at Wagner. In the first nine months of fiscal 1994,
Wagner's margins were negatively impacted by $1.2 million due to significant
price increases in scrap steel which is the principal raw material used at
Wagner. In the current nine month period, Wagner's margins were negatively
impacted by $.2 million due to scrap steel price increases.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales decreased to 8.8% in the current year
period from 9.6% for the prior period principally due to higher sales. In
terms of dollars, such expenses increased by $2.2 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 selling expenses
associated with higher revenues.
SPECIAL CHARGES. There were no special charges in the current year
nine month period. Special charges of $6.0 million in the prior year period
were described previously in the results of operations for the three months
ended February 28, 1995.
INTEREST EXPENSE. Interest expense decreased by $.5 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 $5.0
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
carryforward was fully utilized and therefore the Company is currently subject
to income taxes on its earnings. A reduction in the deferred tax asset
associated with the net operating loss carryforward of $1.9 million which was
utilized during the period also contributed to the increased 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 - NINE MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO NINE
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MONTHS ENDED FEBRUARY 28, 1994 - continued
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OTHER
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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 future.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's financial position continued to improve during the first
nine months of fiscal 1995 as operating activities provided cash of $12.3
million compared to $10.6 million in the first nine months of fiscal 1994.
This improvement came principally from increased operating profits.
Long-term debt (including current maturities) at February 28, 1995 was
$30.4 million, a decrease of $1.9 million from May 31, 1994. Long-term debt
represented 44% of long-term debt plus stockholders' equity at February 28,
1995 compared to 52% at May 31, 1994. At February 28, 1995, the Company had
the ability to borrow an additional $21.4 million under its revolving credit
facility.
For the nine months ended February 28, 1995, capital expenditures were
$11.6 million compared with $4.8 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, and
equipment improvements at Wagner to improve production capacity and costs.
In February 1995, the Company announced that it plans to invest
approximately $10 million at Wagner to purchase a state-of-the-art ductile iron
molding line. This equipment is expected to be in place in early calendar year
1996.
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
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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 February 28, 1995.
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 February 28, 1995.
EXHIBIT INDEX
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Exhibit 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: April 10, 1995
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