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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, 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
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 value, as of October 4, 1995: 10,511,856 --------------
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2
INDEX
SUDBURY, INC. AND SUBSIDIARIES
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of August 31, 1995 and May 31, 1995 3 - 4
Condensed Consolidated Statements of
Income for the three-month periods
ended August 31, 1995 and August 31,
1994 5
Condensed Consolidated Statements of
Cash Flows for the three-month periods
ended August 31, 1995 and August 31,
1994 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
2
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PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
SUDBURY, INC. AND SUBSIDIARIES
ASSETS
AUGUST 31, MAY 31,
1995 1995
(UNAUDITED) (AUDITED)
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(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 86 $ 3,548
Accounts receivable, net of allowance 38,107 41,800
Inventories 20,312 18,124
Deferred taxes and other 6,966 7,276
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TOTAL CURRENT ASSETS 65,471 70,748
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 2,263 2,263
Buildings 17,361 17,334
Machinery and equipment 55,508 53,580
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75,132 73,177
Less accumulated depreciation 20,651 18,931
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NET PROPERTY, PLANT AND EQUIPMENT 54,481 54,246
OTHER ASSETS 4,689 4,643
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$124,641 $129,637
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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,
1995 1995
(UNAUDITED) (AUDITED)
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(Dollars in thousands)
CURRENT LIABILITIES
Trade accounts payable $ 21,957 $ 25,891
Accrued compensation and employee benefits 11,729 14,286
Other accrued expenses 14,088 14,131
Current maturities of long-term debt 584 678
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TOTAL CURRENT LIABILITIES 48,358 54,986
LONG-TERM DEBT 16,299 17,978
OTHER LONG-TERM LIABILITIES 12,160 12,121
STOCKHOLDERS' EQUITY
Common Stock - par value $0.01 per
share; authorized 20,000,000 shares;
10,417,802 (10,289,883 at May 31,
1995) shares issued and outstanding 104 103
Additional paid-in capital 22,658 22,076
Retained earnings 25,899 23,210
Minimum pension liability adjustment - net (837) (837)
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TOTAL STOCKHOLDERS' EQUITY 47,824 44,552
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$124,641 $129,637
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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 INCOME
SUDBURY, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
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AUGUST 31, AUGUST 31,
1995 1994
(UNAUDITED) (UNAUDITED)
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(In thousands, except per share amounts)
Net sales $ 71,213 $ 67,720
Costs of products sold 60,192 57,245
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GROSS PROFIT 11,021 10,475
Selling and administrative expenses 6,403 6,167
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OPERATING INCOME 4,618 4,308
Interest expense - net (460) (800)
Other income (expense) 77 (7)
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Income before income taxes 4,235 3,501
Income tax expense 1,546 1,282
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NET INCOME $ 2,689 $ 2,219
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Net income per common share $ .21 $ .18
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Average common shares and common share
equivalents outstanding 12,752 12,563
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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
THREE MONTHS ENDED
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AUGUST 31, AUGUST 31,
1995 1994
(UNAUDITED) (UNAUDITED)
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(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 2,689 $ 2,219
Items included not affecting cash:
Depreciation and amortization 2,387 2,107
Other 230 1,311
Changes in operating assets and liabilities (5,080) (1,532)
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NET CASH PROVIDED BY OPERATING
ACTIVITIES 226 4,105
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,457) (2,080)
Proceeds from sale of property, plant,
equipment and other - net 153 28
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NET CASH USED IN INVESTING ACTIVITIES (2,304) (2,052)
FINANCING ACTIVITIES:
Borrowings, refinancings and repayments:
Long-term borrowings 17,600 69,541
Reductions of debt (19,456) (71,978)
Common stock issued 472 280
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NET CASH USED IN FINANCING ACTIVITIES (1,384) (2,157)
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DECREASE IN CASH (3,462) (104)
Cash and cash equivalents at beginning
of period 3,548 245
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CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 86 $ 141
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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 month period
ended August 31, 1995 are not necessarily indicative of the results that may be
expected for the fiscal year ending May 31, 1996. 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, 1995.
Certain amounts for the three months ended August 31, 1994 have been
reclassified to conform to the presentation at August 31, 1995.
NOTE B -- INVENTORIES
The components of inventories are summarized as follows (in thousands):
August 31, May 31,
1995 1995
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Raw materials and supplies $ 7,417 $ 7,474
Work in process 8,125 7,217
Finished products 5,219 3,875
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Total at FIFO 20,761 18,566
Less excess of FIFO cost over LIFO values 449 442
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$20,312 $18,124
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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, 1995.
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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, 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 1992 employment
agreement in January 1996, the Company is obligated to pay to Mr. Sardas, in
cancellation of his currently exercisable 1,764,706 stock options issued under
his 1992 stock option agreement ("1992 Stock Options"), the appraised value of
the shares underlying the 1992 Stock Options as determined by an investment
banking firm or appraiser mutually acceptable to the Company and Mr. Sardas,
less the exercise price thereof. The appraised value of the shares underlying
the 1992 Stock Options may differ from the trading price of the Company's
Common Stock. The Company is the beneficiary of a key-man life insurance
policy on Mr. Sardas' life in the amount of $14,000,000. The proceeds of this
policy would be used to help fulfill the Company's obligation in the event of
Mr. Sardas' death.
In July 1995, the Company and Mr. Sardas entered into an employment
agreement ("1996 Employment Agreement") which extends Mr. Sardas' employment
subsequent to the expiration of his 1992 employment agreement through January
1998. Under the 1996 Employment Agreement, Mr. Sardas has the right to sell to
the Company the Common Stock underlying the 1992 Stock Options (the "Option
Stock") in five separate approximately semi-annual installments commencing
February 7, 1996, through January 13, 1998. The purchase price for the Option
Stock is the per share fair market value on the purchase date based on quoted
prices on the principal stock exchange on which the Company's Common Stock is
traded ("Fair Market Value"). Mr. Sardas generally may delay his right to sell
any installment of the Option Stock until the next succeeding purchase date.
If at that next succeeding purchase date Mr. Sardas does not tender such shares
of Option Stock, the Company will have no further repurchase obligation for
such shares. Under the terms of the 1996 Employment Agreement, if Mr. Sardas'
employment is terminated other than for cause or due to Mr. Sardas' death or
disability, the Company is obligated to pay to Mr. Sardas, at Mr. Sardas'
election at that time or at the next installment purchase date, the Fair Market
Value of the Option Stock. Alternatively, in such event, if Mr. Sardas does
not exercise such election, he or his estate or representative will maintain
the right to sell the Option Stock in installments as noted above. If the 1996
Employment Agreement is terminated by the Company for cause, then the Company
has the right to purchase the Option Stock for the Fair Market Value thereof
subject to Mr. Sardas' right to decline to tender such shares. In the event he
declines to tender such shares, the Company's obligation to purchase the Option
Stock will terminate.
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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, 1995 COMPARED TO THREE
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MONTHS ENDED AUGUST 31, 1994
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SALES. The Company's net sales for the first quarter of fiscal 1996
increased by 5% to $71.2 million from $67.7 million in the prior year's
quarter. Sales at the Company's Wagner Casting Company ("Wagner") subsidiary
increased by 14% over the prior year period which more than offset a decrease
in sales of $.9 million at the Company's remaining businesses. New business
and the presence of Wagner's products on successful automotive vehicle
platforms benefited Wagner in the first quarter of fiscal 1996. Partially
offsetting the increase at Wagner were reductions in sales at Industrial Powder
Coatings ("IPC") and Cast-Matic. During the quarter, IPC's sales volume was
adversely impacted by the temporary suspension of $1.0 million of automotive
coil spring coating business as a result of a model change-over. The Company
expects this business to return in the third quarter of fiscal 1996.
Cast-Matic's sales declined due primarily to $.6 million in sales in the prior
year to a customer which is no longer in business and from a general reduction
in orders from its propane gas regulator valve customers.
For the quarter, the overall increase in sales of $3.5 million came
from net new business of $7.2 million and price increases of $.6 million less
volume declines of $4.3 million on existing products. The $7.2 million of net
new business came principally from $1.2 million in sales from IPC's new blank
coating line and $2.4 million in sales at Wagner for Ford Motor Company's World
Car program.
GROSS PROFIT. Gross profit as a percentage of net sales was 15.5% in
the first quarter of fiscal 1996, which was unchanged from the same quarter of
fiscal 1995. In the first quarter of fiscal 1996, Wagner's margins were
negatively impacted by $.1 million due to price increases in scrap steel which
is the principal raw material used at Wagner. By contrast, in the prior year
period, Wagner benefited from a $.3 million decrease in the price of scrap
steel prices. Commitments with most of Wagner's major customers allow Wagner
to pass on the majority of increases or decreases in the cost of scrap steel to
these customers, however, these adjustments are generally passed along three to
six months subsequent to the time the change occurs.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales decreased from 9.1% in the prior year
quarter to 9.0% for the current quarter principally due to higher sales. In
terms of dollars, expenses increased by $.2 million due principally to an
increase in selling expenses associated with higher revenues.
INTEREST EXPENSE. Interest expense decreased by $340,000 due to
significantly lower borrowing levels in the current 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
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 for the remainder of the year. The automotive
industry has started to experience a decrease in sales compared to the prior
year which if sustained will impact the Company's future results.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided cash of $.2 million in the first quarter
of fiscal 1996 compared to $4.1 million in the first quarter of fiscal 1995.
The decrease in cash provided resulted primarily from an increase in working
capital of $5.1 million in the current quarter.
Long-term debt (including current maturities) at August 31, 1995 was
$16.9 million, a decrease of $1.8 million from May 31, 1995. Long-term debt
represents 26% of long-term debt plus stockholders' equity at August 31, 1995
compared to 30% at May 31, 1995. At August 31, 1995 the Company had the
ability to borrow an additional $34.5 million under its revolving credit
facility.
Capital expenditures were $2.5 million in the first quarter of fiscal
1996 compared with $2.1 million in the prior year quarter. Capital
expenditures for the remainder of the year are expected to be higher than the
rate experienced in the first quarter as the Company expects to incur capital
expenditures of approximately $25 million in fiscal 1996. Major projects in
fiscal 1996 include Wagner's $12 million ductile iron modernization project and
IPC's electrodeposition coatings plant in Mexico.
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 the
fiscal year.
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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, 1995. There have been no
material developments in the described cases for the fiscal
quarter ended August 31, 1995.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
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The Company did not file any reports on Form 8-K during the three
months ended August 31, 1995.
EXHIBIT INDEX
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EXHIBIT SEQUENTIAL PAGE NUMBER
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(4)(a) Amendment to Credit Agreement dated 13
August 30, 1995 entered into by and
among Sudbury, Inc., National City
Bank and Star Bank, National Association
and National City Bank in its capacity
as Agent.
(11) Statement re: Computation of Per Share 19
Earnings
(27) Financial Data Schedule 20
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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 and
Chief Financial Officer
(Chief Accounting Officer)
Date: October 12, 1995
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