UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 1-10219
VULCAN INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-0810265
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
(302) 427-804
(Registrant's telephone number, including area code)
N/A
(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.
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.
Outstanding shares of no par value common stock at June 30, 1999:
1,092,786 shares
VULCAN INTERNATIONAL CORPORATION
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Schedule Supporting Net Income Per Common
Share and Dividends Per Common Share 4
Notes to Condensed Consolidated Financial
Statements 5-7
Independent Accountants' Report 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Item 3 Quantitative and Qualitative Disclosures
about Market Risks 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1999 1998
UNAUDITED
-ASSETS-
CURRENT ASSETS:
Cash $ 626,464 1,275,656
Marketable securities (At fair market value) 50,531,327 50,347,778
Accounts receivable 1,586,693 1,234,135
Inventories 939,804 512,220
Prepaid expense and tax 94,420 136,230
---------- ----------
TOTAL CURRENT ASSETS 53,778,708 53,506,019
---------- ----------
PROPERTY, PLANT AND EQUIPMENT-at cost 14,433,607 14,240,507
Less-Accumulated depreciation and depletion 11,669,160 11,441,682
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 2,764,447 2,798,825
---------- ----------
OTHER ASSETS:
Investment in joint venture - 63,089
Marketable securities (At fair market value) 37,980,061 35,590,860
Deferred charges and other assets 3,200,412 3,052,945
---------- ----------
TOTAL OTHER ASSETS 41,180,473 38,706,894
---------- ----------
TOTAL ASSETS $ 97,723,628 95,011,738
========== ==========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
CURRENT LIABILITIES:
Deferred income tax $ 15,758,629 15,686,091
Note payable 2,870,000 1,170,000
Other 712,133 1,035,504
---------- ----------
TOTAL CURRENT LIABILITIES 19,340,762 17,891,595
---------- ----------
OTHER LIABILITIES:
Deferred income tax 12,643,809 11,789,266
Joint venture and minority interest
in partnership 260,530 10,774
Other liabilities - 24,179
---------- ----------
TOTAL OTHER LIABILITIES 12,904,339 11,824,219
---------- ----------
SHAREHOLDERS' EQUITY:
Capital stock 249,939 249,939
Additional paid-in capital 5,636,031 5,626,843
Retained earnings 25,021,894 25,054,570
Accumulated other comprehensive income 54,205,098 52,506,224
---------- ----------
85,112,962 83,437,576
Less-Common stock in treasury-at cost 19,634,435 18,141,652
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 65,478,527 65,295,924
---------- ----------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $ 97,723,628 95,011,738
========== ==========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-1-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
For the six months ended For the three months ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
REVENUES:
Net sales $4,575,578 5,511,478 2,260,597 2,512,987
Dividends 925,765 849,196 463,162 428,794
--------- --------- --------- ---------
TOTAL REVENUES 5,501,343 6,360,674 2,723,759 2,941,781
--------- --------- --------- ---------
COST AND EXPENSES:
Cost of sales 4,588,930 5,342,688 2,247,758 2,586,030
General and
administrative 834,706 806,606 293,417 325,371
Interest expense 70,954 17,547 34,844 -
--------- -------- --------- ---------
TOTAL COST AND
EXPENSES 5,494,590 6,166,841 2,576,019 2,911,401
--------- --------- --------- ---------
EQUITY IN JOINT
VENTURE INCOME (LOSS)
AND MINORITY
INTEREST 187,155 258,200 92,980 (53,656)
--------- --------- --------- ---------
INCOME BEFORE
GAIN ON SALE OF
ASSETS 193,908 452,033 240,720 (23,276)
NET GAIN ON SALE OF
PROPERTY, EQUIPMENT,
AND INVESTMENTS 315,134 524,798 202,802 56,915
--------- --------- ---------- ---------
INCOME BEFORE
INCOME TAXES 509,042 976,831 443,522 33,639
INCOME TAX PROVISION 96,356 141,084 76,280 (86,013)
---------- --------- --------- ---------
NET INCOME $ 412,686 835,747 367,242 119,652
========= ========= ========= =========
NET INCOME PER
COMMON SHARE $ .37 .69 .33 .10
========= ========= ========= =========
DIVIDENDS PER
COMMON SHARE $ .40 .40 .20 .20
========= ========= ========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-2-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended
UNAUDITED
JUNE 30, JUNE 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 4,314,392 4,815,420
Cash paid to suppliers and employees (6,121,107) (6,175,355)
Dividends received 925,765 849,196
Interest paid (71,247) (17,547)
Income tax payments - (237,500)
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES (952,197) (765,786)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 225,062 536,752
Purchase of property and equipment (193,100) (103,938)
Cash distribution from joint venture 500,000 750,000
Collections on notes receivable and other - 34,662
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES 531,962 1,217,476
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit agreements 1,700,000 -
Sale of treasury shares 10,650 7,825
Purchase of common shares (1,494,245) (710,619)
Cash dividends paid (445,362) (483,798)
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES (228,957) (1,186,592)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (649,192) (734,902)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,275,656 2,141,676
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 626,464 1,406,774
========= =========
RECONCILIATION OF NET INCOME TO
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 412,686 835,747
Adjustments-
Depreciation and amortization 228,103 205,406
Deferred income taxes 51,905 8,416
Equity in joint venture income and
minority interest (187,155) (258,200)
Net gain on sale of property and
marketable securities (315,134) (524,798)
Increase in accounts receivable (261,186) (474,524)
Increase in inventories (427,584) (74,744)
Decrease in accounts payable,
accrued expenses and other assets (453,832) (483,089)
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ (952,197) (765,786)
========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-3-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
SCHEDULE SUPPORTING NET INCOME PER COMMON SHARE
AND DIVIDENDS PER COMMON SHARE
UNAUDITED
EXHIBIT 1
For the six months ended For the three months ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
a) Net income $ 412,686 835,747 367,242 119,652
========= ========= ========= =========
b) Cash
dividends
on common
shares $ 445,362 483,798 219,357 241,529
========= ========= ========= =========
Weighted Average
Shares:
c) Common shares
issued 1,999,512 1,999,512 1,999,512 1,999,512
d) Common
treasury
shares 882,065 789,465 898,392 791,505
--------- --------- --------- ---------
e) Common shares
outstanding 1,117,447 1,210,047 1,101,120 1,208,007
========= ========= ========= =========
f) Income per
common share
(a/e) $ .37 .69 .33 .10
g) Dividends
per common
share $ .40 .40 .20 .20
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-4-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1999 and 1998
The Registrant has been advised that it is a potentially responsible party,
together with 18 other parties, with regard to the Resolve, Inc. Superfund
Site, located in North Dartmouth, Massachusetts, with potential joint and
several liability of $5.7 million. The Resolve site was a waste chemical
reclamation facility. The environmental problem at the site involves soil
contamination including, particularly, PCB contaminants. The Registrant is
contesting all liability. The Company's liability, if any, cannot be
estimated at this time. It is the understanding of Registrant that clean-up
at the site will involve treatment of contaminated soil and ground water.
There may be other potential clean-up liability at other sites of which the
Registrant has no specific knowledge.
The accompanying condensed consolidated financial statements reflect all
adjustments that are, in the opinion of management, necessary to reflect a
fair presentation of financial position, results of operations and cash flows
for the interim periods. All such adjustments are of a normal recurring
nature.
There were no securities of the Registrant sold by the Registrant during the
six months ended June 30, 1999, that were not registered under the Securities
Act of 1933, in reliance upon an exemption from registration provided by
Section 4(2) of the Act.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORIES
JUNE 30, DECEMBER 31,
1999 1998
UNAUDITED
Inventories consisted of:
Finished goods $381,023 206,445
Work in process 241,231 91,048
Raw materials 317,550 214,727
------- -------
Total inventories $939,804 512,220
======= =======
-5-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1999 and 1998
(Continued)
COMPREHENSIVE INCOME
During the six months and three months ended June 30, 1999 and 1998 total
other comprehensive income (loss) was as follows:
For the six For the three
months ended months ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
Net income $ 412,686 835,747 367,242 119,652
Other comprehensive
income, net of tax:
Unrealized gain (loss)
on marketable securities 1,759,178 316,456 2,489,274 (3,292,960)
Less: reclassification
adjustment for gains
included in net income (60,304) - (60,304) -
--------- --------- --------- ---------
Total comprehensive
income (loss) $2,111,560 1,152,203 2,796,212 (3,173,308)
========= ========= ========= =========
Accumulated comprehensive income consists of unrealized holding gains on
securities available for sale of $54,205,098 at June 30, 1999 and
$52,506,224 at December 31, 1998.
STOCK OPTIONS
In April 1999, the Company's Stock Option Committee granted options to
purchase not more than 50,000 shares of treasury stock, at an exercise
price of $33 per share, to the Company's President and Chairman of the
Board.
BUSINESS SEGMENT INFORMATION
Effective December 31, 1998, Vulcan International Corporation adopted
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Segment operating
income and other unallocated corporate (expense) income for the six months
ended June 30, 1998 have been restated to conform with the current year
presentation. Reportable segments for the six months and three months
ended June 30 are as follows:
-6-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1999 and 1998
(Continued)
For the six For the three
months ended months ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
NET SALES:
Rubber and Plastics $3,553,197 3,954,745 1,792,067 1,903,842
Bowling Pins 1,035,491 1,755,037 507,564 736,744
Real Estate Operations 445,649 370,432 223,300 156,079
Intersegment net sales (233,697) (419,838) (149,604) (235,635)
--------- --------- --------- ---------
4,800,640 5,660,376 2,373,327 2,561,030
Timber sales reported in
gain on sale of property
and equipment (225,062) (148,898) (112,730) (48,043)
--------- --------- --------- ---------
TOTAL SALES $4,575,578 5,511,478 2,260,597 2,512,987
========= ========= ========= =========
OPERATING PROFIT (LOSS):
Rubber and Plastics $ (571,059) (356,724) (136,419) (271,724)
Bowling Pins 83,903 78,797 135,551 182,166
Real Estate Operations 242,139 224,473 123,876 91,780
--------- --------- --------- ---------
TOTAL OPERATING
PROFIT (LOSS) (245,017) (53,454) 123,008 2,222
Interest expense - net (70,954) (17,547) (34,844) -
Other unallocated corporate
income - net 825,013 1,047,832 355,358 31,417
Income tax provision (96,356) (141,084) (76,280) 86,013
--------- --------- --------- ---------
NET INCOME $ 412,686 835,747 367,242 119,652
========= ========= ========= =========
REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements at June 30, 1999, and for
the six-month period then ended have been reviewed, prior to filing, by
the Registrant's independent accountants, J.D. Cloud & Co. L.L.P., whose
report covering their review of the financial statements is included in
this report.
-7-
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Vulcan International Corporation
Wilmington, Delaware
We have reviewed the accompanying condensed consolidated balance sheet of
Vulcan International Corporation and subsidiaries as of June 30, 1999, and
the related condensed consolidated statements of income and cash flows for
the six-month and three-month periods ended June 30, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Vulcan International Corporation
and subsidiaries as of December 31, 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated February 22, 1999, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
J.D. CLOUD & CO. L.L.P.
Certified Public Accountants
Cincinnati, Ohio
July 29, 1999
-8-
PART I - FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Net sales revenue for the six-month period ended June 30, 1999, decreased
$935,900 or 17% over the corresponding period in 1998. Cost of sales
decreased $753,758 or 14.1% during the six-month period compared to the
corresponding six-month period in 1998. Net sales revenue for the second
quarter of 1999 decreased $252,390 or 10% and cost of sales decreased
$338,272 or 13.1% compared to the corresponding quarter in 1998. The
foregoing decreases were due primarily to decreased sales in the Rubber and
Plastics and Bowling Pins segments.
General and administrative expenses increased $28,100 or 3.5% in the six-
month period ended June 30, 1999, as compared to the corresponding six-month
period in 1998. General and administrative expenses for the second quarter of
1999 decreased $31,954 or 9.8% compared to the corresponding quarter in 1998.
These changes were primarily due to costs involved in upgrading the
Company's computer hardware and software.
Interest expense for the six-month period ended June 30, 1999 increased
$53,407. Interest expense for the three-month period ended June 30, 1999
increased $34,844. The increases were due to increased borrowings under
the Company's line of credit agreement.
Gains on the sale of property and equipment were $315,134 for the six-month
period ended June 30, 1999, as compared to $524,798 for the corresponding
period in 1998. Gains in 1999 are the result of the sale of timber and the
exchange of marketable securities. Gains in 1998 were the result of the
sale of timber and excess equipment from the Company's rubber plant in
Clarksville, Tennessee.
The Company has examined the problem Year 2000 Compliance with its technical
advisors. They state that most of the Company's current accounting software
is Year 2000 Compliant. As to the remaining software, it is anticipated that
in the near future current software vendors will offer upgrades to make such
software Year 2000 Compliant without material upgrade costs to the Company.
Their examination of hardware with regard to Year 2000 Compliance is nearly
complete. All hardware which has been tested is Year 2000 Compliant. With
respect to certain older pieces of hardware, the Company is awaiting
verification of Year 2000 Compliance from the appropriate vendors.
The Company has a 50% interest in a joint venture, Vulcan Brunswick Bowling
Pin Company (VBBPC) which manufactures bowling pins in Antigo, Wisconsin, for
Brunswick and the Company. The Company received cash distributions of
$500,000 from VBBPC during the first six months of 1999. The excess of cash
distributions over the Company's investment in VBBPC is included in other
liabilities at June 30, 1999.
-9-
PART I - FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
Summarized income statement information for VBBPC consists of the following:
Six Months Ended June 30, Three Months ended June 30,
1999 1998 1999 1998
Net sales $4,150,605 6,839,390 2,064,253 2,935,644
Costs and expenses 3,773,277 6,317,313 1,876,593 3,039,946
--------- --------- --------- ---------
Net income $ 377,328 522,077 187,660 (104,302)
========= ========= ========= =========
Company's 50% equity
in net income $ 188,664 261,039 93,830 (52,151)
========= ========= ========= =========
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the second quarter of 1999 were funded
in part through earnings and noncash charges such as depreciation and
amortization, a $100,000 distribution from the joint venture and from the sale
of timber and equipment. The cash from these transactions was primarily used
in operations. The Company expects to continue, when necessary, to use
short-term borrowings to meet cash requirements not fully provided by
earnings, depreciation and amortization. During the six months ended June 30,
1999, 43,849 shares of treasury stock were acquired for $1,494,245, and 300
shares were sold to a director of the Company for $10,650. There were
approximately $22,000 of commitments for capital expenditures as of June 30,
1999.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
There have been no significant changes in the Company's market risk, primarily
associated with marketable securities, since December 31, 1998.
-10-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Registrant has been advised that it is a potentially responsible party,
together with 18 other parties, with regard to the Resolve, Inc. Superfund
Site, located in North Dartmouth, Massachusetts, with potential joint and
several liability of $5.7 million. The Resolve site was a waste chemical
reclamation facility. The environmental problem at the site involves soil
contamination including, particularly, PCB contaminants. The Registrant is
contesting all liability. The Registrant's liability, if any, cannot be
estimated at this time. It is the understanding of Registrant that clean-up
at the site will involve treatment of contaminated soil and ground water.
There may be other potential clean-up liability at other sites of which the
Registrant has no specific knowledge.
The Registrant and its subsidiaries are party to other matters and claims
which are normal in the course of operations. While the results of
litigation and claims cannot be predicted with certainty, based on advice of
counsel, the Registrant believes that the final outcome of such matters will
not have a materially adverse effect on its consolidated financial condition.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit SB 601 Page
No. Ref. No. Description No.
27 602 (b) (27) Financial Data Schedule
for the Six Months Ended
June 30, 1999 12
b. The Company was not required to file Form 8-K for the quarter
ended June 30, 1999.
-11-
PART II - OTHER INFORMATION
(Continued)
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.
VULCAN INTERNATIONAL CORPORATION
August 13, 1999 By: /s/Benjamin Gettler
-----------------------------------
Date Chairman of the Board, President
and Chief Executive Officer
August 13, 1999 By: /s/Vernon E. Bachman
-----------------------------------
Date Vice President, Secretary-Treasurer
and Principal Accounting Officer
-12-