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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, 2001 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 0-10120
FAFCO, Inc.
(Exact name of Registrant as specified in its charter)
California 94-2159547
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
435 Otterson Drive, Chico, California 95928-8207
(Address, including zip code, of Registrant's principal executive offices)
(530) 332-2100
(Company's telephone number, including area code)
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 [ ]
At August 11, 2001, 3,854,791 shares of the Company's Common Stock, $.125 par
value were issued and outstanding.
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Page 1 of 10
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Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FAFCO, Inc.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2001 DECEMBER 31, 2000
(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 6,400 $ 10,100
Accounts receivable, less allowance for
doubtful accounts of $432,500 in 2001 and
$400,000 in 2000 2,347,300 1,969,400
Inventories 1,004,900 1,225,900
Prepaid expenses and other current assets 254,000 211,500
Other accounts receivable, net of allowance 94,400 21,600
Deferred tax asset, net of allowance 215,700 215,700
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Total current assets 3,922,700 3,654,200
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Property, plant and equipment, at cost 7,906,400 7,104,000
Less accumulated depreciation and amortization (1,898,100) (1,760,000)
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6,008,300 5,344,000
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Notes receivable and other assets (net) 13,600 9,300
Deferred tax asset, net of allowance 648,600 648,600
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Total assets 10,593,200 9,656,100
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 192,600 $ 450,500
Note payable to bank 231,900 143,000
Accounts payable and other accrued expenses 1,933,600 1,744,700
Accrued compensation and benefits 404,600 267,800
Accrued warranty expense 329,100 287,700
Other current liabilities 2,900 5,100
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Total current liabilities 3,094,700 2,898,800
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Mortgage 3,359,700 3,366,500
Note payable to bank 559,900 224,000
Other non-current liabilities 44,400 34,200
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Total liabilities $ 7,058,700 $ 6,523,500
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Commitments and contingent liabilities
Shareholders' equity:
Preferred stock-authorized 1,000,000 shares of
$1.00 par value, none of which has been issued
Common stock-authorized 10,000,000 shares of
$0.125 par value; 3,854,791 shares issued and
outstanding in 2001 and 3,834,791 issued and
outstanding in 2000 481,800 479,300
Capital in excess of par value 5,108,500 5,106,000
Notes receivable secured by Common Stock (75,100) (75,100)
Accumulated deficit (1,980,700) (2,377,600)
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Total shareholders' equity $ 3,534,500 $ 3,132,600
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Commitments and contingent liabilities
Total liabilities and shareholders' equity $ 10,593,200 $ 9,656,100
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The accompanying notes are an integral part of this statement.
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Part I - FINANCIAL INFORMATION - Item 1 (continued)
FAFCO, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- -----------------------------
2001 2000 2001 2000
---------------------------- -----------------------------
Net sales $ 4,026,200 $ 3,586,300 $ 6,888,800 $ 6,308,400
Other income (net) 36,000 (7,100) (2,200) (4,600)
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Total revenues 4,062,200 3,579,200 6,886,600 6,303,800
---------------------------- -----------------------------
Cost of goods sold 2,247,600 2,146,300 3,911,400 3,894,600
Marketing & selling expense 654,900 531,700 1,239,700 1,069,500
General & administrative expense 480,300 391,900 886,800 798,700
Research & development expense 29,300 87,700 83,800 205,600
Net interest expense 140,900 39,600 226,500 45,900
Relocation costs 182,000 182,000
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Total costs and expenses 3,553,000 3,379,200 6,348,200 6,196,300
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Income before income taxes 509,200 200,000 538,400 107,500
Provision for income taxes 133,800 68,100 141,500 36,600
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Net income $ 375,400 $ 131,900 $ 396,900 $ 70,900
============================ =============================
Basic earnings net income per share $ 0.10 $ 0.03 $ 0.10 $ 0.02
Diluted net income per share $ 0.10 $ 0.03 $ 0.10 $ 0.02
---------------------------- -----------------------------
The accompanying notes are an integral part of this statement.
Page 3 of 10
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Part I - FINANCIAL INFORMATION -- Item 1 (continued)
FAFCO, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
JUNE 30
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2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 396,900 $ 70,900
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 138,100 98,000
Write offs and allowance for doubtful accounts 32,500 30,800
Change in assets and liabilities:
Accounts receivable (483,200) (735,200)
Inventories 221,000 (106,500)
Prepaid expenses and other assets (46,800) (8,900)
Notes receivable and other long term assets (3,200)
Payables and accrued expenses and other current
liabilities 364,900 969,000
Other non-current liabilities 10,200 26,900
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Net cash provided by operating activities 633,600 341,800
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed assets (802,400) (1,207,800)
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Net cash used in investing activities (802,400) (1,207,800)
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 5,000 67,500
Repayment of bank line of credit (257,900) (461,500)
Proceeds from term loan 418,000 500,000
Repayment of term loan (66,100)
Proceeds from construction loan 903,600
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Net cash provided by financing activities 165,100 943,500
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Net increase in cash and cash equivalents (3,700) 77,500
Cash and cash equivalents, beginning of period 10,100 64,800
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Cash and cash equivalents, end of period 6,400 142,300
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 224,800 $ 42,000
Cash paid during the period for income taxes
The accompanying notes are an integral part of this statement.
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Part I - FINANCIAL INFORMATION -- Item 1 (continued)
FAFCO, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. This information is unaudited; however, in the opinion of the Company's
management, all adjustments necessary for a fair statement of results for the
periods presented have been included. The results for the period ended June 30,
2001 are not necessarily indicative of results to be expected for the entire
year. These financial statements, notes and analyses should be read in
conjunction with the Company's audited annual financial statements for the year
ended December 31, 2000, included in its 2000 Annual Report to Shareholders.
2. Net income (loss) per share is calculated using the weighted average
number of common and common equivalent shares outstanding during the periods
presented. (See Note 5)
3. Inventories are valued at the lower of cost or market, determined on a
first in, first out (FIFO) basis, and consist of the following.
JUNE 30, 2001 DECEMBER 31, 2000
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Raw materials $ 564,100 $ 606,500
Work in process 203,700 269,900
Finished goods 237,100 349,500
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$ 1,004,900 $ 1,225,900
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4. The Company has a line of credit agreement with Butte Community Bank,
which line of credit allows the Company to borrow the lesser of $1,000,000 or an
amount determined by a formula applied to accounts receivable. Unused borrowing
capacity was $807,400 at June 30, 2001. Amounts borrowed bear interest at prime
rate plus 1.5% per annum and are secured by substantially all the assets of the
Company. This line of credit expires on August 10, 2002. At June 30, 2001, the
Company had complied with or obtained waivers for compliance with the loan
covenants.
In addition to the line of credit, the Company has a 36-month term loan through
Butte Community Bank in the amount of $445,000 bearing interest at prime plus
1.5%. At June 30, 2001, the Company had an outstanding balance of $297,100 on
this loan.
The company also has a 58-month term loan in the amount of $500,000 bearing
interest at prime plus 1.5%. At June 30, 2001, the company had an outstanding
balance of $494,700 on this loan.
5. Net Income Per Share
Basic earnings per share were calculated as follows:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
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2001 2000 2001 2000
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Net income $ 396,900 $ 131,900 $ 375,400 $ 70,900
Average common shares outstanding 3,854,791 3,843,311 3,854,791 3,582,212
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Earnings per share $ 0.10 $ 0.03 $ 0.10 $ 0.02
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Basic earnings per share are calculated by dividing net income by the weighted
average number of shares issued and outstanding.
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Part I - FINANCIAL INFORMATION -- Item 1 (continued)
Diluted earnings per share were calculated as follows:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
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2001 2000 2001 2000
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Adjusted net income $ 375,400 $ 131,900 $ 396,900 $ 70,900
Average common shares outstanding 3,854,791 3,843,311 3,854,791 3,582,212
Add: Exercise of options reduced by the
number of shares purchased with proceeds 81,183 115,975 131,438 115,975
Add: Exercise of warrants reduced by the
number of shares purchased with proceeds 6,187 30,938 45,375 30,938
Adjusted weighted average shares outstanding 3,942,161 3,990,224 4,031,604 3,729,125
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Earnings per common share assuming full dilution $ 0.10 $ 0.03 $ 0.10 $ 0.02
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At June 30, 2001, options and warrants for the purchase of 236,000 shares of
common stock at prices ranging from $0.125 to $0.625 were antidilutive and
therefore not included in the computation of diluted earnings per share.
6. Business Segment and Concentration of Credit Risk
Business Segment. The Company operates in one business segment, the development,
production and marketing of polymer heat exchangers for the solar and thermal
energy storage markets worldwide.
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
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2001 2000 2001 2000
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Product Line
Net Sales
Pool Products $3,423,400 $2,440,600 $5,672,100 $4,529,200
Thermal Energy Products 602,800 1,145,700 1,216,700 1,779,200
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$4,026,200 $3,586,300 $6,888,800 $6,308,400
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Part I - FINANCIAL INFORMATION -- Item 1 (continued)
Geographic information for revenues and long-lived assets are as follows:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
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2001 2000 2001 2000
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Net Sales
Domestic $3,491,300 $2,720,700 $5,833,300 $5,074,100
Foreign
Japan 281,700 781,400 378,400 1,072,600
Other 253,200 84,200 677,100 161,700
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$4,026,200 $3,586,300 $6,888,800 $6,308,400
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Long-lived assets JUNE 30, 2001 DECEMBER 31, 2000
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Domestic $6,008,300 $5,344,000
For the six months ended June 30, 2001, the Company had no single customer who
accounted for 10% or more of sales. At June 30, 2000, the Company had one major
customer who individually accounted for 10% or more of the sales totaling
$1,072,600.
Concentration of Credit Risk: Most of the Company's business activity is with
customers located in California, Florida and foreign countries. As of June 30,
2001, unsecured trade accounts receivable from customers in California, Florida,
and foreign countries were $816,800, $1,156,000 and $52,200 respectively.
7. Property, Plant and Equipment
Property, plant and equipment consist of the following:
JUNE 31, 2001 DECEMBER 31, 2000
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Building $ 3,702,200 $ 3,441,400
Land 550,400 550,400
Machinery and equipment 2,819,000 2,332,500
Office and computer
equipment 524,900 510,800
Vehicles 309,900 268,900
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$ 7,906,400 $ 7,104,000
Less accumulated
depreciation
and amortization (1,898,100) (1,760,000)
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$ 6,008,300 $ 5,344,000
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Results of Operations
Net sales for the quarter ended June 30 increased by 12.3% to $4,026,200 in 2001
from $3,586,300 in 2000 and increased by 9.25% $6,888,800 in the first half of
2001 from $6,308,400 in corresponding period in 2000. This increase was due to
increased unit sales of the Company's pool products partially offset by
decreased unit sales of the Company's IceStor products.
Cost of goods sold increased in absolute dollars from $2,146,300 in the quarter
ended June 30, 2000 to $2,247,600 in the corresponding period in 2001 decreased
as a percent of sales from 59.8% in 2000 to 55.8% in 2001. For the first half of
2001 cost of goods increased in absolute dollars from $3,894,600 in 2000 to
$3,911,400 in 2001 while decreasing from 61.7% of net sales to 56.8% of net
sales. These increases in absolute dollars are attributable to increased sales
levels of the Company's pool products; the decreases as a percentage of sales
are due primarily to the inefficiencies experienced by the Company in 2000
during preparation for it's relocation from Redwood City to Chico.
Marketing and selling expenses increased to $654.900 (16.3% of net sales) in the
second quarter of 2001 compared with $531,700 (14.8% of net sale) in the second
quarter of 2000 and to $1,239,700 (18.0% of net sales) for the first six months
of 2001 compared with $1,069,500 (17.0% of net sales) for the corresponding
period in 2000. These increases were due to increased personnel and increased
expenses for advertising and promotion.
General and administrative expenses increased to $480,300 (11.9% of net sales)
in the second quarter of 2001 compared with $391,900 (10.9% of net sales) in the
second quarter of 2000 and to $886,800 (12.9% of net sales) for the first six
months of 2001 compared with $798,700 (12.7% of net sales) for the corresponding
period in 2000. These increases are due to a variety of expenses including
business insurance, legal fees related to patent filings, and equipment rent.
Research and development expenses decreased to $29,300 (0.7% of net sales) in
the second quarter of 2001 compared with $87,700 (2.4% of net sales) in the
second quarter of 2000 and to $83,800 (1.2% of net sales) for the first six
months of 2001 compared with $205,600 (3.3% of net sales) for the corresponding
period in 2000. These decreases were due to the fact that the engineering
projects for 2001 are capital equipment projects whereas in 2000 they were
expensed projects.
Net interest expense increased to $140,900 (3.5% of net sales) in the second
quarter of 2001 compared with $39,600 (1.1% of net sales) in the second quarter
of 2000 and to $226,500 (3.3% of net sales) for the first six months of 2001
compared with $45,900 (0.7% of net sales) for the corresponding period in 2000.
These increases are due to increased bank borrowing, primarily related to the
Company's mortgage.
Liquidity and Capital Resources
The Company's cash position decreased from $10,100 at 2000 fiscal year end to
$6,400 at June 30, 2001.
At June 30, 2001, the Company's accounts payable and other accrued expenses had
increased to $1,933,600 from $1,744,700 at December 31, 2000. This increase is
primarily due to the higher volume of purchases resulting from the increase in
sales.
At June 30, 2001, the Company's accrued benefits increased to $404,600 from
$267,800 at December 31, 2000 due to the build-up in the vacation and commission
accrual accounts along with an accrual for profit sharing that was paid out in
July.
Page 8 of 10
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Liquidity and Capital Resources -- (continued)
At June 30, 2001, the Company's net accounts receivable had increased to
$2,347,300 from $1,969,400 at December 31, 2000 due to the seasonal increase in
sales during the second quarter combined with a general increase in sales for
the year.
At June 30, 2001, the Company's net inventories had decreased to $1,004,900 from
$1,225,900 at December 31, 2000, due mainly to the increase in sales combined
with the seasonal inventory decrease.
The Company's current ratio was 1.27 to 1 compared to 1.26 to 1 at December 31,
2000. The Company had working capital of $828,000 compared with $775,400 at
December 31, 2000. Total assets exceeded total liabilities by, $3,534,500 at
June 30, 2001 compared with $3,132,600 at December 31,2000.
At June 30, 2001, total bank debt (line of credit plus term loan plus mortgage)
had increased to $4,344,100 from $4,184,000 at December 31, 2000, due mainly to
borrowing to cover costs related to the acquisition of new machinery and
equipment, offset in part by payments against the line of credit.
The Company believes that its cash flow from operations along with its available
line of credit and construction financing will be sufficient to support
operations during the next twelve months.
Part II - OTHER INFORMATION
Item 5 -- Other Information
The following table summarizes the outstanding securities during the quarter
ended June 30, 2001.
Shares
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Common Stock: authorized 10,000,000 shares of $.125 par
value; issued and outstanding at December 31, 2000, as
reported in the Registrant's Annual report on Form 10-K
filed for the fiscal year ended December 31, 2000 3,834,791
Issued during the period 20,000
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3,854,791
Outstanding at June 30, 2001
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits: none
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2001.
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SIGNATURE
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.
FAFCO, Inc. (Registrant)
DATE: August 14, 2001 BY :/s/ Nancy I. Garvin
--------------------
Nancy I. Garvin,
Vice President - Finance and Chief Financial Officer
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