SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------------
33-96808
(Commission File Number)
Crain Industries, Inc.
(Exact name of Registrant as specified in charter)
Delaware
(State or other jurisdiction of incorporation or organization)
43-1714086
(I.R.S. Employer Identification No.)
101 South Hanley Road
St. Louis, MO 63105
(314) 719-0100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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:
<TABLE>
<CAPTION>
Outstanding at
Class June 30, 1996
---------------------- --------------
<S> <C>
Crain Industries, Inc.
Common Stock 1,000 shares
</TABLE>
<PAGE>
<TABLE>
CRAIN INDUSTRIES, INC.
INDEX
<CAPTION>
Page
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 1996 and Predecessor Statements of Operations for
the three and six months ended June 30, 1995 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and Predecessor Statements of Cash Flows for the six
months ended June 30, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II - OTHER INFORMATION 10
SIGNATURES 11
Exhibit 27.1 Financial Data Schedule 12
</TABLE>
<PAGE>
<TABLE>
CRAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,462 $ 1,983
Accounts receivable, net of allowance for
doubtful accounts of $3,753 and $4,093 37,322 35,987
Inventories 32,175 33,128
Prepaid expenses and other 978 1,313
--------- ---------
Total current assets 72,937 72,411
Property, plant and equipment, net 43,430 41,975
Deferred financing costs, net 11,200 12,046
Intangibles, net 55,654 56,341
Other assets 1,068 1,085
--------- ---------
Total assets $184,289 $183,858
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 122 $ 122
Accounts payable 21,932 19,919
Accrued and other liabilities 12,003 11,827
Accrued interest 5,603 5,030
Accrued payroll and personnel 4,359 3,739
Income taxes payable 229 91
--------- ---------
Total current liabilities 44,248 40,728
Long-term obligations, less current maturities 111,308 116,215
Other long-term liabilities 4,591 2,633
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares
authorized, 1,000 shares issued and
outstanding -- --
Contributed capital 24,528 24,528
Accumulated deficit (386) (246)
--------- ---------
Total stockholder's equity 24,142 24,282
--------- ---------
Total liabilities and stockholder's equity $184,289 $183,858
========= =========
<FN>
See accompanying notes to the condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CRAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<CAPTION>
The The The The
Company Predecessor Company Predecessor
--------------------- ----------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1996 1995 1996 1995
--------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales $ 72,715 $ 64,014 $142,957 $127,930
Operating expenses:
Cost of goods sold 58,003 52,459 114,228 104,923
Selling, general and
administrative 7,870 6,980 16,094 14,837
Depreciation and
amortization 2,129 1,319 4,038 2,688
-------- --------- --------- --------
Operating income 4,713 3,256 8,597 5,482
Other expense (income):
Interest expense 3,803 795 7,772 1,701
Amortization of deferred
financing costs 423 -- 846 --
Gain on insurance settlement -- (2,434) -- (2,434)
Other, net (4) (412) (19) (696)
-------- --------- -------- --------
Income (loss) before income
tax provision and
extraordinary items 491 5,307 (2) 6,911
Income tax provision 99 -- 138 --
-------- --------- -------- --------
Net income (loss) $ 392 $ 5,307 $ (140) $ 6,911
======== ========= ========= ========
<FN>
See accompanying notes to the condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CRAIN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
The The
Company Predecessor
---------------------------
Six Months Ended
June 30,
---------------------------
1996 1995
<S> <C> <C>
Cash flows provided by (used in) operating
activities:
Net (loss) income $ (140) $ 6,911
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation 3,351 2,511
Amortization of intangible assets 687 177
Amortization of deferred financing costs 846 --
Change in assets and liabilities:
Accounts receivable (1,335) (879)
Inventories 953 (1,221)
Prepaid expenses and other 352 1,285
Accounts payable 2,013 (3,674)
Accrued and other liabilities, net 1,507 420
Other long term liabilities, net 1,958 --
--------- ---------
Net cash from operating activities 10,192 5,530
--------- ---------
Cash flows used in investing activities:
Capital expenditures, net (4,806) (4,018)
--------- ---------
Net cash used in investing activities (4,806) (4,018)
--------- ---------
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of long-term obligations 42,200 45,895
Repayment of long-term obligations (47,107) (41,493)
Dividends paid -- (1,825)
Change in due to/from shareholder account -- (4,834)
--------- ---------
Net cash used in financing activities (4,907) (2,257)
--------- ---------
Net change in cash and cash equivalents 479 (745)
Cash and cash equivalents at beginning of the period 1,983 1,634
--------- ---------
Cash and cash equivalents at end of the period $ 2,462 $ 889
========= =========
<FN>
See accompanying notes to the condensed consolidated financial statements
</TABLE>
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
1. THE COMPANY
Crain Industries, Inc. (a Delaware corporation) ("Crain" or the "Company")
was formed on May 25, 1995 to participate in the acquisition of Crain
Industries, Inc. (an Arkansas corporation) (the "Predecessor") and the
transactions related thereto. (the "Acquisition"). Crain is a wholly owned
subsidiary of Crain Holdings Corp. (a Delaware corporation)("Holdings"). Prior
to the Acquisition, Crain conducted no operations other than those incident to
the Acquisition.
2. BASIS OF PRESENTATION
Predecessor Data
The Predecessor's data for the three months and six months ended June 30,
1995, reflects adjustments made to properly reflect the performance of the
Predecessor for its fiscal year ended August 25, 1995.
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements reflect
all adjustments consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of financial
condition and results of operations. The results for the three and six
months ended June 30, 1996, are not necessarily indicative of the results
that may be expected for a full fiscal year.
Statement of Cash Flows
Interest paid for the six months ended June 30, 1996 and 1995, is
approximately $7,300 and $1,798 respectively. Income taxes paid for the six
months ended June 30, 1996 and 1995, is approximately $75 and $348
respectively.
Income Taxes
The Company accounts for income taxes, in accordance with the provisions of
SFAS No. 109. The Predecessor elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code, accordingly, taxable income of the
Predecessor was allocated to the sole shareholder of the Predecessor who was
responsible for payments of taxes thereon.
3. INVENTORIES
<TABLE>
<CAPTION>
The composition of inventories at June 30, 1996, is as follows:
<S> <C>
Raw materials $ 23,285
Finished goods 8,890
--------
Total $ 32,175
========
</TABLE>
<PAGE>
PART I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following comments should be used in reviewing the discussion and analysis
of results of operations and liquidity and capital resources. Crain
Industries, Inc. (a Delaware corporation) (the "Company") was organized in
May, 1995 for the purpose of accomplishing the acquisition of certain assets
and liabilities of Crain Industries, Inc. (an Arkansas corporation) (the
"Predecessor") (the "Acquisition") and prior to the Acquisition, the Company
was not engaged in any activities other than those incidental to the
Acquisition. The Company has accounted for the Acquisition in accordance with
the purchase method of accounting.
The Company believes that the operating results of the Predecessor are not
directly comparable to the Company's operating results for post-Acquisition
periods due to, among other things, (i) purchase accounting adjustments
relating to the Acquisition, including the amortization of goodwill and
intangibles, (ii) increases in interest expense relating to the financing of
the Company and (iii) anticipated cost savings resulting from the elimination
of certain expenses related to the sole shareholder of the Predecessor.
RESULTS OF OPERATIONS
The following discussion and analysis is based on the historical unaudited
results of operations for the three months ended June 30, 1996 and the
unaudited results of the Predecessor's operations for the three months ended
June 30, 1995, along with the historical unaudited results of operations for
the six months ended June 30, 1996 and the unaudited results of the
Predecessor's operations for the six months ended June 30, 1995.
<TABLE>
<CAPTION>
The The The The
Company Predecessor Company Predecessor
----------------------- ----------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
1996 1995 1996 1995
----------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales $72,715 $64,014 $142,957 $127,930
Cost of goods sold 58,003 52,459 114,228 104,923
Selling, general and
administrative 7,870 6,980 16,094 14,837
Depreciation and amortization 2,129 1,319 4,038 2,688
-------- -------- --------- ---------
Operating income 4,713 3,256 8,597 5,482
Interest expense 3,803 795 7,772 1,701
Amortization of deferred
financing costs 423 -- 846 --
Gain on insurance settlement -- (2,434) -- (2,434)
Other income (4) (412) (19) (696)
-------- -------- --------- ---------
Income (loss) before income
taxes 491 5,307 (2) 6,911
Provision for income taxes (1) 99 -- 138 --
-------- -------- --------- ---------
Net income (loss) $ 392 $ 5,307 $ (140) $ 6,911
======== ======== ========= =========
EBITDA (2) $ 6,842 $ 4,575 $ 12,635 $ 8,170
======== ======== ========= =========
Cash flows from operating
activities $ 6,762 $ 1,102 $ 10,192 $ 5,530
======== ======== ========= =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(1) The Predecessor elected to be taxed under the provision of Subchapter S
of the Internal Revenue Code. Accordingly, taxable income of the
Predecessor was allocated to the sole shareholder of the Predecessor who
was responsible for the payment of taxes thereon.
(2) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is not a defined term under Generally Accepted Accounting Principles
("GAAP") and is not an alternative to operating income or cash flow from
operations as determined under GAAP. The Company believes that EBITDA
provides additional information for determining its ability to meet future
debt requirements; however, EBITDA is also one of the financial
measures in the covenants under the Company's debt instruments.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
Net Sales
Net sales for the three-month period ended June 30, 1996 were $72.7 million,
up 13.6% over the $64.0 million of sales of the Predecessor for the comparable
period of 1995. This sales growth is primarily the result of a price increase
for foam along with an increase in carpet pad prices necessitated by an
increase in raw material prices for scrap foam, which is a major component of
carpet cushion, as well as the strong market penetration of the Company's
carpet pad products.
Cost of Goods Sold
Cost of goods sold for the second quarter of 1996 increased $5.5 million, to
$58.0 million, over the comparable period of 1995 for the Predecessor. As a
percentage of sales, cost of goods sold for the three-month period ended June
30, 1996, improved to 79.8% from 81.9% for the comparable period of 1995. The
increase in cost of goods sold over the prior year is due to an increase in
sales volume and raw material costs. The decrease in cost of goods sold as a
percentage of sales was due to the cost reduction activities put in place by
new management and a shift in product mix, along with the benefit of utilizing
internally produced scrap for use in the production of carpet cushion, during
the period of temporary scrap price increases.
Selling, General and Administrative
Selling, general and administrative expenses for the second quarter of 1996
were $7.9 million, up $0.9 million from the comparable period of 1995.
Expressed as a percentage of sales, selling, general and administrative
expenses decreased to 10.8% for the three months ended June 30, 1996 from
10.9% for the three months ended June 30, 1995. The decrease in selling,
general and administrative expenses as a percentage of sales was attributable
to the absorption of fixed costs and various cost reduction activities
implemented by new management.
Interest Expense
Interest expense increased to $3.8 million for the three months ended June
30, 1996 from $0.8 million for the three months ended June 30, 1995, as a
result of the higher debt levels associated with the Acquisition.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Net Sales
Net sales for the six-month period ended June 30, 1996 were $143.0 million or
an 11.7% increase over the $127.9 million of sales of the Predecessor for the
comparable period in 1995. This sales growth is primarily the result of a
price increase necessitated by an increase in higher raw material prices, as
well as the strong market penetration of the Company's carpet pad and retail
products.
Cost of Goods Sold
Cost of goods sold for the six-month period ended June 30, 1996 increased $9.3
million, to $114.2 million, over the comparable period of 1995 for the
Predecessor. As a percentage of sales, cost of goods sold for the six-month
period ended June 30, 1996 improved to 79.9% from 82.0% for the comparable
period of 1995. The increase in cost of goods sold over the prior year is due
to an increase in sales volume and raw material costs. The decrease in cost
of goods sold as a percentage of sales was due to the cost reduction
activities put in place by new management and a shift in product mix, as well
as the benefit of utilizing internally produced scrap for use in the
production of carpet cushion, during the period of raw material price
increases.
Selling, General and Administrative
Selling, general and administrative expenses for the six-month period ended
June 30, 1996 were $16.1 million, up $1.3 million from the comparable period
of 1995. Expressed as a percentage of sales, selling, general and
administrative expenses decreased to 11.3% for the six month period ended June
30, 1996, from 11.6% for the six-months ended June 30, 1995. The decrease in
selling, general and administrative expenses as a percentage of sales was
attributable to the absorption of fixed costs and various cost reduction
activities implemented by new management.
Interest Expense
Interest expense increased to $7.8 million for the six months ended June 30,
1996 from $1.7 million for the six month period ended June 30, 1995, as a
result of the higher debt levels associated with the Acquisition.
Liquidity and Capital Resources
Interest payments on the Company's senior subordinated notes (the "Notes"), on
the promissory note held by the Predecessor ("Predecessor Note"), and under
the Company's revolving credit agreement (the "Revolving Facility"), represent
significant obligations of the Company. The Notes and the Predecessor Note
require semiannual interest payments of approximately $6.8 million and $0.7
million, respectively, on each February 15 and August 15. Borrowings under
the Revolving Facility will bear interest at floating rates and require
interest payments on varying dates. All amounts under the Revolving Facility
outstanding will mature in 2000.
In addition to its debt service obligations, the Company's remaining liquidity
demands are for capital expenditures and for working capital needs. For the
six months ended June 30, 1996, the Company spent approximately $4.8
million on capital projects, while the Predecessor spent $4.0 million on
capital projects for the comparable period of 1995. The Company expects to
spend approximately $6.0 million to $10.0 million annually on capital
projects, of which approximately $3.0 million will be used for maintaining
facilities and equipment.
Cash provided by operating activities for the six months ended June 30, 1996
was $10.2 million, an increase of $4.6 million from the Predecessor's six
months ended June 30, 1995. The increase in operating cash flows compared to
the six months ended June 30, 1995 was primarily due to the Predecessor's
increased levels of inventory and a decrease in the Predecessor's accounts
payable. Cash used in investing activities was $4.8 million for the six
months ended June 30, 1996. The use of $4.8 million in cash for investing
activities represents an increase from the Predecessor's expenditures of $4.0
million for the six months ended June 30, 1995. This increase is due to
higher capital costs incurred for costs associated with facility
consolidations. Cash used for financing activities for the six months ended
June 30, 1996 in the amount of $4.9 million represents a pay down of the
Revolving Facility.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial data schedule of Crain Industries, Inc.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CRAIN INDUSTRIES, INC.
Dated: August 13, 1996 By: /s/ JAMES N. MILLS
________________________________
Name : James N. Mills
Title: Chairman of the Board and
Chief Executive Officer
By: /s/ JAMES G. POWERS
________________________________
Name : James G. Powers
Title: Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<CIK> 0001000458
<NAME> CRAIN INDUSTRIES, INC.
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,462
<SECURITIES> 0
<RECEIVABLES> 41,075
<ALLOWANCES> 3,753
<INVENTORY> 32,175
<CURRENT-ASSETS> 72,937
<PP&E> 48,874
<DEPRECIATION> 5,444
<TOTAL-ASSETS> 184,289
<CURRENT-LIABILITIES> 44,248
<BONDS> 111,308
0
0
<COMMON> 0
<OTHER-SE> 24,142
<TOTAL-LIABILITY-AND-EQUITY> 184,289
<SALES> 142,957
<TOTAL-REVENUES> 142,957
<CGS> 114,228
<TOTAL-COSTS> 118,266
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 263
<INTEREST-EXPENSE> 8,618
<INCOME-PRETAX> (2)
<INCOME-TAX> 138
<INCOME-CONTINUING> (140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
