<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended June 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
MUEHLSTEIN HOLDING CORPORATION
(formerly HMC Acquisition Corporation)
(Exact name of Registrant as specified in its charter)
Commission file number: 33-99754
Delaware 06-1436941
(State or other jurisdiction (I.R.S.) Employer Identification No.)
of incorporation or organization)
800 Connecticut Avenue
Norwalk, Connecticut 06856
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including Area Code: (203) 855-6000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
----- -----
The number of shares outstanding of Registrant's Common Stock at June 30, 1996
was 1,999,023.
<PAGE>
Muehlstein Holding Corporation
Form 10-Q
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited)--Muehlstein Holding Corporation
("Successor Company")
Consolidated balance sheet--June 30, 1996
Consolidated statement of operations--three and six months ended June 30, 1996
Consolidated statement of shareholders' equity and redeemable common stock--six
months ended June 30, 1996
Consolidated statement of cash flows--for the period February 9, 1996 through
June 30, 1996
Notes to consolidated financial statements
Financial Statements (Unaudited)--H. Muehlstein & Co., Inc. ("Predecessor
Company")
Combined balance sheet--December 31, 1995
Combined statement of operations--three and six months ended June 30, 1995
Combined statement of cash flows--three months ended June 30, 1995
Notes to combined financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
Muehlstein Holding Corporation
Consolidated Balance Sheet
Successor Company
(Unaudited)
June 30, 1996
(In thousands except per share data and number of shares)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 7,248
Accounts receivable, net of allowance for doubtful
accounts of $3,137 133,990
Other receivables, principally value added taxes 25,469
Inventories, net 39,234
Prepaid expenses and other assets 2,106
Deferred income taxes 495
--------
Total current assets 208,542
Property, plant and equipment, net of accumulated depreciation 7,452
Deferred financing costs, net of accumulated amortization 4,388
Goodwill, net of accumulated amortization 4,967
Other Long Term Assets 398
--------
Total Assets $225,747
--------
--------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 81,260
Notes payable, including current portion of long term debt 68,727
Accrued liabilities 9,081
Income taxes payable 2,196
Other taxes payable, principally value added taxes 19,335
--------
Total current liabilities 180,599
Notes payable - long term 6,676
Other long term liabilities 3,579
Common stock, par value $.01 per share - authorized shares 2,000,000;
issued and outstanding 1,999,023 shares in 1996 20
Preferred stock, par value $.01 per share - authorized shares
1,000,000; issued and outstanding 1,000,000 in 1996 10
Additional paid in capital 29,158
Retained earnings 5,756
Cumulative translation adjustment (51)
--------
Total liabilities and shareholders' equity $225,747
--------
--------
</TABLE>
See notes to consolidated financial statements
<PAGE>
Muehlstein Holding Corporation
Consolidated Statement of Operations
Successor Company
(Unaudited)
(In thousands, except per share data and number of shares)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, 1996 June 30,1996
---------------------------------------------------
<S> <C> <C>
Revenues:
Sales and Commissions $166,301 $336,505
---------------------------------------------------
Total revenues 166,301 336,505
Cost of sales 141,355 287,566
---------------------------------------------------
24,946 48,939
Selling, general and administrative expenses 17,916 37,615
---------------------------------------------------
Income from operations 7,030 11,324
Other expense (predominantly interest
expense) 1,003 2,230
---------------------------------------------------
Income before income taxes 6,027 9,094
Provision for income taxes 2,728 4,865
---------------------------------------------------
3,299 4,229
Losses applicable to pre-acquisition period -- (1,527)
---------------------------------------------------
Net income 3,299 5,756
Preferred stock dividend 300 467
---------------------------------------------------
Net income applicable to common shareholders $ 2,999 $ 5,289
---------------------------------------------------
---------------------------------------------------
Net income per share applicable to
common shareholders $ 1.50 $ 3.43
---------------------------------------------------
---------------------------------------------------
Weighted average number of shares outstanding 1,999,023 1,543,527
---------------------------------------------------
---------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Muehlstein Holding Corporation
Consolidated Statement of Shareholders' Equity and Redeemable Common Stock
Successor Company
(Unaudited)
Six months ended June 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Additional Cumulative
Common Stock Preferred Stock Paid-in Retained Translation
-------------------------------------------
Shares Amount Stock Amount Capital Earnings Adjustment
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common
Stock, net of offering
costs 1,999 $20 $19,168
Issuance of Preferred Stock 1,000 $10 9,990
Net income $5,756
Net change in
cumulative translation adjustment $(51)
----------------------------------------------------------------------------------------
Balance as of June 30, 1996 1,999 $20 1,000 $10 $29,158 $5,756 $(51)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Muehlstein Holding Corporation
Consolidated Statement of Cash Flows
Successor Company
(Unaudited)
For the period February 9, 1996 through June 30, 1996
(In thousands)
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 5,756
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 377
Amortization of goodwill and deferred financing costs 594
Provision for deferred income taxes 487
Changes in operating assets and liabilities:
Accounts receivable (27,203)
Other receivables (161)
Inventories (2,521)
Prepaid expenses and other assets (169)
Accounts payable 15,783
Taxes payable 5,515
Other liabilities 2,472
----------
Net cash provided by operating activities 930
Cash flows from investing activities
Payments for acquired business ( 98,925)
Payments for purchase of fixed assets (392)
----------
Net cash (used in) investing activities ( 99,317)
Cash flows from financing activities
Net borrowing-revolving credit 67,656
Borrowing-term loan 8,000
Repayments of term loan borrowings (253)
Payments for financing costs (4,734)
Proceeds from issuance of common stock, net of offering costs 19,606
Proceeds from issuance of preferred stock 10,000
----------
Net cash provided by financing activities 100,275
Effect of exchange rate change on cash 58
----------
Net increase in cash 1,946
Cash at beginning of period 5,302
----------
Cash at end of period $ 7,248
----------
----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Muehlstein Holding Corporation
Notes to Consolidated Financial Statements
Successor Company
(Unaudited)
1. Basis of Presentation
The accompanying unaudited 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 (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. For further information, refer to the combined
financial statements and footnotes thereto included in the Muehlstein Holding
Corporation's (formerly HMC Acquisition Corporation) (the "Company") Form 10-K
for the year ended December 31, 1995.
In conjunction with the acquisition, the Company has adopted the Specific
Identification method using lower of cost or market valuation for all of its
inventory.
2. Business Combination
On September 21, 1995, the Company was incorporated for the purpose of acquiring
all of the outstanding capital stock of H. Muehlstein & Co., Inc.
("Muehlstein").
On October 30, 1995, the Company entered into an agreement (the "Stock Purchase
Agreement") with a wholly owned subsidiary of Mobil Oil Corporation (the
ultimate parent company of Muehlstein) to purchase 100% of the outstanding
capital stock of Muehlstein and certain related assets (the "Acquisition"). The
purchase price was based on capital employed, as defined, plus $10 million.
On November 22, 1995, the Company filed a Registration Statement ("Offering"),
which became effective on January 23, 1996, pursuant to which it offered shares
of its common stock to certain persons who were employees of Muehlstein, Mobil
Oil Corporation ("Mobil") or their respective subsidiaries who would become
employees of the Company or its subsidiaries following the Acquisition, to
certain benefit plans in which such persons were or would become participants
and to such other parties that the Company in its discretion determined. The
Company received total proceeds of $19,152,130 on February 9, 1996 based upon
the sale of 1,915,213 shares of its Common Stock ("Common Stock"), par value
$.01 per share at $10.00 per share. The proceeds of this Offering, net of
offering expenses of approximately $803,000 of which $418,000 were paid prior to
the closing, were utilized to pay a portion of the purchase price of the
Acquisition. The Company received additional proceeds of $838,100 upon the sale
of 83,810 additional shares of its common stock through June 30, 1996.
Pursuant to the Stock Purchase Agreement, Mobil purchased from the Company on
February 9, 1996, 1,000,000 shares of Series "A" Preferred Stock, $.01 par
value per share, at a purchase price of $10.00 per share. The Series "A"
Preferred Stock pays an annual dividend of $1.20 per share (equal to 12 percent
per annum of the stated value of $10.00 per share). Except for certain matters
connected with the Series "A" Preferred Stock and other matters required by
applicable law, holders of Series "A" Preferred Stock will have no voting
rights. Series "A" Preferred Stock will have no preemptive rights and may be
redeemed, in whole or in part, at the option of the Company, at any time. If
the Company redeems the Series "A" Preferred Stock, the redemption price for the
shares will equal the stated value per share ($10.00) plus all accrued and
unpaid dividends. In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the Company, the holders of Series "A" Preferred
Stock will have preferential rights, superior to other shareholders, to
distributions out of the assets of the Company.
<PAGE>
Muehlstein Holding Corporation
Notes to Consolidated Financial Statements (continued)
Successor Company
(Unaudited)
2. Business Combination (continued)
Effective February 9, 1996, Muehlstein entered into a credit agreement with
Citicorp USA, Inc. and Citicorp Canada ("Credit agreement"), which was
guaranteed by the Company. Pursuant to this Credit agreement a $125,000,000
revolving credit facility was provided, the expiration date of which is February
9, 2000. The revolving credit facility will bear interest at either (1) 100
basis points per annum over the U.S. or certain other foreign currency Base
Rates or (2) 250 basis points per annum over the U.S. or certain other foreign
currency LIBOR rates. On the same date, the Company borrowed approximately
$73,191,000 under this facility. As of June 30, 1996, approximately $40,000,000
of the Credit agreement was based on LIBOR and bore interest at 8.000%, the
balance of the indebtedness was based on Base Rates and bore interest at 9.25%
Effective February 9, 1996, Muehlstein entered into a loan agreement with Finova
Capital Corporation ("Loan agreement"), which was guaranteed by the Company.
Pursuant to this Loan agreement total proceeds of $8,000,000 from two term
loans, Note A and Note B, both maturing March 1, 2000, were received. The
principal amount of the two term loans are $2,560,000 (Note A) and $5,440,000
(Note B), respectively. These notes bear interest at a fixed annual rate of
interest of 8.20% per annum (Note A) and 9.70% per annum (Note B).
The indebtedness under the Credit and Loan agreements is secured by liens on
substantially all the assets of Muehlstein. The Credit and Loan agreements
contain various covenants which include, among other things: (a) the maintenance
of certain financial ratios and compliance with certain financial tests and
limitations; (b) limitations on investments and capital expenditures; and (c)
limitations on leases and the sale of assets.
The proceeds from the sale of the Company's common and preferred stock
aggregating approximately $30,000,000 and borrowings of $81,191,000 under the
aforementioned facilities were used to finalize the Acquisition and provide
working capital.
The Acquisition was finalized on February 9, 1996 for a total purchase price of
approximately $98,925,000 ("Purchase Price"), with fees of approximately
$1,004,000 being included. Upon effectiveness of the Acquisition, Muehlstein
became a wholly-owned subsidiary of the Company, and the Company thereupon
changed its name to "Muehlstein Holding Company". The results for the six-months
ended June 30, 1996 reflect losses of $1,527,000, being the results of
Muehlstein applicable to the period January 1, 1996 through February 8, 1996.
The Company's financial statements reflect the application of purchase
accounting to the acquired operations of Muehlstein. The application of purchase
accounting resulted in the allocation of the purchase price and related
acquisition costs based on the fair value of the assets acquired and liabilities
assumed. As a result, the enclosed predecessor combined financial statements are
not comparable to the successor company consolidated financial statements. The
classification of certain assets and liabilities have been adjusted to reflect
the additional information that has become avaliable. Such changes did not have
any effect on the actual purchase price.
<PAGE>
Muehlstein Holding Corporation
Notes to Consolidated Financial Statements (continued)
Successor Company
(Unaudited)
2. Business Combination (continued)
The condensed consolidated balance sheet on a fair value basis as of February 9,
1996 was as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
Assets
<S> <C>
Current assets:
Cash $ 5,302
Accounts receivable, net 106,787
Other receivables 33,530
Inventories 36,713
Prepaid expenses and other current assets 3,120
------------
Total current assets 185,452
Property, plant and equipment 7,439
Other assets 8,709
------------
$201,600
------------
------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 65,477
Notes payable to bank 74,147
Accrued and other current liabilities 23,678
------------
163,302
Long-term debt 7,044
Other long-term liabilities 2,521
Common and preferred stock 28,733
------------
$201,600
------------
------------
</TABLE>
<PAGE>
Muehlstein Holding Corporation
Notes to Consolidated Financial Statements (continued)
Successor Company
(Unaudited)
3. Common Stock
The Company's common stock is held by certain of the Company's employees, the
Company's Employee Share Ownership Plan (ESOP) and Citicorp North America, Inc.
("Citicorp"). Shareholders', excluding Citicorp, have a right to put these
shares to the Company, following termination of their employment, subject to the
limitations imposed under the terms of the Credit, Loan and preferred stock
agreements. Such provision exists to create a market for the employees' shares.
Citicorp has the right to put their shares to the Company at any time after the
earliest to occur of: (a) three years after the Acquisition closing date or (b)
certain mergers, consolidations, sale of assets or change of control with
respect to the Company or its material subsidiaries. Except for certain
matters connected with its shares, the shares held by Citicorp will be
nonvoting shares. The redemption price for any shares will be equal to the
most recent appraised fair market value of the common stock. If a put is
exercised, the Company will have the option to pay for the repurchased shares
either in cash or pursuant to a promissory note. Under the terms of the
Credit, Loan and preferred stock agreements and given management's view of
its present employee base, significant activity under the put provisions is
not anticipated presently. However, in accordance with the requirements for
accounting for common stock with a put provision, the common stock has been
classified between liabilities and preferred stock.
4. Pro Forma Financial Data
The following pro forma unaudited consolidated statements of operations for the
three-month and six-month periods ended June 30, 1996 and 1995 have been
prepared to reflect the consummation of the offerings of the Company's debt and
equity securities, the Acquisition and related transactions. The pro forma
unaudited effects of such transactions have been presented assuming that they
occurred as of the beginning of the periods presented in the pro forma unaudited
consolidated statements of operations.
<PAGE>
Muehlstein Holding Corporation
Notes to Consolidated Financial Statements (continued)
Successor Company
(Unaudited)
4. Pro Forma financial Data (continued)
<TABLE>
<CAPTION>
Three months ended
June 30
1996 1995
Pro forma
-------------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues $166,301 $234,481
Total operational costs 159,271 227,464
-------------------------
Income from operations 7,030 7,017
Other expense 412 (175)
Interest expense (1,415) (1,605)
Provision for income taxes (2,728) (2,300)
-------------------------
Net income 3,299 2,937
Preferred dividend (300) (300)
-------------------------
Net income applicable to common shareholders $ 2,999 $ 2,637
-------------------------
-------------------------
Net income per share applicable
to common shareholders $ 1.50 $ 1.32
-------------------------
-------------------------
Assumed number of common shares outstanding 1,999 1,999
-------------------------
-------------------------
</TABLE>
<PAGE>
Muehlstein Holding Corporation
Notes to Consolidated Financial Statements (continued)
Successor Company
(Unaudited)
4. Pro Forma financial Data (continued)
<TABLE>
<CAPTION>
Six months ended
June 30
1996 1995
Pro forma
-------------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues $336,505 $464,076
Total operational costs 325,441 448,782
-------------------------
Income from operations 11,064 15,294
Other expense (696) (2,100)
Interest expense (2,337) (3,210)
Provision for income taxes (3,626) (4,398)
-------------------------
Net income 4,405 5,586
Preferred dividend (600) (600)
-------------------------
Net income applicable to common shareholders $ 3,805 $ 4,986
-------------------------
-------------------------
Net income per share applicable
to common shareholders $ 1.90 $ 2.49
-------------------------
-------------------------
Assumed number of common shares outstanding 1,999 1,999
-------------------------
-------------------------
</TABLE>
5. Income Taxes
The tax provision for the three- and six-month periods ended June 30, 1996 were
determined based upon an estimate of the effective tax rates for the year ending
December 31, 1996. The effective tax rate of 45% for the three-month period
ending June 30, 1996 and 54% for the six-month period ending June 30, 1996
reflect higher foreign taxes for dividend distributions and changes in the
valuation of certain foreign deferred tax assets for the period prior to the
Acquisition and foreign losses for which the Company did not have offsetting
tax credits.
<PAGE>
H. Muehlstein & Co., Inc.
Predecessor Combined Balance Sheet
December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ 6,326
Accounts receivable, net of allowance for
doubtful accounts of $2,775 134,132
Other receivables, principally value added taxes 21,341
Inventories, net 29,516
Due from affiliates 139
Prepaid expenses and other assets 2,120
Deferred income taxes 4,151
------------
Total current assets 197,725
Property, plant and equipment, net of
accumulated depreciation 7,307
Deferred income taxes 549
------------
Total assets $205,581
------------
------------
Liabilities and Parent Company Investment
Current liabilities:
Accounts payable $ 57,412
Accrued liabilities 10,672
Other taxes payable, principally value added taxes 15,345
Due to affiliates 11,681
------------
Total current liabilities 95,110
Other long term liabilities 1,832
Parent company investment 108,639
------------
Total liabilities and parent company investment $205,581
------------
------------
</TABLE>
See notes to combined financial statements.
<PAGE>
H. Muehlstein & Co., Inc.
Predecessor Combined Statement of Operations
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, 1995 June 30, 1995
----------------------------
<S> <C> <C>
Revenues:
Sales and Commissions $229,073 $454,345
Sales to affiliates 5,408 9,731
----------------------------
Total revenues 234,481 464,076
Cost of sales 206,629 407,475
----------------------------
27,852 56,601
Selling, general and administrative expenses 21,769 42,595
----------------------------
Income from operations 6,083 14,006
Other expense (predominantly interest expense) 175 2,100
----------------------------
Income before income taxes 5,908 11,906
Provision for income taxes 2,538 5,126
----------------------------
Net income $ 3,370 $ 6,780
----------------------------
----------------------------
</TABLE>
See notes to combined financial statements.
<PAGE>
H. Muehlstein & Co., Inc.
Predecessor Combined Statement of Cash Flows
(Unaudited)
Six months ended June 30, 1995
(In thousands)
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 6,780
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 484
Provision for deferred income taxes 1,941
Loss on retirement of fixed assets 4
Changes in operating assets and liabilities:
Accounts receivable (33,691)
Inventories (13,759)
Due from affiliates (468)
Prepaid expenses and other assets (110)
Other receivables (12,960)
Accounts payable 14,801
Accrued liabilities (7,971)
Taxes payable 13,202
Due to affiliates (6,255)
---------
Net cash (used in) operating activities (38,002)
Cash flows from investing activities
Payments for purchase of fixed assets (157)
---------
Net cash (used in) investing activities (157)
Cash flows from financing activities
Net change in parent company advances 37,474
---------
Net cash provided by financing activities 37,474
Net (decrease) in cash (685)
Cash at beginning of period 4,763
---------
Cash at end of period $ 4,078
---------
---------
</TABLE>
See notes to combined financial statements.
<PAGE>
H. Muehlstein & Co., Inc.
Notes to Predecessor Combined Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited combined financial statements present the combined
assets, liabilities, revenues and expenses related to the marketing operations
of H. Muehlstein & Co., Inc. ("Muehlstein") and affiliated entities, exclusive
of certain assets and liabilities retained by Mobil Oil Corporation ("Mobil"),
the ultimate parent company in conjunction with the Acquisition (See Note 2 of
the Notes to Consolidated Financial Statements - Successor Company). These
statements are presented on a historical cost basis. All transactions between
subsidiaries of Muehlstein and other units of Mobil which are included in
Muehlstein's operations have been eliminated. Parent company investment
reflects Mobil's investment in Muehlstein, the accumulated earnings of such
entity, as well as intercompany balances with Mobil and other entities therewith
which are not settled on a current basis. In addition, the parent company
investment includes intercompany accounts resulting from the exclusion of
various assets or liabilities that were not acquired under the Acquisition.
The unaudited combined 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 (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the combined financial statements and footnotes
thereto included in Muehlstein Holding Corporation's Form 10-K for the year
ended December 31, 1995.
<PAGE>
Muehlstein Holding Corporation
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
As discussed in the notes to the financial statements, Muehlstein Holding
Corporation (formerly HMC Acquisition Corporation) (the "Company") was
incorporated for the purpose of acquiring all of the outstanding capital stock
of H. Muehlstein & Co., Inc. ("Muehlstein") and certain related assets. The
acquisition was finalized on February 9, 1996 for a total purchase price of
approximately $98,925,000. Accordingly, the quarters ended March 31, 1996 and
June 30, 1996 are the only periods of successor company operations and are
compared to pro forma results of operations for the three- and six-month periods
ended June 30, 1995 for purposes of the comparative discussion presented below.
The financial information of the successor company reflects the application of
purchase accounting to the operations of Muehlstein subsequent to the Offering
by the Company. The application of purchase accounting results in the allocation
of the purchase price and related acquisition costs based on the fair value of
the underlying assets and liabilities of the predecessor company's operations.
As a result of the application of purchase accounting, the predecessor combined
financial information is not comparable to the financial information of the
successor company. The unaudited proforma results of operations have been
prepared for comparative purposes only and are not necessarily indicative of the
results of operations that would have resulted had the Offering and Acquisition
been effective January 1, 1995, or that may result in the future.
Results of Operations
Total revenues decreased 29.1% in the second quarter of 1996 to $166,301,000
compared to $234,481,000 for the second quarter of 1995. For the first six
months of 1996 revenues of $336,505,000 were 27.5% lower than the first six
months of 1995. Income from operations increased 0.2% to $7,030,000 for the
second quarter of 1996 from $7,017,000 for the second quarter of 1995, while net
income after tax increased 12.3% to $3,299,000 for the second quarter of 1996
from $2,937,000 for the second quarter of 1995. For the six months ending June
30, 1996 income from operations decreased 27.7% to $11,064,000 from $15,294,000
for the six-months ending June 30, 1995, while net income after tax decreased
21.1% to $4,405,000 from $5,586,000.
The decrease in revenues was due to lower sales prices worldwide. The average
sales price for plastic resin and rubber, combined, decreased 20.7% in the
second quarter of 1996 versus the same period in 1995. The sales price for
the first six months of 1996 was 21.5% lower than the first six months of
1995. Worldwide sales volume decreased 10.5% for the second quarter of 1996
versus the second quarter of 1995. Sales volumes decreased 5.7% in the first
six months of 1996 versus the first six months of 1995.
Income from operations was unfavorably impacted by lower sales volumes during
the second quarter of 1996 versus the comparative period in 1995. Due to changes
in market conditions, the average margin on product sales decreased to $0.0551
per pound in the second quarter of 1996 from $0.0581 per pound in the second
quarter of 1995. Partially offsetting the lower margins was a 20.0% decrease in
selling and administrative expenses to $17,916,000 for the second quarter of
1996 from $22,385,000 for the same period in 1995. The decrease was mainly due
to lower bad debt expense in the U.S. and Latin America along with lower freight
costs in the U.S. and Europe. For the six months ending June 30, 1996 average
margin on product sales decreased to $0.0527 from $0.0600 for the six months
ending June 30, 1995. Offsetting the lower margins was a 13.5% decrease in
selling and administrative expenses to $37,875,000 for the six months ending
June 30, 1996 versus $43,807,000 for the same period in 1995. The change was
mainly due to lower bad debt expense in the U.S. and Latin America.
Other expenses (predominantly interest expense) decreased $777,000 in the second
quarter of 1996 versus the second quarter of 1995. Non-operating expenses for
the first six months of 1996 were $2,277,000 lower than the the first six months
of 1995. The decrease was predominantly due to the fact that 1995 included
$2,300,000 of expense for an incentive compensation plan related to the
predecessor company.
<PAGE>
Net income increased 12.3% to $3,299,000 in the second quarter of 1996 from
$2,937,000 in the comparative period of the prior year after tax charges of
$2,728,000 and $2,300,000, respectively. The effective tax rate was 45% in the
second quarter of 1996 and 44% in the same period in 1995. For the six months
ended June 30, 1996 net income decreased 21.1% to $4,405,000 from $5,586,000 in
the comparative period of the prior year after tax charges of $3,626,000 and
$4,398,000, respectively. The effective tax rate was 45% for the six months
ended June 30, 1996 and 44% for the six months ended June 30, 1995.
Liquidity and Sources of Capital
Historically, Muehlstein had been an indirect, wholly owned subsidiary of Mobil.
As such, cash generated by Muehlstein and its financing requirements had been
subject to Mobil's cash management procedures and policies.
In connection with the Acquisition, Muehlstein entered into a $125,000,000
revolving credit facility with Citibank N.A. ("Citibank"). The revolving credit
facility expires February 9, 2000. The revolving credit facility will bear
interest at either (1) 100 basis points per annum over the U.S. or certain other
foreign currency Base Rates or (2) 250 basis points per annum over the U.S. or
certain other foreign currency LIBOR rates. On the day of the Acquisition, the
Company borrowed approximately $73,191,000 under this facility.
At the date of the Acquisition, Muehlstein entered into a loan agreement with
Finova Capital Corporation ("Finova"). Pursuant to this agreement total proceeds
of $8,000,000 from two term loans, Note A and Note B, both maturing March 1,
2000, were received. The principal amount of the two term loans is $2,560,000
(Note A) and $5,440,000 (Note B), respectively. These notes bear interest at a
fixed annual rate of interest of 8.20% per annum (Note A) and 9.70% per annum
(Note B).
Pursuant to the Stock Purchase Agreement, Mobil purchased from the Company on
February 9, 1996, 1,000,000 shares of Series "A" Preferred Stock, $.01 par value
per share, at a purchase price of $10.00 per share. The Series "A" Preferred
Stock pays an annual dividend of $1.20 per share (equal to 12 percent per annum
of the stated value of $10.00 per share).
The Company issued a total of 1,999,023 shares of common stock between January
23, 1996 and March 31, 1996. The Company's common stock is held by certain of
the Company's employees, the Company's Employee Share Ownership Plan (ESOP) and
Citicorp North America, Inc. ("Citicorp"). Shareholders', excluding Citicorp,
have a right to put these shares to the Company, following termination of their
employment, subject to the limitations imposed under the terms of the Credit,
Loan and preferred stock agreements. Such provision exists to create a market
for the employees' shares. Citicorp has the right to put their shares to the
Company at any time after the earliest to occur of: (a) three years after the
Acquisition closing date or (b) certain mergers, consolidations, sale of assets
or change of control with respect to the Company or its material subsidiaries.
The redemption price for any shares will be equal to the most recent appraised
fair market value of the common stock. If a put is exercised, the Company will
have the option to pay for the repurchased shares either in cash or pursuant to
a promissory note. Under the terms of the Credit, Loan and preferred stock
agreements and given management's view of its present employee base, significant
activity under the put provisions is not anticipated presently. However, in
accordance with the requirements for accounting for common stock with a put
provision, the common stock has been classified between liabilities and
preferred stock.
Operating activities have historically been a major source or use of cash for
working capital needs and capital expenditures. Net cash provided by operations
were $930,000 for the six months ended June 30, 1996 as compared to a
($38,002,000) use of cash in the first six months of 1995. Working capital on a
comparative basis decreased $74,672,000 from December 31, 1995 to June 30, 1996.
Current assets increased by 5.5% to $208,542,000 at June 30, 1996 from
$197,725,000 at December 31, 1995. Current liabilities increased $85,489,000
mainly due to the addition of $68,727,000 in short term borrowing from Citibank
and the current portion of the Finova loan. In addition, accounts payable
increased $23,848,000 mainly due to the addition of Mobil as a non-affiliated
supplier. The Company expects that available cash and existing credit facilities
will be sufficient to meet its normal operating requirements, including capital
expenditures, over the near term.
<PAGE>
Foreign Exchange
The Company's foreign exchange exposure is limited to its operations in Europe,
Far East and Canada. All sales and purchases in the United States and Latin
America, representing approximately 75 percent of the companies volume, are
denominated in U.S. dollars. Exposure to foreign exchange fluctuations in Europe
are managed through a balancing of the local assets (primarily accounts
receivable) and liabilities (accounts payable). Fluctuations in foreign currency
exchange rates have not had a material financial impact on the results of the
Predecessor Company or Successor Company.
Impact of Inflation and Changing Prices
Market conditions which are influenced by economic and political considerations,
as well as production capacities and utilization dictate pricing and costs. The
Company has entered into certain supply agreements with Mobil for an initial
term of three years. Such agreements provide for minimum and maximum limits on
the amounts of product supplied. The Company does not have any other long-term
purchase or sales commitments with its suppliers or customers. The Company views
this as a marketing advantage that enables it to respond quickly to market
changes, matching supply with demand. The Company capitalizes on opportunities
and imbalances in the market place.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
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.
MUEHLSTEIN HOLDING CORPORATION
Date: August 08, 1996 By: /S/ J. Kevin Donohue
-----------------------------------
J. Kevin Donohue
Chairman of the Board and
Chief Executive Officer
Date: August 08, 1996 By: /S/ Ronald J. Restivo
-----------------------------------
Ronald J. Restivo
Treasurer and Chief Financial
Officer (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET (JUNE 30, 1996), CONSOLIDATED STATEMENT OF OPERATIONS (JUNE 30,
1996), CONSOLIDATED STATEMENT OF CASH FLOW (FEBRUARY 9 THROUGH JUNE 30, 1996)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,248
<SECURITIES> 0
<RECEIVABLES> 133,990
<ALLOWANCES> 3,137
<INVENTORY> 39,234
<CURRENT-ASSETS> 208,542
<PP&E> 7,452
<DEPRECIATION> 379
<TOTAL-ASSETS> 225,747
<CURRENT-LIABILITIES> 180,599
<BONDS> 0
0
10
<COMMON> 20
<OTHER-SE> 34,683
<TOTAL-LIABILITY-AND-EQUITY> 225,747
<SALES> 336,505
<TOTAL-REVENUES> 336,505
<CGS> 287,566
<TOTAL-COSTS> 325,181
<OTHER-EXPENSES> 2,230
<LOSS-PROVISION> 369
<INTEREST-EXPENSE> 2,337
<INCOME-PRETAX> 9,094
<INCOME-TAX> 4,865
<INCOME-CONTINUING> 4,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,229
<EPS-PRIMARY> 3.43
<EPS-DILUTED> 3.43
</TABLE>
