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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996 Commission File Number 1-9897
VALLEY FORGE CORPORATION
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(Exact name of Registrant as specified in its charter)
GEORGIA 58-0833796
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(State of incorporation) (IRS Employer Identification Number)
100 Smith Ranch Road, Suite 326, San Rafael, California 94903-1994
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(Address of principal executive offices) (Zip code)
(415) 492-1500
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(Registrant's telephone number, including area code)
Indicate by a 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, par value $.50
per share, on November 8, 1996, was 2,667,733.
The Exhibit Index is located on Page 2.
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Page 1 of 13
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VALLEY FORGE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I: FINANCIAL INFORMATION
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Item 1. Financial Statements
a) Condensed Consolidated Statements of Income for
the Three and Nine Months Ended September 30, 1996 and 1995 3
b) Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995 4
c) Condensed Consolidated Balance Sheets at
September 30, 1996 and December 31, 1995 5
d) Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II: OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
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VALLEY FORGE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $19,361 $18,014 $60,536 $56,758
Costs and expenses:
Cost of goods sold 11,915 10,968 36,853 34,343
Selling and administrative 6,043 5,647 18,426 17,070
------- ------- ------- -------
OPERATING INCOME 1,403 1,399 5,257 5,345
Other income (expense):
Interest expense (324) (289) (953) (923)
Other, net 50 17 334 -
------- ------- ------- -------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS 1,129 1,127 4,638 4,422
Income taxes 396 395 1,774 1,680
Minority interests 24 36 132 60
------- ------- ------- --------
NET INCOME $ 709 $ 696 $ 2,732 $ 2,682
======= ======= ======= ========
NET INCOME PER SHARE $.26 $.25 $.99 $.98
======= ======= ======= ========
Dividends per share $.06 $.0567 $.18 $.17
======= ======= ======= ========
Weighted average shares outstanding 2,737 2,742 2,747 2,732
======= ======= ======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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VALLEY FORGE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,014 $ 3,215
INVESTING ACTIVITIES
Cash paid for business acquisitions (151) (875)
Additions to property, plant, and equipment (2,795) (2,137)
Investment in and advances to affiliate (2,692) -
Proceeds from sale of constructed facility - 2,821
Proceeds from sale of building held for sale - 242
Other, net (66) (17)
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Net cash (used for) provided by investing activities (5,704) 34
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FINANCING ACTIVITIES
Proceeds from long-term debt 2,678 1,505
Net borrowings (repayments) on line of credit agreement 322 (2,206)
Net repayments on construction loans - (1,941)
Net payments on short-term notes (350) (100)
Principal payments on long-term debt (1,238) (153)
Stock options exercised 11 99
Dividends paid (481) (453)
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Net cash provided by (used for) financing activities 942 (3,249)
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CHANGE IN CASH AND EQUIVALENTS 252 -
Cash and equivalents at beginning of year 34 -
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CASH AND EQUIVALENTS AT END OF PERIOD $ 286 $ -
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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VALLEY FORGE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 286 $ 34
Accounts receivable, net 10,354 10,349
Inventories 17,438 16,310
Other current assets 1,362 1,605
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Total current assets 29,440 28,298
Property, plant, and equipment, net 9,208 7,854
Goodwill, net 12,810 13,431
Investment in and advances to affiliate 2,692 -
Other assets 1,196 1,158
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$55,346 $50,741
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans and notes payable $ 822 $ 850
Current portion of long-term debt 1,512 1,419
Accounts payable and accrued expenses 6,409 5,476
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Total current liabilities 8,743 7,745
Long-term debt 12,831 11,484
Deferred income taxes 855 855
Minority interest 1,415 1,423
Stockholders' equity 31,502 29,234
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$55,346 $50,741
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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VALLEY FORGE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, in thousands, except per share amounts)
GENERAL
Information with respect to the three and nine months ended September 30, 1996
and 1995 is unaudited.
All adjustments which are in the opinion of management necessary to a fair
presentation of results for the interim periods have been included herein. All
adjustments are of a normal and recurring nature. Certain reclassifications
have been made to the 1995 condensed consolidated financial statements to
conform to the 1996 presentation. These financial statements are presented in
accordance with the Securities and Exchange Commission disclosure requirements
for Form 10-Q. Reference should be made to the Valley Forge Corporation Annual
Report on Form 10-K for the year ended December 31, 1995.
Due to seasonal variations, the results of operations for the periods reported
are not necessarily indicative of the entire year.
INVENTORIES
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw materials $ 9,638 $ 8,617
Work-in-process 2,744 2,455
Finished goods 5,056 5,238
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$17,438 $16,310
======= =======
</TABLE>
EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of common shares
and equivalents outstanding during the periods. There was no difference
between primary and fully diluted earnings per share.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest during the nine months ended September
30, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income taxes $1,471 $2,215
Interest $929 $933
</TABLE>
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EQUITY INVESTMENT
To enhance its strategic position in the European marketplace, in April 1996
the Company acquired a 47% interest in Mastervolt, a Dutch manufacturer of
power inverters and battery chargers for the marine and industrial markets,
for $2,363,000 in cash. The Company has advanced $329,000 to this affiliate for
working capital. The investment is being accounted for using the equity
method.
BUSINESS ACQUISITION
In July 1996, the Company purchased 7% of the stock of Atlantic Guest Inc.
(Guest), from two officers of the subsidiary, increasing its ownership interest
to 93%. The Company purchased 3.5% from each officer for cash of $75,250 and
forgiveness of $75,250 on each officer's note.
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VALLEY FORGE CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1996
Any forward-looking statements contained in the following discussion or
elsewhere in this document involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range of
factors could contribute to those differences, including but not limited to
general business conditions; actions of competitors; changes in laws and
regulations, including changes in accounting standards; inventory risks due to
shifts in market demand and/or product mix; price volatility in the cost of
purchased components; and the risk factors listed from time to time in the
Company's SEC reports.
FINANCIAL CONDITION
During the first nine months of 1996, the Company's cash flow from operations
($5.0 million) and net borrowings on its bank line of credit ($.3 million) were
used to fund investments in property, plant, and equipment ($2.8 million,
including the investment of 1.1 million in operating facilities) and make
principal payments on long-term debt ($1.2 million). The Company acquired a
47% interest in Mastervolt,a Dutch marine products manufacturer
($2.4 million), and advanced them $.3 million funded principally by
borrowings on its advanceable term loan
In January 1995, the Company sold a constructed operating facility for $2.8
million and repaid the related construction loan of $1.6 million.
Management believes that cash flow from operations and bank borrowings will be
adequate to meet the Company's working capital needs for the remainder of 1996.
RESULTS OF OPERATIONS
REVENUES AND RELATED COSTS
Consolidated revenues increased $1.3 million (7%) in the quarter ended
September 30, 1996 over the same quarter in the prior year, with the
recreational products segment increasing 7% and the industrial products segment
increasing 8%. Revenues for the first nine months of 1996 increased $3.8
million (7%) to $60.5 million, with the recreational products segment up 6% and
the industrial products segment up 7% over the first nine months of 1995.
Gross profits for the quarter and nine months ended September 30, 1996
increased $.4 million (6%) and $1.3 million (6%), respectively, over the
comparable periods in 1995. These increases were primarily attributable to the
industrial products segment offset somewhat by decreases in the recreational
products segment, which has been adversely affected by various factors,
including product mix, new product introductions, and pricing pressures.
The consolidated gross profit margin percentage for the quarter decreased .6%
from 39.1% in 1995 to 38.5% 1996 and for the nine-month period decreased from
39.5% in 1995 to 39.1% in 1996.
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SELLING AND ADMINISTRATIVE EXPENSES
Consolidated selling and administrative expenses increased $396 thousand (7%)
for the quarter and $1.4 million (8%) for the nine months ended September 30,
1996 over the same periods in the prior year. Selling and administrative
expenses as a percentage of sales remained the same at approximately 31% for
the third quarters of 1995 and 1996, and approximately 30% for the nine months
ended September 30, 1995 and 1996.
OTHER INCOME (EXPENSE)
Other, net for the nine months ended September 30, 1996 includes $250,000 of
proceeds from a life insurance policy on the former president of Gits
Manufacturing.
QUARTERLY RESULTS
The following table sets forth unaudited consolidated summary financial data
for each quarter of 1994, 1995, and 1996 to date. This quarterly information
has been prepared on the same basis as the annual consolidated financial
statements and, in the opinion of management, reflects all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly the
information set forth herein. The operating results for any quarter are not
necessarily indicative of results for any future period. Dollars in thousands,
except per share amounts:
<TABLE>
<CAPTION>
1994 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $15,795 $18,156 $15,961 $16,124
Gross profit 6,335 7,584 6,123 6,159
Net income 738 904 614 561
Net income per share $.28 $.33 $.23 $.21
</TABLE>
<TABLE>
<CAPTION>
1995 First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $18,863 $19,881 $18,014 $18,370
Gross profit 7,705 7,664 7,046 7,074
Net income 1,008 978 696 684
Net income per share $.37 $.36 $.25 $.25
</TABLE>
<TABLE>
<CAPTION>
1996 First Quarter Second Quarter Third Quarter
------------- -------------- -------------
<S> <C> <C> <C>
Revenues $19,022 $22,153 $19,361
Gross profit 7,520 8,717 7,446
Net income 918 1,105 709
Net income per share $.33 $.40 $.26
</TABLE>
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VALLEY FORGE CORPORATION AND SUBSIDIARIES
Part II Other Information
For the Quarter Ended September 30, 1996
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Registration S-K:
Exhibit 11 - Computation of Earnings per Share.
b) Reports on Form 8:
None.
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VALLEY FORGE CORPORATION AND SUBSIDIARIES
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.
VALLEY FORGE CORPORATION
Registrant
Date: November 13, 1996 /s/ MONICA J. BURKE
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Monica J. Burke
Vice President Finance
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Exhibit 11
VALLEY FORGE CORPORATION AND SUBSIDIARIES
Computation of Earnings per Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average common shares
outstanding 2,667,733 2,665,640 2,667,678 2,660,780
Common equivalent shares 69,124 75,902 79,629 70,653
----------- ----------- ----------- -----------
Weighted average common shares and
common equivalent shares outstanding 2,736,857 2,741,542 2,747,307 2,731,433
========= ========= ========= =========
Net income $709,000 $696,000 $2,732,000 $2,682,000
======== ======== ========== ==========
Primary earnings per share $.26 $.25 $.99 $.98
==== ==== ==== ====
FULLY DILUTED:
Weighted average common shares
outstanding 2,667,733 2,665,640 2,667,678 2,660,780
Common equivalent shares 77,268 82,632 87,664 75,027
----------- ----------- ----------- -----------
Weighted average common shares and
common equivalent shares outstanding 2,745,001 2,748,272 2,755,342 2,735,807
========= ========= ========= =========
Net income $709,000 $696,000 $2,732,000 $2,682,000
======== ======== ========== ==========
Fully diluted earnings per share $.26 $.25 $.99 $.98
==== ==== ==== ====
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 286
<SECURITIES> 0
<RECEIVABLES> 10,610
<ALLOWANCES> 256
<INVENTORY> 17,438
<CURRENT-ASSETS> 29,440
<PP&E> 22,096
<DEPRECIATION> 12,888
<TOTAL-ASSETS> 55,346
<CURRENT-LIABILITIES> 8,743
<BONDS> 0
0
0
<COMMON> 1,398
<OTHER-SE> 30,104
<TOTAL-LIABILITY-AND-EQUITY> 55,346
<SALES> 60,536
<TOTAL-REVENUES> 60,536
<CGS> 36,853
<TOTAL-COSTS> 36,853
<OTHER-EXPENSES> 18,426
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 953
<INCOME-PRETAX> 4,638
<INCOME-TAX> 1,774
<INCOME-CONTINUING> 2,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,732
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.99
</TABLE>
