<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended May 30, 1999 .
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number 0-2331
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GLASSMASTER COMPANY
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(Exact name of small business issuer as specified in its charter)
South Carolina 57-0283724
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(State or other jurisdiction of (IRS Employer
Incorporation of organization Identification No.)
PO Box 788, Lexington SC 29071
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number, including area code: 803-359-2594
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No Change
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant:
(1) Has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
YES X NO
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(2) Has been subject to such filing requirements for the past 90 days
YES X NO
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Common shares outstanding May 30, 1999: 1,630,696 par value $0.03
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Glassmaster Company
Consolidated Comparative Balance Sheet
(Thousands)
<TABLE>
<CAPTION>
May 30, 1999 August 31, 1998
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<S> <C> <C>
(Unaudited)
ASSETS
Current Assets:
Cash $ 65 $ 143
Accounts Receivable (Net of Reserve) 3,398 3,373
Other Current Receivables 101 7
Inventories:
Raw Materials $ 1,738 $ 1,714
Work in Process 533 478
Finished Products 1,164 3,435 958 3,150
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Prepaid Expenses and Other Current Assets 307 81
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Total Current Assets 7,306 6,754
Fixed Assets (Net of Dep'n)
Property and Equipment (at cost) 5,850 6,185
Other Assets
CSV Life Insurance and Other Unamortized Assets 723 533
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Total Assets $13,879 $13,472
======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 1,684 $ 1,602
Accrued Expenses 244 259
Accrued Income Taxes 0 17
Notes & Mortgages Payable 3,108 1,882
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Total Current Liabilities 5,036 3,760
Long Term Liabilities
Notes & Mtges, Due After One Year $ 4,937 $ 5,272
Deferred Income Taxes 591 5,528 591 5,863
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Total Liabilities 10,564 9,623
Stockholders' Equity
Capital Stock (Authorized 5,000,000 Shares $0.03
Par - 1,630,696 (1999), 1,627,896 (1998)
Shares Issued and Outstanding $ 49 $ 49
Paid-In Capital 1,358 1,355
Donated Capital 124 124
Retained Earnings 1,784 3,315 2,321 3,849
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Total Liabilities and Equity $13,879 $13,472
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</TABLE>
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Glassmaster Company
Consolidated Comparative Income Statement
(In thousands except per share amounts)(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
May 30, 1999 May 31, 1998
------------ ------------
<S> <C> <C>
Net Sales $ 5,479 $6,655
Cost of Sales 4,718 5,608
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Gross Profit 761 1,047
Costs and Expenses:
Selling 356 354
General and Administrative 263 264
Other Income and Expense - Net 205 225
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Total Costs and Expenses 824 843
Income(Loss) From Operations (63) 204
Interest Expense 173 166
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Income(Loss) Before Income Taxes 236 38
Income Taxes (80) 6
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Net Income(Loss) $ (156) $ 32
======= ======
Net Income(Loss) Per Share (1,630,696 Shares) (0.10)
(Basic and Diluted)
Net Income(Loss) Per Share (1,627,896 Shares) 0.02
(Basic and Diluted)
Dividends Paid Per Share $ 0.00 $ 0.00
======= ======
</TABLE>
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Glassmaster Company
Consolidated Comparative Income Statement
(In thousands except per share amounts)(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
May 30, 1999 May 31, 1998
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<S> <C> <C>
Net Sales $16,180 $18,282
Cost of Sales 14,181 15,405
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Gross Profit 1,999 2,877
Costs and Expenses:
Selling 893 915
General and Administrative 760 788
Other Income and Expense - Net 661 653
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Total Costs and Expenses 2,314 2,356
Income(Loss) From Operations (315) 521
Interest Expense 498 473
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Income(Loss) Before Income Taxes (813) 48
Income Taxes (276) 7
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Net Income(Loss) $ (537) $ 41
======= =======
Net Income(Loss) Per Share (1,630,696 Shares) (0.33)
(Basic and Diluted)
Net Income(Loss) Per Share (1,627,896 Shares) 0.03
(Basic and Diluted)
Dividends Paid Per Share $ 0.00 $ 0.03
======= =======
</TABLE>
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Glassmaster Company
Consolidated Statement of Cash Flows
(Thousands)(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
May 30, 1999 May 31, 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income(Loss) $ (537) $ 41
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation 702 605
Amortization 7 5
Increase in Deferred Income Taxes (193) 0
Loss on Disposal of Fixed Assets 9 0
Changes in Operating Assets & Liabilities:
Decrease (Increase) in Receivables (119) (940)
Decrease (Increase) in Inventories (284) (505)
Decrease (Increase) in Prepaid Expenses &
Other Current Assets (226) (167)
Increase (Decrease) in Accounts Payable 87 1,662
Increase (Decrease) in Accrued Expenses (37) 18
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Net Cash Provided (Used) By Operating Activities (591) 719
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Cash Flows From Investing Activities
Additional Investment in Fixed Assets 375 990
Additional Investment in Other Assets 5 12
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Net Cash Used By Investing Activities 380 1,002
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Cash Flows From Financing Activities
Proceeds from Exercise of Stock Options 3 11
Payment of Dividend 0 (49)
Proceeds from Short-Term Borrowings 0 300
Repayment of Short-Term Borrowings 7 (175)
Proceeds from Long-Term Obligations 44 90
Repayment of Long-Term Obligations (379) (567)
Net Increase (Decrease) in Short-Term Revolving
Lines of Credit 1,218 663
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Net Cash Provided (Used) By Financing Activities 893 273
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Net Increase (Decrease) In Cash (78) (10)
Cash At Beginning of Period 143 119
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Cash At End of Period $ 65 $ 109
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Supplemental Disclosures of Cash Flow Information
Cash Paid For:
Interest (Net of Amount Capitalized) $ 501 $ 477
Income Taxes 17 30
</TABLE>
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Glassmaster Company
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 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-QSB 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 nine-month period ended May 30, 1999
are not necessarily indicative of the results that may be expected for the year
ended August 31, 1999. For further information, refer to the Consolidated
Financial Statements and Notes to Financial Statements included in the Company's
Annual Report on Form 10-KSB for the year ended August 31, 1998. Certain prior
year amounts may have been reclassified to conform with the 1999 presentation.
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
Consolidated sales for the third quarter ended May 30, 1999 were
$5,478,502 a decrease of almost 18% when compared to the third quarter of the
1998 fiscal year. The decrease in third quarter sales is due to a decline of 23%
in Monofilament sales and a 53% decrease in sales at the Composites Division.
Glassmaster Controls third quarter sales were approximately 6% ahead of the
prior year quarterly sales. Year-to-date consolidated sales total $16,180,060
compared with $18,282,465 in the prior year nine-month period, a decrease of
11.5%. Year-to-date sales have declined by 15% at Monofilament and 45% at
Composites. The decline in quarterly and year-to-date sales at Monofilament can
be attributed to difficult market conditions in the North American textile
industry due to foreign competitive pressures and much lower sales of nylon weed
trimmer line as this division strategically transitions its product mix from
products with commodity oriented pricing to specialty engineered monofilaments
with higher profit margins. The decline in sales at the Composites Division is
the result of a high volume, low margin product line (fiberglass handles) having
been discontinued at the end of the 1998 fiscal year, lower marine antenna
sales, and disappointing sales of the division's recently introduced product
line, the Composite Modular Building System(TM). Glassmaster Controls
year-to-date sales have increased by 5% compared with the prior year due to new
electronics product sales.
Gross profit margins during the third quarter were 13.9% of sales this
year compared to 15.7% of sales in last year's third quarter. The decline in
profit margins is primarily due to lower sales and related manufacturing
inefficiencies at Monofilament. Year-to-date gross profit margins have declined
to 12.4% of sales this year versus 15.7% of sales in the prior year-to-date
period due to lower sales volumes at Monofilament. Manufacturing cost
inefficiencies have been caused by the decline in sales volumes because staff
and employment levels have been maintained by this division during the
transition to new product sales. Profit margins are expected to improve as sales
of recently developed products grow.
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Item 2. Management's Discussion and Analysis (Cont'd)
Selling, G&A, and Other Expenses totaled $823,879 during the third
quarter, or about 15% of sales, compared with $843,842, or 12.4% of sales, in
the year ago third quarter. On a year-to-date basis, these expenses represent
14.3% of sales this year versus 13.4% of sales last year as a direct result of
lower than anticipated sales volumes. Interest expense was slightly higher this
year on both a quarterly and year-to-date basis when compared with the year ago
periods, due to higher average borrowings against the company's revolving lines
of credit necessary to support working capital.
Income(Loss) Before Income Taxes in the third quarter was ($235,735)
this year versus $37,361 last year and year-to-date totals ($813,046) this year
compared with $48,780 a year ago. The decline in income is primarily due to
lower sales and corresponding gross profit. An Income Tax Benefit of $80,150 was
recognized in the third quarter and a benefit of $276,436 has been recognized
year-to-date due to pre-tax operating losses. Last year an Income Tax Expense of
$5,585 and $7,296 was recognized for the quarter and year-to-date periods,
respectively. Net Income(Loss) per share (basic and diluted) was ($.10) for the
third quarter and ($.33) year to date versus $.02 per share in last year's third
quarter and $.03 per share last year to date.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities total ($591,000) for the
nine-month period ended May 30, 1999 compared with $719,000 during last year's
comparable year-to-date period. The decline in cash flows is primarily due to
pre-tax operating losses due to lower sales and corresponding gross profit
realized.
Cash used by investing activities so far this fiscal year totals
$380,000 compared with last year's $1,002,000. A reduced investment in fixed
assets this year when compared with the prior year period accounts for the
decrease in cash used by investing activities. The prior year period included
equipment and tooling expenditures at Composites associated with the development
of its new product line, the Glassmaster Composite Modular Building System(TM)
as well as extrusion equipment to boost manufacturing capacity at Monofilament.
These capital addition projects are now complete and no further material
commitments for capital additions are currently planned for the remainder of the
fiscal year.
Net cash provided by financing activities was $893,000 during this
year's first nine months compared with $273,000 in the prior year-to-date
period. The increase can be attributed to higher net borrowings under the
company's revolving lines of credit due to operating losses incurred so far this
fiscal year compared with an operating profit recognized during last year's
nine-month period. These revolving credit agreements currently provide for
borrowings of up to $3.15 million. Total borrowings outstanding under these
credit lines were $2.3 million as of May 30, 1999. During the fourth quarter of
the current fiscal year the company intends to refinance most of its outstanding
mortgage and term-loan debt at Glassmaster Controls to satisfy balloon payment
requirements and obtain additional long-term financing at attractive fixed
interest rates. Approximately $650,000 in additional long-term debt will be
available to pay down existing revolving credit and fund approximately $400,000
in capital equipment additions currently planned for next fiscal year.
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Item 2. Management's Discussion and Analysis (Cont'd)
The company currently anticipates that its cash requirements during the
remainder of the 1999 fiscal year will be provided from operations and from
borrowings under existing and committed credit lines.
YEAR 2000 DISCLOSURE
The Company began working on the Year 2000 Compliance Issue in early 1998. The
plan was divided into three separate phases: (1) The Internal Assessment Phase,
whereby the Company's internal information systems were analyzed and non-Year
2000 compliant hardware and software identified and scheduled for upgrade or
replacement. (2) The Vendor Assessment Phase, which involved contacting all
strategic suppliers, service providers, and trading partners to inquire and
subsequently receive assurances (or intentions) regarding their Year 2000
compliance. (3) The Upgrade, Implementation, & Testing Phase, whereby all
non-compliant hardware and software systems were upgraded or replaced, then
implemented into normal business operations, and subsequently tested for Year
2000 compatibility.
The Internal Assessment Phase was completed in the first quarter of 1998. This
assessment identified several areas of vulnerability, including network
operating systems, the Company's basic accounting package, and various desktop
software applications. In addition, minor hardware issues with P/Cs and certain
peripherals, as well as some non-IT related hardware concerns were exposed.
Although the Vendor Assessment Phase was completed in the fourth quarter of
1998, the Company continuously monitors the status of all critical suppliers and
service providers, to insure they are on schedule to complete their own
compliance efforts. Concerns regarding utilities fall within this ongoing
assessment phase, in that, the inability of utility companies to supply
uninterrupted power, fuel, and water on and after January 1, 2000 is critical to
the Company's ability to maintain operations. In addition, financial
institutions fall within this scope, as their inability to provide basic
services would also have a material impact on the Company's operations. To date,
the company is not aware of any external agent with Year 2000 issues that would
materially impact the Company's results of operations. However, the Company has
no way of ensuring that external agents will be Year 2000 ready. Furthermore,
the inability of external agents to complete Year 2000 initiatives in a timely
fashion could have material impact on the Company. Other than utility providers
and financial institutions as outlined above, the effect of non-compliance by
external agents can not be determined. The Company is formalizing contingency
plans to mitigate any risks posed by the non-compliance of external agents.
These plans are currently under development and should be completed in the third
quarter of 1999.
The Upgrade, Implementation, & Testing Phase, which was begun in the second
quarter of 1998, is approximately 90% complete as of May 30, 1999. In fact, all
mission-critical IT and non-IT systems are currently compliant, pending
enterprise-wide testing for compatibility and interoperability. This includes
the Company's basic accounting system, including customer order management,
purchasing and procurement, inventory management, accounting and finance,
product manufacturing, distribution and logistics, budgeting and planning, and
personnel/payroll. All critical network system hardware and software has been
upgraded and implemented into daily operations. All desktop PC hardware and
software has been upgraded and implemented. All essential manufacturing and
warehousing operations are currently compliant, including process control,
material handling, quality control,
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YEAR 2000 DISCLOSURE (Cont'd)
diagnostic & testing, and health & safety. This assessment is based on
manufacturers test results and vendor certifications. The company can not be
certain that information provided by these sources is accurate. Therefore, the
Company is formalizing contingency plans to preclude any problems arising from
non-compliant hardware or software in both IT and non-IT systems. These plans
are currently under development and should be finalized in the third quarter of
1999. Enterprise-wide testing of critical systems for compatibility and
interoperability is ongoing, and will be completed by September 30, 1999.
The Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity, or financial condition due to the general uncertainty
inherent in the Year 2000 problem. The Company's Year 2000 compliance plan is
expected to significantly reduce this level of uncertainty. The Company believes
that, with the implementation of new business systems, Year 2000 readiness of
its primary vendors and service providers, and completion of the Year
2000-compliance plan as scheduled, it will maintain normal operations. Although
there is no reason to question the compliance plans presented by the Company's
utility providers or financial institutions, the inability of either of these to
provide basic services for an extended period would have a significant impact on
the Company's operations presenting a "worst case scenario" that could be
potentially damaging. For more information regarding management's assessment of
the risks associated with the Year 2000 issue, as well as estimated costs to the
company in completing its Year 2000 compliance plan, please refer to the
Company's Annual report on Form 10-KSB for the year ended August 31, 1998.
PART II - OTHER INFORMATION
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
Exhibit No. Description
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27 May 30, 1999 Financial Data Schedule
b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
May 30, 1999.
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Glassmaster Company
Lexington SC
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.
GLASSMASTER COMPANY
Date July 14, 1999 /s/ Raymond M. Trewhella
-------------------------- -----------------------------------
Raymond M. Trewhella
(President and
Principal Executive Officer)
Date July 14, 1999 /s/ Steven R. Menchinger
-------------------------- -----------------------------------
Steven R. Menchinger
(Treasurer, Controller, and
Principal Financial Officer)
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EXHIBIT INDEX
Exhibit
No. Description
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27 Financial Data Schedule
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED MAY 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-30-1999
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 3,554
<ALLOWANCES> 55
<INVENTORY> 3,435
<CURRENT-ASSETS> 7,306
<PP&E> 12,612
<DEPRECIATION> 6,762
<TOTAL-ASSETS> 13,879
<CURRENT-LIABILITIES> 5,035
<BONDS> 4,937
0
0
<COMMON> 49
<OTHER-SE> 3,266
<TOTAL-LIABILITY-AND-EQUITY> 13,879
<SALES> 16,180
<TOTAL-REVENUES> 16,180
<CGS> 14,181
<TOTAL-COSTS> 14,181
<OTHER-EXPENSES> 2,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 498
<INCOME-PRETAX> (813)
<INCOME-TAX> (276)
<INCOME-CONTINUING> (537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (537)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
