FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 1995
Commission file number 1-6072
LATSHAW ENTERPRISES, INC.
Name of Registrant
Delaware 44-0427150
State of Incorporation Employer's I.D. Number
2533 S. West Street
Wichita, Kansas 67217
Address of principal executive offices
(316) 942-7266
Registrant's telephone number
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 [ ]
Common Stock, $2 Par Value -- 496,584 Shares Outstanding at 1-28-95
<PAGE>
INDEX
LATSHAW ENTERPRISES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited).
Consolidated Balance Sheets - January 28, 1995 and October 29, 1994.
Consolidated Statements of Income - For the three months ended
January 28, 1995 and January 29, 1994.
Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows - For the three months ended
January 28, 1995 and January 29, 1994.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
LATSHAW ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited)
<TABLE>
<CAPTION>
January 28, October 29,
1995 1994
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 195 $ 184
Marketable equity securities,
at lower of cost or market 465 415
Accounts and notes receivable - net 7,609 5,939
Inventories, at lower of cost (LIFO)
or market 7,573 7,721
Deferred income taxes 663 663
Prepaid expenses 252 405
Total Current Assets 16,757 15,327
Property, plant and equipment at cost 17,841 17,497
Less accumulated depreciation and
amortization (11,371) (11,086)
6,470 6,411
Other assets 243 226
$23,470 $21,964
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,333 $ 2,099
Accounts payable 2,702 2,828
Current portion of long-term debt 49 49
Accrued expenses 1,569 1,924
Income taxes payable 258 -
Total Current Liabilities 7,911 6,900
Long-term debt, less current portion 2,815 2,827
Pensions and deferred compensation 1,569 1,571
Postretirement benefit obligation 296 288
Deferred income taxes 172 172
Shareholders' equity
Preferred stock, no par value:
Authorized shares - 500,000, none issued - -
Common stock, $2 par value:
Authorized shares - 1,500,000
Issued shares - 1,002,162 2,004 2,004
Class C common stock, $2 par value:
Authorized shares - 1,000,000 in 1992,
none issued - -
Additional paid-in capital 5,015 5,015
Unrealized gains on available-
for-sale securities 32 -
Retained earnings 14,109 13,636
21,160 20,655
Less cost of common stock held
in treasury, 505,578 shares in
1995 and 505,058 in 1994 (10,453) (10,449)
10,707 10,206
$ 23,470 $ 21,964
</TABLE>
<TABLE>
LATSHAW ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
January 28, January 29,
1995 1994
<S> <C> <C>
Net sales $ 11,072 $ 9,348
Cost of sales 8,561 7,075
Gross Profit 2,511 2,273
Selling, general and administrative expenses 1,634 1,411
Interest expense 113 73
Loss on sale of marketable equity securities - 468
Unrealized gain on marketable equity securities - (494)
Other - net 12 (7)
Income before income taxes 752 822
Income tax provision 279 280
Net income $ 473 $ 542
Net income per common and
common equivalent share:
Primary $ .91 $ 1.06
Fully Diluted $ .50 $ .56
Common and common equivalent
shares outstanding:
Primary 519 509
Fully diluted 1,019 1,020
</TABLE>
Notes to Consolidated Financial Statements:
The condensed financial statements included herein have been prepared by the
Company without audit, and in the opinion of management, reflect all the
adjustments necessary to fairly present the Company's results of operations
for the period. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report.
Net Income Per Share
The computation of primary earnings per common and common equivalent share is
based on the weighted average number of outstanding common shares and
additional shares assuming the exercise of dilutive stock options. The
computation of fully diluted earnings per share further assumes conversion of
the variable interest rate convertible debentures.
<TABLE>
<PAGE>
LATSHAW ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share data)
(Unaudited)
<CAPTION>
Three Months Ended
January 28, January 29,
1995 1994
Operating activities
<S> <C> <C>
Net income $ 473 $ 542
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 285 233
Deferred compensation (2) (2)
Postretirement benefits 8 6
Loss (Gain) on sale of marketable
equity securities - 468
Unrealized gain on marketable
equity securities - (494)
Provision for loss on accounts receivable 6 25
Changes in operating assets and liabilities
affecting cash and cash equivalents:
Accounts and notes receivable (1,676) (1,719)
Inventories 148 (165)
Refundable income taxes - 138
Prepaid expenses 153 8
Accounts payable (126) (95)
Accrued expenses (355) (59)
Accrued income taxes payable 240 67
Net cash used in operating activites (846) (1,047)
Investing activities
Purchases of property, plant and equipment (344) (575)
Proceeds from sale of marketable equity
securities - 75
Other (17) 37
Net cash used in investing activities (361) (463)
Financing activities
Payments of notes payable (58) (86)
Proceeds from issuance of notes payable 1,292 1,650
Payments of long-term debt (12) (204)
Proceeds from issuance of long-term debt - 198
Purchase of treasury stock (4) (6)
Net cash provided by financing activities 1,218 1,552
Increase in cash and cash equivalents 11 42
Cash and cash equivalents at beginning
of period 184 174
Cash and cash equivalents at end of period $ 195 $ 216
</TABLE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Net sales for the first quarter of 1995 increased 18.4 percent to
$11,072,000 compared to $9,348,000 for the same period in 1994. All operating
divisions of the Company had sales increases this quarter over the same period
last year. Demand for the Company's products remained strong throughout the
first quarter of 1995. Improvement in the general economic conditions appears
to have had a favorable effect on many of our customers.
Gross profit was 22.7 percent in the first quarter of 1995 compared to
24.3 percent for the same period in 1994. Operating efficiencies resulting
from the higher sales volume did not offset higher material costs that all
divisions experienced in the first quarter of 1995. The Company's material
suppliers have been experiencing increased demand for their products and as a
result have increased their prices. Management is currently evaluating this
trend to see that these changes are reflected in the Company's product
pricing.
Selling, general and administrative expenses increased $223,000 in the
first quarter of 1995 when compared to the same period in 1994. However, as a
percentage of sales these costs were 14.8 percent in 1995 as compared to 15.1
percent in 1994 due to the economies of scale provided by the increased sales.
The higher costs in 1995 were primarily the result of increased commissions
and performance bonuses due to the higher sales volume.
Interest expense was $113,000 for the first quarter of 1995 compared to
$73,000 for the same period a year earlier. This increase was due to
additional debt incurred to meet the working capital requirements of higher
sales volume plus bank borrowing's used to fund asset acquisitions. Borrowing
costs in 1995 were also higher because of an increase in interest rates the
Company paid on its outstanding convertible subordinated debentures and bank
borrowings.
In the first quarter of 1994, the Company sold 35,458 shares of Standard
Brands Paint common stock for $75,000. This resulted in a realized loss of
$468,000. During the same period in 1995 there were no such sales.
The Company, in the first quarter of 1994, recorded a $494,000 unrealized
gain on marketable equity securities. This unrealized gain was the result of
the Company's policy of carrying its marketable equity securities at the lower
of aggregate cost or market value. Effective October 30, 1994, the Company
adopted the provisions of Statement of Financial Accounting Standards (SFAS),
No. 115 on "Accounting for Certain Investments in Debt and Equity Securities."
In accordance with SFAS No. 115, the Company has determined that its
marketable equity securities are considered to be "available-for-sale" and
that any unrealized gains or losses are to be reported net of tax, as a
separate component of shareholders' equity. At October 30, 1994 and January
28, 1995, the pretax unrealized gain on marketable equity securities was
$14,000 and $50,000, respectively.
The effective income tax rate was 37.1 percent in the first quarter of
1995 compared to 34.1 percent in the first quarter of 1994. The lower
effective rate in 1994 was attributable to the effects of changes in the
valuation reserve related to the cumulative unrealized capital losses on the
Company's marketable equity securities and certain contributions of qualified
use property.
The Company had net income for the first quarter in 1995 of $473,000 or
91 cents per share (primary) and 50 cents per share (fully diluted). For the
same period in 1994 the Company had a net profit of $542,000 or $1.06 per
share (primary) and 56 cents per share (fully diluted).
The computation of primary earnings per common and common equivalent
share is based on the weighted average number of outstanding common shares and
additional shares assuming the exercise of dilutive stock options. The
computation of fully diluted earnings per share assumes conversion of the
variable rate convertible debentures.
In the first quarter of 1995, the Company used $846,000 in its operating
activities and $344,000 for its investment in property, plant and equipment.
These cash uses were funded by drawing on the available bank lines of credit.
Growth in trade receivables and equipment purchases were the primary reasons
for this cash requirement which resulted primarily from the effects of
higher sales volume.
As of January 28, 1995, the Company, through its subsidiary Wescon
Products, had an unused line of credit for short-term bank borrowings of
$2,100,000 remaining on the $5,000,000 available, providing for interest at
prime. The Company, through its subsidiary Helton, Inc., also has outstanding
borrowings of $322,000 at January 28, 1995 on a $350,000 bank line of credit.
Management believes that the combination of funds available through its bank
lines of credit along with the anticipated cash flow from operations will
provide the capital resources necessary to meet the Company's working capital
needs. Despite the Company's existing capital resources, opportunities may
arise that Management believes would enhance the value of the Company that
could require financing not currently provided for.
At the current rate of growth of sales, the Company's existing facilities
will reach full production capacity in the near future. The Company has
approved the addition of approximately $285,000 to its 1995 capital budget to
fund expansion of one of its existing facilities.
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
Except as set forth below, there are no material pending legal
proceedings other than ordinary routine litigation incidental
to the business, to which either the Company or its subsidiaries are a party
or of which any of the property of such entities is the subject.
On August 13, 1993 the Company received an inquiry from the United States
Environmental Protection Agency ("EPA") concerning the disposal of hazardous
substances at the Doepke-Holliday Super Fund Site (the "Site") in Johnson
County, Kansas. In the letter, the EPA stated that it had information
indicating that wastes from the Company were disposed of at the Site. The
Company has no records of any such disposal of wastes at the Site. However,
the Company no longer has access to most of the records of two divisions which
it operated during the relevant time period and subsequently sold, a paint and
chemical coatings division and a manufactured housing division.
The Company recently agreed to participate in the Holliday Remediation
Task Force (the Task Force), a group of potentially responsible parties for
the Site. The Task Force currently has 40 active members and is negotiating
participation by other potentially responsible parties. Parties who join the
task force agree to participate at one of five specified levels of
contribution based upon the Task Force's assessment of liability and to pay a
portion of future response and remediation costs based upon their specified
level of contribution. The Company will participate in the third contribution
level and the Task Force's preliminary estimate of the amount of financial
contribution which may be required from the Company at that level is $75,000
to $100,000. The Task Force has provided the Company with a written
participation agreement and the Company has paid an initial contribution of
$20,185 to the Task Force. The Task Force has not yet entered into a consent
decree with the EPA so neither ultimate liability nor costs are ascertainable
at this time. Based upon the information provided by the Task Force, the
Company estimates the amount of the financial contribution by the Company,
including legal and consulting costs associated with the contingency, that may
be required will be $150,000.
At October 29, 1994, the Company accrued a current liability of $150,000
relating to this contingency. The Company does not expect final closure of
this matter during fiscal year 1995. As a result of this matter, the Company
has requested copies of insurance policies that were in effect during the
period the contamination allegedly took place. The Company plans to
evaluate the coverage that existed during this period and determine whether a
claim should be filed with the carrier. The Company's ability to obtain
contribution from the insurance carrier is not ascertainable at this time.
In the event the Company ultimately pays certain costs as a potentially
responsible party, or in the event the Company is ultimately found liable in
connection with the Site, it is the opinion of management, based upon
currently available information, that any such costs or liability is not
likely to materially vary from the amount accrued at October 29, 1994.
Item 5. - Other Information - None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Primary and Fully Diluted Net Income
per Common Share Computation
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
LATSHAW ENTERPRISES, INC.
Registrant
March 10, 1995 Michael E. Bukaty
Date Michael E. Bukaty
President
March 10, 1995 David G. Carr
Date David G. Carr
Sr. Vice President, CFO
<PAGE>
EXHIBIT INDEX
Assigned
Exhibit Number Description of Exhibit
(11) Primary and Fully Diluted
Net Income per Common Share
Computation
(27) Financial Data Schedule
EXHIBIT 11
Latshaw Enterprises, Inc.
<TABLE>
Primary and Fully Diluted Net Income
per Common Share Computation
<CAPTION>
Three Months Ended
January 28, January 29,
1995 1994
Primary
Net income (loss) applicable
<S> <C> <C> <C> <C>
to common shareholders $ 473 $ 542
Weighted average number of common
shares outstanding during the period 497 494
Add - common equivalent shares (determined
using the "treasury stock method")
representing shares issuable upon the
exercise of stock options granted 22 15
Weighted average number of common and
common equivalent shares outstanding 519 509
Net income per share $ .91 $ 1.06
Fully Diluted
Net income $ 473 $ 542
Add - interest expense of convertible
subordinated debentures 37 29
Net income applicable to common shareholders $ 510 $ 571
Weighted average number of common shares
outstanding during the period 497 494
Add - common equivalent shares (determined
using the "treasury stock method") representing
shares issuable upon the exercise of stock
options granted 22 26
Add - dilutive convertible subordinated
debentures 500 500
Weighted average number of common and
common equivalent shares outstanding 1,019 1,020
Net income per share $ .50 $ .56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1994
<PERIOD-END> JAN-28-1995
<CASH> 195
<SECURITIES> 415
<RECEIVABLES> 7,609
<ALLOWANCES> 0
<INVENTORY> 7,573
<CURRENT-ASSETS> 16,707
<PP&E> 17,841
<DEPRECIATION> 11,371
<TOTAL-ASSETS> 23,420
<CURRENT-LIABILITIES> 7,893
<BONDS> 2,500
<COMMON> 2,004
0
0
<OTHER-SE> 5,015
<TOTAL-LIABILITY-AND-EQUITY> 23,420
<SALES> 11,072
<TOTAL-REVENUES> 11,072
<CGS> 8,561
<TOTAL-COSTS> 10,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 752
<INCOME-TAX> 279
<INCOME-CONTINUING> 473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473
<EPS-PRIMARY> .91
<EPS-DILUTED> .50
</TABLE>
