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 February 3, 1996
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 -- 500,580 Shares Outstanding at 2-3-96
<PAGE>
INDEX
LATSHAW ENTERPRISES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited).
Consolidated Balance Sheets - February 3, 1996 and October 28, 1995.
Consolidated Statements of Income - For the three months ended
February 3, 1996 and January 28, 1995.
Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows - For the three months ended
February 3, 1996 and January 28, 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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)
<TABLE>
<CAPTION>
February 3, October 28,
1996 1995
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 584 $ 319
Marketable equity securities 478 450
Accounts and notes receivable - net 8,518 6,787
Inventories, at lower of cost (LIFO)
or market 7,663 8,056
Refundable income taxes 116 116
Deferred income taxes 691 691
Prepaid expenses 186 399
Total Current Assets 18,236 16,818
Property, plant and equipment at cost 19,766 19,182
Less accumulated depreciation and
amortization (12,458) (12,107)
7,308 7,075
Noncompete agreement - net 509 537
Other assets 244 218
$26,297 $24,648
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,603 $ 3,470
Accounts payable 2,580 2,107
Accrued expenses 1,474 2,086
Current portion of long-term debt 53 53
Current portion of noncompete obligation 111 111
Income taxes payable 164 -
Total current liabilities 8,985 7,827
Long-term debt, less current portion 2,761 2,774
Noncompete obligation, less current portion 333 333
Pensions and deferred compensation 1,610 1,621
Postretirement benefit obligation 275 266
Deferred income taxes 248 238
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 4,899 4,899
Unrealized gains on available-
for-sale securities 40 22
Retained earnings 15,452 14,965
22,395 21,890
Less cost of common stock held
in treasury, 501,582 shares in
1996 and 500,187 in 1995 (10,310) (10,301)
12,085 11,589
$ 26,297 $ 24,648
</TABLE>
(This is an unaudited statement)
<PAGE>
<TABLE>
LATSHAW ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
<CAPTION>
Three Months Ended
February 3, January 28,
1996 1995
<S> <C> <C>
Net sales $ 12,018 $ 11,072
Cost of sales 9,290 8,561
Gross Profit 2,728 2,511
Selling, general and administrative expenses 1,798 1,634
Interest expense 149 113
Other - net 10 12
Income before income taxes 771 752
Income tax provision 284 279
Net income $ 487 $ 473
Net income per common and
common equivalent share:
Primary $ .94 $ .91
Fully Diluted $ .52 $ .50
Common and common equivalent
shares outstanding:
Primary 518 519
Fully diluted 1,018 1,019
</TABLE>
(This is an unaudited statement)
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.
<PAGE>
LATSHAW ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
[CAPTION]
<TABLE>
Three Months Ended
February 3, January 28,
1996 1995
Operating activities
<S> <C> <C>
Net income $ 487 $ 473
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 379 285
Deferred compensation (11) (2)
Post retirement benefit obligation 9 8
Provision for loss on accounts receivable 7 6
Changes in operating assets and liabilities
affecting cash and cash equivalents:
Accounts and notes receivable (1,738) (1,676)
Inventories 393 148
Prepaid expenses 213 153
Accounts payable 473 (216)
Accrued expenses (612) (355)
Income taxes payable 164 240
Net cash used in operating activites (236) (846)
Investing activities
Purchases of property, plant and equipment (584) (344)
Other (26) (17)
Net cash used in investing activities (610) (361)
Financing activities
Payments of notes payable (167) (58)
Proceeds from issuance of notes payable 1,300 1,292
Payments of long-term debt (13) (12)
Purchase of treasury stock (9) (4)
Net cash provided by financing activities 1,111 1,218
Increase in cash and cash equivalents 265 11
Cash and cash equivalents at beginning
of period 319 184
Cash and cash equivalents at end of period $ 584 $ 195
(This is an unaudited statement)
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Net sales for the first quarter of 1996 increased 8.5 percent to
$12,018,000 compared to $11,072,000 for the same period in 1995. Included in
the sales numbers for 1996 are revenues of $532,000 which were attributable
to Latshaw's acquisition and operation of the assets of I.H. Molding, Inc.
in Dallas, Texas. This acquisition was completed September 1, 1995. Excluding
the I.H. Molding revenue, comparable year-to-year divisional sales increased
3.7 percent. Although the Company is experiencing sales increases, the rate of
growth has been slowing. This appears to be a reflection of the trend in the
general economy.
Gross profit was 22.7 percent in the first quarter of 1996 compared to
22.7 percent for the same period in 1995. Slightly higher material costs were
offset by operating efficiencies resulting from the higher sales volume. The
Company has seen the price of certain components of raw material such as
plastic resin and wire begin to plateau and in some cases decrease. Management
does not know whether this trend will continue.
Selling, general and administrative expenses increased $164,000 in the
first quarter of 1996 when compared to the same period in 1995. As a
percentage of sales these costs were 15.0 percent in 1996 versus 14.8
percent in 1995. The higher costs in 1996 were primarily the result of
increased commissions and performance bonuses due to the higher sales volume.
Interest expense was $149,000 for the first quarter of 1996 compared to
$113,000 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 borrowings used to fund asset acquisitions.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted the provisions
of the new standard for investments held as of or acquired after October 30,
1994. Under SFAS No. 115, marketable equity securities held by the Company
are classified as available for sale. Available for sale securities are
carried at fair market value, with the unrealized gains and losses, net of
tax, reported as a separate component of shareholders' equity.
The effective income tax rate was 36.8 percent in the first quarter of
1996 compared to 37.1 percent in the first quarter of 1995.
The Company had net income for the first quarter in 1996 of $487,000 or
94 cents per share (primary) and 52 cents per share (fully diluted). For the
same period in 1995 the Company had a net profit of $473,000 or 91 cents per
share (primary) and 50 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 interest rate convertible debentures.
In the first quarter of 1996, the Company used $236,000 in its operating
activities and $584,000 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 was the primary reason for this cash
requirement which resulted primarily from the effects of higher sales volume.
As of February 3, 1996, the Company, through its subsidiary Wescon
Products, had an unused line of credit for short-term bank borrowings of
$1,600,000 remaining on the $6,000,000 available, providing for interest at
prime. The Company, through its subsidiary Helton, Inc., also has outstanding
borrowings of $75,000 at February 3, 1996 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. There were no significant
capital expenditure commitments outstanding at February 3, 1996.
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 has 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. A consent decree between the Task Force and the EPA has been
executed and filed with the United States District Court for the District of
Kansas. Neither ultimate liabilty 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 paid approximately $25,000 with
respect to this matter during fiscal year 1995, and its accrued expenses at
October 28, 1995 and February 3, 1996 includes a current liability of
$125,000 relating to this contingency. The Company does not expect final
closure of this matter during fiscal year 1996. 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 evalute 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, it is the opinion of management, based
upon currently available information, that any such costs or liability
are not likely to materially vary from the amount accrued at October 28,
1995 and February 3, 1996.
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 19, 1996 /s/ Michael E. Bukaty
Date Michael E. Bukaty
President
March 19, 1996 /s/ 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
February 3, January 28,
1996 1995
Primary
Net income applicable
<S> <C> <C> <C> <C>
to common shareholders $ 487 $ 473
Weighted average number of common
shares outstanding during the period 501 497
Add - common equivalent shares (determined
using the "treasury stock method")
representing shares issuable upon the
exercise of stock options granted 17 22
Weighted average number of common and
common equivalent shares outstanding 518 519
Net income per share $ .94 $ .91
Fully Diluted
Net income $ 487 $ 473
Add - interest expense of convertible
subordinated debentures 39 37
Net income applicable to common shareholders $ 526 $ 510
Weighted average number of common shares
outstanding during the period 501 497
Add - common equivalent shares (determined
using the "treasury stock method") representing
shares issuable upon the exercise of stock
options granted 17 22
Add - dilutive convertible subordinated
debentures 500 500
Weighted average number of common and
common equivalent shares outstanding 1,018 1,019
Net income per share $ .52 $ .50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> OCT-29-1995
<PERIOD-END> FEB-03-1996
<EXCHANGE-RATE> 1
<CASH> 584
<SECURITIES> 478
<RECEIVABLES> 8,518
<ALLOWANCES> 0
<INVENTORY> 7,663
<CURRENT-ASSETS> 18,236
<PP&E> 19,766
<DEPRECIATION> 12,458
<TOTAL-ASSETS> 26,297
<CURRENT-LIABILITIES> 8,985
<BONDS> 2,500
<COMMON> 2,004
0
0
<OTHER-SE> 4,899
<TOTAL-LIABILITY-AND-EQUITY> 26,297
<SALES> 12,018
<TOTAL-REVENUES> 12,018
<CGS> 9,290
<TOTAL-COSTS> 11,247
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> 771
<INCOME-TAX> 284
<INCOME-CONTINUING> 487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 487
<EPS-PRIMARY> .94
<EPS-DILUTED> .52
</TABLE>
