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 May 4, 1996
Commission file number 1-6072
LATSHAW ENTERPRISES, INC.
Name of Registrant
Delaware 44-0427150
State of Incorporation IRS Employer 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-498,340 Shares Outstanding at 5-4-96
<PAGE>
INDEX
LATSHAW ENTERPRISES, INC.
Part I. Financial Information
Item 1. Condensed Financial Statements (Unaudited).
Consolidated Balance Sheets - May 4, 1996 and October
28, 1995.
Consolidated Statements of Income - For the three months
and six months ended May 4, 1996 and April 29, 1995.
Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows - For the six months
ended May 4, 1996 and April 29, 1995.
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)
<TABLE>
<CAPTION>
May 4, October 28,
1996 1995
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 574 $ 319
Marketable equity securities 522 450
Accounts and notes receivable-net 7,351 6,787
Inventories, at lower of cost
(LIFO) or market 7,044 8,056
Refundable income taxes 116 116
Deferred income taxes 691 691
Prepaid expenses 168 399
Total current assets 16,466 16,818
Property, plant and equipment at cost 20,109 19,182
Less accumulated depreciation
and amortization (12,796) (12,107)
7,313 7,075
Noncompete agreement - net 504 537
Other assets 217 218
$24,500 $24,648
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 2,326 $ 3,470
Accounts payable 2,068 2,107
Accrued expenses 1,670 2,086
Current portion of long-
term debt 53 53
Current portion of non-
compete obligation 111 111
Income taxes payable 378 -
Total current liabilities 6,606 7,827
Long-term debt, less current portion 2,748 2,774
Noncompete obligations, less current
portion 333 333
Pensions and deferred compensation 1,598 1,621
Postretirement benefit obligation 285 266
Deferred income taxes 238 238
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 marketable
securities 68 22
Retained earnings 16,046 14,965
23,017 21,890
Less cost of common stock
held in treasury,
503,822 shares in 1996
and 500,187 in 1995 (10,325) (10,301)
12,692 11,589
$24,500 $24,648
</TABLE>
(This is an unaudited statement)
<PAGE>
LATSHAW ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 4, April 29, May 4, April 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $11,367 $11,682 $23,385 $22,754
Cost of sales 8,637 8,762 17,927 17,323
Gross Profit 2,730 2,920 5,458 5,431
Selling, general and
administrative expenses 1,581 1,566 3,379 3,200
Interest expense 171 131 320 244
Other - net 31 12 41 24
Income before income taxes 947 1,211 1,718 1,963
Income tax provision 353 450 637 729
Net income $ 594 $ 761 $1,081 $ 1,234
Net income per common and
common equivalent share:
Primary $ 1.16 $ 1.48 $ 2.10 $ 2.39
Fully Diluted $ .62 $ .79 $ 1.14 $ 1.28
Common and common equivalent
shares outstanding:
Primary 513 515 515 517
Fully Diluted 1,013 1,015 1,015 1,017
</TABLE>
(This is an unaudited statement)
<PAGE>
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.
<PAGE>
LATSHAW ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
May 4, April 29,
1996 1995
Operating activities
<S> <C> <C>
Net income $1,081 $1,234
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 722 573
Deferred compensation (23) (4)
Postretirement benefit obligation 19 15
Provision for loss on accounts
receivable 12 2
Changes in operating assets and
liabilities affecting cash and
cash equivalents:
Accounts and notes receivable (576) (1,447)
Inventories 1,012 (103)
Prepaid expenses 231 202
Accounts payable (39) 59
Accrued expenses (416) (211)
Income taxes 352 145
Net cash provided by operating activities 2.375 465
Investing activities
Purchases of property, plant and equipment (927) (685)
Other 1 (7)
Net cash used in investing activities (926) (692)
Financing activities
Payments of notes payable (2,520) (1,045)
Proceeds from the issuance of notes
payable 1,376 1,374
Payments of long-term debt (26) (24)
Purchase of treasury stock (24) (7)
Net cash provided by (used in) financing
activities (1,194) 298
Increase in cash and cash equivalents 255 71
Cash and cash equivalents at beginning of period 319 184
Cash and cash equivalents at end of period $ 574 $ 255
</TABLE>
(This is an unaudited statement)
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales revenue for the second quarter of 1996 was $11,367,000. This
represents a 2.7 percent decrease when compared to the same quarter
in 1995 when sales were $11,682,000. For the first six months of 1996,
sales revenue was $23,385,000 or a 2.8 percent increase compared to
1995 revenues of $22,754,000. Included in the sales figures for the
three and six months of 1996 are revenues of $457,000 and $989,000,
respectively, which were attributable to Latshaw's acquisition and
operation of the assets of I.H. Molding in Dallas, Texas. This acqui-
sition was completed September 1, 1995. Excluding the I.H. Molding
revenue, comparable year-to-year divisional sales decreased 6.6 percent
and 1.6 percent for the three month and six month period, respectively.
Slowing general economic conditions appear to be contributing to a
weaker demand for the Company's products.
Gross profit in the second quarter of 1996 was 24.0 percent versus 25.0
percent in the second quarter of 1995. A shift in the sales mix to
products with lower profit margins combined with competitive pressure
were the primary cause for the declines in 1996.
Selling, general and administrative expenses increased $15,000 in the
second quarter and $179,000 for the six months of 1996. As a percent
of sales for the six month period, these costs amounted to 14.4 percent
in 1996 compared to 14.1 percent in 1995. The higher costs in 1996 were
mainly the result of acquisition expenses associated with the purchase
of I.H. Molding.
Interest expense was $171,000 for the second quarter of 1996 compared
to $131,000 for the same period a year earlier. For the six months in
1996, interest expense was $320,000 versus $244,000 in 1995. The higher
costs in 1996 were primarily due to additional debt incurred to meet
working capital needs plus bank borrowings used to fund the purchase of
the I.H. Molding assets in September of 1995.
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 share-
holders' equity.
The effective income tax rate was 37.1 percent for the first six months of
both 1996 and 1995.
The Company had net income for the second quarter of 1996 of $594,000 or
$1.16 per share (primary) and $.62 per share (fully diluted) compared to
a net profit of $1.48 per share (primary) and $.79 per share (fully diluted)
on net income of $761,000 for the second quarter of 1995. For the six
months of 1996, there was a per share net profit of $2.10 (primary) and
$1.14 (fully diluted) on total net profit of $1,081,000. This compares to
a $2.39 per share profit (primary) and $1.28 per share (fully diluted) on
total net profit of $1,234,000 for the same period in 1995.
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.
For the six months of 1996 and 1995, the Company had net cash balances
provided from operations of $2,375,000 and $465,000, respectively. These
funds were used to pay down existing bank lines of credit and/or for the
purchase of property and equipment.
As of May 4, 1996, the Company, through its subsidiary, Wescon Products
Company, had an unused line of credit for short-term bank borrowing of
$4,800,000 remaining on the $7,000,000 available, providing for interest
at prime. The Company, through its subsidiary, Helton, Inc., had an
unused bank line of credit at May 4, 1996 of $350,000. 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 increase the value of the Company that could
require financing not currently provided for. There were no significant
capital expenditure commitments outstanding at May 4, 1996 that have not
been previously disclosed.
*This statement is a forward-looking statement, which is subject
to certain risks and uncertainties. See PART II, Item 5, "Forward-
Looking Statements."
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 Stated
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 partici-
pation 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 contri-
bution 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 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 paid approximately $25,000 with
respect to this matter during fiscal year 1995, and its accruede expenses
at October 28, 1995 and May 4, 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 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, 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 May 4, 1996.*
*This statement is a forward-looking statement, which is subject to certain
risks and uncertainties. See PART II, Item 5, "Forward-Looking Statements."
Item 5. Other Information
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q which
are not statements of historical fact constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended, including, without limitation, the statements specifically
identified as forward-looking statements in this Form 10-Q. In addition,
certain statements in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases, and in oral statements
made by or with the approval of an authorized executive officer of the
Company which are not statements of historical fact constitute forward-
looking statements within the meaning of the Act. Examples of forward-
looking statements include, but are not limited to: (i) projections of
revenues, income or loss, earnings or loss per share, capital expenditures,
the payment or non-payment of dividends, capital structure and other
financial items, (ii) statements of plans and objectives of the Company or
its management or Board of Directors, including plans or objectives relating
to the products or services of the Company, (iii) statements of future
economic performance, and (iv) statements of assumptions underlying the
statements described in (i), (ii) and (iii).
Forward-looking statements made by or on behalf of the Company involve
risks and uncertainties which may cause actual results to differ materially
from those in such statements. Some important factors that could cause the
actual results to differ materially from those discussed in the forward-
looking statements include, but are not limited to: changes in general
economic conditions; competitive, regulatory or tax changes that affect
the cost of or demand for the Company's products; weather conditions;
adverse litigation results; failure to achieve cost-saving goals; changes
in raw material prices or availability; loss of one or more significant
customers; inflation; and changes in environmental regulation. Other
factors not identified herein could also have such an effect.
With respect to the forward-looking statement specifically identified in
PART I, Item 2 of this Form 10-Q regarding the adequacy of the Company's
capital resources, such statement is subject to several risks and
uncertainties including, without limitation: the future economic performance
of the Company (which is dependent in part upon the factors described above);
the ability of the Company's subsidiary, Wescon Products Company, to renew
its $7,000,000 line of credit, which expires in February, 1997, for the same
amount and upon substantially the same terms; future acquisitions of other
businesses not currently anticipated by management of the Company; and other
material expenditures not currently anticipated by management.
The forward-looking statements specifically identified in PART II, Item 1
of this Form 10-Q, which relates to the Company's expected costs and
liability in connection with the environmental matter described therein,
is subject to a number of risks and uncertainties, including, without
limitation: the actual costs of the clean-up may exceed those currently
projected; the Site may contain undiscovered conditions requiring further
remediation costs; the entities engaged by the Task Force to effect the
clean-up may fail to correctly remediate the Site; the EPA may reopen its
claims against all responsible parties, including the Company, as permitted
under the Consent Decree; and a third party may make claims against the
Company related to the Site. The occurrence of any of the foregoing may
cause the Company to incur additional liability or costs.
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
<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.
LATSHAW ENTERPRISES, INC.
/s/Michael E. Bukaty
Michael E. Bukaty
President
/s/David G. Carr
David G. Carr
Sr. Vice President, C.F.O.
June 17, 1996
<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.
Primary and Fully Diluted Net Income
per Common Share Computation
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 4, April 29, May 4, April 29,
1996 1995 1996 1995
(In thousands except per share data)
Primary
Net income applicable to
<S> <C> <C> <C> <C>
common shareholders $594 $761 $1,081 $1,234
Weighted average number
of common shares
outstanding during
the period 499 497 500 497
Add - common equivalent
shares (determined using
the "treasury stock
method") representing
shares issuable upon the
exercise of stock
options granted 14 18 15 20
Weighted average number
of common and common
equivalent shares
outstanding 513 515 515 517
Net income per share $1.16 $ 1.48 $ 2.10 $ 2.39
Fully Diluted
Net income $ 594 $ 761 $1,081 $1,234
Add - interest expense
of convertible
subordinated debentures 37 37 76 72
Net income applicable to
common shareholders $631 $ 798 $1,157 $1,306
Weighted average number
of common shares
outstanding during
the period 499 497 500 497
<PAGE>
Add - common equivalent
shares (determined using
the "treasury stock
method") representing
shares issuable upon the
exercise of stock options
granted 14 18 15 20
Add - dilutive convertible
subordinated debentures 500 500 500 500
Weighted average number of
common and common
equivalent shares
outstanding 1,013 1,015 1,015 1,017
Net income per share $ .62 $ .79 $1.14 $1.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023236
<NAME> LATSHAW ENTERPRISES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> OCT-29-1995
<PERIOD-END> MAY-04-1996
<EXCHANGE-RATE> 1
<CASH> 574
<SECURITIES> 522
<RECEIVABLES> 7,351
<ALLOWANCES> 0
<INVENTORY> 7,044
<CURRENT-ASSETS> 16,466
<PP&E> 20,109
<DEPRECIATION> 12,796
<TOTAL-ASSETS> 24,500
<CURRENT-LIABILITIES> 6,606
<BONDS> 2,500
<COMMON> 2,004
0
0
<OTHER-SE> 4,899
<TOTAL-LIABILITY-AND-EQUITY> 24,500
<SALES> 23,385
<TOTAL-REVENUES> 23,385
<CGS> 17,927
<TOTAL-COSTS> 21,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> 1,718
<INCOME-TAX> 637
<INCOME-CONTINUING> 1,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,081
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 1.14
</TABLE>
