<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
----- Exchange Act of 1934
For the quarterly period ended March 31, 1996
----------------------
Transition Report Pursuant to Section 3 or 15 (d) of the Securities
----- Exchange Act of 1934
Commission file number 0-8555
------
CFI INDUSTRIES, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 53-0174114
- - --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification)
or organization)
935 West Union Avenue, Wheaton, Illinois 60187
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 668-2838
- - --------------------------------------------------------------------------------
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 (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
(APPLICABLE ONLY TO CORPORATE ISSUES:)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
1,999,979 shares of Common Stock, $1.00 Par Value, as of April 30, 1996.
<PAGE> 2
CFI INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 (Unaudited)
and June 30, 1995............................................... 3
Consolidated Statements of Operations for the Periods Ended
March 31, 1996 and March 26, 1995 (Unaudited) .................. 4
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1996 and March 26, 1995 (Unaudited) ............ 5
Notes to Consolidated Interim Financial Statements (Unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8 - 9
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K........................ 10
2
<PAGE> 3
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
(Amounts in thousands, except par value and share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C>
ASSETS
Current Assets:
Cash & cash equivalents.................................... $ 1,336 $ 1,211
Trade receivables, net of allowance for
doubtful accounts of $33 in March and $15 in June.......... 4,124 3,706
Inventories................................................ 2,905 2,818
Prepayments and other...................................... 274 486
Deferred income taxes...................................... 1,173 1,173
----------- ----------
Total current assets..................................... 9,812 9,394
Property and equipment, at cost less accumulated depreciation
of $8,166 in March and $7,306 in June.................... 7,009 7,043
Intangible assets, at cost, net of accumulated amortization of
$831 in March and $768 in June .......................... 2,470 2,531
Other assets.................................................. 40 55
----------- ----------
$ 19,331 $ 19,023
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt (Note 6)................................... $ - $ 800
Current maturities of long-term debt (Note 6).............. 859 742
Current portion of other long-term liabilities............. 50 55
Accounts payable........................................... 1,976 2,388
Accrued liabilities:
Salaries and wages....................................... 807 867
Insurance................................................ 147 417
Provision for soil remediation........................... 1,179 1,193
Other.................................................... 1,002 859
----------- ----------
Total current liabilities................................ 6,020 7,321
Long-term debt (Note 6)....................................... 3,063 2,229
Other long-term liabilities................................... 159 200
Deferred income taxes......................................... 643 643
----------- ----------
Total liabilities........................................ 9,885 10,393
----------- ----------
Commitments and contingent liabilities (Note 5)
Stockholders' Equity:
Common stock, $1.00 par value, 10,000 shares authorized,
2,000 and 1,991 shares issued and outstanding in March
and June, respectively..................................... 2,000 1,991
Paid-in surplus............................................ 16,408 16,374
Deficit.................................................... (8,966) (9,735)
Cumulative translation adjustment.......................... 4 -
----------- ----------
Total stockholders' equity............................... 9,446 8,630
----------- ----------
$ 19,331 $ 19,023
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE> 4
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1996 AND MARCH 26, 1995
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
March 31, March 26, March 31, March 26,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 8,086 $ 8,032 $ 22,763 $ 22,306
Cost of Sales 5,812 6,008 16,897 16,800
---------- ---------- ----------- -----------
Gross profit 2,274 2,024 5,866 5,506
Selling expenses 979 1,020 2,808 2,969
General & administrative
expense 732 558 1,965 1,650
---------- ---------- ----------- -----------
Operating income 563 446 1,093 887
Interest expense 94 87 284 312
Interest income 4 - 28 -
Other (income) expense-net 23 30 68 31
---------- ---------- ----------- -----------
Income before
income taxes 450 329 769 544
Income taxes - - - -
---------- ---------- ----------- -----------
Net Income $ 450 $ 329 $ 769 $ 544
========== ========== =========== ===========
Earnings per common share:
Net Income $ 0.20 $ 0.16 $ 0.34 $ 0.26
========== ========== =========== ===========
Weighted average number of
common shares and common
share equivalents
outstanding: 2,195 2,134 2,194 2,103
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE> 5
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 26, 1995
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income............................................... $ 769 $ 544
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization......................... 929 928
Provision for doubtful accounts....................... 18 -
Provision for losses, asset write-offs and other...... 65 237
Stock distribution to employees....................... 25 -
Stock purchased by employees ......................... 18 -
Changes in assets and liabilities:
Trade and other receivables........................... (436) 167
Inventories........................................... (152) (935)
Prepayments and other current assets.................. 212 211
Accounts payable and accrued liabilities.............. (613) (465)
Other - net .......................................... 15 ( 45)
-------- --------
Net cash flows from operating
activities......................................... 850 642
-------- --------
Cash Flows From Investing Activities:
Capital expenditures.................................. (837) (601)
Disposals of property and equipment................... 4 231
Proceeds from sale of marketable
securities............................................ - 1,524
-------- --------
Net cash flows from investing
activities......................................... (833) 1,154
-------- --------
Cash Flows From Financing Activities:
Net (payments) borrowings under line of
credit................................................ (800) (400)
Borrowings on long-term debt.......................... 1,345 -
Payments on long-term debt............................ (441) (643)
-------- --------
Net cash flows from financing
activities......................................... 104 (1,043)
-------- --------
Effect of exchange rate changes on cash ................. 4 -
-------- --------
Net increase in cash.................................... 125 753
Beginning cash........................................... 1,211 267
-------- --------
Ending cash.............................................. $ 1,336 $ 1,020
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest................. $ 278 $ 310
Cash paid during period for income taxes................. $ 25 $ 5
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE> 6
CFI INDUSTRIES, INC. AND SUBSIDIAIRIES
NOTES TO CONSOLDIDATED INTERIM FINANCIAL STATEMEMTS
MARCH 31, 1996 (Unaudited) AND JUNE 30, 1995
1. GENERAL
The unaudited financial information furnished herein includes all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of the periods presented. All such adjustments are
of a normal and recurring nature. The financial results for the interim periods
may not be indicative of the financial results for a full year. These
statements should be read in conjunction with the financial statements and
notes thereto included with the 1995 Form 10-K filed by the Company with the
Securities and Exchange Commission.
2. INVENTORIES
Inventories consisted of the following (amounts in thousands):
<TABLE>
March 31, June 30,
1996 1995
--------- --------
<S> <C> <C>
Raw materials $1,251 $1,018
Work in process 235 158
Finished goods 1,419 1,642
------ ------
$2,905 $2,818
====== ======
</TABLE>
3. CHANGES IN STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the nine-month period ended March 31,
1996 are shown below (amounts in thousands):
<TABLE>
<CAPTION>
Cumulative
Capital Paid-in Translation
Stock Surplus Deficit Adjustment Total
------- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $1,991 $16,374 $(9,735) $ - $8,630
Stock distribution to employees 6 19 25
Stock purchased by employees 3 15 18
Cumulative translation adjustment 4 4
Net income 769 769
------- -------- ------- ------ ------
Balance, March 31, 1996 $2,000 $16,408 $(8,966) $ 4 $9,446
======= ======== ======= ====== ======
</TABLE>
4. STOCK OPTIONS
Transactions concerning the Company's 1991 Stock Option Plan for the
nine-month period ended March 31, 1996 are shown below:
<TABLE>
<CAPTION>
Price Range 1996
----------- ----
<S> <C> <C>
Outstanding, June 30, 1995 $2.63 - $4.38 380,500
Granted $6.75 10,500
Canceled $2.63 - $3.00 (20,000)
Exercised ----
-------
Outstanding, March 31, 1996 $2.63 - 6.75 371,000
========
Exercisable, March 31, 1996 294,166
Reserved for future option grants 229,000
</TABLE>
6
<PAGE> 7
5. CONTINGENT LIABILITIES
During fiscal 1991 soil conditions at Plastofilm's, (Plastofilm Industries
Inc., a wholly owned subsidiary of the Company) Wheaton, Illinois facility were
discovered which need remediation. At June 30, 1991, a pre-tax provision of
$1.0 million was recorded for the estimated costs of testing and remediation.
At June 28, 1992, an additional pre-tax provision of $1.0 million was recorded
to reflect the then currently estimated costs to complete the soil remediation.
Expenditures during fiscal 1995 and prior years were approximately $807,000.
Expenditures to date during fiscal 1996 have been approximately $14,000. During
fiscal 1993 the Illinois Environmental Protection Agency requested certain
additional testing to be performed before approval of the Company's voluntary
clean-up plan. These tests were conducted in fiscal 1994 and submitted to the
Illinois Environmental Protection Agency in fiscal 1995 for approval. The
approval of the Company's voluntary clean-up is pending.
The Company has received a demand for the payment of withdrawal liability
in the amount of approximately $360,000 from a multi-employer pension plan to
which the Company made contributions in connection with a discontinued
business. The Company disputes that it has any withdrawal liability and, in
accordance with the applicable provisions of the Employee Retirement Income
Security Act, has demanded that this dispute be resolved through arbitration.
The Company is making quarterly contributions of approximately $10,000 as
required by law pending arbitration. Through March 31, 1996 the Company has
made payments of approximately $124,000. These payments will be returned to the
Company, with interest, if it is ultimately determined that the Company has no
liability.
The Company, in connection with a discontinued business, has been named by
the United States Environmental Protection Agency ("US-EPA") as a potentially
responsible party in a Superfund Proceeding. The US-EPA has determined the
Company to be a de minimus contributor and has offered a settlement agreement
to all parties. The Company has accepted the settlement agreement which will
require total payments of $80,586. On January 16, 1996, the Company paid the
first installment of $40,293. The second and final installment is due on July
16, 1996. The settlement amount has been provided for in the financial
statements.
6. Debt
On January 15, 1996, the Company entered into a new long-term debt
agreement. Under the terms of this new agreement, the Company can borrow a
maximum of $3,000,000, at a fixed rate of 7.74% with regular monthly principal
payments of $50,000, maturing on February 1, 2001. The Company used this new
borrowing to retire previous long-term debt of $1,845,000 and also paid down
its secured short-term line of credit by $1,100,000. As of March 31, 1996 the
Company has $3,000,000 available under the secured short-term line of credit,
none of which is outstanding.
The Company, through its wholly owned subsidiary Plastofilm LTD, has
negotiated a $1,600,000 credit facility with a financial institution in
Northern Ireland. As of March 31, 1996, there have been no advances made
against the credit facility.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 1996 were $ 8.1 million which are
comparable to $ 8.0 million for the third quarter of fiscal 1995. For the first
nine months of fiscal 1996, sales were $22.8 million as compared to $22.3
million for the first nine months of fiscal 1995. This increase of $0.5 million
was a result of improving market conditions and a pass-through of raw material
cost increases which were experienced over the past year.
The gross profit percentages were 28.1% and 25.8% for the third quarter and
first nine months of fiscal 1996, respectively, as compared to gross profit
percentages of 25.2% and 24.7% in the third quarter and first nine months of
fiscal 1995, respectively. The increase in the third quarter of fiscal 1996 as
compared to the third quarter of the prior year was a result of increased
manufacturing efficiencies and reduced operating costs.
Selling expenses were $979,000 or 12.1% of sales for the third quarter of
fiscal 1996 as compared to $1,020,000 or 12.7% of sales in the third quarter of
fiscal 1995. For the first nine months of fiscal 1996, selling expenses were
$2,808,000 or 12.4% of sales as compared to $2,969,000 or 13.3% in the first
nine months of fiscal 1995. The decreases in selling expenses incurred in
fiscal 1996 of $41,000 and $161,000 over the respective periods of fiscal 1995
were a result of reduced expenses for sales support and continued cost control
efforts.
General and administrative expenses were $732,000 and $1,965,000 for the third
quarter and nine months of fiscal 1996, respectively, as compared to $558,000
and $1,650,000 in the third quarter and nine months of fiscal 1995,
respectively. The increases of $174,000 and $315,000 over the respective
periods of fiscal 1995 were primarily a result of costs incurred in planning
and executing the expansion into Northern Ireland and consulting services
incurred for systems and operational reviews.
Operating income was $563,000 for the third quarter of fiscal 1996 as compared
to $446,000 for the third quarter of fiscal 1995. The increase of $117,000 was
a result of increased gross margins offset by higher administrative expenses.
Operating income for the first nine months of fiscal 1996 was $1,093,000 as
compared to $887,000 for the comparable period in fiscal 1995. This $206,000
improvement was due to higher sales levels and corresponding gross profit
offset by expenses incurred in conjunction with the expansion into Northern
Ireland.
Net interest expense was $90,000 for the third quarter of fiscal 1996 which was
substantially unchanged from the net interest expense of $87,000 incurred
during the third quarter of fiscal 1995. Net interest expense for the first
nine months of fiscal 1996 was $256,000 as compared to $312,000 for the
comparable period in fiscal 1995. This decrease in net interest expense of
$56,000 was a result of lower outstanding balances on the Company's line of
credit and increased interest income.
Net other income & expense was an expense of $23,000 for the third quarter of
fiscal 1996 which was substantially unchanged from the net expense of $30,000
reported during the third quarter of fiscal 1995. For the first nine months of
fiscal 1996 net other income & expense was an expense of $68,000 as compared to
a net expense of $31,000 for the comparable period of fiscal 1995. This
difference of $ 37,000 was a result of a gain on the sale of real estate of
$53,000 reported in fiscal 1995.
8
<PAGE> 9
The Company reported net income of $450,000 and $769,000 for the third quarter
and nine months of fiscal 1996, respectively, as compared to $329,000 and
$544,000 reported in the third quarter and nine months of fiscal 1995,
respectively. The improvements of $121,000 and $225,000 over the respective
periods of fiscal 1995 were primarily a result of higher operating income
derived from increased sales and related gross margins which more than offset
the increased expenses relating to the expansion into Northern Ireland.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital increased to $3.8 million as of March 31, 1996, compared to
$2.1 million as of June 30, 1995. This increase of $1.7 million in working
capital was primarily attributed to earnings and related cash flows.
Plastofilm has a short-term facility with a financial institution which is
renewable on November 30, 1996 at the option of such institution. As of March
31, 1996, $3,000,000 was available under this facility and Plastofilm was in
compliance with all covenants. Plastofilm also has a capital expenditure
facility which has maximum borrowings of $1,000,000. As of March 31, 1996,
$275,000 was available under this facility. In addition, the Company through
its wholly owned subsidiary, Plastofilm LTD , has negotiated a $1.6 million
credit facility with a financial institution in Northern Ireland and a grant
package from the Industrial Development Board of Northern Ireland. This
facility and grant package are anticipated to provide the capital and liquidity
needs to support the Company's expansion into Northern Ireland. As of March 31,
1996, there have been no advances made against the credit facility or the
grant.
The Company's liquidity and capital needs through fiscal 1996 include the costs
associated with the establishment of a production facility in Northern Ireland
and Texas, and other possible production expansion in Puerto Rico. Additional
capital needs include the upgrade and replacement of existing equipment, as
well as expenditures for soil remediation at the Wheaton, Illinois facility.
The funds required to finance these items are expected to be provided from
operating cash flows, Plastofilm's existing credit facilities, credit
facilities that have been established in Northern Ireland, grants to be made
available from the Industrial Development Board of Northern Ireland and from
other credit facilities which may become available to the Company.
9
<PAGE> 10
CFI INDUSTRIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None
b) Reports on Form 8-K:
None
10
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act off 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CFI INDUSTRIES, INC.
---------------------------
Registrant
April 29, 1996 /s/ Robert W. George
- - -------------- ---------------------------
Date Robert W. George
Principal Executive Officer
April 29, 1996 /s/ Robert W. Zimmer
- - -------------- ---------------------------
Date Robert W. Zimmer, Treasurer
Principal Financial and
Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,336
<SECURITIES> 0
<RECEIVABLES> 4,157
<ALLOWANCES> 33
<INVENTORY> 2,905
<CURRENT-ASSETS> 9,812
<PP&E> 14,848
<DEPRECIATION> (8,166)
<TOTAL-ASSETS> 19,331
<CURRENT-LIABILITIES> 6,020
<BONDS> 3,222
<COMMON> 2,000
0
0
<OTHER-SE> 7,442
<TOTAL-LIABILITY-AND-EQUITY> 19,331
<SALES> 22,763
<TOTAL-REVENUES> 22,763
<CGS> 16,897
<TOTAL-COSTS> 16,897
<OTHER-EXPENSES> 4,773
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 284
<INCOME-PRETAX> 769
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 769
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
