<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[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
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ____________ to ____________
Commission File Number: 0-8767
CALNETICS CORPORATION
(Exact name or registrant as specified in its charter)
CALIFORNIA 95-2303687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20401 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principle executive offices) (zip code)
(818) 886-9819
Registrant's telephone number, including area code
N/A
(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
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
of the March 31, 1996 date was 2,924,799.
<PAGE> 2
CALNETICS CORPORATION
INDEX
Part I. Financial Information Page Number
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
Three Months and Nine Months Ended March 31, 1996 and 1995 ........ 3
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 1996 and June 30, 1995 .................................. 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended March 31, 1996 and 1995 ......................... 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) .................................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....................... 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ........................... 13
Signatures .......................................................... 14
Page 2 of 14
<PAGE> 3
PART I - FINANCIAL INFORMATION
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- --------------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $9,089,762 $7,704,812 $25,488,700 $20,627,574
Cost of Sales 6,744,642 5,712,942 19,381,733 15,466,800
---------- ---------- ----------- -----------
Gross Profit 2,345,120 1,991,870 6,106,967 5,160,774
---------- ---------- ----------- -----------
Selling, general and administrative expenses 1,486,616 1,370,015 4,038,503 3,672,210
Other expense including interest 95,666 132,431 335,493 398,712
---------- ---------- ----------- -----------
Total costs and expenses 1,582,282 1,502,446 4,373,996 4,070,922
Income from operations before income taxes 762,838 489,424 1,732,971 1,089,852
Provision for income taxes 319,000 209,721 722,000 460,944
---------- ---------- ----------- -----------
Net Income $ 443,838 $ 279,703 $ 1,010,971 $ 628,908
========== ========== =========== ===========
Earnings per common share and common
share equivalent $ 0.14 $ 0.09 $ 0.33 $ 0.21
Weighted average common shares and common
share equivalents outstanding 3,075,569 3,045,093 3,063,145 3,036,402
========== ========== =========== ===========
</TABLE>
No dividends were paid during the period set forth above.
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
<PAGE> 4
CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 782,088 $ 1,580,974
Accounts receivable, net 5,437,969 4,448,526
Inventories 5,305,037 4,962,037
Prepaid expenses 332,104 312,996
Deferred income taxes 272,000 272,000
----------- -----------
Total current assets 12,129,198 11,576,533
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
(at cost):
Land 466,288 466,288
Buildings and improvements 2,244,716 2,204,992
Machinery and equipment 4,334,050 3,752,505
Furniture and fixtures 246,737 224,251
----------- -----------
7,291,791 6,648,036
Less--Accumulated depreciation
and amortization 3,242,273 2,776,164
----------- -----------
Property, plant and equipment,
net 4,049,518 3,871,872
----------- -----------
Deposits and other assets 243,560 201,205
Goodwill 1,419,268 1,472,968
----------- -----------
Total assets $17,841,544 $17,122,578
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14
<PAGE> 5
CALNETICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 237,399 $ 338,000
Accounts payable 2,928,583 2,650,651
Customer deposits 111,104 150,004
Accrued liabilities 1,155,037 1,145,300
Income taxes payable 117,021 58,193
----------- -----------
Total current liabilities 4,549,144 4,342,148
----------- -----------
LONG-TERM DEBT,
net of current portion 5,037,903 5,551,284
----------- -----------
DEFERRED INCOME TAXES 93,000 93,000
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock: authorized-
2,000,000 shares, none issued -- --
Common stock, no par value:
Authorized - 20,000,000 shares;
Issued and outstanding --
2,924,799 at March 31, 1996
and 2,914,799 at June 30, 1995 2,412,015 2,397,635
Retained earnings 5,749,482 4,738,511
----------- -----------
Total shareholders' equity 8,161,497 7,136,146
----------- -----------
Total liabilities and
shareholders' equity $17,841,544 $17,122,578
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 14
<PAGE> 6
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------
1996 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,010,971 $ 628,908
----------- ---------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for doubtful accounts 21,000 61,500
Depreciation and amortization 539,723 520,548
Changes in operating assets and
liabilities, net of effects
from acquisitions:
Accounts receivable (1,010,443) (594,973)
Inventories (343,000) (677,755)
Prepaid expenses (19,108) (113,528)
Accounts payable 277,932 744,127
Customer deposits (38,900) 26,320
Accrued liabilities 9,737 (444,728)
Income taxes payable 58,828 (84,999)
----------- ---------
Total adjustments (504,231) (563,488)
----------- ---------
Net cash provided by
operating activities 506,740 65,420
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (663,669) (393,490)
Deposits and other assets (42,355) (32,769)
----------- ---------
Net cash used in investing activities (706,024) (426,259)
----------- ---------
</TABLE>
Page 6 of 14
<PAGE> 7
CALNETICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $ (613,982) $ (598,337)
Net proceeds from issuance of
common stock 14,380 30,198
----------- -----------
Net cash used in financing
activities (599,602) (568,139)
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (798,886) (928,978)
CASH AND CASH EQUIVALENTS,
beginning of period 1,580,974 1,853,091
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 782,088 $ 924,113
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 341,747 $ 398,712
=========== ===========
Income taxes paid $ 664,000 $ 545,575
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 7 of 14
<PAGE> 8
CALNETICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 1996
1. General:
In the opinion of the management of the Company, the accompanying
condensed unaudited financial statements contain all adjustments, consisting of
only normal recurring accruals, necessary to present fairly the financial
position at March 31, 1996, and June 30, 1995, the results of its operations for
the three and nine months ended March 31, 1996 and 1995 and the cash flows for
the nine months ended March 31, 1996 and 1995. Certain information and footnote
disclosures normally included in financial statements that would have been
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although management of the Company believes that the
disclosures in these financial statements are adequate to make the information
presented therein 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 June 30, 1995 Form 10-K.
The results of operations for the three and nine months ended March 31,
1996 are not necessarily indicative of the results of operations to be expected
for the full fiscal year ending June 30, 1996.
2. Receivables.
The following tabulation shows the elements of receivables:
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Trade accounts receivable $5,722,135 $4,711,541
Less allowance for doubtful
accounts 284,166 263,015
---------- ----------
Total $5,437,969 $4,448,526
========== ==========
</TABLE>
Page 8 of 14
<PAGE> 9
3. Income Taxes.
Income taxes for the nine-month period ended March 31, 1996
were computed using the effective tax rate estimated to be applicable for the
full fiscal year. This rate is subject to ongoing evaluation and review by
management.
4. Long-term debt.
At March 31, 1996 and June 30, 1995, long-term debt consisted
of the following:
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Term loans payable to banks, secured by inventory and receivables,
interest at the banks' reference rate (8.25 percent at March
31, 1996) plus .75 percent, due in various monthly
installments of principal and interest through July 1, 1999,
with balloon payments totaling $1,458,462 due on
August 1, 1999 $3,049,953 $3,683,316
Industrial revenue bond payable, principal due in annual sinking fund
installments ranging from $15,000 to $130,000 through December
2021, plus interest due monthly based on the Issuers Weekly
Adjustable Interest Rates for Revenue Bonds (3.5 percent
atMarch 31, 1996), secured by a standby letter of credit
issued by a bank with an
annual fee of 1.25 percent 1,440,000 1,455,000
</TABLE>
Page 9 of 14
<PAGE> 10
Long-term debt. (cont'd)
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Loans payable to former API shareholders, unsecured, interest
payable semi-annually at 7.50 percent, principal payable in
four equal annual installments beginning June
1996 402,042 402,042
Mortgage payable to bank, secured by the related building and land,
payable in monthly installments of $1,665 plus interest at the
bank's prime rate (8.25 percent at March 31, 1996) plus .75
percent with a balloon payment of $201,415 due March
5, 2000 279,681 294,663
Equipment term notes payable to banks, secured by the related
equipment, due in equal monthly installments of principal and
interest ranging from $214 to $780, interest at rates ranging
from a bank's prime rate (8.25 percent at March 31, 1996) plus
1 percent to 11.87 percent through October 1998. 103,626 54,263
---------- ----------
$5,275,302 $5,889,284
Current portion of long-term debt 237,399 338,000
---------- ----------
Long-term portion $5,037,903 $5,551,284
========== ==========
</TABLE>
The term loans and notes payable include certain restrictive
financial and non-financial covenants, including certain cash
restrictions and limitations on payment of cash dividends and
redemption of stock. At March 31, 1996, the Company was in compliance
with all bank covenants.
Page 10 of 14
<PAGE> 11
5. Earnings per common share and common share equivalent.
Earnings per common share and common share equivalent are
based on the weighted average number of shares of common stock and
common stock equivalents (dilutive stock options) outstanding during
the related periods. The weighted average number of common stock
equivalent shares includes shares issuable upon the assumed exercise of
stock options less the number of shares assumed purchased with the
proceeds available from such exercise. Fully diluted net income per
share does not differ materially from net income per common share and
common share equivalent.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANCHESTER PLASTICS CO., INC. ACQUISITION
In September 1989, the Company acquired Manchester Plastics Co., Inc.
("MPC"). The acquisition expanded the Company's operations to include the
manufacturing of acrylic, polycarbonate and polystyrene plastic sheet that
serves the building materials and industrial plastics industries. Prior to the
acquisition, the Company was primarily engaged in the manufacturing of molded
plastic components by injection, transfer and compression processes.
PLASTIC SCIENCE, INC. ACQUISITION
On June 3, 1992, the Company acquired for cash substantially all of the
assets of Plastic Science, Inc. ("PSI"), a manufacturer of plastic injection
molding components located in Corona, California. The acquisition was
accomplished through a subsidiary of the Company, Ny-Glass Plastics, Inc.
("Ny-Glass"), which continued the business of PSI, under the Ny-Glass name in
Corona, California.
The cash purchase price paid for the assets acquired was $320,100,
$250,000 of which was obtained from a short-term bank loan, utilizing the
Company's then existing credit line of $1,000,000.
Current assets acquired as part of the acquisition were $354,182 and
current liabilities assumed totaled $306,081.
AGRICULTURAL PRODUCTS, INC. ACQUISITION
In fiscal 1994, the Company completed the acquisition of all of the
outstanding stock of Agricultural Products, Inc. ("API") of Ontario, California
from the API shareholders effective as of April 30, 1994. The purchase price was
$4,402,144, consisting of cash of $4,000,102 and unsecured promissory notes
payable to the selling shareholders of $402,042. API, which was a closely held
private company, is a
Page 11 of 14
<PAGE> 12
manufacturer of plastic water handling products, including tubing, filters and
drip system accessories with manufacturing plants in Ontario, California and
Winter Haven, Florida.
Net assets acquired totaled $3,528,341, resulting in recording of goodwill of
$873,803 which is being amortized on a straight-line basis over 20 years.
Financial condition.
There were no significant changes in current assets or current
liabilities of the Company between March 31, 1996, the end of the third quarter,
and June 30, 1995, except for (1) increases in receivables and inventory,
partially offset by an increase in accounts payable, all attributable to sales
increases and (2) the voluntary payment of $150,000, representing three monthly
installments on the Company's long-term bank loans, the payment of which was in
addition to the regular scheduled monthly payments.
Liquidity and Capital Resources.
At March 31, 1996, the Company's working capital was
$7,580,054, compared to $7,234,385 at the same time a year ago.
The Company has a working capital agreement with a bank under
which the Company may borrow up to $2,500,000 on an unsecured basis and as of
March 31, 1996, the entire amount of $2,500,000 was available under this credit
arrangement, which expires on December 31, 1996.
The Company has no immediate plans for any significant capital
expenditures, and the Company believes that its available funds and internally
generated cash from operations will be sufficient to meet its working capital
needs in fiscal 1996. Certain loan agreements limit capital expenditures to
$750,000 in 1996 and $500,000 in 1997 and thereafter.
Results of Operations.
Three months ended March 31, 1996 compared to three months ended March 31, 1995
Net sales for the three-month period ended March 31, 1996
increased 18% from $7,704,812 in the same period in 1995, to $9,089,762 in 1996;
the increase is attributed to the addition of new customers, improved business
conditions, and increases in selling prices.
Cost of sales as a percentage of sales increased to 74.2%,
during the period January 1, 1996 to March 31, 1996, as compared to 74.1% for
the same period in the prior year.
Page 12 of 14
<PAGE> 13
Selling, general and administrative expenses for the
three-month period ended March 31, 1996 increased to $1,486,616 as compared with
$1,370,015 for the same period in the prior year, an increase of 9%. The
increase is attributed to increased sales volume.
Net income for the current three-month period was $443,838 as
compared with $279,703, for the same period in the prior year, after provisions
for income taxes of $319,000 and $209,721 for the three months ended March 31,
1996 and 1995, respectively. Earnings per common share and common share
equivalent increased to $0.14 from $0.09 per share for the three months ended
March 31, 1996 and 1995, respectively. The increase in net income is attributed
primarily to increased sales volume at all three subsidiaries.
Nine months ended March 31, 1996 compared to nine months ended March 31, 1995
Net sales for the nine-month period ended March 31, 1996
increased 24% from $20,627,574 in 1995, to $25,488,700 in 1996; the increase is
attributed to the addition of new customers, improved business conditions, and
increases in selling prices.
Cost of sales as a percentage of sales increased to 76%,
during the period July 1, 1995 to March 31, 1996, as compared to 75% for the
same period in the prior year. The increase is primarily attributed to the
inclusion of certain unfavorable profit margins of MPC and Ny-Glass during the
first three months of the current fiscal year.
Selling, general and administrative expenses increased to
$4,038,503 for the nine-month period ended March 31, 1996 as compared with
$3,672,210 for the same period in the prior year. The increase is mainly
attributed to the increased sales volume of all subsidiaries.
Net income for the current nine-month period was $1,010,971 as
compared with $628,908, for the nine-month period ended March 31, 1995 after
provisions for income taxes of $722,000 and $460,944 for the nine months ended
March 31, 1996 and 1995, respectively. The improvement in net income was
primarily attributed to increased sales volume at all three subsidiaries.
Earnings per common share and common share equivalent increased to $0.33 from
$0.21 per share for the nine months ended March 31, 1996 and 1995, respectively.
The increase being primarily attributed to increased sales volume.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None.
27.1 Financial Data Schedule
Page 13 of 14
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) 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.
CALNETICS CORPORATION
(Registrant)
Dated: April 26, 1996 /s/ Clinton G. Gerlach
-----------------------
Clinton G. Gerlach
President
Dated: April 26, 1996 /s/ Teresa S. Louie
-----------------------
Teresa S. Louie
Treasurer
Page 14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 782088
<SECURITIES> 0
<RECEIVABLES> 5722135
<ALLOWANCES> 284166
<INVENTORY> 5305037
<CURRENT-ASSETS> 12129198
<PP&E> 7291791
<DEPRECIATION> 3242273
<TOTAL-ASSETS> 17841544
<CURRENT-LIABILITIES> 4549144
<BONDS> 5130903
0
0
<COMMON> 2412015
<OTHER-SE> 5749482
<TOTAL-LIABILITY-AND-EQUITY> 17841544
<SALES> 25488700
<TOTAL-REVENUES> 25488700
<CGS> 19381733
<TOTAL-COSTS> 23399236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21000
<INTEREST-EXPENSE> 335493
<INCOME-PRETAX> 1732971
<INCOME-TAX> 722000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1010971
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
