PAGE 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995 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 1-1915
DeSoto, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-1899490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16750 South Vincennes Road, South Holland, Illinois 60473
(Address of principal executive offices)
708 - 331 - 8800
(Registrant's telephone number, including area code)
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
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
At July 31, 1995 the registrant had 4,679,207 shares of common stock
outstanding.
PAGE 2
DeSOTO, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Condensed Statements of Operations
for the Three Months and Six Months ended
June 30, 1995 and June 30, 1994 3
Consolidated Condensed Balance Sheets as of
June 30, 1995 and December 31, 1994 4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1995
and June 30, 1994 5
Notes to Consolidated Condensed Financial
Statements 6-8
Management's Analysis of Financial Statements 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
PAGE 3
DeSOTO, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(in thousands except per share amounts)
NET REVENUES............................ $16,314 $22,286 $35,241 $45,926
COSTS AND EXPENSES:
Cost of sales........................ 16,372 21,647 35,815 44,310
Selling, administrative and general.. 2,914 3,089 5,729 6,099
Retirement security program.......... (1,700) (1,194) 3,382) (2,383)
------- ------- ------- -------
TOTAL OPERATING COSTS AND EXPENSES...... 17,586 23,542 38,162 48,026
------- ------- ------- -------
EARNINGS (LOSS) FROM OPERATIONS......... (1,272) (1,256) (2,921) (2,100)
OTHER CHARGES AND CREDITS:
Interest expense..................... 212 174 459 308
Nonoperating expense (income)........ (6,089) (244) 6,360) (1,303)
------- ------- ------- -------
Earnings (Loss) before Income Taxes..... 4,605 1,186) 2,980 (1,105)
Provision (Benefit) for Income Taxes.... 1,708 (442) 1,105 (412)
------- ------- ------- -------
NET EARNINGS (LOSS)..................... 2,897 (744) 1,875 (693)
Dividends on Preferred Stock............ (85) (78) (168) (155)
------- ------- ------- -------
Net Earnings (Loss) Available
for Common Shares..................... $ 2,812 $ (822) $ 1,707 $ (848)
======= ======= ======= =======
NET EARNINGS (LOSS) PER COMMON SHARE.... $ 0.60 $ (0.18) $ 0.37 $ (0.18)
======= ======= ======= =======
Average Common Shares Outstanding....... 4,677 4,657 4,674 4,655
======= ======= ======= =======
See accompanying notes to consolidated condensed financial statements.
PAGE 4
DeSOTO, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
1995 1994
(Unaudited)
ASSETS (in thousands of dollars)
Current Assets:
Cash...................................... $ 528 $ 1,702
Restricted cash........................... 58 58
Restricted short-term investments......... 60 710
Accounts and notes receivable - Net....... 12,447 11,848
Inventories:
Finished goods.......................... 3,525 4,331
Raw materials and work-in-process....... 4,941 4,182
-------- --------
8,466 8,513
Prepaid expenses and other current assets. 3,713 3,510
-------- --------
Total Current Assets...................... 25,272 26,341
Restricted Investments...................... 4,571 4,666
Property, Plant and Equipment - Net......... 6,850 7,968
Prepaid Pension............................. 43,065 39,319
Other Non-Current Assets.................... 4,690 4,818
-------- --------
$ 84,448 $ 83,112
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................... $ 16,530 $ 14,961
Revolving Credit Agreement................ 7,012 8,381
Reserves and liabilities related to
restructuring programs.................. 1,519 1,884
Waste site clean-up....................... 922 2,522
Other..................................... 6,240 5,725
-------- --------
Total Current Liabilities............... 32,223 33,473
Waste site clean-up - long-term............. 6,500 6,744
Post Retirement and Post
Employment Insurance...................... 1,357 1,510
Deferred Income Taxes....................... 14,660 13,392
Long-Term Deferred Gain..................... 2,977 3,175
Redeemable Preferred Stock.................. 3,842 3,569
Common Stock and Other Stockholders' Equity. 22,889 21,249
-------- --------
$ 84,448 $ 83,112
======== ========
See accompanying notes to consolidated condensed financial statements.
PAGE 5
DeSOTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1995 1994
(in thousands of
dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)....................................... $ 1,875 $ (693)
Non-cash items:
Deferred income taxes................................... 1,107 (411)
Depreciation and amortization........................... 881 1,588
Pension income.......................................... (3,746) (2,500)
Amortization of deferred gain .......................... (198) (172)
Net gain on disposal of property, plant and equipment... (17) -
Other non-cash items.................................... 38 120
----------- -------
Net non-cash items...................................... (1,935) (1,375)
Changes in assets and liabilities resulting from
operating activities:
Net increase (decrease) in accounts payable........... 1,569 1,724
Net (increase) decrease in other current assets....... 608 (304)
Net (increase) decrease in other non-current assets... 178 97
Net (increase) decrease in inventories................ 47 2,498
Net increase (decrease) in other liabilities.......... (1,847) (447)
Net (increase) decrease in trade accounts
and notes receivable.............................. (599) (1,109)
Other................................................. (4) -
------- -------
Net cash flows from operating activities.................. (108) 391
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds form sale of property, plant and equipment..... 500 -
Additions to property, plant and equipment.............. (197) (351)
-------- -------
Net cash flows from investing activities.................. 303 (351)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options............................... - 70
Additions (payments) under Revolving Credit Agreement... (1,369) -
-------- -------
Net cash flows from financing activities.................. (1,369) 70
------- -------
Net increase (decrease) in cash and cash equivalents...... 1,174) 110
Cash and cash equivalents at beginning of year............ 1,702 45
------- -------
Cash and cash equivalents at end of period................ $ 528 $ 155
======= =======
See accompanying notes to consolidated condensed financial statements.
PAGE 6
DeSOTO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations for the periods
indicated.
The results of operations for the three months and six months ended
June 30, 1995 are not necessarily indicative of the results to be
expected for the full year.
A. ACCOUNTING POLICIES
The reader is directed to the Company's 1994 Annual Report on
Form 10-K previously filed with the Securities and Exchange
Commission for details of the accounting policies followed by
the Company.
B. INCOME TAXES
The provision (benefit) for income taxes is computed at the
current estimated effective income tax rate for the year.
C. INVENTORY VALUATION
Inventory at June 30, 1995 is valued at the last-in, first-out
(LIFO) method of inventory accounting. If the first-in, first-
out (FIFO) method of inventory accounting had been used for all
of the Company's inventories, inventories would have been
$1,964,000 and $1,889,000 higher than reported at June 30, 1995
and December 31, 1994, respectively.
D. REVOLVING CREDIT AGREEMENT
On December 7, 1994, the Company entered into a revolving credit
agreement with CIT. The agreement provides for up to
$14,000,000 under a revolving credit facility. The funds
available for borrowing are based on a formula which includes
specified percents of accounts receivable and inventory. The
interest rate on the facility is prime plus 1 1/4%. The Company
had $135,000 in letters of credit outstanding on June 30, 1995
that were considered borrowing under the facility. The Company
had $138,000 available capacity under the facility at June 30,
1995. Under the terms of the credit facility, the Company
cannot declare or pay any dividends on any class of stock;
dividends on preferred stock presented on the income statement
have been accrued but not declared. Proceeds from the
transactions discussed in both Footnote G and the Management's
Discussion and Analysis were utilized to reduce the CIT debt.
The Company's indebtedness on August 3, 1995 was approximately
$1.3 million. The availability continues to be based on a
collateral formula.
PAGE 7
On August 3, 1995, CIT proposed a plan to the Company which
would result in the Company's indebtedness to CIT being paid off
by September 30, 1995. During the period up to September 30,
1995, CIT proposed that the loan continue to be based upon the
currently existing lending formulas with a cap on borrowing of
$2,250,000. The interest rate during this period would be
increased to prime plus 3 1/4%. The Company has not yet
responded to CIT but expects to do so in the near future. For
further discussion see the Liquidity and Capital Resources
section of Management's Analysis of Financial Statements.
E. NONOPERATING INCOME
The Company reached settlements in the second quarter with two
insurance carriers regarding the cost of cleanup at certain
hazardous waste sites. As a result of these settlements, the
Company recorded income of approximately $6.0 million during the
second quarter. Nonoperating income also included approximately
$243,000 in the first quarter from royalty income related to
technology sold by the Company in 1990. Nonoperating income
during the second quarter of 1994 resulted from settlements
related to insurance and legal issues. In addition, the Company
recorded nonoperating income during the first quarter of 1994
resulting from the settlement of an arbitration related to a
portion of the business sold by the Company in 1990 and to
royalty income related to technology sold by the Company in
1990.
F. STOCKHOLDERS' EQUITY
The components of the change in stockholders' equity during the
six months ended June 30, 1995 are as follows:
Balance, January 1, 1995 $21,249
Net earnings 1,875
Accrued dividends - redeemable preferred stock (168)
Accretion of redeemable preferred stock to
liquidation preference (106)
Shares issued under employee stock
options and other grants 39
-------
Balance, June 30, 1995 $22,889
=======
PAGE 8
G. SUBSEQUENT EVENT
On July 21, 1995, the Company announced the transfer and
assignment of various operations and assets involved in its
liquid detergent and fabric softener dryer sheet businesses to
two separate buyers. The Company assigned the rights to certain
customers with respect to these businesses. The Company also
sold other assets which included certain accounts receivable,
inventory and machinery and equipment. . Both transactions also
provide for the Company to receive royalties and other earn-out
opportunities over a three year period in one case and over a
four-year period in the other case. The proceeds of these
transactions were utilized to reduce the Company's debt owed to
CIT. The outstanding balance due to CIT immediately after the
transactions was approximately $1.3 million with future
indebtness not expected to exceed $2,250,000
The Company expects to take a charge of approximately $3.8
million in the third quarter relative to costs associated with
the closure of operating facilities relative to these
transactions. During the third quarter of 1995, the Company
expects to write off approximately $3.3 million of goodwill that
related to the businesses sold in these transactions.
For additional information, see Management's Analysis of
Financial Statements and the Pro Forma Statements contained
herein.
MANAGEMENT'S ANALYSIS OF FINANCIAL STATEMENTS
Liquidity and Capital Resources
During July 1995, in connection with the Company's previously
disclosed review of strategic alternatives, the Company completed
the transfer and assignment to two separate buyers of various
operations and assets involved in its liquid detergent and fabric
softener dryer sheet businesses. The assets involved include
certain customer rights, accounts receivable, inventory and
machinery and equipment. Initial proceeds from these transactions
were used to reduce the Company's senior secured debt under its
revolving credit agreement with CIT. Both transactions also
provide for the Company to receive royalties and other earn-out
opportunities over a three year period. The Company continues to
manufacture powdered laundry detergents at its facilities in
Joliet, Illinois and Union City, California.
The Company reached settlements with two insurance carriers
regarding the cost of cleanup at certain hazardous waste sites. As
a result of these settlements, the Company received proceeds in
April and July totaling approximately $6.0 million.
PAGE 9
On August 3, 1995, CIT proposed a plan to the Company which would
result in the Company's indebtedness to CIT being paid off by
September 30, 1995. During the period up to September 30, 1995,
CIT proposed that the loan continue to be based upon the currently
existing lending formulas with a cap on borrowing of $2,250,000.
The interest rate during this period would be increased to prime
plus 3 1/4%. The Company has not yet responded to CIT but expects
to do so in the near future.
The aforesaid disposition of the liquid detergent and fabric
softener sheet businesses is expected to reduce the cash required
to fund continuing operations. In addition, the Company continues
to take steps to manage its accounts payable as it endeavors to
ensure availability of materials to support its operations as well
as generate funds to pay vendors. This effort will result in a
plan to fund currently existing liabilities related to disposed
operations over a period which will extend beyond the originally
provided payment terms. However, in light of the proposal by CIT
and the uncertainty with respect to future sources of liquidity,
there can be no assurance that the Company will have adequate
liquidity on a going forward basis subsequent to September 30, 1995
to fund operations. The Company continues to evaluate various
methods of maximizing the economic benefit of its over-funded
pension plan, and anticipates that the excess would become a
component of the payout plan discussed above.
The decrease in restricted short-term investments from December 31,
1994 reflects the payments of assessments for waste sites covered
by the restricted trust fund.
Accounts receivable at June 30, 1995 included proceeds from an
insurance settlement which offset a reduction in trade accounts
receivable when compared to year-end 1994. The reduction in trade
accounts receivable is due to the impact of reduced sales.
Property, plant and equipment declined since December 31, 1994
reflecting the sale of equipment no longer used in operations as
well as the excess of depreciation over capital expenditures.
Other non-current assets include approximately $3.3 million of
goodwill related to the disposed liquid detergent and fabric
softener sheet businesses. The Company expects to write off such
goodwill as part of the disposition of the these businesses.
PAGE 10
The increase in accounts payable reflects the extension of payment
terms discussed above.
The current portion of the waste site clean-up liability declined
versus the 1994 year-end primarily due to payments relative to
three sites. In the case of one of the waste sites, the Company
has been released from further participation in funding cleanup of
the site. Approximately $1.8 million of the cash used to fund
these payments was generated from restricted short-term investments
or insurance proceeds.
Results of Operations for the Six Months Ended June 30, 1995
Results of operations for the six months ended June 30, 1995 do not
reflect the disposition of the Company's liquid detergent and
fabric softener dryer sheet businesses. These businesses accounted
for approximately $21.5 million of net revenues during the first
half of 1995 and $26.3 million of net revenues during the
comparable period in 1994.
Net revenues for the first six months of 1995 decreased
approximately 23% versus the same period in 1994. The decline can
be attributed primarily to the decrease in sales to three
customers. Approximately $3.0 million of the decline related to
the loss of certain sales to Lever Brothers. As previously
reported, Lever transferred its auto dish gel business and domestic
fabric softener sheet business out of DeSoto during the second and
third quarters of 1994.
Sales to Sears and Kmart were down approximately 16% and 37%,
respectively, versus the first half of 1994. Timing with respect
to customer promotions resulted in higher shipments in December
1994 for the first quarter 1995 promotion in contrast to higher
shipping in January 1994 for the first quarter 1994 promotions.
Volume, promotional pricing and product mix also contributed to the
decrease in sales. There were also increases and decreases of
smaller magnitude with respect to other customers. Pricing
pressure in the marketplace continues to negatively impact the
Company's ability to retain business, as well as the ability to
attract new business.
Lower gross profit resulted from the pricing, product/customer mix,
and volume issues discussed above, the continued escalation in the
cost of corrugated and plastic packaging and unrecovered fixed
costs at certain of the Company's operating plants.
Selling, general and administrative expenses were lower than the
first six months of 1994. The expenses in 1994 reflected the
operation of the Columbus, Georgia facility, which closed in March
1994, and the Stone Mountain, Georgia facility, which closed in
July 1994. The lower 1995 expense level also reflects the
continued efforts at cost containment.
PAGE 11
Interest expense was higher for the first six months of 1995 versus
the same period last year, due to a higher interest rate because of
the increase in the prime rate.
Nonoperating income during 1995 included approximately $6.0 million
from insurance settlements and approximately $243,000 of royalty
income related to technology sold by the company in 1990.
Nonoperating income in 1994 included settlements related to
insurance and legal issues and royalty income related to technology
sold by the Company in 1990.
Results of Operations for the Three Months Ended June 30, 1995
Net revenues declined 27% in the second quarter of 1995 versus the
second quarter of 1994. This decline resulted from a 45% decrease
in sales to Kmart and the loss of most of the Company's sales to
Lever Brothers. Sales to Sears, Roebuck and Co. also declined
approximately 10% versus the same quarter in 1994.
The decline in sales to Kmart in 1995 as compared to 1994 is due to
strong second quarter sales in 1994 related to customer promotional
activity. The Lever Brothers sales were lost when Lever
transferred its auto dish gel business and domestic fabric softener
sheet business out of DeSoto during the second and third quarters
of 1994.
The decline in gross profit resulted from pricing pressures, the
loss of volume discussed above and unrecovered fixed costs at
certain of the Company's operating plants. In addition,
significant increases in the cost of corrugated and plastic
packaging contributed to the decline in gross profit.
Selling, administrative and general expenses were lower in 1995
versus 1994. These expenses in 1994 included the operation of the
Stone Mountain, Georgia facility which was closed in July 1994. In
addition, the lower level of expenses reflected continued efforts
at cost containment.
Nonoperating income during 1995 included approximately $6.0 million
from insurance settlements. Nonoperating income in 1994 included
settlements related to insurance and legal issues.
PAGE 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(i) United States of America v. Akzo et. al.
As previously reported, the
Company was named in a complaint filed in the United
States District Court for the Eastern District of
Michigan. The complaint, filed on behalf of the U.S.
Environmental Protection Agency, alleges, inter alia,
that the Company and four other parties are responsible
under Section 107 of the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") of
1980, as amended, for costs the EPA incurred at the
Metamora Landfill site in Lapeer, Michigan. The
complaint also seeks a declaration under Section 113 of
CERCLA that the Company is liable for the EPA's future
costs that may be incurred at this site.
The State of Michigan has also served a complaint upon
the Company in the United States District Court for
the Eastern District of Michigan that parallels the
Federal action. The State also seeks reimbursement of
the costs it incurred.
The Company's defense in these actions has been
assumed by the firm and its principal shareholder from
which the Company purchased certain assets of the
business which is alleged by the EPA to be partially
responsible for the alleged contamination at this site.
The former owners have also agreed to indemnify the
Company with respect to the claims asserted in the
complaints.
(ii) An action for declaratory judgment has been filed
against the Company in state court in Illinois by one
of the Company's former insurance carriers seeking a
declaration that the carrier is not responsible to the
Company for cleanup expenses incurred at 52 specific
waste sites.
(iii) The Company reached settlements with two
insurance carriers regarding the cost of cleanup at
certain hazardous waste sites. As a result of these
settlements, the Company received proceeds in April and
July totaling approximately $6.0 Million.
Item 5. Other Information
On July 21, 1995, the Company announced the transfer
and assignment of various operations and assets involved
in its liquid detergent and fabric softener dryer sheet
businesses to two separate buyers. The Company assigned
the rights to certain customers with respect to these
businesses. The Company also sold other assets which
included certain accounts receivable, inventory and
machinery and equipment. The Company expects to write off
approximately $3.3 million of goodwill that related to the
businesses sold in these transactions. Both transactions
also provide for the Company to receive royalties and
other earn-out opportunities over a three year period.
PAGE 13
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited pro forma consolidated condensed
financial statements set forth the unaudited pro forma consolidated
condensed balance sheet of the Company and its subsidiaries as of
June 30, 1995, and the unaudited pro forma consolidated condensed
statements of operations for the six months ended June 30, 1995 and
the year ended December 31, 1994. These unaudited pro forma
consolidated condensed financial statements are presented to
illustrate the effect of certain adjustments to the historical
consolidated financial statements that would have resulted from the
transfer and assignment of various operations and assets involved
in the Company's liquid detergent and fabric softener dryer sheet
businesses if such transactions had occurred on January 1, 1994 for
purposes of the consolidated condensed statements of operations.
The pro forma consolidated condensed balance sheet assumes all such
transactions occurred on June 30, 1995.
The unaudited pro forma consolidated condensed financial statements
are presented for informational purposes only and are not
necessarily indicative of actual results had the foregoing
transactions occurred as described in the preceding paragraph, nor
do they purport to represent results of future operations of the
Company
PAGE 14
DeSOTO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1995
<TABLE>
Pro Forma Adjustments Pro Forma
------------------------------ Adjusted
Historical Note Debit Note Credit Balance
ASSETS
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash................................. $ 528 1 $ 3,997 2 $3,997 $ 528
Restricted cash...................... 58 - - 58
Restricted short-term investments.... 60 - - 60
Accounts and notes receivable - Net.. 12,447 1 1,812 1 1,798 12,461
Inventories.......................... 8,466 - 1 3,620 4,846
Prepaid expenses and other
current assets..................... 3,713 - - 3,713
------- ------- ------ -------
Total Current Assets................. 25,272 5,809 9,415 21,666
Restricted Investments................. 4,571 - - 4,571
Property, Plant and Equipment - Net.... 6,850 - 1 1,500 5,350
Prepaid Pension........................ 43,065 - - 43,065
Other Non-Current Assets............... 4,690 1 1,813 3 3,307 3,196
------- ------- ------- -------
Total Assets $84,448 $ 7,622 $14,222 $77,848
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................... $16,530 $ - $ - $16,530
Revolving Credit Agreement.......... 7,012 2 3,997 - 3,015
Reserves and liabilities related to
restructuring programs............ 1,519 - 4 3,762 5,281
Waste site clean-up................. 922 - - 922
Other............................... . 6,240 - - 6,240
------- ------- ------- -------
Total Current Liabilities......... 32,223 3,997 3,762 31,988
Waste site clean-up - long-term....... 6,500 - - 6,500
Post Retirement and Post
Employment Insurance................ 1,357 - - 1,357
Deferred Income Taxes................. 14,660 1,193 - 13,467
Long-Term Deferred Gain............... 2,977 - - 2,977
Redeemable Preferred Stock............ 3,842 - - 3,842
Common Stock and Other.
Stockholders' Equity................ 22,889 1,3,4 6,365 1 1,193 17,717
------- ------- ------- -------
Total Liabilities and Equity $84,448 $11,555 $4,955 $77,848
======= ======= ======= ======
</TABLE>
See accompanying notes to unaudited pro forma financial information.
PAGE 15
DeSOTO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
AS OF JUNE 30, 1995
The unaudited Pro Forma Consolidated Condensed Balance Sheet as of June
30, 1995 reflects the adjustments necessary to record the transfer and
assignment of various operations and assets involved in the Company's
liquid detergent and fabric softener dryer sheet businesses. All
transactions are presented as though they had occurred on June 30,
1995.
The following adjustments were made for purposes of preparing the Pro
Forma Balance Sheet as of June 30, 1995:
1) The Company received initial cash proceeds of approximately $4.0
million from two separate buyers upon closing the transactions. In
addition, the Company will receive two additional installments of
cash proceeds in thirty and sixty days after closing and additional
proceeds in the form of royalties and other earnout opportunities
over the next three years in one case and over four years in the
other case. In one transaction there is a guaranteed minimum
future royalty. Assets sold include certain customer rights,
accounts receivable, inventory and machinery and equipment.
2) Initial proceeds from the transactions were used to reduce
borrowings under the Company's revolving credit facility.
3) Goodwill relating to the business disposed of has been written off.
4) In connection with the disposition, certain administrative
positions will be eliminated and certain facilities will be shut
down. The Company expects to establish a reserve of $3.8 million
for the associated expenses.
PAGE 16
DeSOTO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1995
<TABLE>
Pro Forma Adjustments
--------------------- Adjusted
Historical Note Amount Balance
<S> <C> <C> <C> <C>
(in thousands except per share amounts)
NET REVENUES.............................. $ 35,241 $(21,531) $13,710
EXPENSES:
Cost of sales.......................... 35,815 (21,849) 13,966
Selling, administrative and general.... 5,729 1,2 (2,330) 3,399
Retirement security program............ (3,382) - (3,382)
-------- -------- -------
TOTAL OPERATING COSTS AND EXPENSES........ 38,162 (24,179) 13,983
-------- -------- -------
EARNINGS (LOSS) FROM OPERATIONS........... (2,921) 2,648 (273)
OTHER CHARGES AND CREDITS:
Interest expense....................... 459 3 (109) 350
Nonoperating expense (income).......... (6,360) - (6,360)
-------- -------- -------
Earnings (Loss) before Income Taxes....... 2,980 2,757 5,737
Provision (Benefit) for Income Taxes...... 1,105 4 1,127 2,232
-------- -------- -------
NET EARNINGS (LOSS)....................... 1,875 1,630 3,505
Dividends on Preferred Stock.............. (168) - (168)
-------- -------- -------
Net Earnings (Loss) Available
for Common Shares....................... $ 1,707 $ 1,630 $3,337
======== ======= =======
NET EARNINGS (LOSS) PER COMMON SHARE...... $ 0.37 $0.71
======== =======
Average Common Shares Outstanding......... 4,674 4,674
======== =======
</TABLE>
See accompanying notes to unaudited pro forma financial information.
PAGE 17
DeSOTO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Twelve Months Ended December 31, 1994
<TABLE>
Pro Forma Adjustments
--------------------- Adjusted
Historical Note Amount Balance
<S> <C> <C> <C> <C>
(in thousands except per share amounts)
NET REVENUES........................................ $ 87,182 $(51,758) $35,424
EXPENSES:
Cost of sales.................................... $84,800 $(50,339) 34,461
Selling, administrative and general.............. 11,889 1,2 (5,038) 6,851
Retirement security program...................... (6,495) - (6,495)
------- -------- -------
TOTAL OPERATING COSTS AND EXPENSES.................. 90,194 (55,377) 34,817
------- -------- -------
EARNINGS (LOSS) FROM OPERATIONS.................... (3,012) 3,619 607
OTHER CHARGES AND CREDITS:
Interest expense................................ 575 3 (491) 84
Nonoperating expense (income)................... (1,303) - (1,303)
------- -------- -------
Earnings (Loss) before Income Taxes................ (2,284) 4,110 1,826
Provision (Benefit) for Income Taxes............... (649) 4 1,168 519
------- -------- -------
NET EARNINGS (LOSS)................................ (1,635) 2,942 1,307
Dividends on Preferred Stock....................... (319) - (319)
------- -------- -------
Net Earnings (Loss) Available for Common Shares.... $(1,954) $ 2,942 $ 988
======= ======== =======
NET EARNINGS (LOSS) PER COMMON SHARE............... $( 0.42) $ 0.21
======= =======
Average Common Shares Outstanding.................. 4,657 4,657
======= =======
</TABLE>
See accompanying notes to unaudited pro forma financial information.
PAGE 18
DeSOTO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, 1994 AND THE
SIX MONTHS ENDED JUNE 30, 1995
The unaudited Pro Forma Consolidated Condensed Statements of Operations
for the Twelve Months Ended December 31, 1994 and the Six Months Ended
June 30, 1995 reflect the adjustments necessary to record the transfer
and assignment of various operations and assets involved in the
Company's liquid detergent and fabric softener dryer sheet businesses.
All transactions are presented as though they had occurred on January 1,
1994.
The following adjustments were made for purposes of preparing the Pro
Forma Statements of Operations for the Twelve Months Ended December 31,
1994 and the Six Months Ended June 30, 1995:
(1) In connection with the disposition of the businesses,
certain administrative positions will be eliminated and
certain facilities will be shut down.
(2) As a result of the write-off of goodwill related to
the businesses disposed of, amortization of goodwill is
eliminated.
(3) Interest expense was reduced as a result of applying the
proceeds received at closing and the proceeds to be received
subsequent to closing to the paydown of outstanding borrowing
under the Company's revolving credit facility.
(4) The income tax provision reflects the estimated effective
tax rate of the Company.
PAGE 19
Item 6. Exhibits and Reports on Form 8-K
a) The exhibits to this report are listed in the Index to
Exhibits on page 21 hereof.
b) Reports on Form 8-K. There were
no reports on Form 8-K filed during the three months ended
June 30, 1995.
PAGE 20
SIGNATURE
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.
DeSOTO, INC.
(Registrant)
Anne E. Eisele
----------------------------
Anne E. Eisele
President and
Chief Financial Officer
(Principal Financial Officer)
William Spier
----------------------------
William Spier
Chief Executive Officer
August 7, 1995
---------------------------------
Date
PAGE 21
DeSOTO, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
11 - Computation of Fully Diluted Earnings Per Share
27 - Financial Data Schedule
99 - Press Release issued on July 21, 1995
(incorporated by reference to Exhibit 99 to the company's
Form SE dated August 3, 1995*)
__________________
* SEC File No. 1-1915
PAGE 22
Exhibit 11
DeSOTO, INC. AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Net Earnings (Loss) $ 2,897 $ (744) $ 1,875 $ (693)
Preferred Dividends (85) (78) (168) (155)
-------- -------- -------- -------
Net Earnings (Loss)
Applicable to Common Stock $ 2,812 $ (822) $ 1,707 $ (848)
======== ======== ======== =======
Net Earnings (Loss)
Per Common Share: $ 0.60 $ (0.18) $ 0.37 $ (0.18)
======== ======== ======== =======
Average Common Shares
Outstanding (A) 4,677 4,657 4,674 4,655
======== ======== ======== =======
Net Fully Diluted Earnings (Loss)
Per Common Share (B) $ 0.60 $ (0.18) $ 0.37 $ (0.18)
======== ======== ======== =======
Average Common Shares Outstanding 4,677 4,657 4,674 4,655
Additional Shares Outstanding
After Application of the
Treasury Stock Method - - - -
-------- -------- -------- -------
Total (B) 4,677 4,657 4,674 4,655
======== ======== ======== =======
(A) Outstanding common stock options and common stock warrants have been
omitted because the effect reduces the net loss per share.
(B) Reflecting the dilutive effect of outstanding common stock options
and common stock warrants under the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Operations and the Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 528 528
<SECURITIES> 0 0
<RECEIVABLES> 12,447 12,447
<ALLOWANCES> 0 0
<INVENTORY> 8,466 8,466
<CURRENT-ASSETS> 25,272 25,272
<PP&E> 22,517 22,517
<DEPRECIATION> 15,667 15,667
<TOTAL-ASSETS> 84,448 84,448
<CURRENT-LIABILITIES> 32,223 32,223
<BONDS> 0 0
<COMMON> 5,619 5,619
3,842 3,842
0 0
<OTHER-SE> 17,270 17,270
<TOTAL-LIABILITY-AND-EQUITY> 84,448 84,448
<SALES> 16,314 35,241
<TOTAL-REVENUES> 16,314 35,241
<CGS> 16,372 35,815
<TOTAL-COSTS> 17,586 38,162
<OTHER-EXPENSES> (6,089) (6,360)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 212 459
<INCOME-PRETAX> 4,605 2,980
<INCOME-TAX> 1,708 1,105
<INCOME-CONTINUING> 2,897 1,875
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,897 1,875
<EPS-PRIMARY> 0.60 0.37
<EPS-DILUTED> 0.60 0.37
</TABLE>
