FORM 10-Q/A, AMENDMENT NO. 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended September 30, 1995
-----------------------------------------------
OR
( ) TRANSITION PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________________
Commission File Number 0-2642
DE TOMASO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0466460
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
P.0. Box 856, 107 Monmouth Street, Red Bank, N. J. 07701
(Address of principal executive offices - Zip Code)
(908) 842-7200
(Registrant's telephone number, including area code)
No Change
(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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court. Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Common Stock $2.50 par
value; 4,714,332 shares.
<PAGE>
PART I
FINANCIAL INFORMATION
2
<PAGE>
De Tomaso Industries Inc.
Consolidated Condensed Balance Sheets
September 30, 1995
<TABLE>
<CAPTION>
September 30 September 30 December 31
1995 1995 1994
US$'000 Lire m. Lire m.
Unaudited Unaudited Note
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents................................................. 6,971 11,265 5,286
Marketable securities, at cost............................................ 3,100 5,009 5,000
Receivables............................................................... 21,944 35,462 48.259
Trade, less allowance of Lit. 1,547 in 1995 and Lit 571
in 1994)............................................................ 9,770 15,787 14,416
Finance receivables, less allowance of Lit 2,177...................... 5,582 9,021 -
Receivables from related parties...................................... 1,101 1,780 1,521
Other receivables..................................................... 5,491 8,874 5,322
Installment receivable from sale of subsidiary........................ - - 27,000
Inventories............................................................... 16,606 26,836 20,174
Raw materials, spare parts and work-in-process........................ 11,886 19,207 17,609
Finished products..................................................... 4,721 7,629 2,565
Prepaid expenses.......................................................... 1,468 2,373 1,322
------- -------- -------
TOTAL CURRENT ASSETS...................................................... 50,089 80,945 80,041
------- -------- -------
Property, plant and equipment ............................................ 4,408 7,123 12,954
At cost .............................................................. 22,969 37,118 41,259
Less allowances for depreciation...................................... (18,561) (29,995) (28,305)
Trademarks and other intangible assets, net of
amortization of Lit. 125............................................ 3,017 4,875 -
Goodwill.............................................................. 926 1,497 -
Real estate for sale.................................................. 21,123 34,134 -
Investments in unconsolidated companies............................... 1,311 2,118 259
Marketable and other securities and investments,
at cost............................................................ 16,902 27,313 14,759
Other assets.......................................................... 11,819 19,100 10,648
--------- -------- -------
TOTAL ASSETS $ 109,595 Lit. 177,105 Lit. 118,661
========= ======== ========
</TABLE>
Note: The balance sheet as at December 31, 1994 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles.
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
De Tomaso Industries Inc.
Consolidated Condensed Balance Sheets
September 30, 1995
<TABLE>
<CAPTION>
September 30 September 30 December 31
1995 1995 1994
US$'000 Lire m. Lire m.
Unaudited Unaudited Note
LIABILITIES
<S> <C> <C> <C>
Advances from banks 8,132 13,142 15,784
Advances from banks for finance activities 6,081 9,827 --
Accounts payable 11,067 17,884 12,838
Accrued expenses and other payables 8,980 14,511 11,981
Current portion of long-term real estate debt 5,192 8,390 --
Current portion of other long-term debt 1,133 1,831 5,681
------- ------- -------
TOTAL CURRENT LIABILITIES 40,585 65,585 46,319
------- ------- -------
Long-term real estate debt, less current portion 6,767 10,935 --
Other long-term debt, less current portion 6,009 9,710 5,004
Termination indemnities 5,031 8,130 7,137
Provision for claims 1,977 3,195 3,195
Minority interests 10,342 16,731 13,849
Common stock subject to repurchase 7,929 12,814 --
SHAREHOLDERS' EQUITY 30,955 50,023 43,157
Voting preferred stock, convertible share for share into common stock,
par value $2.50 per share:
Authorized 2,000,000 shares; 1,000,000 shares
issued and outstanding in 1994 -- -- 1,453
Common Stock, par value $2.50 per share:
Authorized 10,000,000 shares; 4,714,332 (1994 -
2,057,446) shares issued and outstanding
less 776,530 subject to repurchase 4,173 6,744 2,988
Additional paid in capital 44,141 71,332 47,543
Treasury stock, at cost (7,318) (11,826) --
Deficit (10,082) (16,293) (8,946)
Equity adjustment from translation 90 145 119
Accretion expense and related exchange movements (49) (79) --
------- ------- -------
$109,595 Lit. 177,105 Lit. 118,661
======== ======== ========
</TABLE>
Note: The balance sheet as at December 31, 1994 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles.
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
De Tomaso Industries, Inc.
Unaudited Consolidated Condensed Statements of Cash Flows
9 Months Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
September 30 September 30 September 30
1995 1995 1994*
US$'000 Lire m. Lire m.
<S> <C> <C> <C>
Net loss.................................................................. (4,545) (7,347) (2,119)
Adjustments to reconcile net loss to net
cash (used)/provided by operating activities........................... 2,923 4,725 9,840
------ ------ ------
Net cash provided/(used) by operating activities (1,622) (2,622) 7,721
------ ------ ------
Investing activities:
Net increase in investments and other assets.............................. (7,483) (12,092) (14,760)
Purchases of subsidiaries, net of cash acquired........................... (738) (1,192) -
Deferred receipts from sale of Maserati................................... 16,708 27,000 23,750
Purchases of property, plan and equipment................................. (667) (1,078) (1,291)
------ ------- ------
Net Cash (used)/provided by investing activities.......................... 7,820 12,638 7,669
------ ------- ------
Financing activities:
Increase/(decrease) in advances from banks................................ (4,000) (6,464) (11,739)
Proceeds from share issues................................................ 5,077 8,205 -
Repurchase of shares...................................................... (3,094) (5,000) -
Net decrease of long-term debt............................................ (486) (786) (1,994)
------ ------ -------
Net cash provided/(used) by financing activities.......................... (2,503) (4,045) (13,733)
------ ------ -------
(Decrease)/Increase in cash and cash equivalents.......................... 3,695 5,971 1,687
Exchange movement on opening cash balances................................ 5 8 -
Cash and cash equivalents, beginning of period............................ 3,271 5,286 2,662
------ ------ ------
Cash and cash equivalents, end of period.................................. 6,971 11,265 4,349
====== ====== ======
</TABLE>
*Reclassified to conform to September 30, 1995 presentation.
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
De Tomaso Industries, Inc.
Unaudited Consolidated Condensed Statements of Operations
3 Months Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
September 30 September 30 September 30
1995 1995 1994
3 months 3 months 3 months
US$'000 Lire m. Lire m.
<S> <C> <C> <C>
Net sales................................................................. 10,851 17,535 10,627
Cost of sales............................................................. (10,611) (17,148) (9,563)
------ ------ -----
240 387 1,064
Selling, general and administrative expenses.............................. (2,748) (4,441) (2,239)
Rental Income............................................................. 226 365 -
Other income/(expense), net .............................................. 274 442 -
------- ------- -------
(2,008) (3,247) (1,175)
Interest expense.......................................................... (1,016) (1,642) (981)
Interest income........................................................... 808 1,305 1,297
------- -------- -------
Loss from continuing operations before
income taxes and minority interests.................................... (2,218) (3,584) (859)
Income taxes.............................................................. (75) (121) -
------- -------- ------
Loss from continuing operations before
minority interests..................................................... (2,293) (3,705) (859)
Minority interests........................................................ (81) (131) (291)
------ ------- -------
Net (loss)/income......................................................... (2,374) (3,836) (1,150)
======= ======= =======
EARNINGS/(LOSS) PER SHARE US $ Lire Lire
Net income/(loss) per share............................................... $(0.50) Lit. (814) Lit. (559)
===== ====== ======
Average number of common shares and
equivalents outstanding during the period.............................. 4,714,332 4,714,332 2,057,446
========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
De Tomaso Industries Inc.
Unaudited Consolidated Condensed Statements Operations
9 Months ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
September 30 September 30 September 30
1995 1995 1994
9 months 9 months 9 months
US$'000 Lire m. Lire m.
<S> <C> <C> <C>
Net sales................................................................. 29,085 47,001 34,431
Cost of sales............................................................. (27,298) (44,114) (30,238)
------- ------- -------
1,787 2,887 4,193
Selling, general and administrative expenses............................... (6,356) (10,271) (7,023)
Rental income ............................................................. 226 365 -
Other income (expense) net ................................................ 274 442 -
------- ------- -------
(4,069) (6,577) (2,830)
Interest expense.......................................................... (1,997) (3,227) (3,358)
Interest income........................................................... 1,837 2,968 4,778
------- ------- ------
Loss from continuing operations before income
taxes and minority interests........................................... (4,229) (6,836) (1,410)
Income taxes.............................................................. (75) (121) -
------- ------- --------
Loss from continuing operations before minority
interests............................................................... (4,304) (6,957) (1,410)
Minority Interests......................................................... (241) (390) (709)
------- ------- ------
Net (loss)/income.......................................................... (4,545) (7,347) (2,119)
======= ======= =======
EARNINGS/(LOSS) PER SHARE US $ Lire Lire
Net income/(loss) per share............................................... $ (1.55) Lit. (2,499) (1,030)
======= ======= =======
Average number of common shares and equivalents
outstanding during the period.......................................... 2,939,842 2,939,842 2,057,446
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE>
De Tomaso Industries Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
September 30, 1995
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and changes in financial position in
conformity with generally accepted accounting principles. For a summary of the
Registrant's accounting principles, and other footnote information, reference is
made to the Registrant's 1994 Annual Report on Form 10-K. All adjustments
necessary for the fair presentation of the results of operations for the interim
periods covered by this report have been included. All of such adjustments are
of a normal and recurring nature.
The primary financial statements are shown in Italian lire because all of the
Company's material operating entities are based and operate entirely in Italy.
Translation of lire amounts into U.S. Dollar amounts is included solely for the
convenience of the readers of the financial statements and has been made at the
rate of Lit. 1,616 to $1, the approximate exchange rate at September 30, 1995.
It should not be construed that the assets and liabilities, expressed in US
dollar equivalents, can actually be realized in or extinguished by US dollars at
that or any other rate.
NOTE 2 COMPUTATION OF LOSS PER SHARE
Net loss per share for the three months ended September 30, 1995 and the three
months and nine months ended September 30, 1995 is computed on the average
number of common shares outstanding during such periods.
As described below in Note 3, in July 1995, convertible preference shares
formerly held by the ex-President of the Company were exchanged for an equal
number of common shares and 703,774 of the resulting total of 1,480,304 common
shares formerly held by the ex-President were acquired by the Company. Had the
exchange of voting preference shares and acquisition of common stock been
consummated as at January 1, 1995, then the loss per share for the nine months
ended September 30, 1995 would have amounted to Lit. 2,342 ($1.31).
NOTE 3 ACQUISITIONS AND PURCHASE OF TREASURY STOCK
Finprogetti acquisition
On July 17, 1995, effective July 1, 1995, pursuant to the terms of the
"Finprogetti Agreement" the Company acquired from Finprogetti S.p.A. (an Italian
entity) all of that company's equity interests in its principal operating
subsidiaries and a tax receivable of Lit. 5,150 million, in exchange for shares
of the Company. The operating subsidiaries comprised TIM, a temporary management
company specializing in the "turnaround" of troubled and underperforming Italian
and foreign companies, subsidiaries holding Italian real estate and concession
rights and a leasing/factoring company, Finproservice. As part of the same
transaction, the
8
<PAGE>
De Tomaso Industries Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
September 30, 1995
NOTE 3 ACQUISITIONS AND PURCHASE OF TREASURY STOCK (CONTINUED)
Company acquired the minority interest in TIM from Mr. Albino Collini, its
founder and CEO. Under the terms of the Finprogetti Agreement, the final number
of the Company's shares to be issued was conditioned on the purchase before
September 30, 1995 by Finprogetti S.p.A., or its shareholders, or third parties
directed by it, of a specified number of shares in the Company at a stipulated
price of Lit. 20,106.73 ($12.26 at the then current exchange rate) per share.
After the receipt of cash of Lit. 8,204 million (approximately $5,000,000) for
the subscription to 408,008 shares, the Company adjusted the number of shares to
be given so that 1,922,652 additional shares were issued to effect the
acquisition from Finprogetti S.p.A., in addition to the shares issued in
exchange for cash. Of the total number of shares issued for the acquisition from
Finprogetti of its equity interests in the operating subsidiaries and tax
receivable conveyed to the Company, 248,673 were being held in escrow pending
realization by the Company of the tax receivable of Lit. 5,150 million that was
included in the assets acquired.
The Lit. 39,447 million total purchase price reported in the balance sheet to
effect the Finprogetti Agreement reflects Lit. 38,223 million (Lit. 16,400 per
share; $10.00 per share) assigned to the 2,330,660 shares issued, plus costs of
Lit. 1,224 million incurred in connection with the acquisition. The acquisition
has been accounted for by the purchase method. Accordingly, the purchase price
has been allocated to the assets purchased and the liabilities assumed based on
the fair values at the date of the acquisition. The purchase price was allocated
as follows:
US$'000 Lire m.
Cash............................................ 5,166 8,204
Real estate interests........................... 21,479 34,109
Concession rights over real estate.............. 2,960 4,700
Less: related long-term debt.................... (12,238) (19,431)
Trademark and other intangible assets........... 3,148 5,000
Other assets and liabilities, net............... 3,355 5,329
Goodwill........................................ 967 1,536
------- -------
24,837 39,447
======= =======
The excess of the purchase price paid over the fair values of the net
assets acquired has been recorded as goodwill, which is being amortized in
accordance with the Company's policy over 10 years. Results of the Finprogetti
companies are included in operations from July 1, 1995 and the amount of
goodwill amortization for the three months to September 30, 1995 was Lit. 39
million.
Lita acquisition
9
<PAGE>
De Tomaso Industries Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
September 30, 1995
On July 25, 1995, the Company acquired Lita S.p.A., an Italian manufacturer
of steel tubes for the motor vehicle and furniture industries for cash in the
amount of Lit. 615 million ($387,000). The fair value of the assets received was
Lit. 1,649 million ($1,038,000) in excess of the purchase price. This excess has
been allocated to reduce the carrying value of property, plant and equipment by
Lit. 1,482 million ($933,000) and other non-current assets by Lit. 167 million
($105,000). A valuation allowance was established against the deferred tax asset
arising from the adjustment of the book basis of the assets. When realized, the
tax benefit will be credited to income.
Purchase of treasury stock
In April 1995, the Company entered into an agreement (De Tomaso Agreement) with
Mr. Alejandro De Tomaso, the then Chairman of the Board, under which the Company
would repurchase Mr. De Tomaso's 1,000,000 shares of preferred stock and 480,304
shares of common stock at a price of $11.27 per share equivalent to Lit. 18,400
at the exchange rate in effect on the closing date of Lit. 1,637.
Prior to the closing of that transaction, Mr. De Tomaso conveyed such shares,
subject to the De Tomaso Agreement, by gift. The shares are currently held by a
trust.
Performance under the De Tomaso Agreement was conditional upon the consummation
of the Finprogetti acquisition. Contemporaneously with the closing of that
transaction, 703,774 of the preferred and common shares formerly owned by Mr. De
Tomaso were delivered to the Company in exchange for cash of Lit. 5,000 million
and properties (a hotel valued by the Board of Directors based upon independent
appraisals at Lit. 4,700,000,000 and a museum collection of Maserati vehicles
and engines valued by the Board of Directors at Lit. 3,200,000,000) that had a
book carrying value of Lit. 6,629 million. The remaining preferred and common
shares formerly owned by Mr. De Tomaso (now owned by a trust) have been
exchanged for an equal number of shares of newly issued common stock, which the
Company is required to register for sale at the request of the holder.
The value of Lit. 11,826 million (Lit. 16,804 per share; $10.26 per share)
placed on the treasury stock acquired pursuant to the De Tomaso Agreement
represents the book value of the consideration, including taxes payable of Lit.
197 million, given in exchange for the treasury stock and no net gain or loss
has been recognized on the transaction.
Under the terms of the De Tomaso Agreement, if the remaining 776,530 shares are
not sold by their current owner prior to July 17, 1998 (third anniversary of the
Finprogetti transaction), the Company is committed to acquire the shares at
$11.27 per share. The Company has obtained a letter of credit to guarantee
payment of the repurchase price which is collateralized by certain investment
securities owned by the Company reported in the balance sheet at September 30,
1995 in the amount of Lit. 16,518 million. The agreement also provides that (a)
at any time prior to July 17, 1998, the Company may offer to buy any part or all
of such shares at $11.27 per share and (b) if such an offer made by the Company
is not accepted, the Company's commitment to buy the remaining 776,530 shares is
reduced by the number of shares stipulated in the offer that was not accepted.
These 776,530 shares were recorded in the balance sheet at July 17, 1995 at
estimated market value of $10.00 (Lit. 16,400 per share) as shares subject to
repurchase and are not included in shareholder's equity. The difference between
$10.00 and the redemption price of $11.27 is being amortized over the period to
July 17, 1998.
10
<PAGE>
De Tomaso Industries Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
September 30, 1995
NOTE 3 ACQUISITIONS AND PURCHASE OF TREASURY STOCK (CONTINUED)
Proforma information
The pro forma unaudited results of operations for the nine months ended
September 30, 1995 and the year ended December 31, 1994, assuming the
Finprogetti and Lita acquisitions and the repurchase of shares from the former
Chairman had been consummated as at January 1, 1994 are as follows:
1995 1994 1994
9 months 9 months 12 months
US$'000 Lire m. Lire m.
Net sales ...................... 35,366 57,151 66,870
Rental income................... 1,014 1,567 5,640
Finance income.................. 970 1,107 2,686
Net loss ....................... (4,991) (8,066) (7,021)
Net loss per common share.......US$(1.06) Lit.(1,718) Lit. (1,499)
It cannot be inferred that the proforma operating results as shown above would
have resulted had the acquisitions and repurchase of shares been consummated as
at January 1, 1994 as transactions between the entities acquired and their then
parent companies may not have occurred or may have occurred on different terms
and conditions.
NOTE 4 COMMITMENTS AND CONTINGENCIES
Planned program to repurchase shares
The Company plans to initiate a program to accept for purchase up to 80% of its
shares held of record by each of its public shareholders at $12.26 per share.
Such shareholders own approximately 33.45% of the Company's outstanding stock at
September 30, 1995. Shareholders representing 66.55% of outstanding stock at
such date have agreed not to participate. The Company also has a commitment to
purchase the shares formerly owned by Mr. De Tomaso and now held by a trust, as
described in Note 3.
The following proforma analysis shows the effects on cash (including cash
equivalents), investments and shareholder's equity if the planned repurchase
program is all cash, is accepted by 100% of those shareholders entitled to
participate and the commitment to purchase the shares formerly owned by Mr. De
Tomaso were effected as at September 30, 1995:
11
<PAGE>
De Tomaso Industries Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
September 30, 1995
Lit. m Cash Investments Equity
Financial Statements........... 16,274 27,313 50,023
Repurchase from trust.......... - (14,142) (1,328)
Redemption..................... (24,997) - (24,997)
-------- ------- --------
Proforma....................... (8,723) 13,171 23,697
======== ======= =======
The Company is seeking to dispose of certain of its real estate interests,
which, depending on the timing thereof, could provide additional cash for the
planned repurchase program, meet its obligations arising in the ordinary course
of business and to provide funds for further investment.
As at September 30, 1995, investments for a total of Lit. 16,518 million are
held as security for the repurchase of shares from Mr. De Tomaso. The excess
amount of security has arising from accrued interest on the securities and the
Company is seeking to release this excess and also further amounts by switching
into zero coupon or similar investments.
The completion of the repurchase program, assuming 100% acceptance of an all
cash offer, will be dependent on realizing sufficient proceeds from the sale of
fixed assets and/or arranging adequate credit facilities.
12
<PAGE>
De Tomaso Industries, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Results of Operations
General
The Finprogetti and Lita acquisitions completed in July 1995 have in the
aggregate had a significant impact on the financial position and operations of
the Company so that the three and nine month periods ended September 30, 1995
are not comparable with the corresponding periods of 1994. In the review of
operations that follows, two of the industry segments, "steel tubing" and "real
estate", result from the acquisitions. Reference should be made to Note 3 to the
Condensed Consolidated Financial Statements for a detailed description of the
acquisitions as well as the contemporaneous purchase by the Company of shares
formerly owned by its ex-Chairman.
The acquisition, as part of the Finprogetti acquisition, of TIM, the temporary
management company that had been managing, among many other clients, Moto Guzzi
since May 1994 is intended to enable the Company to apply that subsidiary's
management skills to "turn around" troubled companies, thereby enhancing their
values. The significant progress in sales and production at Moto Guzzi bears
witness to the importance of this transaction.
As a result of the Finprogetti acquisition, the Company is restructuring its
operations around the temporary management skills of TIM and the capital
management skills of the Company's executives.
The acquisition of Lita at a price significantly below its book value
illustrates how a TIM management engagement for a client can give rise to an
opportunistic investment. Since acquisition on July 25, 1995 Lita has not been
material to the Company's results but, based on growth projections, it is
expected to be material in 1996.
The real estate holdings acquired as part of the Finprogetti transaction are
intended to be disposed of with the net proceeds to be utilized to make
acquisitions of, or investments in, companies to be managed and operated by TIM.
3 Months ended September 30, 1995 and September 30, 1994
Overview
The increase in net sales of approximately 65% results both from growth of the
motorcycle segment and from the acquisition of Lita in July 1995:
Internal growth of Moto Guzzi - motorcycle segment 43%
Acquired businesses: Lita - steel tubing segment 18%
Other, net 4%
13
<PAGE>
De Tomaso Industries, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Gross margins for the three months ended September 30, 1995 were significantly
affected by non-recurring inventory reserves and write-offs of tooling at Moto
Guzzi following the Company's strategic decision to concentrate on larger
motorbikes and largely abandon the smaller "Moto Guzzi" and "Benelli" models.
Selling, general and administrative expenses increased compared to prior periods
as a consequence of the Finprogetti and Lita acquisitions. Selling general and
administrative expenses of the acquired operations were approximately Lit. 900
million ($557,000) in the three months ended September 30, 1995. Further non-
recurring expense was also incurred in the period in respect of a reserve
against a receivable position of Moto Guzzi of Lit. 425 million ($263,000) and
exchange losses in Moto Guzzi on a loan position denominated in ECU, which has
now been converted in an Italian lire-denominated loan. Direct costs of the
acquisition of Lit. 1,224 million ($757,000), have been capitalized as part of
the purchase cost, but more generally, the third quarter of 1995 has been
burdened with the costs of reorganizing the Company's operating structure, while
the benefits from such reorganization will accrue to future periods.
Interest expense increased in the 3 months ended September 30, 1995 compared to
the corresponding period in 1994 mainly as a result of the Finprogetti and Lita
acquisitions. Approximately Lit. 600 million interest expense was incurred in
the period on debt related to the real estate acquired from Finprogetti.
In both the three months ended September 30, 1995 and the corresponding period
in 1994, the Company has benefitted from interest income on the proceeds from
the sale of Maserati in May 1993.
In summary, the consolidated losses in the three months ended September 30, 1995
result from non-recurring write-offs in the motorcycle segment as a consequence
of abandoning production of smaller motorcycles, operating losses and interest
on acquired real estate activities which will continue until the Company can
dispose of such interests and increased corporate overhead from the
reorganization of the Company's operations following the Finprogetti
acquisition. The loss in 1994 was a result of losses in the Company's motorcycle
segment (the Company's only industry segment in that period) and corporate
expenses.
Motorcycle segment
Net sales of the motorcycle segment, which comprises both sales of motorcycles
through Moto Guzzi and sales of spare parts through its Centro Ricambi
subsidiary, amounted to Lit. 15,207 million, an increase of approximately 55%
over the corresponding period in 1994.
This change from 1994 mainly results from management decisions implemented by
TIM at Moto Guzzi, resulting in a 22% increase in volumes of motorcycles, and
changes in the mix of motorcycle sales with unit sales of the larger motorcycles
increased 53% from the 1994 period. Price increases had a less significant
impact on the increase in sales.
A strategic decision was taken to concentrate production on the larger
motorcycles and abandon production of smaller "Moto Guzzi" and "Benelli"
motorcycles. As a consequence of this decision, write-offs of tooling and
inventories, including spare part inventories, totalling approximately Lit.
1,800 million were made. Increased product development expense was also incurred
in the period. The effects of such costs was to
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De Tomaso Industries, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
virtually eliminate margins from the motorcycle segment in the third quarter of
1995 compared to margins ofapproximately 10% in 1994. Before the tooling and
inventory write-offs, margins were approximately 16% in the three months ended
September 30, 1995.
Steel tubing segment
In the period since acquisition in July 1995, Lita contributed net sales of Lit.
1,866 million ($1,155,000) with a small contribution to margins and net profits.
Lita is located in Torino, Italy, and is specialized in the production of plain
and perforated high frequency welded steel tubes destined for the motor vehicle,
furniture and white goods sectors.
Real estate
The real estate acquired from Finprogetti produced rental income of Lit. 365
million from one commercial property and from parking concessions. Two other
properties are awaiting development and do not produce income. After
depreciation and other operating expenses and interest expense of approximately
Lit. 600 million, the segment incurred operating losses.
The Company is examining disposition of these properties to eliminate the
operating losses and interest costs and apply the net proceeds to other areas of
its business or new investments.
9 months ended September 30, 1995 and 1994
As a consequence of the acquisitions described above, the results of operations
for the nine months ended September 30, 1995 and 1994 are not comparable other
than in respect of the motorcycle segment.
Net sales of the motorcycle segment amounted to Lit. 44,584 million
($27,589,000) in the nine months ended September 30, 1995, an increase of
approximately 39% over the corresponding period in 1994. The increase mainly
results from volume increases and changes in product mix. Despite the increase
in sales, 1995 margins have been significantly affected by the poor first
quarter which saw negative margins as well as the write-offs of tooling and
inventory in the third quarter as described above. As a result of these two
factors, margins have decreased in the nine months to September 30, 1995 despite
the significant increase in sales.
The increase in selling, general and administrative expenses in 1995 compared to
1994 largely results from the third quarter 1995 changes as described above
along with modest increases at Moto Guzzi connected with the increased activity
levels.
After considering the interest expense related to operations acquired in the
third quarter of 1995, there is a decrease in 1995 compared to 1994 in interest
expense. In the motorcycle segment the change is a result of
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De Tomaso Industries, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
application of some of the Company's liquidity (from the proceeds of the sale of
Maserati in 1993) to this segment. The decrease in interest income results from
the use of a portion of the Company's liquidity to cover losses in the
motorcycle segment and the funding of corporate costs as well as small
reductions in interest rates compared to 1994.
Liquidity and capital resources
Corporate
On January 1, 1995, the Company received the final installment of Lit. 27,000
million ($16,708,000) from the sale of its Maserati subsidiary in 1993. Lit.
23,750 million had been received in 1994 from this sale and was applied to
finance investments in securities and reductions in advances from banks at the
motorcycle subsidiary, Moto Guzzi. Proceeds (advances) in 1993 had largely been
applied to offset negative cash flows of Maserati prior to its sale and in Moto
Guzzi.
The Company received Lit. 8,204 million ($5,077,000) in the third quarter of
1995 from shares of common stock issued in respect of the Finprogetti
acquisition and paid Lit. 5,000 million to repurchase shares formerly owned by
its ex-Chairman, Mr. Alejandro de Tomaso. Both these cash movements are only a
part of larger transactions and reference is made to Note 3 to the Consolidated
Condensed Financial Statements for a more complete description of these
transactions.
As also described in Note 3 to the Consolidated Condensed Financial Statements,
the Company has issued a letter of credit to guarantee repurchase at a price of
$11.27 per share by the Company of 776,530 shares of common stock formerly owned
by the ex-Chairman of the Company, Mr. De Tomaso, and now held by a trust.
Approximately Lit. 16,500 million ($10,210,000) of the investments as at
September 30, 1995 is deposited as security for this letter of credit. The
current potential liability is less than this amount and the Company is seeking
to release excess security that has arisen from interest on the investments.
As described in Note 4 to the Consolidated Condensed Financial Statements, the
Company plans to conduct a redemption program to purchase up to 80% of the
shares held of record by each of its public shareholders at $12.26. Shareholders
representing 66.55% of the outstanding shares as at September 30, 1995 have
agreed not to participate.
Real estate
As part of the Finprogetti acquisition, the Company acquired long-term debt in a
total amount of Lit. 19,431 million ($12,024,000) related to real estate
activities of certain of the Finprogetti subsidiaries acquired. Of such loans as
at September 30, 1995, Lit. 8,390 million ($5,192,000) is scheduled for
reimbursement within 12 months. The Company is examining the disposal of some or
all of these properties to staunch the negative cash flows arising from interest
and capital repayments.
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De Tomaso Industries, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Operating subsidiaries
Working capital at Moto Guzzi, the motorcycle subsidiary, has increased in the
period as a result of build-up of inventories and increased trade receivables
arising from the increased sales recorded in 1995. The inventory build-up arises
largely from the strategic decision to outsource components to boost production
volumes; the Company has been constrained to make volume orders to make the
outsourcing programme viable. Trade receivables include the 19% VAT collectible
from purchasers in respect of Lita sales and much of Moto Guzzi's sales, and
payable to Italian taxing authorities. Net sales do not include the VAT amounts.
In 1995, Moto Guzzi rearranged loan facilities of Lit. 4,151 million
($2,569,000) along with accrued interest and exchange loses for a part of the
loan denominated in ECU in a new facility of Lit. 5,248 million ($3,248,000)
repayable over five years. To finance working capital, Moto Guzzi has lines of
bank credit against trade receivables and import/export facilities. Management
believes that these facilities will be sufficient for planned operations,
excluding any requirements that might arise for major capital investment.
As part of the acquisition of Lit, the Company assumed liabilities in respect of
advances from banks of Lit. 3,425 million ($2,008,000). Lita is autonomously
financed and has access to bank advances against receivables as well as
unsecured bank borrowing facilities.
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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.
DE TOMASO INDUSTRIES, INC.
Dated: July 23, 1996 By: s/ Howard E. Chase
-------------------------------
Howard E. Chase, President
Dated: July 23, 1996 By: s/ Carlo Previtali
-------------------------------
Carlo Previtali, Secretary
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