FORM 10-Q
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 March 31, 1996
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OR
( ) TRANSITION PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-2642
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DE TOMASO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-0466460
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(State or other jurisdiction of incorporation) (I. R. S. Employer
Identification No.)
P.0. Box 856, 107 Monmouth Street, Red Bank, N. J. 07701
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(Address of principal executive offices - Zip Code)
(908) 842-7200
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(Registrant's telephone number, including area code)
No Change
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(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
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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 $2.50 par
value; 4,714,332 shares.
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PART I
FINANCIAL INFORMATION
2
<PAGE>
De Tomaso Industries Inc.
Consolidated Condensed Balance Sheets
March 31, 1996 and 1995
March 31 March 31 December 31
1996 1996 1995
US$'000 Lire m. Lire m.
Unaudited Unaudited Note
ASSETS
Cash and cash equivalents . . . . . . . . . 12,873 20,221 24,137
Marketable securities, at cost . . . . . . 3,125 4,910 -
Receivables . . . . . . . . . . . . . . . . 27,712 43,535 39,726
Trade, less allowance of Lit. 1,057
at March 31, 1996 . . . . . . . . . . . 18,400 28,906 23,725
Finance receivables, less allowance of
Lit 2,200 . . . . . . . . . . . . . . . 4,566 7,173 7,597
Receivables from related parties . . . . 2,589 4,067 3,624
Other receivables . . . . . . . . . . . . 2,157 3,389 4,780
Inventories . . . . . . . . . . . . . . . . 19,793 31,095 30,717
Raw materials, spare parts and
work-in-process . . . . . . . . . . . . 14,194 22,299 21,469
Finished products . . . . . . . . . . . . 5,599 8,796 9,248
Prepaid expenses . . . . . . . . . . . . . 576 905 1,109
-------- ------- ------
TOTAL CURRENT ASSETS . . . . . . . . . . . 64,079 100,666 95,689
-------- ------- ------
Property, plant and equipment . . . . . . 5,595 8,791 7,709
At cost . . . . . . . . . . . . . . . 21,116 33,174 35,884
Less allowances for depreciation . . . .
(15,521) (24,383) (28,175)
Trademarks and other intangible assets,
net of
amortization of Lit. 375 . . . . . . . . 2,944 4,625 4,750
Goodwill . . . . . . . . . . . . . . . 905 1,421 1,459
Real estate for sale . . . . . . . . . . 21,857 34,338 34,227
Investments in unconsolidated companies . 1,394 2,190 2,205
Marketable and other securities and
investments . . . . . . . . . . . . . . 11,045 17,352 17,176
Other assets . . . . . . . . . . . . . . 9,397 14,763 19,615
-------- ------- ------
TOTAL ASSETS $ 117,216 Lit.184,146 Lit.182,830
======== ======== ========
Note: The balance sheet as at December 31, 1995 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 Consolidated Financial Statements.
3
<PAGE>
De Tomaso Industries Inc.
Consolidated Condensed Balance Sheets
March 31, 1996 and 1995
March 31 March 31 December 31
1996 1996 1995
US$'000 Lire m. Lire m.
Unaudited Unaudited Note
LIABILITIES
Advances from banks . . . . . . . . . . . . 16,286 25,585 18,538
Advances from banks for finance activities 5,589 8,781 8,621
Accounts payable . . . . . . . . . . . . . 13,535 21,263 23,570
Accrued expenses and other payables . . . . 6,810 10,698 10,218
Current portion of long-term real estate debt 6,316 9,922 9,550
Current portion of other long-term debt . . 1,271 1,996 1,866
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TOTAL CURRENT LIABILITIES 49,807 78,245 72,363
------- ------- -------
Long-term real estate debt, less current portion 5,397 8,479 9,712
Other long-term debt, less current portion 5,260 8,264 8,386
Termination indemnities . . . . . . . . . . 5,297 8,322 8,231
Provision for claims . . . . . . . . . . . 2,034 3,195 3,595
Minority interests . . . . . . . . . . . . 10,777 16,931 16,773
Common stock subject to repurchase . . . . 8,012 12,587 12,549
SHAREHOLDERS' EQUITY . . . . . . . . . . . 30,632 48,123 51,221
Common stock, par value $2.50 per share:
Authorized 10,000,000 shares; 4,714,332 (3/31/95 -
2,057,446) shares issued and outstanding
less 776,530 subject to repurchase . . . 4,293 6,744 6,744
Additional paid in capital . . . . . . . . 45,405 71,332 71,332
Treasury stock, at cost . . . . . . . . . . (7,528) (11,826) (11,826)
Deficit . . . . . . . . . . . . . . . (12,304) (19,330) (15,926)
Equity adjustment from translation . . . . 672 1,055 711
Accretion expense and related exchange gains 94 148 186
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$ 117,216 Lit.184,146 Lit. 182,830
======== ======== ========
Note: The balance sheet as at December 31, 1995 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 Consolidated Financial Statements.
4
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De Tomaso Industries, Inc.
Unaudited Consolidated Condensed Statements of Operations
3 Months Ended March 31, 1996 and 1995
March 31 March 31 March 31
1996 1996 1995
US$'000 Lire m. Lire m.
Net sales . . . . . . . . . . . . . . . 15,059 23,658 9,850
Cost of sales . . . . . . . . . . . . . . .
(13,942) (21,903) (11,018)
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1,117 1,755 (1,168)
Selling, general and administrative expenses (2,801) (4,401) (2,355)
Rental Income . . . . . . . . . . . . . . . 239 375 -
Other income/(expense), net . . . . . . .
83 131 -
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(1,362) (2,140) (3,523)
Interest expense . . . . . . . . . . . . . (1,068) (1,678) (774)
Interest income . . . . . . . . . . . . . .
414 650 1,014
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Loss from continuing operations before
income taxes and minority interests . . . (2,016) (3,168) (3,283)
Income taxes . . . . . . . . . . . . . . .
(50) (78) -
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Loss from continuing operations before
minority interests . . . . . . . . . . . (2,066) (3,246) (3,283)
Minority interests . . . . . . . . . . . .
(101) (158) (159)
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Net (loss)/income . . . . . . . . . . . . .
(2,167) (3,404) (3,442)
======== ======== ========
EARNINGS/(LOSS) PER SHARE US $ Lire Lire
Net income/(loss) per share . . . . . . . . $ (0.46) Lit.(722) Lit. (1,673)
========== ====== ======
Average number of common shares and
equivalents outstanding during the period 4,714,332 4,714,332 2,057,446
========= ========= =========
See Notes to Consolidated Financial Statements.
5
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De Tomaso Industries Inc.
Unaudited Consolidated Condensed Statements of Cash Flows
3 Months ended March 31, 1996 and 1995
March 31 March 31 March 31
1996 1996 1995*
US$'000 Lire m. Lire m.
Net (loss)/income . . . . . . . . . . . . . (2,167) (3,404) (3,442)
Adjustments to reconcile net (loss)/income to net
cash (used)/provided by operating activities: (3,433) (5,393) (5,489)
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Net cash (used)/provided by operating activities (5,600) (8,797) (8,931)
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Investing activities:
Net increase in investments and marketable securities(3,237) (5,086) (12,203)
Deferred receipts from sale of Maserati . . - - 27,000
Purchases of property, plant and equipment (813) (1,166) (811)
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Net cash provided/(used) by investing activities (4,050) (6,252) 13,986
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Financing activities:
Increase/(decrease) in advances from banks 4,588 7,207 (2,113)
Receipt of tax receivable . . . . . . . . . 3,348 5,259 -
Proceeds from long-term debt . . . . . . . 212 333 -
Principal payments of long-term debt . . . (1,034) (1,624) (1,179)
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Net cash (used)/provided by financing activities
7,114 11,175 (3,292)
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Increase/(decrease) in cash and cash equivalents (2,536) (3,874) 1,763
Exchange movement on opening cash balances (26) (42) -
Cash and cash equivalents, beginning of period 15,365 24,137 5,286
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Cash and cash equivalents, end of period . 12,803 20,221 7,049
========= ======== =======
*Reclassified to conform to March 31, 1996 presentation
See Notes to Consolidated Financial Statements.
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De Tomaso Industries Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
March 31, 1996
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the instruction 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 1995 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 of all of the
Company's material operating entities are based and operate entirely in Italy.
Translation of lire amounts into US Dollar amounts is included solely for the
convenience of the readers of the financial statements and has been made at the
rate of Lit. 1,571 to US $, the approximate exchange rate at March 31, 1996.
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 March 31, 1996 and the three
months to March 31, 1995 is computed on the average number of shares of common
stock outstanding during such periods.
In July 1995, convertible preference shares formerly held by the ex-President of
the Company were exchanged for an equal number of shares of common stock and
707,774 of the resulting total of 1,480,304 shares of common stock 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 three months to March 31,
1995 would have amounted to Lit. 1,462.
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<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations
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Overview
In the three months to March 31, 1996, net sales increased 140% over the
corresponding period in 1996 as follows:
Internal growth of Moto Guzzi - motorcycle segment 88%
Acquired businesses: Lita - steel tubing segment 47%
Other, net 5%
Gross margins increased to Lit. 1,755 million ($1,117,000) from a negative
Lit. 1,168 million in 1995 mainly as a result of the volume increases at Moto
Guzzi.
The increase in operating expenses (selling, general and administrative
expenses net of rental and other income) is due mainly to the effects of the
acquisitions of Lita and additional personnel in the Company's temporary
management and merchant banking activities. Operating expenses at Moto Guzzi
have also increased over 1995 levels reflecting the increased level of opera-
tions of this subsidiary and the expense of improving logistics and management
information systems.
Net interest expense in the three months ended March 31, 1996 compared to
net interest income in the corresponding period in 1995 results principally from
interest on real estate loans on the properties acquired from Finprogetti in
1995 and interest costs for short-term advances from banks that financed
increased working capital at Moto Guzzi and working capital at Lita.
Motorcycle segment
The 93% growth in net sales of the motorcycle segment derives principally
from increases in volumes. Price increases averaging 5% were put into effect on
March 1, 1996.
Production increased more than 85%, as 1,520 motorcycles were completed in
the three months ended March 31, 1996, compared to 820 in the corresponding
period in 1995. This reflects a significant improvement in January production,
which in 1995 and prior years had been curtailed to allow for inventory taking,
production planning and the like. Unit cost increases amounted to approximately
2% in the first quarter of 1996 as a result of increases in material prices
(1.9%) and the net effect of continued outsourcing of components (0.1%).
Aluminum prices, which had been a significant component of material cost
increases in 1995 were stable in the first quarter of 1996. In accordance with
national labor agreements, national negotiations have been initiated for wage
increases which will become effective in June 1996.
8
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Steel tubing segment
Lita, acquired in July 1995, has contributed Lit. 4,600 million ($2,928,000)
to consolidated net sales in the three months ended March 31, 1996.
Market conditions for Lita were difficult in the first quarter of 1996 as a
result of falling steel prices. Sales volumes amounted to 2,963 tons, an
increase of 48% over the corresponding period in 1995, mainly from domestic
(Italian) sales from new customers and customers who had been lost under
previous management. Export sales in the quarter, amounting to 5% of total net
sales, represent early stage results of the decision to compete in export
markets. Margins in the first quarter of 1995 were burdened by the fall in
steel prices with consequent effect on the company's selling prices. Aluminized
tubing prices fell by 8.5% and prices of cold welded tubing by 11.3%. Overall,
the fall in steel prices during the quarter produced a negative effect on
margins of approximately Lit. 300 million, offsetting the benefits gained from
increased volumes. Steel prices have since stablized.
Liquidity and sources of capital
Net cash used in operations in the three months ended March 31, 1996
amounted to approximately Lit. 8,800 million ($5,602,000). This reflects cash
outflows due to losses in the period and increases in working capital at Moto
Guzzi and Lita: an increase of approximately Lit. 3,800 million in accounts
receivable due to increasing sales levels and Lit. 1,800 million in respect of a
decrease in the level of accounts payable. Moto Guzzi has succeeded in its
objective of increasing sales without significant buildup in inventories and the
increased working capital has been financed by short-term advances from banks
under available lines of credit. The Company expects that available cash and
short-term lines of credit will be sufficient to meet normal operating require-
ments over the short-term.
A tax receivable of Lit. 5,259 million ($3,348,000) was received in the
period with the proceeds being applied principally for the purchase of market-
able securities of Lit. 4,910 million ($3,125,000).
Included in investments are amounts deposited as security for the Company's
commitment to repurchase, under certain circumstances, 776,530 million shares of
common stock previously owned by the ex-President of the Company. As at
December 31, 1995, the amount deposited as security was Lit. 16,258 million,
which was approximately Lit. 2,000 million in excess of the potential amount to
be paid. The Company has arranged release of part of this excess, reducing the
amount deposited as security to Lit. 14,514 million as at March 31, 1996. The
released amount remains invested in certificates of deposit.
9
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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: May 17, 1996 By: /s/ Howard E. Chase
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Howard E. Chase, President
Dated: May 17, 1996 By: /s/ Carlo Previtali
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Carlo Previtali, Secretary
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