<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995
Commission File Number 0-10937
SUN COAST INDUSTRIES, INC.
(Exact name of Registrant)
Delaware #59-1952968
- ----------------------------- -----------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2700 South Westmoreland Ave., Dallas, TX 75233
-----------------------------------------------
(Address of principal executive offices)
(214) 373-7864
-------------------------------
(Registrant's telephone number)
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
--- ---
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 1995
----- -----------------------------
Common stock $0.01 par value 4,005,629
<PAGE> 2
SUN COAST INDUSTRIES, INC.
INDEX
<TABLE>
<S> <C>
Part I. Financial Information
- -----------------------------
Item I - Financial Statements
Consolidated Balance Sheets -- March 31, 1995
and June 30, 1994 3
Consolidated Statements of Income -- Nine Months
ended March 31, 1995 and 1994 5
Consolidated Statements of Income -- Three
Months ended March 31, 1995 and 1994 6
Consolidated Statements of Cash Flows -- Nine Months 7
ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements 8
Item II - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
- --------------------------
Items 1 through 6 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
SUN COAST INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31,
1995 June 30,
(unaudited) 1994
---------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 50 $ 1,824
Accounts receivable, net of allowance for
doubtful accounts of $205 and $163 11,167 9,519
Inventories 14,597 9,864
Other current assets 791 1,162
--------------- ----------
Total current assets 26,605 22,369
Property, plant and equipment, net of accumulated
depreciation of $18,088 and $15,132 28,294 24,555
Intangible assets 700 1,146
Other assets 1,410 1,814
--------------- ----------
Total assets $ 57,009 $ 49,884
=============== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
SUN COAST INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31,
1995 June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) 1994
----------- -----
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,614 $ 6,493
Accrued expenses 2,144 3,702
Current portion
of long-term debt 1,500 1,498
Deferred income taxes 719 795
---------- ----------
Total current liabilities 9,977 12,488
Other liabilities 45 90
Long-term debt 26,847 19,730
Deferred income taxes 2,001 1,868
---------- ----------
Total liabilities 38,870 34,176
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; 40,000,000
shares authorized; issued and outstanding,
4,005,629 and 3,974,314 40 40
Additional paid-in capital 11,298 11,054
Retained earnings 6,801 4,614
---------- ----------
Total stockholders' equity 18,139 15,708
---------- ----------
Total liabilities and stockholders' equity $ 57,009 $ 49,884
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
SUN COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------
1995 1994
---- ----
<S> <C> <C>
Sales $ 65,141 $ 53,048
Costs and expenses:
Cost of sales 50,770 40,504
Selling, general and administrative expense 9,588 7,722
Interest, net 1,313 812
Restructuring charge - 642
---------- ---------
61,671 49,680
---------- ---------
Income before provision for income taxes 3,470 3,368
Provision for income taxes (1,283) (1,224)
---------- ---------
Net income $ 2,187 $ 2,144
========== =========
Net income per common share $ 0.53 $ 0.54
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
SUN COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1995 1994
---- ----
<S> <C> <C>
Sales $21,562 $ 18,875
Costs and expenses:
Cost of sales 17,212 14,230
Selling, general and administrative expense 3,303 2,657
Interest, net 514 232
------- --------
21,029 17,119
------- --------
Income before provision for income taxes 533 1,756
Provision for income taxes (230) (659)
------- --------
Net income $ 303 $ 1,097
======= ========
Net income per common share $ 0.07 $ 0.28
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
SUN COAST INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,187 $ 2,144
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 3,596 2,404
Changes in:
Accounts receivable (1,648) (543)
Inventories (4,733) (1,382)
Other current assets 371 (1,629)
Other assets 234 (719)
Accounts payable and accrued expenses (2,482) 1,231
Deferred taxes 57 (119)
-------- --------
Net cash (used in) provided by operations (2,418) 1,387
-------- --------
Cash flows from investing activities:
Capital expenditures (6,720) (5,256)
-------- --------
Net cash used in investing activities (6,720) (5,256)
-------- --------
Cash flows from financing activities:
Net proceeds from revolving line 6,871 2,890
Proceeds from long-term debt 3,198 610
Reductions of long-term debt (2,950) (561)
Issuance of Common Stock 245 25
-------- --------
Net cash provided by financing activities 7,364 2,964
-------- --------
Decrease in cash and cash equivalents (1,774) (905)
Cash and cash equivalents at beginning
of period 1,824 1,229
-------- --------
Cash and cash equivalents at end of period $ 50 $ 324
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's (defined below) interim financial statements are
unaudited and should be read in conjunction with the consolidated
financial statements and notes thereto in its Form 10-K and Annual
Report to Stockholders for the year ended June 30, 1994.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments, consisting only of those of a
normal recurring nature, necessary for a fair statement of the results
of operations for the interim periods presented.
Description of Business
Sun Coast Industries, Inc. (the "Company") manufactures and sells
melamine and urea resins and compounds and, from these and other
materials, molds consumer and commercial plastic products, including
dinnerware, drinkware and closures. The Company has manufacturing
facilities in Texas, Florida and Tennessee and offers its products
through five divisions. The Chemical Division manufactures melamine
and urea resins and compounds, which it supplies to other
manufacturers and uses in producing its own consumer and food service
products. The Consumer and Food Service Divisions manufacture
compression molded melamine dinnerware and injection molded plastic
drinkware, which the Company sells to retail and commercial markets.
The Closures Division manufactures linerless, foil or foam lined and
tamper-evident plastic closures and lids. These closures are used to
bottle or package food, beverage, chemical and pharmaceutical
products. The Custom Laminates Division is a start-up division
employing the Company's proprietary process that permits lamination of
images in a range of design, color and detail for use in furniture and
countertops.
Industry Segment
The Company operates in a single industry segment, supplying consumer
related plastic products on a direct and indirect basis, utilizing
similar production processes and methods.
8
<PAGE> 9
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Principles of Consolidation
The consolidated financial statements include accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in previously issued financial
statements have been reclassified to conform with the current period
financial statement presentation.
Inventories
The Closures Division's inventories are valued at the lower of cost or
market, with cost determined utilizing the first-in, first-out (FIFO)
method. Substantially all other inventories are valued at the lower
of cost or market, with cost determined utilizing the last-in,
first-out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and depreciated
using the straight-line method over the estimated useful lives of the
related assets. Lives assigned to asset categories are 5 to 15 years
for machinery and equipment, 30 to 35 years for buildings, and 5 years
for molds. Machinery and equipment under capital leases are stated
at the present value of minimum lease payments. Renewals and
improvements that significantly add to the productive capacity or
extend the useful life of an asset are capitalized. Repairs and
maintenance are charged to expense as incurred.
Intangible Assets
Intangible assets are stated at cost and consist primarily of
patents, goodwill and licensing rights. Intangible assets are
amortized on the straight-line method over their estimated useful
lives. The carrying values and amortization periods of intangibles
are periodically evaluated by the Company to determine whether current
events and circumstances warrant adjustment.
9
<PAGE> 10
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Advertising Costs
The Company expenses the costs of advertising as incurred, except for
direct-response advertising and catalog costs which are capitalized
and amortized over their expected periods of future benefit (generally
six months). Direct response advertising and catalog costs consist
primarily of printing and contract services for catalogs to market the
Company's products.
Income Taxes
In 1994, the Company adopted the guidelines of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109") on a retroactive basis. The cumulative effect of
the change in method of accounting has been reported as an adjustment
of beginning deficit for the year ended June 30, 1992. Under
Statement 109, deferred income taxes are provided for temporary
differences between financial and tax reporting. Income taxes are
provided for taxes currently payable based on taxable income.
Environmental Costs
A liability for environmental assessments and/or cleanup is accrued
when it is probable a loss has been incurred and is estimable. No
significant liabilities were in existence at March 31, 1995 and June
30, 1994.
Net Income Per Common Share
Net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during each
period after giving effect to stock options and warrants considered to
be dilutive common stock equivalents. There were 4,129,960 and
3,959,636 weighted average number of shares outstanding for the nine
months ended March 31, 1995 and 1994, respectively. The weighted
average number of common shares outstanding was 4,080,193 and
3,961,553 for the three months ended March 31, 1995 and 1994,
respectively.
10
<PAGE> 11
SUN COAST INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Revenue Recognition
Sales are recognized when the product is shipped.
Research and Development
Research and development costs associated with new product development
and testing are expensed as incurred.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months
or less to be cash equivalents.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
March 31,
1995 June 30,
(unaudited) 1994
----------- ------
(in thousands)
<S> <C> <C>
Raw Materials $ 6,979 3,471
Work-in-process 2,061 917
Finished good 5,595 5,185
-------- --------
14,635 9,573
Obsolescence reserve (145) (51)
LIFO Reserve 107 342
-------- --------
$ 14,597 $ 9,864
======== ========
</TABLE>
Approximately 83% and 78% of the consolidated inventories were valued using
the LIFO method for the nine months ended March 31, 1995, and the year ended
June 30, 1994, respectively. Replacement cost approximates LIFO cost at March
31, 1995 and June 30, 1994.
11
<PAGE> 12
Item II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995, Compared to the Three Months Ended
March 31, 1994
Sales for the three months ended March 31, 1995, increased $2,687,000
or 14.2%, when compared to the same period in 1994. Closure sales
increased 10.4%, resulting from the addition of new products and
customers. Consumer and food service sales increased 11%, as a
result of aggressive new advertising and promotional campaigns
recently introduced as well as expansion into new markets (principally
children's dinnerware) and development of new products. The increase
in chemical product sales of 19.1% was primarily the result of
increased market share due, the Company believes, to superior service
and high quality of product. Sales increases for all divisions were
also attributed to sales price increases.
Cost of sales as a percentage of net sales increased from 75.4% to
79.8% during the quarter ended March 31, 1995. The decline in gross
margin was the direct result of raw material price increases.
Selling, general and administrative expense ("SG&A") increased
$646,000 due to increased volume, product development costs,
advertising campaigns and non-recurring professional fees. SG&A
spending represented 15.3% of sales for the three months ended March
31, 1995, compared to 14.1% for the three months ended March 31, 1994.
Due to increased borrowing levels and rises in interest rates,
interest expense increased $282,000 during the quarter ended March 31,
1995.
Net income decreased $794,000 (72.4%) to $303,000 ($0.07 per share)
from $1,097,000 ($0.28 per share) recorded in the comparable prior
fiscal period primarily because of the impact on gross margin of raw
material price increases and the delay in passing these increases on
to customers.
Nine Months Ended March 31, 1995, Compared to the Nine Months Ended
March 31, 1994
Sales increased 22.8% to $65.1 million for the nine months ended March
31, 1995 from $53.0 million for the nine months ended March 31, 1994.
Sales in the Chemical Division increased by 20.4% to $25.6 million for
the nine months ended March 31, 1995, from $21.3 million in the same
period in 1994, primarily as a result of increased market share due,
the Company believes, to superior service and high product quality.
Sales in the Consumer and Food Service Divisions increased by 35.4% to
$19.9 million for the nine months ended March 31, 1995, from $14.7
million in the same period in 1994, resulting from expansion into new
markets (principally children's dinnerware) as well as new advertising
and promotion campaigns and development of new products. Sales in the
Closures Division increased 14.9% to $19.6 million for the nine months
ended March 31, 1995, from $17.1 million for the same period in 1994,
resulting from the addition of new products and customers.
12
<PAGE> 13
Item II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Cost of sales as a percentage of sales increased to 77.9% for the
nine months ended March 31, 1995, from 76.4% in the same period in
1994. The decline in gross margin was primarily the result of raw
material price increases and delays in increasing prices charged to
customers. Raw materials prices have increased significantly during
the nine months ended March 31, 1995, and may increase further during
the year.
SG&A increased by 24.2% to $9.6 million for the nine months ended
March 31, 1995, from $7.7 million for the same period in 1994 due to
increased sales volume, product development costs, research and
development costs and advertising campaigns. SG&A increased as a
percentage of sales to 14.7% for the nine months ended March 31,
1995, from 14.6% for the nine months ended March 31, 1994.
Interest expense increased 61.7% to $1,313,000 for the nine months
ended March 31, 1995, from $812,000 for the same period in 1994 due to
increased borrowing and higher interest rates on outstanding loan
amounts. The average borrowing during the nine months ended March 31,
1995, was $23.9 million compared to $17.8 million for the same period
in 1994.
Net income increased 2% to $2.2 million ($0.53 per share) for the
nine months ended March 31, 1995, from $2.1 million ($0.54 per share)
for the nine month period ended March 31, 1994, as a result of higher
sales volume, yet reduced gross margin and the other factors described
above (the number of shares outstanding also increased 4.3% between
the two periods.) In the second quarter of fiscal 1994, the Company
recorded a non- recurring restructuring charge of $642,000 which
included costs related to a reduction in the number of its employees
by approximately 5% and the consolidation of certain manufacturing and
corporate functions such as management information systems, insurance
coverage and benefit programs. Approximately $370,000 of the charge
related to severance packages, related legal services and outplacement
services. Approximately $80,000 related to consolidation of
manufacturing operations and the remainder of the charge related to
non-recurring fees and costs incurred to outsource and consolidate
certain corporate functions. Cost savings of approximately $1.0
million are anticipated annually as a result of this restructuring.
However, these cost savings have been and will likely continue to be
offset by additional investment in new product and market development
and marketing efforts.
13
<PAGE> 14
SUN COAST INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
For the nine months ended March 31, 1995, the Company experienced
negative cash flow from operations of $2.4 million, primarily as a
result of an increase in accounts receivable of $1.6 million,
additional investment in inventory of $4.7 million and a reduction in
payables and accrued expenses of $2.7 million, all of which are
related to the growth in sales and advance purchases of inventory to
offset raw material price increases. As a result, working capital
increased by $6.9 million between June 30, 1994 and March 31, 1995.
Working capital requirements may increase further in fiscal 1995.
Capital expenditures for the nine months ended March 31, 1995, were
$6.7 million and are expected to be approximately $8 to $10 million
for all of fiscal 1995. These expenditures relate primarily to
expanding capacity to meet increased sales demand and implementing
productivity improvements.
To finance capital expenditures activity and increased working capital
requirements, the Company borrowed an additional $7.1 million under
its credit facility during the nine months ended March 31, 1995.
Substantially all of the capital expenditures are discretionary and
have been funded primarily from borrowings under the Company's credit
facility.
At March 31, 1995, the Company had cash equivalents of $50,000 and
working capital of $16.6 million. In addition, the Company had
long-term debt outstanding of $28.3 million (including current
portion), with a weighted average interest rate at March 31, 1995, of
7.8%.
The Company's existing credit facility of $33.3 million is secured by
substantially all the assets of the Company. The facility provides
for borrowings under three separate note arrangements - (i) a $7.3
million term loan with $3.8 million payable in quarterly installments
through April 1, 2001 and $3.5 million payable in annual installments
of $1.0 million on April 1, 1996, $1.25 million on April 1, 1997, and
$1.25 million on April 1, 1998. (ii) a $11.0 million capital
expenditure term loan payable in quarterly installments through April
1, 2000, and (iii) a $15.0 revolving loan. As of March 31, 1995,
outstanding borrowings under the credit facility included $7.2 million
under the term loan, $8.0 million under the capital expenditure term
loan, and $10.4 million under the revolving credit line. At March 31,
1995, incremental borrowing availability under the credit facility was
approximately $3.0 million under the capital expenditure term loan and
$4.6 million under the revolving credit line. In addition, the credit
facility provides for the issuance of up to $2.0 million of letters of
credit, subject to the borrowing availability under the revolving
credit line.
14
<PAGE> 15
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.
Sun Coast Industries, Inc.
----------------------------------------------------------
Registrant
4/28/95 By: /s/ R. CARTER PATE
- --------- ------------------------------------------------------
Date R. Carter Pate, Chief Executive Officer and President
4/28/95 By: /s/ CYNTHIA R. MORRIS
- --------- ------------------------------------------------------
Date Cynthia R. Morris, CFO, Secretary and Treasurer
15
<PAGE> 16
SUN COAST INDUSTRIES, INC.
MARCH 31, 1995
PART 11 - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Items 2 and 3 - Modification of Rights of Registrants' Securities and
Details on Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Subsequent Event
None.
Item 6 - Exhibits and Reports in Form 8K
(a) Exhibits:
Exhibit 27 Financial Data Schedule
(b) No current reports on Form 8-K were filed during the quarter
ended September 30, 1994.
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 50
<SECURITIES> 0
<RECEIVABLES> 11,167
<ALLOWANCES> 205
<INVENTORY> 14,597
<CURRENT-ASSETS> 26,605
<PP&E> 28,294
<DEPRECIATION> 18,088
<TOTAL-ASSETS> 57,009
<CURRENT-LIABILITIES> 9,977
<BONDS> 0
<COMMON> 40
0
0
<OTHER-SE> 18,099
<TOTAL-LIABILITY-AND-EQUITY> 57,009
<SALES> 65,141
<TOTAL-REVENUES> 65,141
<CGS> 50,770
<TOTAL-COSTS> 50,770
<OTHER-EXPENSES> 9,588
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,313
<INCOME-PRETAX> 3,470
<INCOME-TAX> 1,283
<INCOME-CONTINUING> 2,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,187
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
