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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED: JUNE 30, 1996
OR
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________ TO _________
COMMISSION FILE NUMBER: 0-10937
SUN COAST INDUSTRIES, INC.
(Exact name as registrant as specified in its charter)
DELAWARE 59-1952968
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2700 SOUTH WESTMORELAND AVENUE 75233
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 373-7864
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this Form 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT AT SEPTEMBER 23, 1996 WAS APPROXIMATELY $ 14,338,000.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE ONE CENT
($.01) PER SHARE, OUTSTANDING AT SEPTEMBER 23, 1996 WAS 4,004,229.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT PREPARED FOR USE
IN CONNECTION WITH THE REGISTRANT'S 1996 ANNUAL MEETING OF SHAREHOLDERS TO BE
HELD DECEMBER 6, 1996, HAVE BEEN INCORPORATED BY REFERENCE INTO PART III OF
THIS FORM 10-K. SUCH PROXY STATEMENT WILL BE FILED ON OR ABOUT OCTOBER 28,
1996.
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PART 1.
ITEM 1. BUSINESS
GENERAL
Sun Coast Industries, Inc. ("Sun Coast" or the "Company") manufactures and
sells melamine and urea resins and compounds and, from these and other
materials, molds consumer products and commercial plastic products, including
dinnerware, drinkware and closures. Sun Coast's four divisions (see description
below) have generated synergies through similar manufacturing processes,
combined purchasing of raw materials and developed proprietary technologies,
enabling the Company to realize manufacturing efficiencies and a significant
presence in markets for many of its products. The Chemical Division
manufactures melamine and urea resins and compounds, which it supplies to other
manufacturers and uses in producing Suncoast's consumer products and
foodservice products. The Consumer Products and Foodservice Divisions
manufacture compression molded melamine dinnerware and injection molded plastic
drinkware and other household products, which Sun Coast sells to American and
Mexican retail and commercial markets. The Closures Division manufactures
linerless, foil or foam lined and tamper-evident plastic closures and lids.
These closures are used in the U.S. for bottling and packaging of food,
beverage, chemical and pharmaceutical products.
CHEMICAL DIVISION
Sun Coast manufactures melamine and urea resins and molding compounds at
its facilities in Dallas, Texas, and Murfreesboro, Tennessee. Sun Coast
believes that its proprietary formulations and technical expertise enable it to
provide consistently high quality chemical products. The Company sells these
products directly to its customers, which use them as raw materials in their
own manufacturing processes.
Melamine resists scratching, breaking and chipping; it also resists grease
and weak acid and it is odorless and easy to clean. Urea is similar in nature
but less expensive to produce and less durable than melamine. Sun Coast uses
its own melamine compounds to manufacture dinnerware and it supplies melamine
compounds to other manufacturers of dinnerware and consumer products. Sun Coast
is also a leading supplier of melamine resin to manufacturers of decorative
laminate, which is used for countertops and tabletops and other furniture and
fixture surfaces. Sun Coast is a leading supplier of urea and melamine molding
compounds to U.S. manufacturers of electrical outlet and switch plates.
Melamine resin is made principally from melamine crystals, formaldehyde
and water which are combined in a heated reactor. Urea resin is made using a
similar process with the same raw materials, with the substitution of urea
crystals for melamine crystals. Molding compounds are made from melamine or
urea resin and purified cellulose fillers, pigments, plasticizers and curing
agents. These materials are combined in a wet mixture, dried and ground to a
fine powder.
There are three other major U.S. suppliers of melamine and urea molding
compounds similar to those supplied by the Company and many major suppliers of
melamine and urea resins. Some of these suppliers have greater resources than
the Company and are parts of large, diversified companies. In this highly
competitive market, the Company competes on the basis of product quality,
customer service and price.
CONSUMER PRODUCTS DIVISION
Sun Coast manufactures and, through Company and independent sales
representatives, markets melamine dinnerware and injection molded plastic
drinkware and housewares to retail distribution channels. The Company has also
recently begun to market imported plastic dinnerware and drinkware.
Melamine dinnerware is considered the top-of-the-line plastic dinnerware.
It is harder than other plastic dinnerware and generally more durable than most
other dinnerware, including that made of china, pottery, glass and other
plastics. Sun Coast offers melamine dinnerware in designer styles and colors
that enhance product demand. The Company compression molds melamine dinnerware
from its own molding compounds primarily at its Dallas, Texas facility.
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During fiscal 1995, the Company acquired all of the issued and outstanding
capital stock of Nova Plast, S.A. de C. V. (Nova Plast), a Mexican company. At
its plant in Mexico City, Nova Plast manufactures plastic consumer products for
sale primarily in Mexico. During the past year a small portion of the
Company's domestic dinnerware production has been manufactured at Nova Plast.
Sun Coast also manufactures and distributes injection molded drinkware and
other household products at its Dallas, Texas and Mexico City, Mexico
facilities, using high speed injection molds and machinery. Injection molded
resins, such as styrene, SAN, polypropylene and polyethylene, are molded under
heat and pressure and cooled to form the desired shape. Sun Coast's primary
market is the United States, with additional sales in Mexico and Canada.
The dinnerware and housewares market includes disposables, china and
pottery, glass and permanent plastic. Across all these categories, there are
many manufacturers in the U.S. and abroad that have greater resources than the
Company and are parts of large, diversified companies. However, the Company is
aware of only three principal U.S. competitors that manufacture melamine
dinnerware and believes that it has one of the largest market shares. In this
highly competitive market, the Company competes on the basis of product
quality, price and customer service. Lower labor costs related to manufacture
in Mexico are planned to improve the Company's competitive position.
FOODSERVICE DIVISION
Sun Coast manufactures and sells melamine dinnerware and injection molded
plastic drinkware to the restaurant and hotel market. The Foodservice Division
sells these products directly and through distributors and independent
representatives. The Company also sells these products, and insulated meal
distribution systems, directly to schools, hospitals, nursing homes and
correctional facilities.
Melamine's durability and other physical qualities make it attractive and
cost effective for use in commercial and institutional settings, where heavy
use and breakage are common. Melamine weighs less than china, is break
resistant and of high quality. Moreover, the ability to incorporate decorative
and customized colors, designs and logos in melamine dinnerware also contribute
to demand in these markets.
Sun Coast markets its melamine dinnerware and drinkware products to
restaurants and institutions as more durable substitutes for china and glass
products. Melamine dinnerware is an environmentally friendly alternative to
disposables. With respect to Foodservice products, the Company faces many of
the same competitive circumstances noted above in connection with consumer
products.
CLOSURES DIVISION
Sun Coast manufactures linerless, foil or foam lined and tamper-evident
plastic closures and lids. The Company markets these products directly, and
through distributors and sales representatives, to manufacturers of packaged
food, beverages, pharmaceuticals and chemicals. These plastic closures seal
food, beverage, pharmaceutical and chemical containers also made of plastic.
Plastic closures are injection molded from polypropylene or polyethylene.
Key factors such as cycle time, the optimal number of mold cavities and the
quality of the mold are important in attaining production efficiency and cost
control. Sun Coast prototypes custom closures for the purpose of testing and
qualifying the closures for use with customers' products.
Plastic closures offer an advantage over metal ones, because metal
closures may chemically react with some foods. Plastic closures also allow the
use of a foil lined induction inner-seal for tamper evidence -- a feature metal
closures lack. Sun Coast's lined closures are used with a variety of food and
beverage products, including juices, sauces, dressings and peanut butter. The
design of the Company's Sun-Tab foil seal, widely used in peanut butter
packaging, incorporates a series of three small tabs that extend over the edge
of the container. The consumer grasps any one of the tabs to remove the entire
liner. Sun Coast owns several patents encompassing closure and tamper-evident
band designs as well as a patent on a plastic closure for hermetic, pressure or
vacuum sealing of glass or plastic bottles and jars.
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The Company's Sun-Twist closure is used as a tamper-evident, easy-opening
seal for "hot-fill" beverages, including fruit juices, teas and isotonic sport
drinks. The "hot-fill" market is one of the fastest growing for the Closures
Division. This market has developed in connection with beverage packers'
replacement of glass bottles with polyethylene terephthalate ("PET") bottles,
which are highly attractive to consumers because they are lightweight and have
the clarity of glass.
Sun Coast competes with several major corporations and numerous smaller
companies in the highly competitive closures market. The Company is a medium
size manufacturer in this industry and competes primarily on price, quality,
delivery and service.
HISTORICAL BACKLOG
The Company's backlog is comprised of written purchase orders and
contracts, substantially all of which are cancelable on short -- generally 30
days' -- notice. There is no assurance that some portion of the backlog may not
be canceled or that the level of backlog at any particular time is an
appropriate indicator of the future operating performance of the Company.
Backlog for products of the Chemical Division increased 87% to $3,092,000
at June 30, 1996 from $1,655,000 at June 30, 1995. This increase primarily
reflects increased volume of orders from existing customers as well as orders
from new customers. Management attributes this increase in market share to the
consistency of the Chemical Division's product quality and its level of
customer service.
Backlog for products of the Consumer Products and Foodservice Divisions
decreased 11% to $1,024,000 at June 30, 1996 from $1,150,000 at June 30, 1995.
This decrease relates primarily to a decrease of $132,000 in orders in Mexico
related to the weak retail economy there.
Backlog for products of the Closures Division decreased 14% to $29,319,000
at June 30, 1996 from $34,163,000 at June 30, 1995. This decrease reflects
shorter term purchase commitments as customers attempt to manage inventory
levels.
In the Chemical, Consumer Products and Foodservice Divisions, orders are
generally shipped within 30 to 60 days of receipt. In the Closures Division,
orders are based primarily on customers' annual estimated needs. Other orders
are for specific quantities and some are multi-year. Customer commitments
require delivery of a quantity of closures per month for a specific number of
months, with seasonal variations. These commitments are generally subject to
cancellation at the discretion of the customer on 30 days' notice to the
Company; however, longer term contracts do include cancellation penalties.
Customer written purchase orders for specific quantities are generally filled
as received, either out of inventory or current production.
MAJOR CUSTOMERS
The Company frequently bids for large contracts for its chemical products
and any such bid, if successful, may result in one customer accounting for more
than 10% of the Company's net sales in a given fiscal year. In fiscal 1996,
sales of chemical products to Wilsonart International, Inc. and Eagle Plastics,
Inc. accounted for approximately $13.9 million or 17.2% and $8.1 million or
10.0%, of the Company's net sales, respectively.
The Company has sold chemical products to Wilsonart International, Inc.
for more than 20 years on the basis, the Company believes, of quality, service,
delivery and price. Wilsonart International, Inc. and Eagle Plastics, Inc. buy
through purchase orders issued periodically, which can be discontinued at any
time. Management believes that the Company has a good relationship with both
Wilsonart International, Inc. and Eagle Plastics, Inc.; however, the loss of
either of these customers or a significant portion of its business, could
adversely affect the business and financial condition of the Company. See Note
11 of Notes to the Consolidated Financial Statements.
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RESEARCH AND DEVELOPMENT
The Company has research and development laboratories at its principal
manufacturing facilities in Texas and Florida, where it continuously tests its
products, engages in product application research and endeavors to develop new
products to complement those presently offered. The Company employs five people
in research and development, including one Ph.D. and three chemists. Research
and development expenditures for fiscal 1994, 1995, and 1996 were $731,000,
$1,287,000, and $1,371,000 respectively.
RAW MATERIALS
The principal raw materials used by the Company in manufacturing plastic
products and compounds are melamine crystals, urea crystals, styrene
acrylonitrile, polypropylene and polyethylene resins, formaldehyde, cellulose
fillers, pigments, plasticizers, curing agents and lining material. These
materials historically have been available in sufficient quantities for the
Company's needs.
Although the cost of raw materials used in the Company's operations was
relatively stable during the past five years, their prices increased
significantly during fiscal 1995 and the first half of fiscal 1996. The most
dramatic change was in the prices of formaldehyde, melamine and pulp. These
repeated cost increases have had a significant impact on gross margin and
earnings during fiscal 1995 and fiscal 1996. Although some costs began to
decline during the second half of fiscal 1996, it is too early to determine
their impact on future earnings. See additional discussion in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
EMPLOYEES
At June 30, 1996 Sun Coast had 705 employees, of whom 171 were office or
clerical and 534 hourly manufacturing. Local No. 745 of the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America is
the exclusive collective bargaining agent for the approximately 260 hourly
manufacturing employees at the Company's Dallas, Texas facility pursuant to a
three-year union contract which expires on March 31, 1998. None of the
Company's 146 hourly employees at its Sarasota, Florida facility, its 123
hourly employees at its Mexico City facility or the 5 hourly employees at its
Murfreesboro, Tennessee facility is represented by a labor union. Management
believes that it has a good relationship with its employees.
ITEM 2. PROPERTIES
The Company owns a 72,000 square foot office, manufacturing and warehouse
building in Sarasota, Florida and in Dallas, Texas, a 348,000 square foot
office and manufacturing building and a 75,000 square foot warehouse. At the
Florida facility, the Company manufactures closures. At its Texas facility, the
Company manufactures melamine and plastic injection molded consumer products
and foodservice products and chemical products. Both Texas facilities secure
the Company's existing indebtedness. The Company also leases a 40,000 square
foot warehouse in Sarasota. In Mexico City, Mexico, the Company leases a 10,000
square foot office, manufacturing and warehouse facility under a lease expiring
in April 1999 and has entered into a one year lease for 7,000 square feet of
additional warehouse space effective July 1, 1995. In Murfreesboro, Tennessee,
the Company leases approximately 5,000 square feet of space to manufacture
chemical products. The Company believes that its properties are adequate for
current uses.
On September 12, 1996 the Company sold a 60,000 square foot manufacturing
building in Dallas, Texas for $525,000 in cash and a note in the principal
amount of $200,000. The proceeds were used to repay bank debt.
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ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in certain legal proceedings that management
regards as normal to its business. The Company believes that the disposition
of these matters will not have a material impact on the financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since November 3, 1993, the Common Stock of the Company has been listed on
the New York Stock Exchange under the symbol SN. Prior to that date, the Common
Stock was listed on the NASDAQ National Market System. The following table sets
forth, for the periods indicated, the high and low sales prices per share of
the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995
- -----------
First Quarter . . . . . . . . . . . . . . . . . . . $ 14.88 $ 11.75
Second Quarter . . . . . . . . . . . . . . . . . . . 17.00 13.63
Third Quarter . . . . . . . . . . . . . . . . . . . 15.63 10.25
Fourth Quarter . . . . . . . . . . . . . . . . . . . 11.38 8.88
FISCAL 1996
- -----------
First Quarter . . . . . . . . . . . . . . . . . . . $ 10.38 $ 6.88
Second Quarter . . . . . . . . . . . . . . . . . . . 9.00 6.63
Third Quarter . . . . . . . . . . . . . . . . . . . 7.63 4.88
Fourth Quarter . . . . . . . . . . . . . . . . . . . 6.50 4.00
</TABLE>
At September 23, 1996, there were approximately 2,400 record holders of
the Common Stock.
The Company has never declared or paid cash dividends on the Common Stock.
Management intends to retain any future earnings for the operation and
expansion of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future. The Company's existing credit facility
restricts the Company's ability to pay dividends. See Note 5 of Notes to the
Consolidated Financial Statements.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for the periods from July 1, 1991
until June 30, 1996 are derived from the consolidated financial statements of
the Company which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The data should be read in conjunction with the
Consolidated Financial Statements, the related notes and the independent
auditor's report, Management's Discussion and Analysis of Financial Condition
and Results of Operations and the other financial information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
- ----------------------
Sales $61,944 $66,806 $73,102 $85,987 $80,790
Costs and expenses:
Costs of sales 48,377 50,859 56,318 68,441 68,046
Selling, general and
administrative 8,918 9,310 10,260 14,043 13,381
Interest, net 1,709 1,152 1,124 1,715 1,995
Restructuring charge (1) -- -- 642 -- --
------- ------- ------- ------- -------
59,004 61,321 68,344 84,199 83,422
------- ------- ------- ------- -------
Income (loss) before
income taxes(benefit) 2,940 5,485 4,758 1,788 (2,632)
Provision for income
taxes (benefit) 1,334 1,796 1,494 743 (817)
------- ------- ------- ------- -------
Net income (loss) $ 1,606 $ 3,689 $ 3,264 $ 1,045 $(1,815)
Net income (loss) per ======= ======= ======= ======= =======
common share $ .46 $ .93 $ .81(1) $ .26 $( .45)
======= ======= ======= ======= =======
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
- -------------------
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $ 4,676 $ 5,773 $ 9,655 $13,945 $(11,082)
Total assets 33,797 37,941 49,542 57,196 55,800
Long-term debt 13,275 12,930 19,730 27,464 3,124
Stockholders' equity 8,418 12,107 15,482 16,773 14,209
</TABLE>
- ----------
(1) During the second quarter of fiscal 1994, the Company recorded a
restructuring charge related to a reduction in its work force and the
consolidation of certain corporate functions. Without this non-recurring
restructuring charge, the Company would have reported net income per common
share of $.91 for fiscal 1994. See Note 7 of Notes to the Consolidated
Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items from the
consolidated statements of income as percentage of sales:
<TABLE>
FISCAL YEAR ENDED JUNE 30,
-----------------------------
1994 1995 1996
---- ---- -----
<S> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales.................................. 77.1 79.6 84.2
Selling, general and administrative ............ 14.0 16.3 16.6
Interest, net .................................. 1.5 2.0 2.4
Restructuring charge............................ 0.9 -- --
----- ------ ------
93.5 97.9 103.2
----- ------ ------
Income (loss) before income taxes............... 6.5 2.1 (3.2)
Provision for income taxes (benefit)............ 2.0 0.9 (1.0)
----- ------ ------
Net income (loss)............... 4.5% 1.2% (2.2)%
===== ====== ======
</TABLE>
RESULTS OF OPERATIONS FOR FISCAL 1996 COMPARED TO FISCAL 1995
Total sales decreased 6.0% to $80.8 million during 1996 from $86.0 million
in 1995. Substantially all of this decrease occurred in the first half of the
year and related principally to volume declines in response to the Company's
effort to pass through raw material cost increases on the Company's product
lines. Sales in the Chemical Division decreased 7.1% to $31.4 million in 1996
from $33.8 million in 1995. The decrease in Chemical Division sales was due to
volume decreases as customers declined to accept price increases and instead
used the opportunity to reduce their own inventory levels as their markets
weakened. Sales in the Consumer Products and Foodservice Divisions decreased
14.8% to $21.9 million in 1996 from $25.7 million in 1995, resulting from volume
declines in a weak retail economy and due to competitive pressures from foreign
imports. In addition, during the first half of fiscal 1995, the Company recorded
approximately $5 million in sales from a children's dinnerware product which did
not recur during fiscal 1996. Sales in the Closures Division increased 3.8% to
$27.5 million in 1996 from $26.5 million in 1995, resulting from price increases
and the addition of new products and customers.
Cost of sales as a percentage of sales increased to 84.2% in 1996 from
79.6% in 1995. The decline in gross margin was the result of raw material
price increases and related volume declines as customers resisted price
pass-throughs from the increased costs of raw materials. Reduced production in
the Foodservice and Consumer Products Divisions also resulted in unabsorbed
overhead costs and thus lower gross margins. Sales volumes increased in the
fourth quarter of fiscal 1996; however, it is too early to predict whether
continued increases will continue in fiscal 1997.
Selling, general and administrative expense ("SG&A") decreased 4.7% to
$13.3 million in 1996 from $14.0 million in 1995. However, as a percentage of
sales, SG&A increased to 16.6% in 1996 from 16.3% in 1995, primarily because of
the lower sales base in fiscal 1996.
Interest expense increased 16.3% from 1995 to 1996 due to increased
borrowings and higher interest rates toward the end of fiscal 1996. The
average outstanding borrowings during 1996 were $ 29.5 million compared to an
average of $25.9 million during 1995.
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The Company incurred a net loss of $1.8 million ($0.45 per share) in
fiscal 1996 versus net income of $1.0 million ($0.26 per share) in fiscal 1995.
This decrease is primarily a result of declines in sales volume and gross
margin discussed above and the other non-recurring direct and indirect charges
described above.
RESULTS OF OPERATIONS FOR FISCAL 1995 COMPARED TO FISCAL 1994.
Total sales increased 17.6% to $86.0 million during 1995 from $73.1
million in 1994. Approximately 5% of this increase relates to volume increases
and the remaining 12% to 13% relates to price increases on the Company's
product lines throughout the year. Sales in the Chemical Division increased
17.8% to $33.8 million in 1995 from $28.7 million in 1994. This increase
resulted from price increases as well as increased market share. Sales in the
Consumer Products and Foodservice Divisions increased 21.2% to $25.7 million in
1995 from $21.2 million in 1994, resulting from price increases and
exceptional sales of children's dinnerware. The majority of this increase
occurred during the first half of the fiscal year as customer resistance to
price pass-throughs and a downturn in the retail economy severely impacted
sales levels during the fourth quarter. Sales in the Closures Division
increased 14.2% to $26.5 million in 1995 from $23.2 million in 1994, resulting
from price increases and the addition of new products and customers.
Cost of sales as a percentage of sales increased to 79.6% in 1995 from
77.1% in 1994. The decline in gross margin was the result of raw material
price increases primarily in the last six months of the year and volume
declines in certain product lines during the fourth quarter. Substantially all
of the Company's major raw materials incurred unprecedented and repeated price
increases ranging from 10% to 110%. The most dramatic increases occurred in
the prices of melamine and formaldehyde. Increased foreign demand for melamine
due to the weakening of the dollar affected the domestic price of melamine and
a world-wide shortage of methanol, a key component of formaldehyde, caused
formaldehyde price increases. Pulp also experienced significant increases in
price due to paper industry shortages.
Because of the significant increases in raw material costs, the Company
raised its prices to its customers during the third and fourth quarters and as
a result, the volume of anticipated orders declined. Decreases in volume were
also experienced in the Chemical Division due to a slow-down in housing starts
which affected the Company's electrical components customers. The most
significant fourth quarter volume declines, however, were in the Consumer
Products Division which was impacted by a very weak retail economy, in addition
to the price increases. The Company's fourth quarter gross margin was also
negatively affected by approximately $400,000 in additional reserves for
inventory obsolescence. This one-time charge was taken in light of volume
declines during the quarter.
Selling, general and administrative expense ("SG&A") increased 35.9% to
$14.0 million in 1995 from $10.3 million in 1994. Approximately half of this
increase was expected and relates to increased selling and marketing and
research and development costs which generally increase proportional to
increased sales levels. However, as a percentage of sales, SG&A increased to
16.3% in 1995 from 14.0% in 1994. Approximately half of this increase relates
to non-recurring charges such as legal fees, professional costs associated with
a canceled equity offering, severance and relocation costs.
Interest expense has increased 52.6% from 1994 to 1995 due to increased
borrowings and higher interest rates on outstanding loan amounts. The average
borrowing during 1995 was $25.9 million, with higher levels towards the end of
the year, compared to an average of $14.2 million during 1994.
Net income decreased 69.7% to $1.0 million ($0.26 per share) for 1995 from
$3.3 million ($0.81 per share) for 1994 as a result of higher raw material
costs, depressed fourth quarter sales volume and the other non-recurring
charges such as the additional obsolescence reserve and legal and professional
expenses described above.
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LIQUIDITY AND CAPITAL RESOURCES
Management reviews the Company's working capital, accounts receivable and
the relationship of debt to equity on a continuing basis. The Company's growth
has been financed through long-term debt financing and cash generated from
operations. Although the Company's total borrowings were approximately the same
at June 30, 1995 and 1996, a significant increase in debt levels occurred
towards the end of fiscal 1995 causing the average borrowings during 1995 to be
approximately $3.6 million higher than the average borrowings in fiscal 1996.
Cash flow from operations generated $5.5 million but $2.0 million of this was
required to fund working capital needs. The Company increased accounts
receivable by approximately $3.1 million as of June 30, 1996 compared to June
30, 1995, principally due to several large customer orders during June 1996;
however, it reduced inventory levels by approximately $3.3 million during 1996,
in an attempt to better manage working capital. In addition, current payables
and accrued expenses increased approximately $1.9 million due to an increase in
business activity during the fourth quarter of fiscal 1996 compared to fiscal
1995.
Capital expenditures for 1996 were approximately $4.5 million. Of such
amount, $0.9 million was used to purchase new machinery, equipment, molds and
tooling to support incremental sales growth in the Closures Division,
approximately $1.0 million was used to acquire machinery for a new process in
the Chemical Division, approximately $1.2 million was used for new computer
systems and other miscellaneous capital additions totaled approximately $1.4
million.
Anticipated future capital additions should approximate $2 to $7 million
during 1997, primarily in the Closures Division. Management will monitor
spending closely and only authorize levels that can be funded through existing
debt capacity, cash flow from operations, or other additional financing.
At June 30, 1996, the Company's cash and cash equivalents were $1.9
million and negative working capital of ($11.1)million due to the
classification of the majority of its debt as current. In addition, the Company
had total debt outstanding of $30.3 million (including current portion), with a
weighted average interest rate at June 30, 1996 of 8.4% .
In December 1995, the Company refinanced its existing indebtedness with a
new lender and increased its credit facility to provide for a total of $35.7
million in borrowings secured by substantially all the assets of the Company.
The facility provides for borrowings under three separate subfacilities - (1)
two separate one-time term advances in an aggregate principal amount of $6.7
million payable in quarterly installments through April 1, 2001; (2) multiple
term advances for capital expenditures in an aggregate principal amount of
$14.0 million payable in quarterly installments over 2 to 7 years, and (3) a
$15.0 million revolving loan, due December 31, 1998. As of June 30, 1996,
outstanding borrowing under the credit facility included $5.8 million under the
two term loans, $8.4 million under the capital expenditure term loan and $12.7
million under the revolving credit line. At June 30, 1996, based on the
Company's borrowing formula incremental borrowing availability was
approximately $2.0 million under the revolving credit line. The Company may
fund principal repayments on portions of its term debt through advances on the
revolving credit line. 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. The loan agreement contains various covenants,
including maintaining certain financial ratios and tests, and limitations on
the issuance of debt and the amount of capital expenditures, capital leases,
investments and dividends. The primary financial covenants include quarter-end
calculations of leverage, fixed charge coverage and tangible net worth.
The Company was not in compliance with two of its loan covenants at June
30, 1996: (1) The Company's Tangible Net Worth (as defined in the Credit
Facility) was below the required minimum of $14,650,000 and (2) the Company's
Fixed Charge Coverage Ratio (as defined in the Credit Facility) was below the
required minimum of 1.3 to 1.0. On September 26, 1996, the Company obtained a
waiver of these covenants as of June 30, 1996. However, the same or more
restrictive covenants must be met in future periods. As a result, the debt is
subject to acceleration at future dates in the absence of refinancing,
additional equity or additional covenant waivers or loan modifications and ,
therefore, has been classified as a current liability on the consolidated
balance sheet at June 30, 1996. Management is currently pursuing various
strategic and financing alternatives to address the current situation. These
alternatives include current discussions with other potential lenders regarding
the possibility of refinancing the existing debt and evaluation of other
potential debt and equity arrangements. Management believes that the Company
will be able to obtain new financing with alternative sources. However, such
new financing may be on terms less favorable than under the current arrangement.
See also Note 5 to Notes to Consolidated Financial Statements.
10
<PAGE> 12
INFLATION
The effect of inflation on operating costs has been minimal in prior
years. However, the cost of raw materials used in the Company's operations
increased significantly during 1995 and early 1996. These increased raw
material costs had a material impact upon the Company's gross margin and
earnings during fiscal 1995 and 1996. While some raw materials are currently
experiencing declines in price, the overall future impact is not predictable at
this time.
AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and No. 123
"Accounting for Stock-Based Compensation". The Company is required to adopt
both of these pronouncements in fiscal 1997. Effect of these pronouncements on
the financial statements is not expected to be material.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-K includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-K, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Result of Operations" regarding the
Company's financing alternatives, financial position, business strategy, plans
and objectives of management of the Company for future operations, and industry
conditions, are forward-looking statements. Although the Company believes that
the expectations reflected in any such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Any forward-looking statements herein are subject to certain
risks and uncertainties in the Company's business, including but not limited
to, the intense competition in its markets, its recent experience of increasing
raw material prices, the absence of assurance of strategic and financing
alternatives, Mexican currency fluctuations and its reliance on certain key
customers; all of which may be beyond the control of the Company. Any one or
more of these factors could cause actual results to differ materially from
those expressed in any forward-looking statement. All subsequent written and
oral forward-looking statements attributable to the Company or person acting on
its behalf are expressly qualified in their entirety by the cautionary
statements disclosed in this paragraph and otherwise in this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedule of the Company as of
June 30, 1995 and 1996, and for each of the years in the three-year period
ended June 30, 1996, are included as part of this report beginning on Page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE> 13
PART III.
Portions of the registrant's definitive proxy statement prepared for use
in connection with the 1996 Annual Meeting of shareholders to be held December
6, 1996, dated on or about October 27, 1996, have been incorporated by
reference as listed below. The proxy is expected to be filed with the
Securities and Exchange Commission on or about October 28, 1996.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors and executive officers is included in the
Election of Directors Section of the Company's definitive proxy statement and
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is included in the Executive
Compensation Section of the Company's definitive proxy statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners
and management in included in the Stock Ownership Section of the Company's
definitive proxy statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
included in the Certain Transactions Section of the Company's definitive proxy
statement and is incorporated herein by reference.
12
<PAGE> 14
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
A. CONSOLIDATED FINANCIAL STATEMENTS Page
----
<S> <C> <C>
1. Consolidated Financial Statements
Independent Auditors' Report.............................................................. F-1
Consolidated Balance Sheets, June 30, 1995 and 1996....................................... F-2
Consolidated Statements of Operations, Years Ended June 30, 1994, 1995, and 1996.......... F-3
Consolidated Statements of Cash Flows, Years Ended June 30, 1994, 1995 and 1996........... F-4
Consolidated Statements of Stockholders' Equity, Years Ended June 30, 1994, 1995
and 1996.......................................................................... F-5
Notes to Consolidated Financial Statements................................................ F-6
2. Consolidated Financial Statement Schedule
II-Valuation and Qualifying Accounts and Reserves......................................... F-15
</TABLE>
Schedules other than as listed above are omitted because they are not
required or are not applicable or the information is immaterial in relation to
the registrant's consolidated financial statements.
3. Exhibits
The information required by this Item 14(a)(3) is set forth in the index
to Exhibits accompanying this Annual Report on Form 10-K.
B. REPORTS ON FORM 8-K
Not applicable.
13
<PAGE> 15
The Board of Directors
Sun Coast Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Sun Coast
Industries, Inc. and subsidiaries as of June 30, 1995 and 1996 and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the years in the three-year period ended June 30, 1996. In connection
with our audits of the consolidated financial statements, we have also audited
the accompanying financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sun Coast
Industries, Inc. and subsidiaries as of June 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
August 23, 1996, except
as to Note 5 which is as
of September 26, 1996
F-1
<PAGE> 16
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................. $1,173 $1,947
Accounts receivable, net of allowance for doubtful accounts of
$312 in 1995 and $286 in 1996........................................................... 9,602 12,495
Inventories (note 2)...................................................................... 13,248 9,875
Other current assets...................................................................... 394 461
------- -------
Total current assets.............................................................. 24,417 24,778
Property, plant and equipment, net (note 3)................................................ 29,739 28,711
Intangible assets........................................................................... 1,026 906
Other assets................................................................................ 2,014 1,405
------- -------
$57,196 $55,800
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $4,456 $5,660
Accrued expenses (note 4)................................................................. 2,179 2,923
Current portion of long-term debt......................................................... 2,958 27,157
Deferred income taxes..................................................................... 879 120
------- -------
Total current liabilities.......................................................... 10,472 35,860
Other liabilities......................................................................... 57 12
Long-term debt............................................................................ 27,464 3,124
Deferred income taxes..................................................................... 2,430 2,595
COMMITMENTS AND CONTINGENCIES (note 12)
Stockholders' equity:
Common stock, $.01 par value; 40,000,000 shares authorized: issued and
outstanding 4,005,629 in 1995; and 4,017,629 issued and 4,004,229
outstanding in 1996................................................................... 40 40
Additional paid-in capital............................................................... 11,300 11,219
Currency translation adjustment.......................................................... -- (668)
Retained earnings........................................................................ 5,433 3,618
------- -------
Total stockholders' equity......................................................... 16,773 14,209
------- -------
$57,196 $55,800
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE> 17
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
YEARS ENDED JUNE 30,
-----------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Sales.................................................................................. $73,102 $85,987 $80,790
------- ------- -------
Costs and Expenses:
Costs of sales...................................................................... 56,318 68,441 68,046
Selling, general and administrative................................................. 10,260 14,043 13,381
Interest, net....................................................................... 1,124 1,715 1,995
Restructuring charge................................................................ 642 -- --
------- ------- -------
68,344 84,199 83,422
------- ------- -------
Income (loss) before income taxes (benefit)............................................ 4,758 1,788 (2,632)
Provision for income taxes (benefit)................................................... 1,494 743 (817)
------- ------- -------
Net income (loss)............................................................ $3,264 $ 1,045 $(1,815)
======= ======= =======
Net income (loss) per common share..................................................... $.81 $.26 $(.45)
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 18
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income(loss)................................................................. $3,264 $1,045 $(1,815)
Adjustments to reconcile net income (loss) to net cash provided
by operations:
Depreciation and amortization............................................... 3,282 4,769 5,912
Deferred income taxes....................................................... 196 762 (586)
Gain on sale of property, plant and equipment............................... (7) -- --
Provision (credit) for doubtful accounts.................................... 117 232 (27)
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable......................................................... (1,838) 378 (3,045)
Inventories............................................................... (2,090) (3,247) 3,265
Other current assets...................................................... (699) 783 (70)
Intangible and other assets............................................... (738) (250) (27)
Accounts payable and accrued expenses..................................... 2,521 (3,380) 1,903
------ ------ ------
Net cash provided by operations........................................ 4,008 1,092 5,510
------ ------ ------
Cash flows from investing activities:
Capital expenditures............................................................. (9,034) (8,408) (4,517)
Nova Plast acquisition, net of cash acquired..................................... -- (523) --
------ ------ ------
Net cash used in investing activities............................................ (9,034) (8,931) (4,517)
------ ------ ------
Cash flows from financing activities:
Net proceeds of revolving credit line............................................ 5,171 2,564 1,639
Proceeds from long-term debt..................................................... 2,397 7,463 2,086
Repayment of long-term debt...................................................... (2,058) (3,085) (3,867)
Issuance of common stock......................................................... 111 246 72
------ ------ ------
Net cash provided by (used in) financing activities.................... 5,621 7,188 (70)
------ ------ ------
Effect of exchange rate changes on cash............................................ -- -- (149)
------ ------ ------
Change in cash and cash equivalents................................................. 595 ( 651) 774
Cash and cash equivalents at beginning of year...................................... 1,229 1,824 1,173
------ ------ ------
Cash and cash equivalents at end of year............................................ $1,824 $1,173 $1,947
====== ====== ======
</TABLE>
See Notes 5, 6, and 10 for supplementary disclosures.
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 19
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional Currency Total
----------------- Paid-In Retained Translation Stockholder's
Shares Amount Capital Earnings Adjustments Equity
------- ------ ------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
At June 30, 1993...... 3,955,822 $40 $10,943 $1,124 -- $12,107
Exercise of options... 18,492 -- 111 -- -- 111
Net income............ -- -- -- 3,264 -- 3,264
--------- --- ------- ------- ------ -------
At June 30, 1994...... 3,974,314 40 11,054 4,388 -- 15,482
Exercise of options... 31,315 -- 246 -- -- 246
Net income............ -- -- -- 1,045 -- 1,045
--------- --- ------- ------- ------ -------
At June 30, 1995...... 4,005,629 40 11,300 5,433 -- 16,773
Currency translation -- -- -- -- $ (668) (668)
Exercise of options... 12,000 -- 72 -- -- 72
Treasury stock
transaction........... (13,400) -- (153) -- -- (153)
Net loss.............. -- -- -- (1,815) -- (1,815)
--------- --- ------- ------- ------ -------
At June 30, 1996...... 4,004,229 $40 $11,219 $3,618 $ (668) $14,209
========= === ======= ======= ====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 20
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
NOTE 1 -- THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 products and commercial plastic products, including dinnerware,
drinkware and closures. The Company's four divisions have generated synergies
through similar manufacturing processes, combined purchasing of raw materials
and developed proprietary technologies, enabling the Company to realize
manufacturing efficiencies and a significant presence in markets for many of
its products. The Chemical Division manufactures melamine and urea resins and
compounds, which it supplies to other manufacturers and uses in producing its
own consumer products and foodservice products. The Consumer Products and
Foodservice Divisions manufacture compression molded melamine dinnerware and
injection molded plastic drinkware and other houseware products, which the
Company sells to American, Canadian and Mexican retail and commercial markets.
The Closures Division manufactures linerless, foil or foam lined and
tamper-evident plastic closures and lids. These closures are used in the U.S.
for bottling and packaging of food, beverage, chemical and pharmaceutical
products.
INDUSTRY SEGMENT
The Company operates in a single industry segment, supplying consumer
products and commercial related plastic products on a direct and indirect
basis, utilizing similar production processes and methods.
PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES
The consolidated financial statements include the 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 year consolidated financial statement
presentation. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could differ from the
estimates.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost
determined utilizing the first-in, first-out (FIFO) method. See Note 2.
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.
F-6
<PAGE> 21
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets are stated at cost and consist primarily of patents and
goodwill. Intangible assets are amortized on the straight-line method over
their estimated useful lives ranging from 5 to 20 years. The carrying values
and amortization periods of intangibles are periodically evaluated by the
Company to determine whether current events and circumstances warrant
adjustment.
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.
The total advertising costs reported as an asset were $63,000 and $27,000
at June 30, 1995 and 1996, respectively. Advertising expense for fiscal years
1994, 1995, and 1996 was $921,000, $1,047,000 and $615,000, respectively.
INCOME TAXES
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 (loss). The principal temporary differences
are described in Note 6.
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
liability exists at June 30, 1996.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed by dividing net income by
the weighted average number of common shares outstanding during each year after
giving effect to stock options and warrants considered to be dilutive common
stock equivalents. The weighted average number of common shares outstanding was
4,032,554 in 1994, 4,076,792 in 1995 and 4,005,394 in 1996. Primary and fully
diluted net income (loss) per common share amounts are the same.
REVENUE RECOGNITION
Sales are recognized when the product is shipped. Sales are shown net of
returns and allowances.
RESEARCH AND DEVELOPMENT
Research and development costs associated with new product development,
application and testing are expensed as incurred. Research and development
costs amounted to $731,000, $1,287,000 and $1,371,000 in fiscal years 1994,
1995 and 1996, respectively.
F-7
<PAGE> 22
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
STATEMENTS 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. Noncash capital lease financing transactions totaled
$121,000 in fiscal 1995 and a noncash treasury stock transaction totaled
$153,000 in fiscal 1996. See Note 10 for additional noncash transactions.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The Company's foreign subsidiary (See Note 10) uses the local currency as
the functional currency. Translation gains or losses are included as a
component of stockholders' equity. Gains or losses from foreign currency
transactions are included in net income (loss). There were no material gains
and losses from foreign currency translation or transactions prior to 1996 and
there were $668,000 in translation losses in 1996.
NOTE 2 -- INVENTORIES
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
(IN THOUSANDS)
Raw materials................................. $4,665 $2,859
Work-in-process............................... 1,365 1,070
Finished goods................................ 7,792 6,712
------- -------
13,822 10,641
Obsolescence reserve.......................... (574) (766)
------- -------
$13,248 $9,875
======= =======
</TABLE>
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land............................................... $634 $634
Buildings.......................................... 6,713 6,862
Machinery and equipment............................ 26,128 27,587
Machinery and equipment under capital leases....... 388 377
Molds.............................................. 10,262 11,263
Furniture and fixtures, leasehold improvements and
other.............................................. 4,891 6,171
------- -------
49,016 52,894
Less accumulated depreciation and amortization..... (19,277) (24,183)
------- -------
$29,739 $28,711
======= =======
</TABLE>
Accumulated amortization of machinery and equipment under capital leases
was $200,000 and $267,000 at June 30, 1995 and 1996, respectively.
<TABLE>
<CAPTION>
NOTE 4 -- ACCRUED EXPENSES
1995 1996
---- ----
<S> <C> <C>
(IN THOUSANDS)
Salaries and other benefits........................ $ 675 $1,139
Other.............................................. 1,504 1,784
------ ------
$2,179 $2,923
====== ======
</TABLE>
F-8
<PAGE> 23
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Term loan............................... $ 7,167 $ 5,818
Revolving credit line................... 11,020 12,659
Capital expenditures term loan.......... 8,278 8,437
Industrial development revenue bonds.... 2,325 2,175
Subordinated notes payable (Note 10).... 1,300 1,000
Capitalized lease obligations........... 332 192
------- -------
30,422 30,281
Less current portion.................... (2,958) (27,157)
------- -------
$27,464 $ 3,124
======= =======
</TABLE>
In December 1995, the Company refinanced its existing indebtedness with a
new lender and increased its credit facility to provide for a total of $35.7
million in borrowings secured by substantially all the assets of the Company.
The facility provides for borrowings under three separate subfacilities - (1)
two separate one-time term advances in an aggregate principal amount of $6.7
million payable in quarterly installments through April 1, 2001; (2) multiple
term advances for capital expenditures in an aggregate principal amount of
$14.0 million payable in quarterly installments over 2 to 7 years, limited to
80% of the orderly liquidation value of equipment, as defined; and (3) a $15.0
million revolving loan, due December 31, 1998, with availability determined by
reference to a borrowing base of eligible accounts receivable and inventory of
the Company. As of June 30, 1996, outstanding borrowing under the credit
facility included $5.8 million under the two term loans, $8.4 million under the
capital expenditure term loan and $12.7 million under the revolving credit
line. At June 30, 1996, based on the Company's borrowing formula incremental
borrowing availability was approximately $2.0 million under the revolving
credit line. The Company may fund principal repayments on portions of its term
debt through advances on the revolving credit line. 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. Interest rates
on the loans approximate the prime rate (8.41% weighted average at June 30,
1996).
The loan agreement contains various covenants, including maintaining
certain financial ratios and tests, and limitations on the issuance of debt and
the amount of capital expenditures, capital leases, investments and dividends.
The primary financial covenants include quarter-end calculations of leverage,
fixed charge coverage and tangible net worth.
The Company was not in compliance with two of its loan covenants at June
30, 1996: (1) The Company's Tangible Net Worth (as defined in the Credit
Facility) was below the required minimum of $14,650,000 and (2) the Company's
Fixed Charge Coverage Ratio (as defined in the Credit Facility) was below the
required minimum of 1.3 to 1.0. On September 26, 1996, the Company obtained a
waiver of these covenants as of June 30, 1996. However, the same or more
restrictive covenants must be met in future periods. As a result, the debt is
subject to acceleration at future dates in the absence of refinancing,
additional equity or additional covenant waivers or loan modifications and ,
therefore, has been classified as a current liability on the consolidated
balance sheet at June 30, 1996. Management is currently pursuing various
strategic and financing alternatives to address the current situation. These
alternatives include current discussions with other potential lenders regarding
the possibility of refinancing the existing debt and evaluation of potential
equity arrangements. Management believes that they will be able either to
restructure the terms of the existing indebtedness or obtain new financing with
alternative sources. However, such revisions may be on terms less favorable
than under the current arrangement.
The industrial development revenue bonds were used to finance the cost of
a production and office facility (completed during 1988) and certain machinery
in Florida. The bonds bear interest at 78% of prime, are payable in monthly
installments of $12,500 through 2011, and are secured by the underlying
facility and equipment.
F-9
<PAGE> 24
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
The estimated fair value of the Company's debt approximates the carrying
value at June 30, 1995 and 1996. Interest paid (net of $226,000 and $206,000
capitalized in 1995 and 1996, respectively) amounted to $983,000 in 1994,
$1,692,000 in 1995 and $1,801,000 in 1996.
Scheduled debt maturities (excluding capital lease obligations) subsequent
to June 30, 1996 are as follows: $3,049,000 in 1997, $5,598,000 in 1998,
$15,444 in 1999, $2,763,000 in 2000, $1,475,000 in 2001 and $1,580,000
thereafter.
NOTE 6 -- INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
Current: (IN THOUSANDS)
<S> <C> <C> <C>
Federal..................................... $ 1,187 $ (17) $ (128)
State....................................... 111 (2) 7
------- ------- -------
1,298 (19) (121)
Deferred federal and state................... 196 762 (696)
------- ------- -------
$ 1,494 $ 743 $ (817)
======= ====== =======
Income taxes paid (refunded)................ $ 1,225 $ 967 $ (496)
======= ====== =======
A reconciliation of the federal statutory tax rate with the effective tax rate follows:
1994 1995 1996
---- ---- ----
Statutory tax rate............................ 34.0% 34.0% (34.0)%
State income taxes, net of federal income
tax benefit................................. 1.9 4.3 (1.5)
Goodwill write-off and amortization.......... -- 3.8 1.1
Meals and entertainment...................... -- 1.6 2.4
Other........................................ (4.5) (2.1) 1.0
---- ---- -----
Effective tax rate............................ 31.4% 41.6% (31.0)%
==== ==== =====
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities follow:
<TABLE>
<CAPTION>
1995 1996
---- ----
Deferred tax assets: (IN THOUSANDS)
<S> <C> <C>
Allowance for doubtful accounts.............. $ 75 $ 82
Accrued expenses............................. 136 331
Inventories.................................. 87 250
AMT Credit Carryforward...................... -- 311
------- -------
Total gross deferred tax assets........ 298 974
======= =======
Deferred tax liabilities:
Property, plant and equipment............... (2,407) (2,419)
Inventories................................. (1,130) (1,173)
Other....................................... (70) (97)
------- -------
Total gross deferred tax liabilities... (3,607) (3,689)
------- -------
Net deferred tax liability............. $(3,309) $(2,715)
======= =======
</TABLE>
No valuation allowance related to deferred tax assets was necessary for
any of the periods presented as management believes it is more likely than not
that such deferred tax assets will be realized.
F-10
<PAGE> 25
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 7 -- RESTRUCTURING CHARGE
During the second quarter of fiscal year 1994, the Company recorded a
restructuring charge related to an approximate 8% reduction in the number of
Texas employees and the consolidation of certain corporate functions such as
management information systems, insurance coverage and benefit plans. The
charge included costs to reduce personnel levels ($370,000), consolidate
manufacturing operations ($80,000) and outsource and consolidate certain
corporate functions ($192,000). The restructuring reserve was fully utilized as
of June 30, 1994.
NOTE 8 -- STOCKHOLDERS' EQUITY
STOCK WARRANTS
The Company has outstanding warrants at June 30, 1996 to purchase 115,830
shares of common stock at $12.95 per share which were issued in connection with
obtaining financing for the purchase of a subsidiary. The warrants are
exercisable through 2002 and contain antidilution provisions which cause both
the number of warrants and the exercise price to change as certain events
occur.
STOCK OPTIONS
The 1994 Long Term Incentive Plan provides that officers and key employees
may be granted stock appreciation rights, restricted stock, performance share
awards, nonqualified stock options or incentive stock options for the purchase
of the Company's common stock. Up to 250,000 shares of the Company's common
stock may be issued on exercise of options and rights granted under this plan.
The type, terms and timing of options granted will be determined at the
discretion of the Board of Directors.
No future grants will be made under the Company's previous incentive stock
option plans. At June 30, 1996, previously granted options for 189,705 shares
remain outstanding under these plans.
The Directors Formula Stock Option Plan provides for each non-employee
director and Chairman to be granted 1,000 options initially and 500 options
each fiscal year for purchase of the Company's common stock at the fair market
value at the date of grant.
Transactions in stock options under these plans are summarized as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
------ -----------
<S> <C> <C>
Options outstanding at June 30, 1993....... 331,505 $ 5.50 - 15.00
Options granted........................... 117,500 $10.00 - 14.25
Options exercised ........................ (24,455) $ 5.50 - 9.40
Options terminated ....................... (15,750) $ 5.95 - 11.90
--------
Options outstanding at June 30, 1994....... 408,800 $ 5.50 - 15.00
Options granted........................... 46,000 $ 9.50 - 13.38
Options exercised......................... (31,315) $ 5.95 - 10.13
Options terminated........................ (80) $ 9.40 - 13.50
--------
Options outstanding at June 30, 1995....... 423,405 $ 5.50 - 15.00
Options granted........................... 122,000 $ 4.25 - 5.38
Options exercised......................... ( 12,000) $ 5.50 - 7.50
Options terminated........................ (154,700) $ 9.50 - 14.25
--------
Options outstanding at June 30, 1996
(194,205 options exercisable)............. 378,705 $ 4.25 - 15.00
=======
</TABLE>
F-11
<PAGE> 26
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
During fiscal 1994, the Company offered to settle options held by certain
employees of the Company by issuing shares of stock equal in value to the
appreciation of the Company's stock over the stated option price. A total of
9,140 options were exercised in 1994 resulting in the issuance of 3,233
shares.
STOCKHOLDER RIGHTS PLAN
On June 6, 1995, the Company adopted a Stockholder Rights Plan and, in
connection with such plan, declared a dividend distribution of one right for
each outstanding share of the Company's $0.01 par value common stock, payable
on July 6, 1995 to stockholders of record on that date. Each right entitles
the stockholders to buy from the Company one share of common stock at a price
of $50.00 per share. The rights will not be exercisable or separable from the
common stock until ten business days after a party acquires beneficial
ownership of 20 percent or more of the Company's common shares or announces a
tender offer for at least 20 percent of its common shares outstanding.
The rights, which are subject to adjustment, may be redeemed by the
Company at a price of $0.01 per right at any time prior to expiration on July
6, 2005 or the point at which they become exercisable. In the event the
Company is acquired in a merger or other business combination transaction, each
right will entitle its holder to purchase, at the right's then current exercise
price, that number of acquiring company's common shares having a market value
of two times the exercise price of the right.
The Stockholder Rights Plan is designed to assure that the Company's
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company and to guard against partial tender offers and other
abusive takeover tactics to gain control of the Company without paying all
stockholders a fair price.
NOTE 9 -- PENSION, RETIREMENT, PROFIT SHARING AND SAVINGS PLANS
The Company has separate pension plans covering bargaining unit employees
and substantially all other employees. Benefits under the bargaining unit plan
are set by contract with the union at a fixed amount per year of service, which
also requires contributions at certain intervals, as stipulated in the union
contract. Benefits under the other plan were frozen effective February 1, 1994.
Pension cost and significant assumptions follow:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost --benefits earned during the period.................... $184 $59 $62
Interest cost on projected benefit obligation ...................... 333 316 331
Actual return on assets............................................. (173) (463) (388)
Net amortization and deferral of gains and losses................... (189) 108 18
Net curtailment gain................................................ (158) -- --
---- ---- ----
Net periodic pension cost.................................. $ (3) $ 20 $ 23
==== ==== ====
Weighted average discount rate...................................... 7.5% 7.5% 7.5%
Rate of increase in compensation level.............................. 4.5 N/A N/A
Long-term rate of return on plan assets............................. 7.0 7.0 7.0
</TABLE>
F-12
<PAGE> 27
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
A summary of the plans' funded status and amounts recognized in the Company's
consolidated balance sheets follow:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, fully vested.............. $ 4,726 $ 4,829
======= =======
Projected benefit obligation.............................. $(4,726) $(4,829)
Plan assets at fair value................................. 5,310 5,501
------- -------
Plan assets in excess of projected benefit obligation..... 584 672
Unrecognized net gain and transition asset................ 11 (30)
------- -------
Prepaid pension asset included in other assets............. $ 595 $ 642
======= =======
</TABLE>
The Company and its subsidiaries have defined contribution profit sharing
and savings plans for the benefit of employees. Company contributions to the
profit sharing and savings plans were $231,000, $111,000 and $141,000 for
fiscal years 1994, 1995 and 1996, respectively. Effective July 1, 1994, the
above described profit sharing and savings plans were merged into one
Company-wide plan.
NOTE 10 -- ACQUISITION AND DIVESTITURE
Effective May 17, 1995, the Company acquired all of the issued and
outstanding capital stock of Nova Plast, S. A. de C.V. (Nova Plast), a Mexican
company, through a newly formed and wholly-owned Mexican subsidiary for
consideration of approximately $1,935,000, consisting of cash of $500,000,
direct costs of $135,000, notes payable of $1,000,000 bearing interest at 10%
per annum and due in May 1997 and non-interest bearing notes payable of
$300,000 due and paid in August 1995. The acquisition of Nova Plast has been
accounted for as a purchase, and accordingly, results of its operations have
been included in the consolidated statement of operations since the acquisition
date. In addition, Nova Plast's operations in 1995 are not significant to the
Company and pro-forma results are not presented. Goodwill of $537,000 from the
purchase will be amortized over a 20 year period.
On June 5, 1995, the Company, in exchange for a collateralized ten year
note receivable of $615,000, bearing a 10% interest rate, sold all of the
issued and outstanding capital stock of Alliance Manufacturing, Inc. (a
wholly-owned subsidiary) to a former employee, with no significant gain or
loss arising from the sale.
NOTE 11 -- BUSINESS AND CREDIT CONCENTRATION
The Company frequently bids for large contracts for its products which may
result in individual customers accounting for more than 10% of its net sales in
a given fiscal year. Sales to a single customer were approximately
$10,649,000, $12,275,000 and $13,882,000 for fiscal years 1994, 1995 and 1996,
respectively. Sales to a second customer were approximately $8,401,000,
$9,374,000 and $8,114,000 in fiscal years 1994, 1995 and 1996, respectively.
No other customers represented more than 10% of the Company's net sales in
1994, 1995 or 1996. The Company had accounts receivable balances from these
major customers of approximately $2,072,000 and $3,655,000 as of June 30, 1995
and 1996, respectively. Customers from many geographic locations are granted
credit on an unsecured basis. Management believes that sufficient allowances
for doubtful accounts have been provided as of June 30, 1995 and 1996.
F-13
<PAGE> 28
SUN COAST INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment used in the manufacturing of
products. Rental expense under operating leases was $448,000, $797,000 and
$1,154,000 in fiscal years 1994, 1995 and 1996, respectively. Future minimum
lease payments under capital and operating leases with initial or remaining
terms of one year or more at the end of fiscal year 1996 follow:
<TABLE>
<CAPTION>
Year ending June 30, Capital Operating
- -------------------- -------- ---------
<S> <C> <C>
(In thousands)
1997................................................................................... $229 $983
1998................................................................................... 119 565
1999................................................................................... 69 356
2000................................................................................... -- 303
2001................................................................................... -- 35
</TABLE>
Under the Company's insurance programs, coverage is obtained for
catastrophic exposures as well as those risks required to be insured by law or
contract. The Company is responsible for certain expected losses related
primarily to workers' compensation. Provisions for losses expected under this
program are actuarially determined based upon estimates of the aggregate
liability for claims incurred. Such estimates utilize certain actuarial
assumptions followed in the insurance industry.
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. Management believes that the
disposition of these matters will not have a material impact on the financial
condition or results of operations of the Company.
NOTE 13 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data are summarized as follows (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
Fiscal Year 1995 Quarters Fiscal Year 1996 Quarters
---------------------------------- ----------------------------------
First Second Third Fourth First Second Third Fourth
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales........................... $22,289 $21,290 $21,562 $20,846 $19,373 $18,578 $21,033 $21,806
Gross margin.................... 5,378 4,688 4,355 3,125 3,680 2,729 2,766 3,569
Income (loss) before income
tax............................. 1,710 1,272 538 (1,732) 136 (542) (1,711) (515)
Net income (loss)............... 1,059 855 306 (1,175) 88 (339) (1,144) (420)
Per common share................ .26 .21 .08 (.29) .02 (.08) (.29) (.10)
</TABLE>
During the fourth quarter of fiscal 1995, the Company recorded additional
reserves for obsolete inventory of approximately $400,000 and additional
allowances for doubtful accounts of approximately $100,000. These amounts
were recorded in regards to the decline in sales volumes and customer
resistance to increased prices caused by raw material cost increases.
F-14
<PAGE> 29
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
ADDITIONS
----------------------------
BALANCE CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DEDUCTIONS (1) OF PERIOD
----------- ---------- --------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996:
Allowance for doubtful accounts $312 $228 -- $( 254) $286
Allowance for obsolete inventory $574 $654 -- $( 462) $766
Year ended June 30, 1995:
Allowance for doubtful accounts $163 $232 $85 $( 168) $312
Allowance for obsolete inventory $ 51 $538 $14 $( 29) $574
Year ended June 30, 1994:
Allowance for doubtful accounts $229 $117 -- $( 183) $163
Allowance for obsolete inventory $ 50 $ 40 -- $( 39) $ 51
</TABLE>
- ----------------------------
(1) Write-offs against allowance
(2) Nova Plast acquisition and other
F-15
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized.
SUN COAST INDUSTRIES, INC.
Date September 27,1996 By: /s/ EDDIE LESOK
-----------------------------------
Eddie Lesok
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
Chairman of the Board and September 27, 1996
- -------------------------------- Director
James D. Ireland III
President, Chief Executive September 27, 1996
- -------------------------------- Officer and Director
Eddie Lesok
Secretary, Treasurer (Principal September 27, 1996
- -------------------------------- Accounting and Financial
Cynthia R. Morris Officer)
Director September 27, 1996
- --------------------------------
Stephen P. Smiley
Director September 27, 1996
- --------------------------------
James H. Miller
Director September 27, 1996
- --------------------------------
James R. Parish
Director September 27, 1996
- --------------------------------
Arno F. Pirkau
</TABLE>
F-16
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
10.1 ---- 1984 Incentive Stock Option Plan (filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on March 15, 1993 and
incorporated herein by reference).
10.2 ---- 1987 Incentive Stock Option Plan (filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on March 15, 1993 and
incorporated herein by reference).
10.3 ---- 1993 Incentive and Non-Statutory Stock Option Plan (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March
15, 1993 and incorporated herein by reference).
10.4 ---- 1994 Long-Term Incentive Plan (filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on December 16, 1994 and
incorporated herein by reference).
10.5 ---- 1994 Director Stock Option Plan (filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on December 16, 1994 and
incorporated herein by reference).
10.6 ---- Form of Director and Officer Indemnification Agreements entered into between the Company and
each director and executive officer as of July 3, 1995 (filed as Exhibit 10.19 to the Company's
Form 10-K dated June 30, 1995 and incorporated herein by reference).
10.7 ---- Loan, Mortgage and Security Agreement between Manatee County, Florida and Sun Coast Plastics,
Inc. dated as of December 1, 1985 relating to Manatee County, Florida Industrial Development
Revenue Bonds, 1985 Series (Sun Coast Plastics, Inc. Project) (filed as Exhibit 10.20 to the
Company's Registration Statement on Form S-2 filed on February 17, 1995 and incorporated herein
by reference).
10.8 ---- Trust Indenture between Manatee County, Florida and Sun Bank, National Association, as Trustee,
dated as of December 1, 1985, relating to Manatee County, Florida Industrial Development
Revenue Bonds, 1985 Series (Sun Coast Plastics, Inc. Project) (filed as Exhibit 10.21 to the
Company's Registration Statement on Form S-2 filed on February 17, 1995 and incorporated herein
by reference).
10.9 ---- United States of America, State of Florida, Manatee County Industrial Development Revenue Bond,
1985 Series (Sun Coast Plastics, Inc. Project) (filed as Exhibit 10.22 to the Company's
Registration Statement on Form S-2 filed on February 17, 1995 and incorporated herein by
reference).
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C>
10.10 ---- Rights Agreement, dated as of June 6, 1995, between the Company and American Stock Transfer &
Trust Company (filed as Exhibit 1 to the Company's Current Report on Form 8-K dated June 6,
1995 and incorporated herein by reference).
10.11 ---- Loan Agreement between the Company and Comerica Bank dated as of December 20, 1995 (filed as
Exhibit 10.1 to the Company's Form 10-Q dated December 31, 1995 and incorporated herein by
reference).
10.12 ---- Letter dated February 12, 1996 amending the Loan Agreement between the Company and Comerica
Bank (filed as Exhibit 10.2 to the Company's Form 10-Q dated December 31, 1995 and incorporated
herein by reference).
10.13 ---- Retention Bonus Agreement, dated March 11, 1996, between the Company and Cynthia R. Morris (filed as
Exhibit 10.1 to the Company's Form 10-Q dated March 31, 1996 and incorporated herein by reference).
10.14 ---- Amended Severance Agreement, dated March 13, 1996, between the Company and Cynthia R. Morris (filed as
Exhibit 10.2 to the Company's Form 10-Q dated March 31, 1996 and incorporated herein by reference).
10.15 ---- Severance Agreement, dated as of between the Company and Eddie Lesok (filed as Exhibit 10.1 to the
Company's Form 10-Q dated March 31, 1996 and incorporated herein by reference).
10.16 ---- Letter dated September 25, 1996 waiving default regarding the Loan Agreement between the Company and
Comerica Bank.
21 ---- Subsidiaries of the Company
23.1 ---- Consent of KPMG Peat Marwick LLP.
27 ---- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.16
[COMERICA LETTERHEAD]
September 25, 1996
Ms. Cynthia Morris, CFO
Sun Coast Holdings, Inc
2700 Westmoreland Ave.
Dallas, Texas 75233
RE: Loan Agreement (as amended from time to time, the "Loan Agreement")
between Comerica Bank-Texas ("Lender") and Sun Coast Holdings, Inc.,
("Borrower") dated December 20, 1995.
Dear Ms. Morris:
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings given such terms in the Loan Agreement. As of June 30, 1996,
Borrower was in violation of certain provisions of the Loan Agreement and has
requested Lender to provide a limited waiver of such violations.
In consideration of Lender granting the limited waiver set forth
herein, Lender and Borrower (with the express consent and confirmation of
Guarantors) agree as follows:
1. Notwithstanding the provisions of Section 11.5 of the Loan
Agreement, as of June 30, 1996, Borrower shall not be deemed to
have been in default under the Loan Agreement because as of such
date, Tangible Net Worth (as defined in the Loan Agreement) was
less than the required $14,650,000 however, after June 30, 1996,
the provisions of Section 11.5 of the Loan Agreement shall apply
as originally written and shall govern all periods subsequent to
June 30, 1996.
2. Notwithstanding the provisions of Section 11.7 of the Loan
Agreement, as of June 30, 1996, Borrower shall not be deemed to
have been in default under the Loan Agreement because as of such
date, Fixed Charge Coverage (as defined in the Loan Agreement)
was less than the required 1.30 to 1.0 however, after June 30,
1996, the provisions of Section 11.7 of the Loan Agreement shall
apply as originally written and shall govern all periods
subsequent to June 30, 1996.
3. Effective October 1, 1996, and until Lender notifies Borrower
otherwise in writing, the Applicable Margin shall be 1.25% for
Prime Rate Advances and 3.50% for CD Advances and for LIBOR
Advances.
<PAGE> 2
SUN COAST WAIVER
SEPTEMBER 25, 1996
PAGE 2
The preceding waiver and modification is for a limited time and purpose
herein expressed. Such waiver shall not adversely affect or impair any rights
or remedies available to Lender under the Loan Agreement, or otherwise, and
shall not constitute a waiver of any subsequent defaults or other violations of
the provisions of the Agreement and shall not imply that the Lender will in the
future grant any other waivers or modifications.
The preceding waiver and modification shall not be effective until
Lender shall have received a copy of this letter bearing the original
signatures of Borrower and the Guarantors. To the extent this letter
constitutes a notice, it is being transmitted as a courtesy to you and is not
an admission that any written notice is otherwise due you, nor is it an
election or waiver of remedies by Lender.
Sincerely,
/s/ G. CHRISTOPHER JONES
G. Christopher Jones
ACKNOWLEDGED, ACCEPTED AND AGREED TO
AS OF THE DATE OF THE ABOVE LETTER:
BORROWER
SUN COAST HOLDINGS, INC.
BY: Cynthia R. Morris
ITS: Vice Chairman
ACKNOWLEDGED, ACCEPTED AND AGREED TO (AND CONFIRMING IN ALL RESPECTS THE
GUARANTY OF EACH OF THE UNDERSIGNED GUARANTORS) AS OF THE DATE OF THE ABOVE
LETTER:
GUARANTORS:
SUN COAST HOLDINGS, INC.
BY: Cynthia R. Morris
ITS: Vice Chairman
SUN COAST CLOSURES, INC.
BY: Cynthia R. Morris
ITS: Executive Vice President
PLASTICS MANUFACTURING COMPANY
BY: Cynthia R. Morris
<PAGE> 3
ITS: Executive Vice President
CUSTOM LAMINATES, INC.
BY: Cynthia R. Morris
ITS: Executive Vice President
SUN COAST ACQUISITION, INC.
BY: Cynthia R. Morris
ITS: Executive Vice President
cc: Joe T. Hyde
Loan Agreement File
<PAGE> 1
EXHIBIT 21
SUN COAST INDUSTRIES, INC.
SUBSIDIARIES
Sun Coast Holdings, Inc., a Nevada corporation
Sun Coast Closures, Inc., a Florida corporation
Plastics Manufacturing Company, a Nevada corporation
Custom Laminates, Inc., a Nevada corporation
Sun Coast Acquisition, Inc., a Nevada corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Sun Coast Industries, Inc.:
We consent to the incorporation by reference in the registration statements
(No. 33-59652, 33-80238, 33-87538 and 33- 87544) on Form S-8 of Sun Coast
Industries, Inc. and subsidiaries of our report dated August 23, 1996, except
as to Note 5, which is as of September 26, 1996, relating to the consolidated
balance sheets of Sun Coast Industries, Inc. and subsidiaries as of June 30,
1995 and 1996, and the related consolidated statements of income, cash flows
and stockholders' equity for each of the years in the three year period ended
June 30, 1996 and the related schedule, which appears in the June 30, 1996
annual report on Form 10-K of Sun Coast Industries, Inc.
KPMG PEAT MARWICK LLP
Dallas, Texas
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,947
<SECURITIES> 0
<RECEIVABLES> 12,781
<ALLOWANCES> 286
<INVENTORY> 9,875
<CURRENT-ASSETS> 24,778
<PP&E> 52,894
<DEPRECIATION> 24,183
<TOTAL-ASSETS> 55,800
<CURRENT-LIABILITIES> 35,860
<BONDS> 30,281
0
0
<COMMON> 40
<OTHER-SE> 14,169
<TOTAL-LIABILITY-AND-EQUITY> 55,800
<SALES> 80,790
<TOTAL-REVENUES> 80,790
<CGS> 68,046
<TOTAL-COSTS> 13,381
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 228
<INTEREST-EXPENSE> 1,995
<INCOME-PRETAX> (2,632)
<INCOME-TAX> (817)
<INCOME-CONTINUING> (1,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,815)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> 0
</TABLE>
