<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
------------------------------------
Commission File Number 1-12476
------------------------------
SUN COAST INDUSTRIES, INC.
--------------------------
(Exact name of Registrant)
Delaware #59-1952968
- ------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2700 South Westmoreland Ave., Dallas, TX 75233
----------------------------------------------
(Address of principal executive offices)
(214) 373-7864
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of November 6, 1996, the latest practicable date.
Class Outstanding at April 9, 1997
----- ----------------------------
Common stock $0.01 par value 4,104,229
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<PAGE> 2
SUN COAST INDUSTRIES, INC.
INDEX
<TABLE>
<S> <C>
Part I. Financial Information
Item I - Financial Statements
Condensed Consolidated Balance Sheets -- March 31, 1997
and June 30, 1996 3
Condensed Consolidated Statements of Income -- Nine Months
ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of Income -- Three Months
Ended March 31, 1997 and 1996 6
Condensed Consolidated Statements of Cash Flows -- Nine
Months ended March 31, 1997 and 1996 7
Notes to Condensed Consolidated Financial Statements 8
Item II - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II. Other Information
Items 1 through 6 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31,
1997 June 30,
(unaudited) 1996
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 874 $ 1,947
Accounts receivable, net of allowance for
doubtful accounts of $135 and $77 7,642 8,483
Inventories 5,370 5,411
Other current assets 306 408
Deferred income taxes 430 205
Net assets of discontinued
operations 5,654 12,934
-------- --------
Total current assets 20,276 29,388
Property, plant and equipment, net of accumulated
depreciation of $23,367 and $20,295 22,498 23,113
Intangible assets 261 280
Other assets 2,292 1,352
-------- --------
Total assets $ 45,327 $ 54,133
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value)
<TABLE>
<CAPTION>
March 31,
1997 June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) 1996
---------- --------
<S> <C> <C>
Current liabilities:
Accounts payable $ 7,645 $ 5,275
Accrued expenses 3,940 2,678
Current portion
of long-term debt 6,270 26,157
-------- --------
Total current liabilities 17,855 34,110
Long-term debt 15,192 3,124
Deferred income taxes 1,624 2,055
-------- --------
Total liabilities 34,671 39,289
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 40,000,000
shares authorized; 4,117,629 and 4,017,629
respectively, issued and 4,104,229 and
4,004,229, respectively, outstanding 40 40
Additional paid-in capital 11,655 11,339
Treasury stock (153) (153)
Retained earnings (deficit) (886) 3,618
-------- --------
Total stockholders' equity 10,656 14,844
-------- --------
Total liabilities and stockholders' equity $ 45,327 $ 54,133
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------
1997 1996
------- --------
<S> <C> <C>
Sales $49,721 $ 43,538
Costs and expenses:
Cost of sales 40,224 35,872
Selling, general and administrative 6,037 6,417
Interest, net 1,476 1,128
------- --------
47,737 43,417
------- --------
Income from continuing operations
before provision for income taxes 1,984 121
Provision for income taxes (643) (138)
------- --------
Income (loss) from continuing
operations $ 1,341 (17)
Discontinued operations (Note 2)
Loss from discontinued
operations, net of income
taxes of $405 and $860,
respectively (819) (1,378)
Loss on disposal of discontinued
operations, net of income taxes
of $2,817 (5,025) --
------- --------
Net loss $(4,503) $ (1,395)
======= ========
Net income (loss) per common share:
Continuing operations $ 0.33 $ 0.00
Discontinued operations (1.45) (0.35)
------- --------
Net loss per common share $ (1.12) $ (0.35)
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
------- --------
<S> <C> <C>
Sales $18,140 $ 16,018
Costs and expenses:
Cost of sales 14,976 13,101
Selling, general and administrative 1,817 2,702
Interest, net 491 379
------- --------
17,284 16,182
------- --------
Income from continuing operations
before provision for income taxes 856 (164)
Provision for income taxes (287) (12)
------- --------
Income (loss) from continuing
operations 569 (176)
Discontinued operations (Note 2)
Loss from discontinued
operations, net of income taxes
of $0 and $579 respectively -- (968)
------- --------
Net income (loss) $ 569 $ (1,144)
======= ========
Net income (loss) per common share:
Continuing operations $ 0.14 $ (0.04)
Discontinued operations -- (0.25)
------- --------
Net income (loss) per common share $ 0.14 $ (0.29)
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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SUN COAST INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------
1997 1996
------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,503) $(1,395)
Adjustments to reconcile net income to
net cash provided by (used in) operations:
Depreciation and amortization 4,090 4,250
Gain on sale of assets 165 --
Deferred income taxes (830) (124)
Loss from discontinued operations 4,458 --
Changes in assets and liabilities:
Accounts receivable
Inventories (80) (2,670)
Other current assets 2,167 2,036
Intangible and other assets 148 (150)
Accounts payable and accrued expenses (987) (244)
3,927 2,223
------- -------
Net cash provided by operations 8,555 3,926
------- -------
Cash flows from investing activities:
Capital expenditures (3,916) (3,467)
Dispositions 1,801 --
------- -------
Net cash used in investing activities (2,115) (3,467)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt -- 2,958
Repayments of long-term debt (7,506) (3,925)
Issuance of Common Stock -- 72
------- -------
Net cash used in provided by financing activities (7,506) (895)
------- -------
Effect of exchange rate changes on cash (7) (154)
------- -------
Change in cash and cash equivalents (1,073) (590)
Cash and cash equivalents at beginning of period 1,947 1,173
------- -------
Cash and cash equivalents at end of period $ 874 $ 583
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
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SUN COAST INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's (defined below) interim financial statements are unaudited
and should be read in conjunction with the consolidated financial
statements and notes thereto in its Form 10-K and Annual Report to
Stockholders for the year ended June 30, 1996.
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments, consisting only of those of a normal
recurring nature, necessary for a fair statement of the results of
operations for the interim periods presented.
Description of Business
Sun Coast Industries, Inc. (the "Company") manufactures and sells melamine
and urea resins and compounds and, from these and other materials, molds
consumer products and commercial plastic products, including dinnerware,
drinkware and closures. 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
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. The Consumer Products and Foodservice Divisions,
which are being discontinued (see Note 2), 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.
8
<PAGE> 9
SUN COAST INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont'd)
Principles of Consolidation
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. 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. Certain amounts
in previously issued financial statements have been reclassified to
conform with the current year financial statement presentation.
Inventories
Inventories are valued at the lower of cost or market, with cost
determined utilizing the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and depreciated using
the straight-line method over the estimated useful lives of the related
assets. Lives assigned to asset categories are 5 to 15 years for machinery
and equipment, 30 to 35 years for buildings and 5 years for molds.
Machinery and equipment under capital leases are stated at the present
value of minimum lease payments and amortized over 1 to 3 years. 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.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, ranging from 5 - 20 years. The Company
assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured
based on projected discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on July 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of the
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
9
<PAGE> 10
SUN COAST INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont'd)
Advertising Costs
The Company expenses the costs of advertising as incurred, except for
direct-response advertising and catalog costs which are capitalized and
amortized over their expected periods of future benefit (generally six
months). Direct response advertising and catalog costs consist primarily
of printing and contract services for catalogs to market the Company's
products.
Income Taxes
Deferred income taxes are provided for temporary differences between
financial and tax reporting. Income taxes are provided for taxes currently
payable based on taxable income.
Environmental Costs
A liability for environmental assessments and/or cleanup is accrued when
it is probable a loss has been incurred and is estimable. No significant
liabilities were in existence at March 31, 1997 and June 30, 1996.
Net Income Per Common Share
Net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during each period
after giving effect to stock options and warrants considered to be
dilutive common stock equivalents.
10
<PAGE> 11
SUN COAST INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont'd)
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.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less
to be cash equivalents.
Foreign Currency Translation and Transactions
Gains or loses from foreign currency transactions are included in net
income. There were no material gains or losses from foreign currency
transactions for the nine months ended March 31, 1997 and for fiscal 1996.
Included in discontinued operations is the Company's foreign subsidiary.
Effective January 1, 1997, the Mexican economy has been deemed highly
inflationary. Thus, the Company switched the functional currency for its
Mexican subsidiary from the peso to the U.S. dollar. The change in the
functional currency from the peso to the U.S. dollar will not have a
material impact on the estimated loss on disposal of discontinued
operations.
NOTE 2 - DISCONTINUED OPERATIONS
On December 6, 1996, the Company's Board of Directors adopted a formal
plan to dispose of its Foodservice and Consumer Products Tableware
Divisions including the Company's foreign subsidiary in Mexico. These
divisions have been accounted for as discontinued operations in accordance
with APB 30, which among other provisions, requires the plan of disposal
to be carried out within one year. Management believes this is a
reasonable time period for the disposal. In February, the Company sold its
Foodservice Division and it has plans underway to exit the Consumer
Products Division, either through sale or termination of operations.
Based on management's assumptions used in determining the estimated gain or
loss from the disposal of the tableware business, the Company recorded a
provision of $5.025 million, net of income taxes, for the loss on disposal
of the discontinued business in the quarter ended December 31, 1996.
This loss on disposal of discontinued operations resulted from the
estimated net loss on the sale of the Foodservice Division and estimated
net loss on the exit of the Consumer Products Division of approximately
$4.167 million, net of income taxes, as well as estimated operating losses
during the period required to dispose of the divisions of approximately
$858,000, net of income taxes.
Sales of the divisions for the two months and five months of fiscal 1997
prior to the December 6th Board's decision to discontinue these
operations were $3.007 million and $7.678 million, respectively. Sales
for the three and nine month periods ended March 31, 1996 were $5.015
million and $15.46 million, respectively.
The estimated loss for disposal is considered adequate at March 31, 1997.
The net assets of discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------ --------
($ in thousands)
<S> <C> <C>
Current assets $ 7,693 $ 8,324
Plant, property and equipment 4,160 5,598
Intangible & other assets 582 646
Current liabilities (289) (385)
Accrued expenses (1,114) (257)
Long term debt (1,000) (1,000)
Deferred taxes (657) (660)
Foreign Currency Translation 737 668
Provision for estimated loss
on disposal (4,458) -
--------- -------
Net assets of discontinued
operations $ 5,654 $12,934
========= =======
</TABLE>
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
March 31,
1997 June 30,
(unaudited) 1996
------------ --------
(in thousands)
<S> <C> <C>
Raw Materials $3,181 $ 2,837
Work-in-process 263 328
Finished good 2,579 2,805
------ --------
6,023 5,970
Obsolescence reserve (653) (559)
------ --------
$5,370 $ 5,411
====== ========
</TABLE>
11
<PAGE> 12
NOTE 4 - LONG TERM DEBT
<TABLE>
<CAPTION>
March 31,
1997 June 30,
(unaudited) 1996
---------- --------
(in thousands)
<S> <C> <C>
Term Loan $13,242 $ 5,818
Revolving credit line 4,324 12,659
Capital expenditures term loan -- 8,437
Industrial development revenue bonds 2,063 2,175
Capitalized lease obligations 231 192
Real estate loan 1,915 --
------- -------
Subtotal 21,775 29,281
Less: Debt financing expense (313) --
------- --------
21,462 29,281
Current maturities on original
maturity schedule (6,270) (2,277)
Long term debt classified as current -- (23,880)
------- --------
$15,192 $ 3,124
======= ========
</TABLE>
On January 31, 1997, the Company refinanced its existing debt with a new
lender to provide a total credit facility of $30 million in borrowings
secured by substantially all the assets of the Company. The facility
provides for borrowings under three separate arrangements - (i) a term
loan in an aggregate principal amount of $10 million payable in monthly
installments through January 31, 2000. (ii) a second term loan in an
aggregate principal amount of $5 million payable in monthly installments
beginning January 1, 1998 through January 31, 2000, and (iii) a $15.0
million revolving loan, due January 31, 2000. As of March 31, 1997,
outstanding borrowings under the credit facility included $13.2 million
under the two term loans, and $4.3 million under the revolving credit
line. At March 31, 1997, based on the Company's borrowing formula
incremental borrowing availability was approximately $8.7 million under
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, limitation 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 and
fixed charge coverage and a limitation on annual capital expenditures.
In conjunction with the refinancing, the Company issued 100,000 shares of
its common stock to the new lender, recording debt issuance cost of
$313,000.
As the Company is currently in compliance with the loan covenants on its
new debt, the Company has classified its outstanding debt as current or
long term based upon maturity obligations.
12
<PAGE> 13
Item II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1997, Compared to the Three Months
Ended March 31, 1996 for Continuing Operations
Sales for the three months ended March 31, 1997, increased $2,122,000
or 13.2%, when compared to the same period in 1996. Closure Division's
sales increased 1.0%. Chemical Division's sales increased 22.9% due
primarily to a large non-recurring customer order.
Cost of sales as a percentage of net sales increased to 82.6% from 81.8%.
The decrease in gross margin was primarily the result of product mix with
larger volumes of lower margin product being sold in the fiscal 1997
quarter.
Selling, general and administrative expense ("SG&A") decreased $885,000
to 10.0% of sales for the three months ended March 31, 1997 as compared to
16.9% of sales for the three months ended March 31, 1996. This decrease
is primarily the result of certain non-recurring severance and related
expenses associated with the termination of the former President of the
Company in February 1996.
Interest expense has increased $112,000 for the three months ended
March 31, 1997 compared to the three months ended March 31, 1996 primarily
due to an increase in interest rates as a result of the new bank financing
completed in January 1997.
Net income from continuing operations increased $745,000 from the
comparable prior fiscal period primarily due to the increased sales
volumes in the current period and unusual expenses in the prior period
discussed above.
13
<PAGE> 14
Item II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine Months Ended March 31, 1997, Compared to the Nine Months
Ended March 31, 1996 for Continuing Operations
Sales for the nine months ended March 31, 1997, increased $6,183,000
or 14.2%, when compared to the same period in 1996. Closure Division's
sales increased 7.8% and Chemical Division's sales increased 19.9% both
due to increased customer orders, certain of which are non-recurring in
the Chemical Division.
Cost of sales as a percentage of net sales decreased to 80.9% from 82.4%.
This improvement in gross margin was due primarily to the increased sales
volume.
Selling, general and administrative expense ("SG&A") decreased $380,000.
As a percent of sales, it decreased from 14.7% of sales for the nine
months ended March 31, 1996 to 12.1% of sales for the nine months ended
March 31, 1997. This is primarily due to a non-recurring $375,000
severance payment made to the former President of the Company in February
1996, and other related expenses.
Interest expense has increased $348,000 for the nine months ended
March 31, 1997 compared to the nine months ended March 31, 1996 primarily
due to an increase in interest rates with the new bank financing completed
in January 1997.
Net income from continuing operations increased $1,358,000 from the
comparable prior fiscal period primarily due to increased sales volumes in
fiscal 1997 and the unusual severance payment in fiscal 1996, discussed
above.
Discontinued Operations
On December 6, 1996, the Company's Board of Directors adopted a formal plan
to dispose of its Foodservice and Consumer Products Tableware Divisions.
These divisions have been accounted for as discontinued operations in
accordance with APB 30, which among other provisions, requires the plan of
disposal to be carried out within one year. Management believes this is a
reasonable time period for the disposal. In February, the Company sold its
Foodservice Division and it has plans underway to exit the Consumer
Products Division, either through sale or termination of operations.
Based on management's assumptions used in determining the estimated gain or
loss from the disposal of the tableware business, the Company recorded a
provision of $5.025 million, net of income taxes, for the loss on disposal
of the discontinued business in the quarter ended December 31, 1996.
This loss on disposal of discontinued operations resulted from the
estimated net loss on the sale of the Foodservice Division and estimated
net loss on the exit of the Consumer Products Division of approximately
$4.167 million, net of income taxes, as well as estimated operating losses
during the period required to dispose of the divisions of approximately
$858,000, net of income taxes.
Sales of the divisions for the three months and nine months of fiscal 1997
were $6.737 million and $15.848 million, respectively. Comparable sales
for the three and nine month periods ended March 31, 1996 were $5.015
million and $15.446 million, respectively. The Consumer Products and
Foodservice Divisions' sales increased 34.3% and 2.6% for the three month
and nine month periods ended March 31, 1997 as compared to the prior year
comparable periods. These sales increases were a result of one large
non-recurring order in fiscal 1997.
Liquidity and Capital Resources
Management reviews the Company's working capital, accounts receivable and
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. During the nine months ended March 31, 1997, the Company
repaid net borrowings by $7.5 million. Cash flow from operations
generated $8.55 million.
Capital expenditures for the nine months ended March 31, 1997 were
$3.9 million including approximately $2 million for the purchase, in
January 1997, of a second facility to expand capacity in the Closures
Division in Florida. Anticipated future capital additions should
approximate less than $2 million for the remainder of fiscal 1997.
In January 1997, the Company refinanced its existing debt with a new lender
to provide a total credit facility of $30 million in borrowings secured by
substantially all the assets of the Company. The facility provides for
borrowings under three separate arrangements - (i) a term loan in an
aggregate principal amount of $10 million payable in monthly installments
through January 31, 2000, (ii) a second term loan in an aggregate
14
***************************
<PAGE> 15
principle amount of $5 million payable in monthly installments beginning
January 1, 1998 through January 31, 2000, and (iii) a $15.0 million
revolving loan, due January 31, 2000. As of March 31, 1997, outstanding
borrowings under the credit facility included $13.2 million under the two
term loans and $4.3 million under the revolving credit line. At March
31, 1997, based on the Company's borrowing formula incremental borrowing
availability was approximately $8.7 million under 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, limitation 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 and fixed charge coverage and a limitation on
annual capital expenditures.
The Company's plan to discontinue its Tableware business should not have an
overall material impact on liquidity. Certain cash proceeds will be
received from the sale of its Foodservice Division and there will be
offsetting cash needs related to severance, relocation and other costs of
discontinuing the Consumer Products Division. The majority of costs related
to the discontinuation of the Tableware business are non-cash.
Management believes internally generated funds should be adequate to meet
future debt repayments and capital expenditure needs.
The Company's Mexican subsidiary, included in discontinued operations, is
subject to currency risk to the extent its net assets, denominated in
pesos, devalues against the U.S. dollar.
Disclosures Regarding Forward-Looking Statements
This report on Form 10-Q 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-Q, 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.
15
<PAGE> 16
SUN COAST INDUSTRIES, INC.
MARCH 31, 1997
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
Item 6 - Exhibits and Reports in Form 8K
(a) Exhibits:
27 Financial Data Schedule
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Sun Coast Industries, Inc.
------------------------------------------------------
Registrant
5/14/97 By: /s/ EDDIE LESOK
- -------- --------------------------------------------------
Date Eddie Lesok, Chief Executive Officer and President
5/14/97 By: /s/ CYNTHIA R. MORRIS
- -------- --------------------------------------------------
Date Cynthia R. Morris, CFO, Secretary and Treasurer
17
<PAGE> 18
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 874
<SECURITIES> 0
<RECEIVABLES> 7,777
<ALLOWANCES> 135
<INVENTORY> 5,370
<CURRENT-ASSETS> 20,276
<PP&E> 45,865
<DEPRECIATION> 23,367
<TOTAL-ASSETS> 45,327
<CURRENT-LIABILITIES> 17,855
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 10,616
<TOTAL-LIABILITY-AND-EQUITY> 45,327
<SALES> 49,721
<TOTAL-REVENUES> 49,721
<CGS> 40,224
<TOTAL-COSTS> 40,224
<OTHER-EXPENSES> 7,513
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 1,476
<INCOME-PRETAX> 1,984
<INCOME-TAX> (643)
<INCOME-CONTINUING> 1,341
<DISCONTINUED> (5,844)<F1>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,503)
<EPS-PRIMARY> (1.12)
<EPS-DILUTED> 0
<FN>
<F1>Net Assets of Discontinued Operations - 5,654
</FN>
</TABLE>
