<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
*****************
For Quarter Ended December 31, 1996 Commission file number 0-5240
VERSA TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 39-1143618
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9301 Washington Avenue, Racine, Wisconsin 53406
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 414/886-1174
-------------------
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. X YES NO
----- -----
Common stock outstanding as of January 27, 1997 - 5,580,483 shares.
<PAGE> 2
FORM 10-Q 12/31/96
VERSA TECHNOLOGIES, INC.
AND SUBSIDIARIES
I-N-D-E-X
Exhibit Reference
or Form 10-Q
Page Number
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets 10-Q, Page 3
December 31, 1996 (Unaudited)
and March 31, 1996
Consolidated Statements of Earnings 10-Q, Page 4
Nine months ended December 31, 1996
and 1995 (Unaudited)
Consolidated Statements of Earnings 10-Q, Page 5
Three months ended December 31, 1996
and 1995 (Unaudited)
Consolidated Statements of Cash Flows 10-Q, Page 6
Nine months ended December 31, 1996
and 1995 (Unaudited)
Notes to Consolidated Financial Statements 10-Q, Page 7
(Unaudited)
Item 2 Management's Discussion and Analysis 10-Q, Page 9
of Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 5 Management Changes 10-Q, Page 11
Item 6 Exhibits and Reports on Form 8-K 10-Q, Page 12
2
<PAGE> 3
FORM 10-Q 12/31/96
<TABLE>
<CAPTION>
VERSA TECHNOLOGIES, INC.
BALANCE SHEETS*
- ------------------------------------------------------------------------------
December 31, March 31,
1996 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 384 $14,746
Receivables, net of allowances 11,261 11,410
Inventories 12,859 7,743
Prepaid expenses and taxes 1,206 1,183
------- -------
Total current assets 25,710 35,082
PROPERTY, PLANT, AND EQUIPMENT** 24,266 20,517
INTANGIBLES 11,225 1,530
OTHER ASSETS 251 309
------- -------
$61,452 $57,438
======= =======
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term debt $ 4,133 --
Accounts payable 4,751 $ 3,691
Accrued expenses 3,754 3,391
Income taxes 162 87
------- -------
Total current liabilities 12,800 7,169
DEFERRED INCOME TAXES 1,877 820
DEFERRED PENSION, DEFERRED
COMPENSATION AND POSTRETIREMENT
BENEFITS EXPENSE 2,925 2,465
SHAREHOLDERS' EQUITY 43,850 46,984
------- -------
$61,452 $57,438
======= =======
</TABLE>
* In thousands of dollars. December 31, 1996 figures are unaudited. March
31, 1996 figures condensed from audited financial statements.
** Net of accumulated depreciation of $25,769,000 at December 31, 1996 and
$25,556,000 at March 31, 1996.
3
<PAGE> 4
FORM 10-Q 12/31/96
<TABLE>
<CAPTION>
VERSA TECHNOLOGIES, INC.
STATEMENTS OF EARNINGS (UNAUDITED)*
- --------------------------------------------------------------------------
Nine Months ended December 31, 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
NET SALES $61,065 $50,840
Cost of Sales 44,916 36,542
------- -------
GROSS PROFIT 16,149 14,298
Selling and administrative expenses 9,365 8,295
------- -------
OPERATING INCOME 6,784 6,003
------- -------
OTHER INCOME
Interest income 355 645
Interest expense (85) (25)
Miscellaneous, net 124 90
Loss on sale of business (522) -
------- -------
(128) 710
------- -------
EARNINGS BEFORE INCOME TAXES 6,656 6,713
INCOME TAXES 2,770 2,430
------- -------
NET EARNINGS $ 3,886 $ 4,283
======= =======
NET EARNINGS PER SHARE $ 0.69 $ 0.72
======= =======
Average shares outstanding 5,629 5,985
======= =======
</TABLE>
*Amounts are in thousands except earnings per share. Interim results are not
necessarily indicative of full year and are subject to audit.
4
<PAGE> 5
FORM 10-Q 12/31/96
<TABLE>
<CAPTION>
VERSA TECHNOLOGIES, INC.
STATEMENTS OF EARNINGS (UNAUDITED)*
- --------------------------------------------------------------------------
Three Months ended December 31, 1996 ** 1995
- --------------------------------------------------------------------------
<S> <C> <C>
NET SALES $22,088 $16,486
Cost of Sales 16,625 12,155
------- -------
GROSS PROFIT 5,463 4,331
Selling and administrative expenses 3,358 2,551
------- -------
OPERATING INCOME 2,105 1,780
------- -------
OTHER INCOME
Interest income 52 197
Interest expense (61) (9)
Miscellaneous, net 53 5
------- -------
44 193
EARNINGS BEFORE INCOME TAXES 2,149 1,973
INCOME TAXES 900 715
------- -------
NET EARNINGS $ 1,249 $ 1,258
======= =======
NET EARNINGS PER SHARE $ 0.22 $ 0.21
======= =======
Average shares outstanding 5,579 5,964
======= =======
</TABLE>
* Amounts are in thousands except earnings per share. Interim results are
not necessarily indicative of full year and are subject to audit.
** Includes two months of operations of Eder Industries, Inc.
5
<PAGE> 6
FORM 10-Q 12/31/96
<TABLE>
<CAPTION>
VERSA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)*
Decrease in Cash and Cash Equivalents
- -------------------------------------------------------------------------------
Nine months ended December 31, 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,886 $ 4,283
Depreciation and amortization 2,670 2,420
Provision for losses on accounts receivable 100 52
Increase in current assets other than cash
and cash equivalents (1,360) 752
(Decrease) Increase in current liabilities (200) (31)
Increase in deferred liabilities 367 80
(Gain) Loss on disposition of equipment (25) (20)
-------- -------
Net cash provided by operating activities 5,438 7,536
-------- -------
Cash flows from investing activities:
Capital expenditures (5,561) (3,068)
Acquisition of business, net of cash acquired (14,761) -
Proceeds from sale of business 3,009 -
Loss on sale of business 498 -
Proceeds from sale of plant and equipment 36 53
Other (30) 89
-------- -------
Net cash used in investing activities (16,809) (2,926)
-------- -------
Cash flows from financing activities:
Net borrowings under line of credit agreement 4,029 -
Dividends paid (3,648) (3,829)
Purchase of treasury stock (3,509) (1,205)
Sale of stock under option plans 137 278
-------- -------
Net cash used in financing activities (2,991) (4,756)
-------- -------
Decrease in cash and cash equivalents (14,362) (146)
Cash and cash equivalents at beginning of period 14,746 15,967
-------- -------
Cash and cash equivalents at end of period $ 384 $15,821
======== =======
Supplemental Disclosures of Cash Flow Information
Cash paid during period for:
Income taxes $ 3,085 $ 2,343
Interest 49 --
</TABLE>
* Amounts are in thousands.
6
<PAGE> 7
FORM 10-Q 12/31/96
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies --
The consolidated balance sheet as of December 31, 1996, the consolidated
statements of earnings for the three-month and nine-month periods ended
December 31, 1996 and 1995, and the consolidated statements of cash flows
for the nine-month periods ended December 31, 1996 and 1995 are unaudited.
In the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items. Interim results are
not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form
10-Q, and do not contain certain information included in the annual
financial statements and notes of Versa Technologies, Inc. and
subsidiaries for the year ended March 31, 1996.
2. Inventories --
Interim inventories are based on perpetual records which are partially
verified by interim physical counts.
3. Intangible Assets --
Included in intangible assets at December 31, 1996 was $10.4 million which
is related to the acquisition of Eder Industries, Inc. (See Note 7).
Goodwill of $8.2 million represented the excess of the acquisition cost
over the fair value of net assets acquired and is amortized on a
straight-line basis over 40 years. Other acquired intangibles
(principally customer or employment related items) were $2.2 million and
are being amortized on a straight-line basis over periods ranging from 3
to 40 years. Amortization expenses for the quarter ended December 31,
1996 for the above items was approximately $82,000.
4. Short Term Debt --
At December 31, 1996 the Company's borrowings under a $15 million
unsecured line of credit agreement were $4.1 million. Interest payable
under this agreement is variable. The rate at December 31, 1996 was 6.3%.
7
<PAGE> 8
FORM 10-Q 12/31/96
5. Shareholders' Equity --
Shareholders' equity is composed of the following elements (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ---------
<S> <C> <C>
Common stock, par value $.01 per share $ 61 $ 61
Additional paid-in capital 18,631 18,681
Retained earnings 31,709 31,471
------ ------
50,401 50,213
Less treasury shares at cost 6,551 3,229
------ ------
$43,850 $46,984
====== ======
</TABLE>
Total shares of common stock outstanding net of treasury shares was
5,580,483 at December 31, 1996 and 5,829,164 at March 31, 1996.
During the nine months ended December 31, 1996, 13,869 shares of treasury
stock were re-issued under the provision of the Company's 1982 Incentive
Stock Option Plan (the 1982 Plan), and the Company's 1992 Incentive Stock
Option Plan (the 1992 Plan). Treasury stock cost basis in excess of the
proceeds received was charged to additional paid-in capital.
As of December 31, 1996, 78,650 shares of common stock were reserved for
issuance under the Company's 1982 Plan; 489,875 shares were reserved for
issuance under the Company's 1992 Plan; and 35,100 shares were reserved
for non-qualified stock options held by outside directors and an outside
officer of the Company.
At the Company's annual meeting on July 23, 1996, shareholders ratified
the adoption of the Versa Technologies, Inc. 1996 Employee Stock Purchase
and Payroll Savings Plan. As of December 31, 1996, 35,367 shares of
common stock were reserved for issue under this plan. The per share
exercise price is $12.27 which was 90% of the closing price of the common
stock on May 17, 1996. The Plan runs from January 1, 1997 to January 31,
1999. The earliest that an option could be exercised is during January,
1998.
During the nine months ended December 31, 1996, retained earnings was
credited with net income of $3,886,000 and charged with $3,648,000 for
dividends paid (which included a $.35 per share special dividend).
6. Earnings Per Share Calculation --
Earnings per share have been computed on the basis of weighted average
shares outstanding during the respective interim periods. Common share
equivalents were excluded because their dilutive effect is not
significant.
8
<PAGE> 9
FORM 10-Q 12/31/96
7. On October 30, 1996, the Company acquired 100% of the capital stock of
Eder Industries, Inc. ("Eder") for $15,382,000. The funds used to acquire
Eder were borrowed ($4.8 million) under a revolving business note
agreement, with the balance ($10.6 million) coming from the sale of short
term cash investments.
The acquisition was accounted for by the purchase method and, accordingly,
Eder's results of operations have been included with the Company's results
since the acquisition date. The fair value of assets acquired and
liabilities assumed totaled $7.6 million (of which $700,000 was cash) and
$2.2 million, respectively. The excess of the purchase price over the
fair value of net assets acquired ($8.2 million) is being amortized on a
straight-line basis over 40 years.
The unaudited pro forma information below represents combined results of
operations as if the acquisition had occurred at the beginning of the
respective periods presented. The unaudited pro forma information is not
necessarily indicative of the results of operations of the combined
Company had the acquisition occurred at the beginning of the periods
presented, nor is it necessarily indicative of future results.
<TABLE>
<CAPTION>
Period Ended December 31,
-------------------------
(in thousands, except per share data) 1996 1995
------------------------------------- ---- ----
<S> <C> <C>
Revenues $71,466 $63,484
Net Earnings (1) 4,019 4,230
Earnings per share (1) .71 .71
</TABLE>
(1) The 1996 period includes a $498,000, or $.09 per share, after-tax loss
on the disposition of Moxness Thermoplastics, Inc.
8. Sale of Business
On September 26, 1996, the Company completed the sale of its subsidiary,
Moxness Thermoplastics, Inc., Stevensville, Michigan, to General Plastics
Corporation, Stevensville, Michigan. Under the terms of the sale, General
Plastics Corporation acquired 100% of the stock of Moxness Thermoplastics,
Inc. from Moxness Products, Inc., a subsidiary of Versa Technologies,
Inc., at a price of $3,410,000. Based on asset values on the effective
date of the sale, September 1, 1996, the sale resulted in a one time loss
during the second quarter of $522,000.
Fiscal 1996 sales at Moxness Thermoplastics, Inc. were $2,995,000, with a
net loss of $251,000. For the first quarter of fiscal 1997, Moxness
Thermoplastics reported sales of $727,000 and break-even results. Moxness
Thermoplastics employs 25 people. The decision to divest of this business
is in keeping with management's plans to concentrate on the Company's core
businesses, moving away from commodity products and focusing on more
profitable niche markets.
9
<PAGE> 10
FORM 10-Q 12/31/96
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
With the acquisition of Eder Industries, Inc. on October 30, 1996 and the
significant growth of its Fluid Power segment, the Company has moved more
toward the manufacture of higher value-added engineered systems versus
components. Additionally, both Moxness Products and Mox-Med (silicone
businesses) have been placed under common leadership and there is now a greater
sharing of technical and administrative support functions. In recognition of
the changing nature and structure of the businesses, effective this quarter the
Company revised its segment reporting. Versa/Tek's three business segments
include Fluid Power (Milwaukee Cylinder and Power Gear), Engineered Materials
(Moxness Products, Inc., Mox-Med, Inc., and Lovdahl Manufacturing), and
Electronics (Eder Industries, Inc.).
Consolidated sales for the nine months increased $10,225,000 or 20% from the
prior year. For the quarter, sales increased $5,602,000, or 34%. Comparative
sales in thousands were as follows:
<TABLE>
<CAPTION>
Nine Months Three Months
---------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fluid Power $34,451 $24,907 $12,189 $8,619
Engineered Materials 24,165 26,618 7,286 8,041
Electronics * 3,275 - 3,275 -
Less - interdivisional sales (826) (685) (662) (174)
------- ------- ------- -------
$61,065 $50,840 $22,088 $16,486
======= ======= ======= =======
</TABLE>
* Represents sales from October 30, 1996, the date of acquisition to December
31, 1996.
Sales for the Fluid Power segment for both the quarter and nine months ended
December 31, 1996 grew approximately 40%. Operating income for the first nine
months grew at approximately the same rates as sales. This growth continues to
be fueled by Power Gear's penetration into the recreational vehicle market with
its proprietary leveling systems and electrically-powered systems for slideout
rooms. Sales to the recreational vehicle market represented 47% of this
segment's sales for the nine months. As reported previously, this percentage
will continue to increase during the balance of this fiscal year and into next
year. Power Gear entered into a new agreement with a leading manufacturer of
recreational vehicles during the second quarter to supply slideout systems for
travel trailers. At full production, estimated annual sales volume under this
agreement will be in excess of $6 million. For the quarter ended December 31,
1996, the rate of growth in operating income for the Fluid Power segment slowed
somewhat due to a softening in both sales and operating income at Milwaukee
Cylinder.
Sales at the Engineered Materials segment were down approximately 9% for both
the quarter and nine months ended December 31, 1996. The decline in sales was
due primarily to two factors. 1) The sale of Moxness Thermoplastics effective
September 1, 1996. The drop in sales related to Moxness Thermoplastics for the
quarter and nine months were $450,000 and $900,000 respectively. 2) The
10
<PAGE> 11
FORM 10-Q 12/31/96
business continues to experience soft demand from several core medical
customers. This segment's operating margin has been significantly reduced and
is now close to break-even due primarily to the drop in volume. Management is
currently investigating what actions are needed to return this segment to a
higher level of profitability.
Results for the quarter include the operations of Eder starting October 30,
1996, the date the business was acquired. For additional information refer to
Note 7 in the quarterly financial statements or the Form 8-K filed on January
8, 1997.
On a consolidated basis, sales were up 20% for the first nine months of fiscal
1997 and gross profit increased by 13%. Gross profit as a percentage of sales
decreased from 28.1% to 26.4%. This decline in the gross profit percentage was
due almost entirely to the Engineered Materials segment where gross profit
dollars declined by approximately $1.8 million. Consolidated operating income
grew at the same percentage as gross profit.
For the first nine months of fiscal 1997, other income (deductions) declined
$838,000. This drop included a one time pre-tax loss of $522,000 on the sale
of the Company's thermoplastics business. This transaction was effective
September 1, 1996. The other significant change was a $350,000 decline in net
interest income (expense). This drop was due to lower cash balances for the
first seven months of the year combined with the liquidation of short-term
investments and the borrowing of $4.8 million under a revolving business note
agreement to finance the acquisition of Eder.
The effective tax rate increased from 36.2% for the first nine months of fiscal
1996 to 41.6% for the same period this year. The tax rate increase was due
primarily to two factors. 1) The loss on the disposition of the Company's
thermoplastics business was not deductible for tax purposes; and 2) the tax
rate for fiscal 1996 included the impact of a research and development credit
claimed for prior years. Items which impacted the effective rate for the
current quarter were the loss of the tax exempt interest on the Company's short
term municipal investments and the non tax deductible amortization of the
goodwill from the Eder acquisition.
Cash Flows and Liquidity
Cash provided from operating activities was $5.4 million for the nine months
down from $7.5 million for the same period last year. Significant changes in
the current sections of the balance sheet since March 31, 1996 were a $1.7
million decrease in accounts receivable offset by a $3.1 million increase in
inventory. Accounts receivable were unusually high at March 31, 1996, due to
the strength of March 1996 sales. The increase in inventory is almost entirely
at our Power Gear unit which continues to experience significant sales growth.
Capital expenditures (investing activities) of $5.6 million for the nine months
included an upgrade in the Company's aviation department. A turbo prop
aircraft valued at $850,000 was traded in along with a $2.3 million cash
payment for the purchase of a used jet aircraft. The purchase of this aircraft
expands the range within which Company sales and engineering personnel can
quickly service customers from the midwest to the continental United States and
Canada. For the balance of the year, commitments for
11
<PAGE> 12
FORM 10-Q 12/31/96
capital expenditures do not include any significant amounts in excess of
historical levels for replacements and improvements to facilities and
equipment.
The Company acquired 100% of the capital stock of Eder effective October 30,
1996 for $14.7 million (net of $700,000 of cash acquired). The funds used to
acquire Eder were borrowed ($4.8 million) under a revolving business note
agreement, with the balance coming from the sale of short term cash
investments. Eder, a privately held company headquartered in Oak Creek,
Wisconsin, designs and manufactures custom electronic products for original
equipment manufacturers. Eder had sales of $18,600,000 for their fiscal year
ended August 31, 1996. The acquisition was accounted for as a purchase. The
excess of the purchase price over the estimated fair value of the net assets
acquired which approximates $8.2 million, was recorded as goodwill.
On May 20, 1996, the Board of Directors expanded the Company's stock buy back
program to 15% of outstanding shares from 10% authorized in February 1995.
During the nine months 262,600 shares were acquired for $3,509,000 (there was
no change during the current quarter). Through December 31, 1996, 522,300
shares of the total 900,000 authorized have been repurchased under the program
at a cost of $7,080,000.
At December 31, 1996, the Company had working capital of $12,910,000.
Management anticipates that this liquidity plus $11,000,000 in available credit
under an unsecured revolving business note agreement will be sufficient to
cover known demands for uses of working capital.
Outlook
Order backlog on December 31, 1996 was $26,803,000 versus $13,608,000 one year
ago. The increase in backlog is related entirely to the inclusion of Eder at
December 31, 1996. It is anticipated that the order backlog is firm and will
be filled within the current year.
Exclusive of the one-time reduction in earnings due to the divestiture of
Moxness Thermoplastics, Inc. and despite continued weakness of the Engineered
Materials businesses, management expects earnings per share for the fiscal year
will be up slightly over the prior year.
PART II OTHER INFORMATION
Item 5 - Management Changes
On December 4, 1996 Michael W. Garvey was promoted to president of the
Company's silicone business (Mox-Med, Inc. and Moxness Products, Inc).
Richard H. Marks, president of Eder Industries, Inc., was elected to the Board
of Directors on November 21, 1996. The addition of Mr. Marks increases the
number of directors to eight. He will serve through fiscal 1998 and be
eligible for reelection to the Board in July 1998.
12
<PAGE> 13
FORM 10-Q 12/31/96
Item 6 - Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of this report.
2 Stock Purchase Agreement dated October 30, 1996 between the
shareholders of Eder Industries, Inc. and Versa Technologies, Inc.
(Incorporated by reference to Exhibit 2 to Form 10Q for the quarter
ended September 30, 1996)
10 Employment Agreement between Richard H. Marks, President of
Eder Industries, Inc. and Versa Technologies, Inc., dated October 30,
1996. (Incorporated by reference to Exhibit 2 to Form 10Q for the
quarter ended September 30, 1996)
(b) Reports on Form 8-K
Form 8-K dated October 30, 1996 related to the Company's acquisition of
Eder Industries, Inc. was filed on January 8, 1997.
SIGNATURE
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.
VERSA TECHNOLOGIES, INC.
---------------------------------
(Registrant)
Date: February 11, 1997 /s/ Robert M. Sukalich
---------------------------------
Vice President-Finance, Treasurer
and Principal Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 384,000
<SECURITIES> 0
<RECEIVABLES> 11,566,000
<ALLOWANCES> 305,000
<INVENTORY> 12,859,000
<CURRENT-ASSETS> 25,710,000
<PP&E> 50,036,000
<DEPRECIATION> 25,769,000
<TOTAL-ASSETS> 61,452,000
<CURRENT-LIABILITIES> 12,800,000
<BONDS> 0
0
0
<COMMON> 61,000
<OTHER-SE> 43,789,000
<TOTAL-LIABILITY-AND-EQUITY> 61,452,000
<SALES> 61,065,000
<TOTAL-REVENUES> 61,065,000
<CGS> 44,916,000
<TOTAL-COSTS> 44,916,000
<OTHER-EXPENSES> 9,365,000
<LOSS-PROVISION> 99,000
<INTEREST-EXPENSE> 85,000
<INCOME-PRETAX> 6,656,000
<INCOME-TAX> 2,770,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,886,000
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
