FORM 10Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-8676
FANSTEEL INC.
(Exact name of registrant as specified in its charter)
Delaware 36-1058780
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Number One Tantalum Place, North Chicago, IL 60064
(Address of principal executive offices) (Zip Code)
(708) 689-4900
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
(X) Yes ( ) No
8,598,858
(Number of shares of $2.50 par value common stock outstanding
as of April 30, 1995)
PART 1 - FINANCIAL INFORMATION Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS Page 2
FANSTEEL INC.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1995 1994
ASSETS (Unaudited) *
Current Assets
Cash and cash equivalents (including securities
purchased under agreement to resell of
$7,844,000 in 1995 and $8,815,000 in 1994) $ 9,092,867 $ 9,429,031
Marketable securities 343,980 293,367
Accounts receivable - net 14,299,987 13,048,394
Inventories
Raw material 2,829,082 3,135,098
Work-in-process 10,746,948 11,376,665
Finished goods 5,620,421 5,256,355
19,196,451 19,768,118
Less reserve to state certain
inventories at LIFO cost 6,987,569 6,987,569
12,208,882 12,780,549
Other assets - current
Deferred income taxes 1,848,240 1,981,749
Other 815,072 949,479
Total current assets 38,609,028 38,482,569
Net Assets of Discontinued Operations 522,637 522,637
Property, Plant and Equipment
Land 872,641 872,641
Buildings 8,733,515 8,721,261
Machinery and equipment 43,948,214 43,305,113
53,554,370 52,899,015
Less accumulated depreciation 44,064,190 43,535,103
9,490,180 9,363,912
Other Assets
Marketable securities 15,069,077 15,001,512
Prepaid pension asset 7,948,741 7,942,741
Deferred income taxes 171,966 175,476
Property held for sale 1,361,008 1,361,008
Other 31,063 31,063
24,581,855 24,511,800
Total Assets $73,203,700 $72,880,918
* - Derived from audited financial statements
(See Notes to Consolidated Financial Statements)
PART 1 - FINANCIAL INFORMATION Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS Page 3
FANSTEEL INC.
CONSOLIDATED BALANCE SHEET (Contd.)
March 31, December 31,
1995 1994
(Unaudited) *
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 7,761,275 $ 7,607,591
Accrued liabilities 8,637,449 9,716,919
Accrued income taxes 890,423 57,481
Current maturities of long-term debt 23,666 -
Total current liabilities 17,312,813 17,381,991
Long-term Debt 101,334 -
Other Liabilities
Discontinued operations 4,255,000 4,255,000
Deferred income taxes 1,015,763 965,079
Obligations under capital leases 80,073 107,057
Total other liabilities 5,350,836 5,327,136
Shareholders' Equity
Preferred stock without par value
Authorized and unissued 1,000,000 shares - -
Common stock, par value $2.50
Authorized 12,000,000 shares
Issued and outstanding 8,598,858 shares 21,497,145 21,497,145
Unrealized (loss) on marketable securities (30,433) (81,525)
Retained earnings 28,972,005 28,756,171
50,438,717 50,171,791
Total Liabilities and Shareholders' Equity $73,203,700 $72,880,918
* - Derived from audited financial statements
(See Notes to Consolidated Financial Statements)
FANSTEEL INC. Form 10-Q
CONSOLIDATED STATEMENT OF INCOME Page 4
(UNAUDITED)
For the Three Months Ended
March 31, March 31,
1995 1994
Net sales $ 25,649,004 $ 21,813,316
Costs and expenses
Cost of products sold 20,753,940 17,525,662
Selling, general and administrative 3,401,363 3,155,911
24,155,303 20,681,573
Operating income 1,493,701 1,131,743
Other income (expense)
Interest income on investments 303,884 234,126
Other (32,865) 20,512
271,019 254,638
Income before income taxes 1,764,720 1,386,381
Income tax provision 689,000 533,000
Net income $ 1,075,720 $ 853,381
Weighted average number of common
shares outstanding 8,598,858 8,598,858
Net income per share
(on average shares outstanding) $0.13 $0.10
Dividends per common share $0.10 $0.10
(See Notes to Consolidated Financial Statements)
FANSTEEL INC. Form 10-Q
CONSOLIDATED STATEMENT OF CASH FLOWS Page 5
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
1995 1994
Increase (decrease) in
cash and cash equivalents
Cash flows from operating activities:
Net income $ 1,075,720 $ 853,381
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 529,142 507,033
Net pension (credit) (6,000) (27,213)
Deferred income tax charge 155,718 -
Changes in assets and liabilities:
(Increase) decrease in marketable securities (35,101) 19,653
(Increase) in accounts receivable (1,251,593) (742,091)
Decrease (increase) in inventories 571,667 (267,645)
Decrease (increase) in other assets - current 134,407 (70,267)
(Decrease) increase in accounts payable and
accruals (927,394) 412,174
Increase in income taxes payable 832,942 457,677
Decrease in other assets - 1,923
Net cash provided by operating activities 1,079,508 1,144,625
Cash flows from investing activities:
Additions to property, plant and equipment (655,410) (314,321)
Proceeds from sale of marketable
securities - current - 5,000,000
Investment in marketable securities - current - (5,063,670)
Net cash (used in) investing activities (655,410) (377,991)
Cash flows from financing activities:
Proceeds from long-term debt 125,000 -
Principal payments for capital leases (25,376) -
Dividends paid (859,886) (859,886)
Net cash (used in) financing activities (760,262) (859,886)
Net (decrease) in cash and cash equivalents (336,164) (93,252)
Cash and cash equivalents at beginning of period 9,429,031 10,644,413
Cash and cash equivalents at March 31 $ 9,092,867 $10,551,161
(See Notes to Consolidated Financial Statements)
FANSTEEL INC. Form 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 6
(UNAUDITED)
Consolidated Financial Statements
The consolidated balance sheet at March 31, 1995, the consolidated statements
of income and cash flows for the three months ended March 31, 1995 and 1994, are
unaudited, but include all adjustments (consisting only of normal and recurring
accruals) which the Company considers necessary for fair presentation.
The accompanying consolidated financial statements do not include all
disclosures normally provided in annual financial statements and, therefore,
should be read in conjunction with the year-end financial statements.
Effective January 1, 1994, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company has determined its securities to be "held-to-
maturity" or "available-for-sale" securities, depending upon the applicable
security. Marketable securities with a maturity date of one year or less at
time of purchase are classified as current, and over one year maturity date at
time of purchase are classified as non-current on the balance sheet.
Securities classified as available-for-sale at March 31, 1995 include U.S.
government securities and municipal bonds with maturity dates from April 3, 1995
to September 30, 1998. Net unrealized holding losses included in shareholders'
equity at March 31, 1995 are $30,000, consisting of gross unrealized losses of
$42,000 net of tax. The aggregate fair value of these securities at March 31,
1995 is $5,193,000. Amortized cost of U.S. government securities and municipal
bonds available for sale at March 31, 1995 is $1,444,000 and $3,791,000,
respectively.
Securities classified as held-to-maturity at March 31, 1995 represent U.S.
Treasury Notes with maturity dates of January 31, 1997 and April 14, 1998.
Amortized cost and fair value of these securities at March 31, 1995 are
$9,975,000 and $9,706,000, respectively. There was a gross unrealized loss on
these securities of $269,000 at March 31, 1995.
FANSTEEL INC. Form 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) Page 7
(UNAUDITED)
Business Segment Information
The Company is engaged in the manufacture of specialty metal products, which
it classifies into two business segments: Industrial Tools and Metal
Fabrications. Net sales and operating income for the first quarter ended March
31, 1995 and 1994 for each of the Company's business segments are summarized
below:
1995 1994
Net Sales:
Industrial Tools -
Sales $ 12,501,132 $ 10,607,544
Intersegment sales - -
12,501,132 10,607,544
Metal Fabrications
Sales 13,155,943 11,217,397
Intersegment sales (8,071) (11,625)
13,147,872 11,205,772
$ 25,649,004 $ 21,813,316
Operating Income:
Industrial Tools $ 879,107 $ 672,952
Metal Fabrications 617,352 459,988
Corporate (2,758) (1,197)
$ 1,493,701 $ 1,131,743
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 8
Quarter Ended March 31, 1995 Compared to Quarter Ended March 31, 1994
Net Sales for the first quarter of 1995 were $25,649,000, an increase of
$3,836,000 or 17.6% from first quarter, 1994 net sales of $21,813,000.
Industrial Tools business segment net sales for the three months ended March
31, 1995 were $12,501,000, compared to $10,607,000 for the same period of 1994,
which is an increase of $1,894,000 or 17.9%. The primary factors for the sales
resurgence in this business segment were improvements in the general
manufacturing economy and new product development within a key product line,
tungsten carbide inserts. Showing substantial sales growth from the first
quarter of 1994 were tungsten carbide wear parts product lines, primarily
tungsten carbide rod and tungsten carbide die blanks and bushings. Overall,
tungsten carbide wear parts product lines sales have increased 27.9% over the
performance of the first quarter of 1994. Insert product line sales for the
first quarter of 1995 were 19.5% ahead of the same period of last year.
Development of the VR/Notch and diamond-tipped inserts has had a positive effect
on revenue generation in this product line. Tungsten carbide wear parts' sales
have increased continuously over the last several years aided by the recent
expansion of the domestic manufacturing economy. Other product lines which have
shown some improvement in the current quarter include tungsten carbide blanks
and strips, Tantung, tools and blades, and turning tools. An additional factor
in the revenue increase for Industrial Tools was the necessity to increase
prices due to inflationary pressures. However, net sales in the coal tool
product line decreased moderately from first quarter of 1994 as price
competition for available business tended to have a negative impact on revenues.
Construction product line net sales have declined over the last four quarters.
A new sales strategy, begun in 1994, involving arrangements with agents and
manufacturer representatives, is expected to have a positive impact on sales of
construction tools.
Net sales of the Metal Fabrications business segment were $13,148,000 for the
three months ended March 31, 1995, an increase of $1,942,000 or 17.3% from first
quarter, 1994 net sales of $11,206,000. Investment castings product line net
sales for the first quarter, 1995 were 56.7% ahead of the first quarter of 1994.
Increased sales to the automotive, industrial, construction tool, valve, and
firearms industries were spurred by the improved general industrial economy and
customer requirements for new products. The forgings product line, and product
lines utilizing the sand mold casting process, had improved sales performance
over that realized in the first quarter of 1994. These product lines had been,
and to an extent, still are dependent upon the defense aerospace industry. In
response to the decline in defense spending, the Company began to emphasize
marketing these products for commercial applications. The forgings product line
improved 19.5% in the current quarter due to improved economic conditions in
commercial aviation and medical products industries. Sand mold castings product
lines experienced only a marginal improvement. Conversion to new designs and
production processes to increase efficiencies and to attract new customers to
our products is ongoing. Wire forms product lines sales for the first quarter,
1995 improved slightly over strong sales from the same period of 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 9
(Contd.)
Cost of goods sold for the three months ended March 31, 1995 was $20,754,000
as compared to $17,526,000 for the same period of 1994, an increase of
$3,228,000 or 18%. Sales volume increases, along with raw material cost
increases, are primarily responsible in the increase in cost of goods sold. As
a percent of net sales, cost of goods sold was 80.9% for 1995 compared to 80.3%
for 1994. Material cost increases in 1995, primarily carbon steel, stainless
steel, tungsten, and cobalt, have outpaced sales price increases.
Selling, general and administrative expenses increased $245,000 or 7.8%, from
$3,156,000 for the quarter ended March 31, 1994 to $3,401,000 for the first
quarter of 1995. Selling, general and administrative expenses as a percent of
net sales for the quarter ended March 31, 1995 were 13.3% compared to 14.5% for
the same period of the prior year. Although rising sales volume has led to
increased variable selling expenses, primarily commissions, conservative
business practices combined with increased sales have had a positive effect on
operating margins.
Other income for the first quarter of 1995 was $271,000 which is an increase
of $16,000 from the first quarter of 1994. Interest earned on marketable
securities in 1995 is primarily responsible for this small increase, reflecting
higher interest rates in effect in the current quarter compared to the same
quarter of last year.
Net income for the quarter ended March 31, 1995 was $1,076,000 or $.13 per
share compared to $853,000 or $.10 per share for the same quarter of 1994, an
increase of $223,000 or 26.1%.
Backlog of orders at March 31, 1995 totaled $27,867,000 compared to
$24,319,000 at March 31, 1994, an increase of $3,548,000 or 14.6%. Backlog in
the Industrial Tools business segment at March 31, 1995 was $4,832,000, an
increase of $510,000 or 11.8% from March 31, 1994. The tungsten carbide inserts
and drilling compacts product lines were primarily responsible for the backlog
increase in this business segment. Metal Fabrications business segment backlog
increased $3,038,000 or 15.2% from March 31, 1994 to $23,035,000 at March 31,
1995. Backlog of orders in the investment castings product line improved
substantially from the quarter-end one year ago. Product lines historically
dependent upon defense and/or aerospace markets, namely the forging and sand
mold casting product lines, had encouraging increases in backlog from the same
period of last year. Forgings product line improved 6.2% while product lines
utilizing the sand mold casting process improved 22.3%. Strong order
performance in the first quarter of 1995 for these product lines is indicative
that the Company's determination to carve a niche in the commercial markets will
prove beneficial. Wire forms product line backlog remained strong but basically
unchanged from the prior year.
Outlook
The improved industrial economy, combined with modernization of the Company's
production processes, new product development and investment in capital
equipment, provide a foundation for growth in commercial markets. The Company
has a strong balance sheet, which allows for application of funds in each of
these areas as required.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 10
(Contd.)
The Company recognizes that its ability to endure the impact of economic
recession and the substantial decline of the defense and aerospace business, in
particular, was due in large part to decisions focused on restructuring, cost
reduction, and subsequent cost containment. As the Company continues to pursue
avenues to increase sales and profits, cost control programs based on strategic
use of available resources will remain active throughout the Company. The
Company is investigating the means by which it can work in partnership with
states and municipalities on funding assistance for expansion of production
capabilities.
The formerly defense-related operating units are continuing to place primary
focus on a transition from military to commercial markets. Capital equipment
investment has been initiated and modernized production techniques employed to
facilitate this transition.
Liquidity and Capital Resources
Cash and cash equivalents decreased $336,000 from a December 31, 1994 balance
of $9,429,000 to $9,093,000 at March 31, 1995. Operating activities provided
$1,080,000 including net income of $1,076,000 and depreciation of $529,000.
Capital expenditures in the first quarter of 1995 totaled $655,000. Financing
activities in the first quarter of 1995 included dividend payments of $860,000
offset by proceeds from long-term debt of $125,000.
During the remainder of the year, it is expected that sufficient cash will be
generated from operations to cover normal operating requirements. If the need
arises, the Company has strong, long-term relations with several large banking
institutions.
Funding assistance by states and municipalities is investigated when any
significant expenditures are proposed. A $125,000 loan was received in the
first quarter of 1995, and an additional $340,000 loan is expected in the second
quarter of 1995, from the State of Iowa for production improvements and
modernization at our sand mold casting operation.
At March 31, 1995, the Company had $344,000 of current marketable securities
and $5,094,000 of non-current marketable securities, classified as available-
for-sale, invested in U.S. government securities and municipal bonds. The
liquidity of these securities is readily available, although no need is
anticipated. The non-current marketable securities classified as held-to-
maturity, with a book value of $9,975,000 and a fair value of $9,706,000, are
U.S. Treasury Notes. The intent of the Company is to hold these notes to
maturity and the Company does not foresee any circumstance which will hinder its
ability to do so.
At March 31, 1995, the Company had established reserves of $4,861,000 for
environmental clean-up costs for discontinued operations. The Company, in
association with outside consultants, has developed a decommissioning plan for
the site involved. This decommissioning plan has not been approved by the
appropriate government agencies as of March 31, 1995. Before decommissioning
procedures begin, the Company plans to extract materials within the residue
storage ponds at the site, such as tantalum, columbium and scandium, which have
a commercial value.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 11
(Contd.)
The processing of the residues to extract the materials having a commercial
value is in the development stages. A method has been devised which is being
tested, evaluated, and refined. After the required regulatory approvals are
received, equipment will be acquired to begin extraction and processing. The
estimated value of materials to be extracted is based on analysis of samples
taken from the residues in the various ponds and a market value of such
materials using current market prices discounted to reflect possible price
decreases, including those which could result from the increased quantities of
certain of these materials made available for sale. The estimated costs of
extracting and processing the residues were developed by Company personnel and
independent consultants using third party evaluations based on the pilot testing
performed. Current expectations are that eight to ten years will be required to
extract and process the contents of all residue storage areas. The removal of
the contents of the first residue storage pond is expected to start after
licensing approval is received near the end of 1995. The provisions for
discontinued operations reflect management's belief that, at this point in time,
the current value of the extracted materials will at least equal the estimated
costs of obtaining these materials, including estimated costs for disposal of
hazardous waste from the residues. Decommissioning is expected to begin on a
pond by pond basis immediately after the extraction of the residue from each
pond. Based upon continuing assessment of the decommissioning plan, taking into
consideration the most current information, existing technology and regulations
in effect, management believes that the amounts reserved at March 31, 1995 are
adequate to cover the costs for environmental reclamation and decommissioning.
The remaining land and buildings of the Company's former Precision Sheet Metal
(PSM) operation within the Metal Fabrications business segment are carried as
Other Assets - Property held for sale. The cost of preparing the property for
sale, principally environmental clean-up, will be capitalized. Management
believes that proceeds from the sale of the property will be adequate to recover
its costs, including costs of preparing the property for sale.
The Company's Escast operation, located in Addison, IL, included in the Metal
Fabrications business segment, has been named as a responsible party for the
clean-up costs of certain hazardous wastes located on-site. A cost sharing
agreement with the former owner of Escast is in place for any future clean-up
costs. At this time, the amount of the clean-up costs is not fixed and
determinable. However, the Company believes the established reserves of
$617,000 are adequate to cover its share of the clean-up costs.
Environmental matters arising at other operating units are routinely reviewed
and handled through operations. The Company believes that the ultimate
disposition of any other pending environmental matters will not have a material
adverse effect upon the consolidated financial position of the Company.
Form 10-Q
Page 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
b) No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
Form 10-Q
Page 13
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.
Fansteel Inc.
(Registrant)
Date - 5/9/95 \s\ Keith R. Garrity
Keith R. Garrity
Chairman of the Board and Chief Executive Officer
Date - 5/4/95 \s\ William D. Jarosz
William D. Jarosz
President and Chief Operating Officer
Date - 5/4/95 \s\ R. Michael McEntee
R. Michael McEntee
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Fansteel Inc. as of March 31, 1995 and the
related consolidated statement of operations for the three months ended
March 31, 1995 and is qualified in its entirety by reference to the Form
10-Q filing for the period ended March 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 9,092,867
<SECURITIES> 343,980
<RECEIVABLES> 14,576,427
<ALLOWANCES> 276,440
<INVENTORY> 12,208,882
<CURRENT-ASSETS> 38,609,028
<PP&E> 53,554,370
<DEPRECIATION> 44,064,190
<TOTAL-ASSETS> 73,203,700
<CURRENT-LIABILITIES> 17,312,813
<BONDS> 101,334
<COMMON> 21,497,145
0
0
<OTHER-SE> 28,941,572
<TOTAL-LIABILITY-AND-EQUITY> 73,203,700
<SALES> 25,649,004
<TOTAL-REVENUES> 25,649,004
<CGS> 20,753,940
<TOTAL-COSTS> 24,155,303
<OTHER-EXPENSES> (271,019)
<LOSS-PROVISION> (273)
<INTEREST-EXPENSE> 2,618
<INCOME-PRETAX> 1,764,720
<INCOME-TAX> 689,000
<INCOME-CONTINUING> 1,075,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,075,720
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
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