SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1995 or
[ ] 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 1-4704
GUARDSMAN PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-0593900
(State of incorporation) (I.R.S. Employer Identification No.)
3033 Orchard Vista Drive, S. E., Suite 200
P.O. Box 1521, Grand Rapids, Michigan 49501
(Address of principal executive offices) (Zip Code)
(616) 957-2600
(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.
Yes _X_ No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $1 Par Value, 9,494,936 shares at April 30, 1995.
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GUARDSMAN PRODUCTS, INC.
TABLE OF CONTENTS
Page No.
Part I - Financial Information
Management Representation 3
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 4
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1995 and 1994 6
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1994 7
Notes to Condensed Consolidated Financial
Statements - March 31, 1995 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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GUARDSMAN PRODUCTS, INC.
PART I - FINANCIAL INFORMATION
Management Representation
The condensed consolidated financial statements included herein have been
prepared by Guardsman Products, Inc. (the "Company") without an audit
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which are of a
normal recurring nature, necessary to present fairly the financial position
of the registrant as of March 31, 1995 and December 31, 1994, the results
of operations for the three months ended March 31, 1995 and 1994, and cash
flows for the three months ended March 31, 1995 and 1994. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full fiscal year.
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<TABLE>
GUARDSMAN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,386 $ 5,630
Accounts receivable, less allowances
of $667 and $808, respectively 34,501 29,517
Inventories 32,974 31,324
Deferred income taxes 1,960 1,866
Other current assets 5,658 5,224
Total current assets 80,479 73,561
Property and equipment 48,160 46,666
Less accumulated depreciation 19,477 18,689
28,683 27,977
Goodwill, less accumulated amortization
of $3,477 and $3,251, respectively 20,436 20,336
Other intangibles, less accumulated amorti-
zation of $5,978 and $5,374, respectively 13,746 12,587
Other assets 2,873 2,591
$ 146,217 $ 137,052
</TABLE>
The accompanying notes are an integral
part of these financial statements
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<TABLE>
GUARDSMAN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except share data)
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 23,009 $ 19,286
Income taxes 1,211 510
Current maturities of long-term debt 85 93
Other current liabilities 11,039 11,299
Total current liabilities 35,344 31,188
Long-term debt 30,403 27,805
Other liabilities 14,793 13,633
Stockholders' equity
Common stock, $1 par value
Authorized - 15,000,000 shares
Issued and outstanding - 9,494,436
shares in 1995, 9,482,199 shares
in 1994 9,495 9,482
Additional paid-in capital 46,684 46,560
Retained earnings 10,862 9,949
Cumulative translation adjustments (1,364) (1,565)
65,677 64,426
$ 146,217 $ 137,052
</TABLE>
The accompanying notes are an integral
part of these financial statements
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<TABLE>
GUARDSMAN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands except share and per share data)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Net sales $ 64,340 $ 44,950
Cost of sales 43,060 29,231
21,280 15,719
Selling, general and
administrative expenses 18,080 13,584
Interest expense 484 211
Investment income (118) (85)
Income before income taxes 2,834 2,009
Income taxes 1,162 844
Net income $ 1,672 $ 1,165
Net income per share $ .18 $ .15
Weighted average
shares outstanding 9,484,154 7,940,876
</TABLE>
The accompanying notes are an integral
part of these financial statements
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<TABLE>
GUARDSMAN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands except per share data)
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Operations
Net income $ 1,672 $ 1,165
Adjustments to reconcile net income
to cash provided by operations
Depreciation and amortization 1,686 1,232
Deferred income tax credits (302) (49)
Deferred compensation and pension costs 75 (5)
Other - net (368) 66
Changes in certain working capital items
Accounts receivable (4,003) (1,674)
Inventories (1,200) 1,037
Other current assets 38 195
Accounts payable 2,632 (1,109)
Accrued expenses 642 (208)
Cash provided by operations 872 650
Investing Activities
Purchase of businesses (1,297)
Fixed asset additions (1,544) (418)
Other - net (61) 679
Cash (used in) provided by investing activities (2,902) 261
Financing Activities
Cash dividends - $.08 per share in
1995 and 1994 (759) (636)
Increase (decrease) in debt 2,239 (332)
Stock issued under employee and
stockholder plans 137 402
Cash provided by (used in) financing activities 1,617 (556)
Effect of foreign currency rate changes 169 (190)
Increase (decrease) in cash and cash equivalents (244) 155
Cash and cash equivalents at beginning of period 5,630 4,472
Cash and cash equivalents at end of period $ 5,386 $ 4,627
</TABLE>
The accompanying notes are an integral
part of these financial statements
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GUARDSMAN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
NOTE B - ACQUISITION OF BUSINESS
As previously disclosed, on August 31, 1994, the Company purchased 100% of
the stock of Moline Paint Manufacturing Co. ("Moline"). The accompanying
condensed consolidated statements of income reflect the operating results
of Moline since the effective date of the acquisition. Pro forma unaudited
consolidated operating results of the Company and Moline for the three
months ended March 31, 1994 are summarized below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1994
<S> <C>
Net sales $55,040
Net income 1,454
Earnings per share .15
</TABLE>
These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional depreciation expense as
a result of a step-up in the basis of fixed assets, additional amortization
expense as a result of goodwill and other intangible assets and increased
interest expense on acquisition debt. They do not purport to be indicative
of the results of operations which actually would have resulted had the
combination been in effect on January 1, 1994 or of future results of
operations of the consolidated entities.
Effective January 30, 1995, the Company purchased the business and certain
assets (primarily accounts receivable, inventory and intangible assets) of
Soil Shield International, Inc. ("Soil Shield"), a producer and distributor
of retail-applied fabric protection products. The Company is servicing the
former Soil Shield customers from its existing facilities. The acquisition
of Soil Shield did not have a material effect on the Company's financial
statements.
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GUARDSMAN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995
CONTINUED
NOTE C - INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Finished products $ 17,304 $ 16,680
Raw materials and work in process 15,670 14,644
$ 32,974 $ 31,324
</TABLE>
NOTE D - INCOME TAXES
The Company's effective income tax rate for the three months ended March
31, 1995 was 41.0% compared to 42.0% during the same period in 1994. The
effective tax rates for both periods were influenced by the relationship of
permanent differences to estimated taxable income. The Company's effective
income tax rate for the remainder of the year may either increase or
decrease depending upon the components and level of consolidated pretax
income. Income taxes paid totaled $775,000 and $670,000 for the three
months ended March 31, 1995 and 1994, respectively.
NOTE E - LEGAL PROCEEDINGS AND ENVIRONMENTAL OBLIGATIONS
Like other companies in its industry, Guardsman is subject to existing and
evolving standards related to the protection of the environment. As a
result, it is the Company's policy to establish reserves for site
restoration costs and related claims where it is probable a liability
exists and the amount can be reasonably estimated. These reserves are
adjusted as information becomes available upon which a more accurate
estimate of eventual costs can be made. Such estimates are subject to
numerous variables, the effects of which are difficult to measure,
including the stage of the investigations, the nature of potential
remedies, the joint and several liability with other potentially
responsible parties, availability of insurance and government funds and
other issues. Accordingly, the ultimate cost of these matters cannot be
determined at this time and may not be resolved for a number of years. The
net reserves of $4,365,000 at March 31, 1995 represent the Company's best
estimate of probable exposures at this time. Based upon information
currently available, it is not anticipated that the outcome of these
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GUARDSMAN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995
CONTINUED
environmental matters will materially affect the Company's consolidated
financial position. The ultimate effect of these matters on the Company's
results of operations cannot be predicted because any such effect depends
on the amount and timing of charges to operations resulting from new
information as it becomes available.
Approximately $410,000 is included as an offset to these net reserves at
March 31, 1995. This amount represents estimated reimbursements from a
state government agency for costs expended and to be expended for site
restoration of an area formerly containing underground storage tanks.
The Company is also involved in legal proceedings and litigation arising in
the ordinary course of business. In the opinion of management, the outcome
of such proceedings and litigation currently pending will not materially
affect the Company's consolidated financial statements.
NOTE F - INTEREST PAYMENTS
Payment of interest due under the Company's borrowings amounted to $345,000
and $151,000 during the three-month periods ended March 31, 1995 and 1994,
respectively.
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GUARDSMAN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. Results of Operations - First Quarter 1995 Compared to First
Quarter 1994
Net sales for the first quarter of 1995 totaled a record $64,340,000, an
increase of $19,390,000 (43.1%) compared to the first quarter of 1994.
Coatings Group sales increased $15,316,000 (43.0%) due primarily to
increases in unit volume. The Group's liquid and powder coatings
product lines realized an increase in net sales of $13,452,000, which
included $12,178,000 of sales for Moline Paint Manufacturing Co., which
was acquired on August 31, 1994. The Group's liquid coatings product
lines realized a 22.8% volume increase and an increase in average
selling prices, due primarily to a change in product mix which includes
the addition of Moline. The Group's resin product lines experienced an
increase in net sales of $1,864,000 representing a 37.2% volume increase
due primarily to increased customer demand. Compared to the 1994
period, the Consumer Products Group's net sales increased $4,074,000
(43.6%). Approximately one-third of the increase is due to the
acquisition of Soil Shield International, Inc. on January 30, 1995. The
Group's Specialty Products, United Kingdom and Atlanta Sundries
divisions continue to report strong sales growth.
Consolidated gross margin as a percentage of sales was 33.1% in the
first quarter of 1995 compared to 35.0% in 1994. This decrease reflects
increases in raw material costs in the fourth quarter of 1994 and the
first quarter of 1995 as well as a shift in product mix with resin,
automotive maintenance and private label products, which generate lower
margins as a percentage of sales, representing a larger proportion of
sales in the 1995 period. In addition, promotional discounts offered by
the Consumer Products Group during the first quarter of 1995 contributed
to the decline in the gross profit rate.
Operating expenses for the first quarter of 1995 totaled $18,080,000
compared to $13,584,000 for the 1994 period. The increase in operating
expenses reflects the addition of Moline's administrative expenses and
increased selling expenses due to additional sales. As a percentage of
sales, operating expenses decreased to 28.1% in 1995 from 30.2% in 1994.
The Company's effective tax rate for the quarter ended March 31, 1995
was 41.0% compared to 42.0% during the same 1994 period. The effective
tax rates are influenced by the relationship of permanent differences to
estimated taxable income.
Net income amounted to $1,672,000 for 1995, up 43.5% from the $1,165,000
earned during the first quarter of 1994. Earnings per share increased
20% to $.18 per share in the first quarter of 1995 compared to $.15 per
share in 1994, based on an average of 19% more shares outstanding during
the first quarter of 1995 than during 1994.
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2. Liquidity, Capital Resources and Financial Condition
During the three months ended March 31, 1995, the Company's operations
generated net cash flows of $872,000. During this period, the Company
made cash payments of $1,297,000 associated with the acquisitions of
Soil Shield and Moline, paid dividends of $762,000, and invested
$1,544,000 in fixed assets. Outstanding debt increased $2,239,000
during the first three months of 1995.
During the three-month period ended March 31, 1995, accounts receivable
increased $4,984,000, inventories increased $1,650,000 and accounts
payable increased $3,723,000. Included in these increases is the
consolidation of Soil Shield effective January 30, 1995.
Working capital was $45,135,000 at March 31, 1995 compared to
$42,373,000 at December 31, 1994. The current ratio was 2.3 to 1 at
March 31, 1995 and 2.4 to 1 at December 31, 1994.
Management believes that internally generated funds will be adequate to
finance future property and equipment additions and meet existing
obligations under its long-term borrowing agreements. The Company
anticipates that any business acquisitions in the future will be
financed with cash flows from operations or by the issuance of long-term
debt or common stock. At March 31, 1995, the Company had $10,972,000 of
unused credit available under its unsecured long-term revolving credit
agreements and $6,072,000 available under its unsecured short-term
revolving credit agreements.
Like other companies in its industry, Guardsman is subject to existing
and evolving standards related to the protection of the environment.
For information regarding environmental obligations, see Note E to the
Condensed Consolidated Financial Statements.
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GUARDSMAN PRODUCTS, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
(11) Statement re: Computation of Per Share Income.
(27) Financial Data Schedule
b) Reports on Form 8-K
The Registrant did not file a Form 8-K Current Report during
the first quarter of 1995.
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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.
GUARDSMAN PRODUCTS, INC.
Date: May 8, 1995 \s\Henry H. Graham, Jr.
Henry H. Graham, Jr.
Vice President of Finance and
Chief Financial Officer
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