<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20459
Quarterly Report under Section 13 or 15 (d) of the Securities Act of 1934
For Quarter Ended March 31, 1998 Commission File No. 0-3680
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Industrial Acoustics Company, Inc.
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New York 13-1713318
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(State or other jurisdiction of (IRS employer
Incorporation or organization) Identification #)
1160 Commerce Avenue, Bronx, New York 10462
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(Address of Principal Executive Offices) (Zip Code)
(718) 931-8000
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(Registrant's Telephone Number, including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if changed from 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.
2,978,961
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997
Unaudited
<TABLE>
<CAPTION>
March 31
1998 1997
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(In thousands, except per share data)
<S> <C> <C>
REVENUES
Net Sales $ 15,373 $ 15,361
Interest Income 427 386
Other (Net) 46 126
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15,846 15,873
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COST AND EXPENSES
Cost of Products Sold 14,908 14,130
Selling General and
Administrative Expenses 3,279 3,055
Interest 216 217
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18,403 17,402
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(Loss) before income taxes (2,557) (1,529)
Benefit from income taxes 823 117
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Net Loss ($ 1,734) ($ 1,412)
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Basic and Diluted Net Loss per Common Share ($ 0.58) ($ 0.47)
======== ========
Dividends per Common Share $ 0.10
Weighted Average Number of Common Shares Outstanding
Basic 2,979 2,979
Diluted 2,979 2,979
</TABLE>
See notes to the condensed consolidated financial statements
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INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
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(in thousands, except per share data)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1,755 $ 3,032
Short-term Investments, available for sale 647 457
Receivables 16,393 17,843
Costs and Estimated Earnings in Excess
Of Billings on Uncompleted Contracts 7,194 6,774
Inventories 5,697 5,856
Deferred Income Taxes 220 215
Prepaid Expenses 1,550 1,609
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TOTAL CURRENT ASSETS 33,456 35,786
MARKETABLE SECURITIES, available for sale 19,753 22,328
PROPERTY, PLANT AND EQUIPMENT - Net 13,793 12,540
DEFERRED INCOME TAXES 1,710 975
OTHER ASSETS 2,646 2,633
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TOTAL ASSETS $71,358 $74,262
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</TABLE>
See notes to the condensed consolidated financial statements
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INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(in thousands, except per share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Loans Payable $ 10,234 $ 9,656
Accounts Payable and Accrued Expenses 13,627 16,167
Income Taxes 193
Customer Deposits 574 730
Current Portion of Long-term Debt
and Capital Lease Obligations 280 78
Billings in Excess of Costs
on Uncompleted Contracts 1,611 1,491
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TOTAL CURRENT LIABILITIES $ 26,326 $ 28,315
LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS 3,795 3,055
DEFERRED INCOME TAXES 685 687
DEFERRED COMPENSATION 1,331 1,339
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TOTAL LIABILITIES $ 32,137 $ 33,396
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COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, par value $0.10 a share; authorized 5,000 shares; issued and
outstanding 2,979 in 1998 and 1997 excluding 87 shares in
treasury at par value 298 298
Additional Paid-in Capital 2,223 2,223
Accumulated other comprehensive income(loss):
Cumulative Currency Translation Adjustments (25) (117)
Net unrealized gain on marketable securities 104 107
Retained Earnings 36,621 38,355
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TOTAL SHAREHOLDERS' EQUITY $ 39,221 $ 40,866
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 71,358 $ 74,262
======== ========
</TABLE>
See notes to the condensed consolidated financial statements
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INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1998 and 1997
<TABLE>
<CAPTION>
Unaudited
March 31, 1998 March 31, 1997
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<S> <C> <C>
Net cash used in operating activities $(3,708) $(1,479)
Investing Activities
Purchase of property, plant and equipment, net (491) (425)
Sale of investments and marketable securities 3,053 393
Purchase of investments and marketable securities (674) (819)
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Net cash provided by (used in) investing activities 1,888 (851)
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Financing Activities
Dividends paid 0 (298)
Short-term Loans payable, net 500 2,000
Payments on long term debt and capital less obligations 0 (19)
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Net cash provided by financing activities 500 1,683
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Effect of exchange rate on changes on cash 43 (33)
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Decrease in Cash and Cash Equivalents (1,277) (680)
Cash and cash equivalents at beginning of period 3,032 1,254
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Cash and cash equivalents at end of period $ 1,755 $ 574
======= =======
Supplemental disclosure of cash flow information: Non cash investing
and financing activities:
Assets acquired by incurring long term debt 4,028 0
Capitalized lease obligations terminated (3,086) 0
</TABLE>
See notes to the condensed consolidated financial statements
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. 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 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustment are
of a normal recurring nature including changes in contract estimates, which,
for the current quarter, resulted in Revenue and Profit decreases of
$1,109,000. Operating results for the three month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. The Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income", effective January
1, 1998.
The year end consolidated balance sheet was derived from audited financial
statements, but, as presented here, does not include all disclosures required
by generally accepted accounting principles. The interim consolidated
statements should be read in conjunction with financial statements and
footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 1997.
2. INVENTORIES
Inventories are comprised of the following:
March 31, 1998 December 31, 1997
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Materials and Supplies 2,270 2,246
Work in Process 3,427 3,610
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Total 5,697 5,856
3. LONG TERM DEBT
On March 27, 1998, the Company purchased, for $4,027,850, the 72,500 square
feet of manufacturing space which it previously leased from PDJ Simone Realty
Company, L.P. The purchase price was funded by a loan from Chase Manhattan
Bank. The loan was collateralized by a mortgage on the Company's real property
in the Bronx, New York. Interest is charged at the floating 30 day LIBOR rate
(initial rate 7.4375%) with monthly interest payments and quarterly payments of
principal are payable (in the amount of $67,130) for ten years. At the end of
the ten year period, the remaining principal is due.
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4. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information". SFAS No.
131 establishes accounting standards for the way that public business
enterprises report selected information about operating segments and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131 is required to
be adopted for the year ended December 31, 1998. The Company is currently
evaluating the impact, if any, of SFAS No. 131.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Although consolidated revenues for the quarter ended March 31, 1998 are
approximately the same as the first quarter of 1997, revenues at IAC Ltd.
increased $754,000 (19%) over comparable revenues in the prior year (Standard
and Special Products revenues increased 18% and 16%, respectively). However,
the increased revenues, at IAC Ltd., are offset by a decrease in domestic
revenues. This decrease is attributable to changes in cost estimates to
complete certain major contract in the Architectural and Special Products
Departments (such changes adversely impacted domestic revenues and profits by
$1,109,000) and a lack of volume in the Special Products Department. The
Company has filed claims and anticipates that it will recover a portion of the
additional costs incurred. However, the future impact of any recoveries cannot
be determined and, therefore, has not been included in the results for the
period. As a result, Architectural and Special Products revenues decreased by
11% and 26%, respectively and revenues in the Air Conditioning and Industrial
Departments were approximately the same as the first quarter of 1997. However,
revenues in the Medical and Door Departments increased 10% and 138%,
respectively.
Interest income, at $427,000, was 11% higher than 1997 and other income
decreased $80,000 primarily due to gains on the sale of investments, recorded
in 1997, which did not recur in 1998.
IAC Ltd.'s Cost of products sold, as a percentage of net sales, was 79%
compared to 87% for the same period last year. Domestically, Cost of products
sold was 105% compared to 90% for the same period last year as a result of the
estimate changes noted above.
Selling, general and administrative expenses (excluding interest expense)
increased $224,000 (7%). A provision of $681,000 has been made for Domestic
severance costs. However, the quarter benefited from a $42,000 gain on exchange
rates (compared to a $190,000 loss in 1997) and IAC Ltd. was adversely
affected, in 1997, by approximately $150,000 in costs associated with overhead
reductions which did not recur in 1998. Interest expense was approximately the
same as the first quarter of 1997.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - contd.
Net cash used in operating activities was $3,708,000 due primarily to the
losses incurred and the large reduction in accounts payable and accrued
expenses. Operating activities were financed by the sale of investments and an
increase in short terms loans.
The Company's funds, which consist of cash and cash equivalents, short term
investments and marketable securities decreased 14% from $25,817,000 to
$22,155,000 and loans payable and capital lease obligations (both long and
short term) increased $1,520,000.
Shareholders' equity decreased by $1,734,000 as a result of the first quarter
loss which was partially offset by unrealized gains on currency translation of
$92,000.
Order intake for the quarter ended March 31, 1998 was $13,096,000 compared to
$16,436,000 for the same period last year and revenue backlog at March 31, 1998
was $44,859,000 compared to $46,673,000 at March 31, 1997.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
This report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans,""expects" and similar expressions are
intended to identify forward looking statements. There are a number of factors
that could cause the Company's actual results to differ materially from those
indicated by such forward looking statements. These factors include, without
limitation, general economic conditions in the Company's markets, including
inflation, recession, interest rates and other economic factors, especially in
the United States and the United Kingdom but also including other areas of the
world where the Company markets its products, any loss of the services of the
Company's key management personnel, changes in the cost and availability of raw
materials, fluctuations in exchange rates relative to the US dollar for
currencies of the United Kingdom and other nations where the Company does
business, casualty to or disruption of the Company's production facilities and
equipment, delays and disruptions in the shipment of the Company's products and
raw materials, and other factors that generally affect the business of
manufacturing companies with international operations.
YEAR 2000 COMPLIANCE
The Company has assessed the potential issues associated with programming codes
in its existing computer systems with respect to a two-digits year value for
2000 and believes that addressing such issues is not a material event or
uncertainty that would cause reported financial information not to be
indicative of future operating results or financial condition. The Company is
currently upgrading its accounting software and expects this to be completed by
the third quarter of 1999.
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PART II- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 5 - OTHER MATERIALLY IMPORTANT FACTS
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) All required exhibits are incorporated by reference from the Form 10-K
filed for the year ended December 31, 1997.
(b) On April 1, 1998, a Form 8-K was filed in connection with the change
of control of the Company and the change of Directors.
(c) On May 4, 1998, a Form 10-K/A was filed.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDUSTRIAL ACOUSTICS COMPANY, INC.
Date: May 15,1997 By: /s/ Robert N. Bertrand
---------------------------------
Robert N. Bertrand
Senior Vice President, Secretary
Date: May 15, 1997 By: /s/ T. Joseph Looney
---------------------------------
T. Joseph Looney
Vice President - Finance,
Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,755
<SECURITIES> 647
<RECEIVABLES> 16,393
<ALLOWANCES> 7,194
<INVENTORY> 5,697
<CURRENT-ASSETS> 33,456
<PP&E> 13,793
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,358
<CURRENT-LIABILITIES> 26,326
<BONDS> 0
0
0
<COMMON> 2,979
<OTHER-SE> 2,223
<TOTAL-LIABILITY-AND-EQUITY> 71,358
<SALES> 15,373
<TOTAL-REVENUES> 15,846
<CGS> 14,908
<TOTAL-COSTS> 18,403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> (2,557)
<INCOME-TAX> 823
<INCOME-CONTINUING> (1,734)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,734)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
