<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 June 30, 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
2,981,211
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Unaudited
Six months ended Three months ended
June 30 June 30 June 30 June 30
1998 1997 1998 1997
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(In thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES
Net Sales $ 31,213 $ 30,881 $ 15,840 $ 15,521
Interest Income 796 770 369 384
Other (Net) 317 499 271 373
-------- -------- -------- --------
32,326 32,150 16,480 16,278
-------- -------- -------- --------
COST AND EXPENSES
Cost of Products Sold 31,524 28,058 16,616 13,927
Selling , General and
Administrative Expenses 6,383 6,013 3,104 2,958
Interest 559 470 343 253
-------- -------- -------- --------
38,466 34,541 20,063 17,138
-------- -------- -------- --------
Loss before income taxes (6,140) (2,391) (3,583) (860)
Benefit of income taxes 2,085 759 1,262 642
-------- -------- -------- --------
Net Loss ($ 4,055) ($ 1,632) ($ 2,321) ($ 218)
======== ======== ======== =========
Basic and Diluted Net Loss
per Common Share ($ 1.36) ($ 0.55) ($ 0.78) ($ 0.07)
======== ======== ======== =========
Dividends per Common Share $ 0.00 $ 0.10
Weighted Average Number of
Common Share Outstanding
Basic 2,980 2,979 2,981 2,979
Diluted 2,980 2,979 2,981 2,979
</TABLE>
See notes to the condensed consolidated financial statements
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INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
June 30, 1998 December 31, 1997
-------------------------------------
(In thousands, except per share data)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 6,051 $ 3,032
Short-term Investments, available for sale 758 457
Receivables 18,962 17,843
Costs and Estimated Earnings in Excess
Of Billings on Uncompleted Contracts 4,759 6,774
Inventories 5,769 5,856
Deferred Income Taxes 233 215
Prepaid Expenses 1,754 1,609
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TOTAL CURRENT ASSETS 38,286 35,786
MARKETABLE SECURITIES, available for sale 13,285 22,328
PROPERTY, PLANT AND EQUIPMENT - Net 14,197 12,540
DEFERRED INCOME TAXES 2,864 975
OTHER ASSETS 2,728 2,633
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TOTAL ASSETS $71,360 $74,262
======= =======
</TABLE>
See notes to the condensed consolidated financial statements
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
June 30, 1998 December 31, 1997
-------------------------------------
(In thousands, except per share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Loans Payable $ 12,437 $ 9,656
Accounts Payable and Accrued Expenses 14,910 16,167
Income Taxes 193
Customer Deposits 92 730
Current Portion of Long-term Debt
and Capital Lease Obligations 280 78
Billings in Excess of Costs
on Uncompleted Contracts 1,199 1,491
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TOTAL CURRENT LIABILITIES $ 28,918 $ 28,315
LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS 3,725 3,055
DEFERRED INCOME TAXES 633 687
DEFERRED COMPENSATION 1,300 1,339
-------- --------
TOTAL LIABILITIES $ 34,576 $ 33,396
======== ========
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, par value $0.10 a share; authorized 5,000 shares; issued and
outstanding 2,981 in 1998 and 2,979 in 1997 excluding 87 shares in
treasury at par value 298 298
Additional Paid-in Capital 2,241 2,223
Accumulated other comprehensive income (loss):
Cumulative Currency Translation Adjustments (81) (117)
Net unrealized gain on marketable securities 25 107
Retained Earnings 34,301 38,355
-------- --------
TOTAL SHAREHOLDERS' EQUITY $ 36,784 $ 40,866
======== ========
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 71,360 $ 74,262
======== ========
</TABLE>
See notes to the condensed consolidated financial statements
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
June 30, 1998 June 30, 1997
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(In thousands, except per share data)
<S> <C> <C>
Net cash used in operating activities ($7,010) ($2,211)
Investing Activities
Purchase of property, plant and equipment, net (1,285) (436)
Sale of investments and marketable securities 9,280 394
Purchase of investments and marketable securities (674) (1,125)
-------- --------
Net cash provided by (used in) investing activities 7,321 (1,167)
-------- --------
Financing Activities
Dividends paid (298)
Short-term loans payable, net 2,750 4,002
Payments on long term debt and capital less obligations (70) (33)
Issue of Common Stock 18
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Net cash provided by financing activities 2,698 3,671
-------- --------
Effect of exchange rate on changes on cash 10 (18)
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Increase in Cash and Cash Equivalents 3,019 275
Cash and cash equivalents at beginning of year 3,032 1,254
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Cash and cash equivalents at end of period $ 6,051 $ 1,529
======== ========
Supplemental disclosure of cash flow information: Non cash investing
activities:
Assets acquired by incurring long term debt 4,028
Capitalized lease obligations terminated (3,086)
</TABLE>
See notes to the condensed consolidated financial statements
<PAGE>
INDUSTRIAL ACOUSTICS COMPANY, INC. & SUBSIDIARIES
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
Regulations 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
resulted in Revenue and Profit decreases of $2,356,000 (of which $1,247,000 was
recognized in the current quarter and $1,109,000 in the first quarter).
Operating results for the six month period ended June 30, 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:
June 30, 1998 December 31, 1997
------------- -----------------
Materials and Supplies $2,193 $2,246
Work in Process $3,576 $3,610
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Total $5,769 $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.
<PAGE>
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 AN ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Consolidated revenues for the six months ended June 30, 1998 are approximately
the same as the first half of 1997, but the Company's domestic operations
continue to be adversely impacted by major revisions in the estimates to
complete on major contracts. The contract estimate changes are attributable to
the Architectural and Special Products Departments and domestic revenues and
profits have been adversely impacted by $2,356,000. As a result of the estimate
changes, volume in the Departments, at $5,561,000 and $4,408,000 are 13% and
22% respectively, below the same period last year. The Company has filed claims
and anticipates that it will recover a portion of the additional costs
incurred, but future impact of any recoveries cannot be determined and has not
been included in the results for the period. In addition, revenues in the Air
Conditioning Department, at $3,093,000, are 8% below their 1997 level. However,
revenues in the Industrial, Medical and Door Departments, which account for 25%
of total revenues, have increased 23% over the same period last year and IAC
Ltd., at $10,072,000, is 16% higher than the same period last year.
Interest income, at $796,000, was 3% higher than 1997 but other income (net of
expenses) decreased to $317,000 from $499,000 primarily due to lower royalties
from our licensees in Japan and Hong Kong.
IAC Ltd.'s Cost of products sold, as a percentage of net sales, was 79%
compared to 85% for the same period last year. Domestically, Cost of products
sold was 112% compared to 94% for the same period last year as a result of the
estimate changes noted above.
Selling, general and administrative expenses (excluding interest expense)
increased $370,000 (6%). Domestically, a $681,000 provision was made for
restructuring charges. However, this increase was partially offset by a
reduction in expenses at IAC Ltd. (in 1997, IAC Ltd. was adversely impacted by
severance cost provisions of $225,000 which did not recur in 1998).
Net cash used in operating activities was $7,010,000 due primarily to the
losses incurred and a reduction in accounts payable and accrued expenses.
Operating activities were financed by the sale of investments and an increase
in short terms loans.
<PAGE>
The Company's funds, which consist of cash and cash equivalents, short term
investments and marketable securities decreased 22% from $25,817,000 to
$20,094,000 and loans payable and capital lease obligations (both long and
short term) increased $3,451,000 as a result of the purchase of the New York
facility.
Shareholders' equity decreased by $4,082,000 as a result of the losses incurred
and a reduction of $82,000 in the net unrealized gain on marketable securities.
Order intake for the six months ended June 30, 1998 was $29,436,000 compared to
$41,571,000 for the same period last year and revenue backlog at June 30, 1998
was $45,807,000 compared to $55,941,000 at June 30, 1997. The significant
reduction in orders and backlog is attributable to the Domestic Special
Products department.
"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.
<PAGE>
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 singed on its behalf by the
undersigned thereunto duly authorized.
INDUSTRIAL ACOUSTICS COMPANY, INC.
Date: August 11, 1998 By: /s/ Robert N. Bertrand
------------------------
Robert N. Bertrand
Senior Vice President, Secretary
Date: August 11, 1998 By: /s/ T. Joseph Looney
-------------------------
T. Joseph Looney
Vice President - Finance, Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,051
<SECURITIES> 758
<RECEIVABLES> 18,962
<ALLOWANCES> 4,759
<INVENTORY> 5,769
<CURRENT-ASSETS> 38,286
<PP&E> 14,197
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,360
<CURRENT-LIABILITIES> 28,918
<BONDS> 0
0
0
<COMMON> 2,981
<OTHER-SE> 2,241
<TOTAL-LIABILITY-AND-EQUITY> 71,360
<SALES> 31,213
<TOTAL-REVENUES> 32,326
<CGS> 31,524
<TOTAL-COSTS> 38,466
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 559
<INCOME-PRETAX> (6,140)
<INCOME-TAX> 2,085
<INCOME-CONTINUING> (4,055)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,055)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (1.36)
</TABLE>
