<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)*
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended
FEBRUARY 29, 1996
[_] 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 1-7755
------------------------------------
SUMMA INDUSTRIES
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1240978
- ------------------------------------ --------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1600 WEST COMMONWEALTH AVE, FULLERTON, CA 92633
- ------------------------------------------ -------------------------------
(Address of principal executive offices) (Zip Code)
714 738 5000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock outstanding as of February 29, 1996 was
1,541,929.
1
<PAGE>
SUMMA INDUSTRIES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
February 29, 1996 (unaudited) and August 31, 1995.......................... 3
Condensed Consolidated Statements of Income (unaudited) -
three months and six months ended February 29, 1996 and February 28, 1995.. 4
Condensed Consolidated Statements of Cash Flows (unaudited) -
six months ended February 29, 1996 and February 28, 1995................... 5
Notes to Condensed Consolidated Financial Statements (unaudited)........... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........................... 7,8
PART II - OTHER INFORMATION.................................................. 8,9
Signature Page............................................................. 10
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 29, August 31,
1996 1995
(unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 74,000 $ 182,000
Accounts receivable 1,484,000 1,396,000
Inventories 1,938,000 1,685,000
Prepaid expenses and other 542,000 640,000
----------- -----------
Total current assets 4,038,000 3,903,000
Property, plant and equipment 5,597,000 5,158,000
Less accumulated depreciation 1,797,000 1,554,000
----------- -----------
Net property, plant and equipment 3,800,000 3,604,000
Net assets of discontinued operations 2,396,000 2,712,000
Goodwill and other intangibles, net 986,000 1,010,000
----------- -----------
$11,220,000 $11,229,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 622,000 $ 938,000
Accounts payable 660,000 486,000
Accrued liabilities 658,000 656,000
Current maturities of long-term debt 100,000 ---
----------- -----------
Total current liabilities 2,040,000 2,080,000
Long-term debt, deferred credits and other long term liabilities 1,137,000 1,219,000
----------- -----------
Total liabilities 3,177,000 3,299,000
----------- -----------
Shareholders' equity:
Common stock, par value $.001; 10,000,000 shares authorized,
1,541,929 and 1,541,930 shares issued and outstanding at
February 29, 1996 and August 31, 1995, respectively.
6,011,000 6,011,000
Retained earnings 2,032,000 1,919,000
----------- -----------
Total shareholders' equity 8,043,000 7,930,000
----------- -----------
$11,220,000 $11,229,000
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------- --------------------------------
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Net sales $2,928,000 $2,503,000 $5,767,000 $4,879,000
Cost of sales 1,589,000 1,394,000 3,149,000 2,702,000
---------- ---------- ---------- ----------
Gross profit 1,339,000 1,109,000 2,618,000 2,177,000
Selling, general and administrative
and other expenses 1,045,000 843,000 2,030,000 1,668,000
---------- ---------- ---------- ----------
Income from continuing operations
before provision for taxes 294,000 266,000 588,000 509,000
Provision for income taxes 137,000 118,000 254,000 246,000
---------- ---------- ---------- ----------
Income from continuing operations 157,000 148,000 334,000 263,000
Loss from discontinued operations,
net of the effect of income tax (135,000) (49,000) (221,000) (12,000)
---------- ---------- ---------- ----------
Net Income $ 22,000 $ 99,000 $ 113,000 $ 251,000
========== ========== ========== ==========
Income per common and equivalent
share:
Income from continuing operations $ .10 $ .10 $ .21 $ .16
Loss from discontinued operations,
net of the effect of income tax (.09) (.04) (.14) .00
---------- ---------- ---------- ----------
Net Income per common and
equivalent share $ .01 $ .06 $ .07 $ .16
========== ========== ========== ==========
Weighted average shares outstanding 1,576,000 1,557,000 1,567,000 1,548,000
========== ========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
--------------------------------------
February 29, 1996 February 28, 1995
----------------- -----------------
<S> <C> <C>
Operating activities:
Net income $ 113,000 $ 251,000
--------- -----------
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 389,000 349,000
Provision for doubtful accounts receivable 14,000 1,000
Provision for inventory reserves 105,000 43,000
Gain on disposition of property, plant and equipment (37,000) (13,000)
Net change in assets and liabilities
Accounts receivable 289,000 (460,000)
Inventories 21,000 (1,162,000)
Prepaid expenses and other 86,000 1,000
Accounts payable (173,000) 871,000
Accrued liabilities (162,000) 32,000
--------- -----------
Total adjustments 532,000 (338,000)
--------- -----------
Net cash provided (used) by operating activities: 645,000 (87,000)
--------- -----------
Investing activities:
Property, plant & equipment (499,000) (389,000)
Other assets --- (12,000)
Proceeds from sale of equipment 62,000 20,000
--------- -----------
Net cash (used) by investing activities (437,000) (381,000)
--------- -----------
Financing activities:
Proceeds (payments) on line of credit (316,000) 420,000
Payment on long term contract payable --- (2,000)
Principal payments under capitalized lease --- (4,000)
Exercise of stock options --- 33,000
Issuance of common stock --- 24,000
--------- -----------
Net cash provided (used) by financing activities (316,000) 471,000
--------- -----------
Net increase (decrease) in cash (108,000) 3,000
Cash at beginning of period 182,000 234,000
--------- -----------
Cash at end of period $ 74,000 $ 237,000
========= ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest payments 62,000 28,000
========= ===========
Income tax payments 119,000 423,000
========= ===========
</TABLE>
See accompanying notes.
5
<PAGE>
SUMMA INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying consolidated financial statements, some of which are
unaudited, have been condensed in certain respects and should, therefor, be
read in conjunction with the financial statements and notes related thereto
contained in the Company's annual report to shareholders for the year ended
August 31, 1995. In the opinion of the Company, the accompanying unaudited
interim financial statements contain all adjustments (all of which are of a
normal recurring nature) necessary for a fair presentation for the interim
period. (See Note 3. below.) The results of operations for the three months
and six months ended February 29, 1996 are not necessarily indicative of
the results to be expected for the full year.
2. Inventories
Inventories of continuing operations at February 29, 1996 and August 31,
1995 were as follows:
<TABLE>
<CAPTION>
February 29, 1996 August 31, 1995
(unaudited)
----------------- ---------------
<S> <C> <C>
Finished goods $ 502,000 $ 538,000
Work in process 144,000 71,000
Material and parts 1,292,000 1,076,000
---------- ----------
$1,938,000 $1,685,000
========== ==========
</TABLE>
3. Discontinued Operations
The Company has announced its planned divestiture of its industrial process
equipment subsidiary, Morehouse-COWLES, Inc. (See Part II, Other
Information.) Accordingly, this business unit is being accounted for as a
discontinued operation and results of its operations are segregated in the
accompanying consolidated statements of income. The assets and liabilities
of discontinued operations have been classified in the consolidated balance
sheets as, "Net assets of discontinued operations." Discontinued operations
have not been segregated in the consolidated statements of cash flow.
The components of net assets of discontinued operations included in the
consolidated balance sheets at August 31, 1995 and February 29, 1996 are as
follows:
<TABLE>
<CAPTION>
February 29, 1996 August 31, 1995
----------------- ---------------
<S> <C> <C>
ASSETS
Accounts receivable, net $ 595,000 $ 986,000
Inventory 1,993,000 2,372,000
Prepaid expenses 96,000 99,000
Property, plant and equipment, net 333,000 388,000
Goodwill and intangibles, net 280,000 297,000
---------- ----------
Total assets 3,297,000 4,142,000
LIABILITIES
Accounts payable 356,000 703,000
Accrued liabilities 545,000 727,000
---------- ----------
Total liabilities 901,000 1,430,000
---------- ----------
Net assets of discontinued operations $2,396,000 $2,712,000
========== ==========
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
Net cash provided by operating activities for the six month period ended
February 29, 1996 was $645,000. In the comparable prior year period, $87,000 was
used by operating activities. The improved cash flows are primarily attributable
to lower growth in inventories related to improved turnover and lower required
tax payments.
The investment in property, plant and equipment relates primarily to the
acquisition of molds for new products in the material handling components
business. The Company expects to continue to invest heavily in tooling for new
products.
In January 1996, the Company's revolving line of credit facility of $2,000,000
was extended to January 1, 1997. The line of credit is secured by all the assets
of the Company. The outstanding balance bears interest at a per annum rate one-
quarter percentage point above the bank's prime rate. The amount outstanding
under the Company's line of credit at February 29, 1996 was $622,000, a
reduction of $316,000 from the August 31, 1995 amount due. The Company believes
that cash flows from operations and the available line of credit will be
sufficient to fund working capital and planned capital expenditure requirements
for the next twelve months.
The effect on liquidity of the planned divestiture of Morehouse-COWLES, Inc. is
not known, but the Company expects that liquidity will be improved.
The Company has a strategy of growth by acquisition. Although there are no plans
to make a specific acquisition, in the event such a plan were adopted, an
alternate source of funds to accomplish the acquisition would have to be
developed. The Company has 10,000,000 shares of common stock authorized, of
which 1,541,929 shares are outstanding, and 5,000,000 shares of "blank check"
preferred stock authorized of which none is outstanding. Although there are no
plans to do so, the Company could issue additional shares of common or preferred
stock to raise funds.
Results of Operations
- ---------------------
The following table sets forth certain Statements of Income information as a
percent of sales for the quarter and six months ended February 29, 1996 and
February 28, 1995.
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------- ----------------------------
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Gross profit 45.7% 44.3% 45.4% 44.6%
S,G & A and other expense 35.7% 33.7% 35.2% 34.2%
Income from continuing operations
before provision for taxes 10.0% 10.6% 10.2% 10.4%
Income from continuing operations 5.4% 5.9% 5.8% 5.4%
===== ===== ===== =====
Effective tax rate 46.6% 44.4% 43.2% 48.3%
</TABLE>
Sales for the second quarter, ended February 29, 1996, increased $425,000, or
17% compared to the same period in the prior year, as a result of growth in the
sales of each of the continuing businesses. Consolidated gross profit increased
$230,000, or 21% primarily related to sales growth. Gross profit as a percentage
of sales increased from 44% to 46% primarily due to the leveraging benefit of
higher volume. Operating expenses increased $202,000, or 24% from the comparable
prior year period, primarily due to expansion of sales and marketing activities
in the material handling components business. Income from continuing operations
for the quarter was $157,000 compared to $148,000 for the same period last year.
7
<PAGE>
Sales of the continuing businesses for the six months ended February 29, 1996,
increased $888,000, or 18% from the comparable prior year period, primarily due
to increased sales in the material handling components business. Consolidated
gross profits increased $441,000, or 20%, primarily related to the sales
increase in the material handling components business. Operating expenses
increased $362,000, or 22% from the comparable period last year and as a
percentage of sales increased from 34% to 35% primarily because of expanded
sales and marketing activities in the material handling components business.
Income from continuing operations for the six month period was $334,000 compared
to $263,000, for the same period last year, a 27% increase.
The Company's backlog of the continuing businesses at February 29, 1996,
believed to be firm, was $2,949,000, 9% higher than a year earlier. The amount
of backlog cannot necessarily be used as an indicator of future sales volume.
Sales and operating results of the discontinued business unit for the periods
were as follows: ($000's omitted)
<TABLE>
<CAPTION>
Three months ended Six months ended
----------------------------- ----------------------------
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $1,921 $2,026 $3,989 $3,628
Loss from operations before income
taxes (226) (93) (369) (17)
Income tax benefit (91) (44) (148) (5)
------ ------ ------ ------
Net loss from discontinued operations (135) (49) (221) (12)
</TABLE>
The Company has accrued certain expenses directly associated with the
divestiture of the business unit. It is not anticipated that the Company will
incur further losses from the operation of the business unit held for sale or
from the sale itself, although there is currently no firm sale agreement and the
timing and terms of a potential transaction are uncertain.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
- --------------------------
At February 29, 1996, the Company was a party to four civil lawsuits which are
described in the report on Form 10K for the year ended August 31, 1995.
Item 2. Change in Securities
- -----------------------------
None.
Item 3. Default upon Senior Securities
- ---------------------------------------
None.
Item 4. Submission of matters to a vote of security holders
- ------------------------------------------------------------
As reported on Form 10Q for the period ended November 30, 1995, at the Company's
annual meeting of shareholders on December 14, 1995, the Company's 1995 Stock
Option Plan was approved and the four director nominees were re-elected.
8
<PAGE>
Item 5. Other Information
- --------------------------
On January 30, 1996, the Company announced it had signed a letter of intent to
sell its subsidiary, Morehouse-COWLES, Inc., a manufacturer of process
equipment, to a privately held company. Subsequently, the negotiations with
that company were terminated, and SUMMA INDUSTRIES is seeking other potential
acquirors.
In the last two years, SUMMA invested significantly in Morehouse, resulting in
substantially increased sales but lagging profits. Although the operational
issues adversely impacting profits at Morehouse-COWLES are being aggressively
addressed and the long term prospects for that business are good, projected
return on investment is below that of SUMMA's other businesses, leading to the
decision to divest Morehouse and re-deploy the invested capital.
Pro-forma earnings of the Company, restated for the last three fiscal years to
reflect the planned divestiture, are:
<TABLE>
<CAPTION>
Fiscal Years Ended August 31
($000 omitted, except per share amounts)
-----------------------------------------
1995 1994 1993
------------ ------------- ----------
<S> <C> <C> <C>
Sales $10,247 $10,279 $5,284
Income before results of discontinued operations, extraordinary item
and cumulative effect of accounting change 676 501 213
Results of discontinued operations, net of the effect of income taxes (28) 118 179
Extraordinary item, tax benefit of net operating less carryforward --- --- 321
Cumulative effect of accounting change --- 100 ---
------------------------------------
Net income $ 648 $ 719 $ 713
====================================
Income per common and equivalent shares
Income before results of discontinued operations, extraordinary
item and cumulative effect of accounting change .44 .32 .21
Results of discontinued operations, net of the effect of income taxes (.02) .08 .17
Extraordinary item --- --- .32
Cumulative effect of accounting change --- .06 ---
------------------------------------
Net Income per common and equivalent shares $ .42 $ .46 $ .70
====================================
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits. None.
---------
(b) Current Reports on Form 8-K.
----------------------------
9
<PAGE>
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 on April 5, 1996.
SUMMA INDUSTRIES
/s/ James R. Swartwout
-----------------------------------------
James R. Swartwout,
President and Chief Financial Officer
/s/ Paul A. Walbrun
----------------------------------------
Paul A. Walbrun,
Vice President, Controller and Secretary
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> AUG-31-1996 AUG-31-1996
<PERIOD-START> DEC-01-1995 SEP-01-1995
<PERIOD-END> FEB-29-1996 FEB-29-1996
<CASH> 74,000 0
<SECURITIES> 0 0
<RECEIVABLES> 1,548,000 0
<ALLOWANCES> 64,000 0
<INVENTORY> 1,938,000 0
<CURRENT-ASSETS> 4,038,000 0
<PP&E> 5,597,000 0
<DEPRECIATION> 1,797,000 0
<TOTAL-ASSETS> 11,220,000 0
<CURRENT-LIABILITIES> 2,040,000 0
<BONDS> 0 0
0 0
0 0
<COMMON> 6,011,000 0
<OTHER-SE> 2,032,000 0
<TOTAL-LIABILITY-AND-EQUITY> 11,220,000 0
<SALES> 2,928,000 5,767,000
<TOTAL-REVENUES> 2,928,000 5,767,000
<CGS> 1,589,000 3,149,000
<TOTAL-COSTS> 1,589,000 3,149,000
<OTHER-EXPENSES> 1,045,000 2,030,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 294,000 588,000
<INCOME-TAX> 137,000 254,000
<INCOME-CONTINUING> 157,000 334,000
<DISCONTINUED> (135,000) (221,000)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 22,000 113,000
<EPS-PRIMARY> .01 .07
<EPS-DILUTED> .01 .07
</TABLE>
