<PAGE> 1
U.S. 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
MAY 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition Period from N/A to N/A
Commission File No. 1-7755
SUMMA INDUSTRIES
(Name of registrant as specified in its charter)
DELAWARE 95-1240978
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
21250 HAWTHORNE BOULEVARD, SUITE 500, TORRANCE, CALIFORNIA 90503
(Address of principal executive offices, including zip code)
Registrant's Telephone Number: (310) 792-7024
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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 ___
The number of shares of common stock outstanding as of May 31, 1999 was
4,299,826.
<PAGE> 2
SUMMA INDUSTRIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
August 31, 1998 and May 31, 1999 (unaudited) ...........................................................3
Condensed Consolidated Statements of Income (unaudited) -
three months and nine months ended May 31, 1998 and 1999................................................4
Condensed Consolidated Statements of Cash Flows (unaudited) -
nine months ended May 31, 1998 and 1999.................................................................5
Notes to Condensed Consolidated Financial Statements (unaudited)....................................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........................................................8
PART II - OTHER INFORMATION.....................................................................................12
Item 1. Legal Proceedings......................................................................................12
Item 2. Changes in Securities..................................................................................12
Item 3. Default upon Senior Securities.........................................................................12
Item 4. Submission of Matters to a Vote of Security Holders....................................................12
Item 5. Other Information......................................................................................12
Item 6. Exhibits and Reports on Form 8-K.......................................................................13
Signature Page..................................................................................................13
</TABLE>
2
<PAGE> 3
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1998 May 31, 1999
ASSETS (unaudited)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $293,000 $291,000
Accounts receivable 12,975,000 17,020,000
Inventories 9,392,000 11,607,000
Prepaid expenses and other 1,439,000 1,385,000
------------------------------------------------------------------------------------------------------------------------------
Total current assets 24,099,000 30,303,000
------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 27,796,000 34,596,000
Less accumulated depreciation 7,132,000 9,964,000
------------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 20,664,000 24,632,000
------------------------------------------------------------------------------------------------------------------------------
Other assets 1,006,000 1,022,000
Goodwill and other intangibles, net 18,214,000 31,968,000
------------------------------------------------------------------------------------------------------------------------------
Total assets $63,983,000 $87,925,000
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $5,299,000 $6,669,000
Accrued liabilities 5,279,000 6,624,000
Current maturities of long-term debt 2,667,000 6,129,000
------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,245,000 19,422,000
------------------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current maturities 18,675,000 31,195,000
Other long-term liabilities 3,945,000 3,905,000
------------------------------------------------------------------------------------------------------------------------------
Total liabilities 35,865,000 54,522,000
------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.001; 10,000,000 shares authorized;
issued and outstanding: 4,257,307 at August 31, 1998 and
4,299,826 at May 31, 1999 18,505,000 19,151,000
Retained earnings 9,613,000 14,252,000
------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 28,118,000 33,403,000
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $63,983,000 $87,925,000
==============================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended May 31 Nine months ended May 31
- ------------------------------------------------------------------------------------------------------------------------------
1998 1999 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $23,854,000 $30,203,000 $60,698,000 $76,461,000
Cost of sales 16,377,000 20,974,000 42,121,000 52,706,000
- ------------------------------------------------------------------------------------------------------------------------------
Gross profit 7,477,000 9,229,000 18,577,000 23,755,000
Selling, general, administrative and other
expenses 4,649,000 5,394,000 12,131,000 14,658,000
- ------------------------------------------------------------------------------------------------------------------------------
Operating income from continuing operations 2,828,000 3,835,000 6,446,000 9,097,000
Interest expense 506,000 798,000 1,159,000 1,546,000
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
provision for taxes 2,322,000 3,037,000 5,287,000 7,551,000
Provision for income taxes 988,000 1,157,000 2,207,000 2,912,000
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,334,000 1,880,000 3,080,000 4,639,000
Income from discontinued operations, net of the
effect of income tax 66,000 --- 299,000 ---
- ------------------------------------------------------------------------------------------------------------------------------
Net income $1,400,000 $1,880,000 $3,379,000 $4,639,000
==============================================================================================================================
Earnings per common share
- ------------------------------------------------------------------------------------------------------------------------------
Basic
Continuing operations $.32 $.44 $.74 $1.09
Discontinued operations $.01 $--- $.07 $ ---
Net income $.33 $.44 $.81 $1.09
==============================================================================================================================
Diluted
Continuing operations $.30 $.42 $.70 $1.04
Discontinued operations $.01 $--- $.07 $ ---
Net income $.31 $.42 $.77 $1.04
==============================================================================================================================
Weighted average common shares outstanding
Basic 4,244,000 4,289,000 4,181,000 4,269,000
Diluted 4,502,000 4,481,000 4,406,000 4,453,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SUMMA INDUSTRIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended May 31
-----------------------------------------------------------------------------------------------------------------------------
1998 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $3,379,000 $4,639,000
-----------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 2,357,000 2,881,000
Amortization 363,000 507,000
Loss (gain) on disposition of property, plant and equipment 117,000 (12,000)
Net change in assets and liabilities, net of effects of
acquisitions: (1,591,000) (1,987,000)
Accounts receivable (474,000) (895,000)
Inventories 73,000 146,000
Prepaid expenses and other assets 130,000 (222,000)
Accounts payable 350,000 691,000
Accrued liabilities
-----------------------------------------------------------------------------------------------------------------------------
Total adjustments 1,325,000 1,109,000
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,704,000 5,748,000
-----------------------------------------------------------------------------------------------------------------------------
Investing activities:
Acquisition of businesses (Note 5) (22,859,000) (20,130,000)
Purchases of property and equipment (2,072,000) (1,953,000)
Proceeds from sale of equipment 6,000 15,000
Net decrease in unexpended revenue bond proceeds 371,000 ---
-----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (24,554,000) (22,068,000)
-----------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds from line of credit 6,865,000 7,908,000
Proceeds from issuance of long-term debt 13,500,000 13,227,000
Payments on long-term debt (4,380,000) (5,153,000)
Proceeds from the exercise of stock options 864,000 489,000
Purchases of common stock --- (153,000)
-----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,849,000 16,318,000
-----------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (3,001,000) (2,000)
Cash and cash equivalents, beginning of period 3,020,000 293,000
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $19,000 $291,000
=============================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SUMMA INDUSTRIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Summa
Industries (the "Company"), some of which are unaudited, have been condensed in
certain respects and should, therefor, be read in conjunction with the audited
financial statements and notes related thereto contained in the Company's Annual
Report on Form 10-K for the year ended August 31, 1998. In the opinion of the
Company, the accompanying unaudited interim condensed consolidated financial
statements contain all adjustments necessary for a fair presentation for the
interim period, all of which were normal recurring adjustments. The results of
operations for the nine months ended May 31, 1999 are not necessarily indicative
of the results to be expected for the full year ending August 31, 1999.
2. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
August 31, 1998 May 31, 1999
--------------- ------------
<S> <C> <C>
Finished goods ............... $ 3,611,000 $ 4,816,000
Work in process .............. 111,000 261,000
Materials and parts .......... 5,670,000 6,530,000
----------- -----------
$ 9,392,000 $11,607,000
=========== ===========
</TABLE>
3. DILUTED EARNINGS PER SHARE
Diluted earnings per share were calculated using the "treasury stock"
method as if dilutive stock options had been exercised and the funds were used
to purchase common shares at the average market price during the period.
<TABLE>
<CAPTION>
Three months ended May 31 Nine months ended May 31
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding - basic . 4,244,000 4,289,000 4,181,000 4,269,000
Effect of dilutive securities:
Impact of common shares to be issued under
stock option plans .................... 258,000 192,000 225,000 184,000
--------- --------- --------- ---------
Weighted average shares outstanding - diluted 4,502,000 4,481,000 4,406,000 4,453,000
========= ========= ========= =========
</TABLE>
6
<PAGE> 7
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine months ended May 31
1998 1999
---- ----
<S> <C> <C>
Cash paid during the period:
Interest ................................ $ 1,198,000 $ 1,419,000
============ ============
Income taxes ............................ $ 2,052,000 $ 2,918,000
============ ============
Non-cash investing and financing activities:
Details of acquisitions
Fair value of assets acquired ........... $ 37,317,000 $ 22,660,000
Liabilities assumed or incurred ......... (11,707,000) (2,220,000)
Value of options and warrants issued .... (1,345,000) (310,000)
------------ ------------
Cash paid .................................. 24,265,000 20,130,000
Less cash acquired ......................... (1,406,000) ---
------------ ------------
Net cash used in acquisitions .............. $ 22,859,000 $ 20,130,000
============ ============
</TABLE>
5. ACQUISITIONS
On March 5, 1999, the Company completed the acquisition of
substantially all of the assets of Plastron Industries, L.P. ("Plastron"). The
aggregate purchase price paid for Plastron consisted of (i) $20.0 million in
cash; (ii) a four-year warrant exercisable to purchase up to 200,000 shares of
the Company's common stock at $11.75 per share valued at $278,000; (iii)
investment banking fees consisting of a $125,000 cash payment and stock options,
valued at $33,000; and (iv) the assumption of certain liabilities, principally
trade payables and accrued obligations of approximately $2.2 million. The
purchase price is subject to a one time purchase price reduction to be
calculated comparing Plastron working capital at closing to $1.85 million. The
transaction has been accounted for using the purchase method of accounting, and
accordingly, the purchase price has been allocated to identifiable tangible and
intangible assets purchased and liabilities assumed or incurred based upon their
fair value at the date of acquisition. The excess of the purchase price over the
fair values of the net assets acquired amounted to $14,261,000 and has been
recorded as goodwill which is being amortized on a straight line basis over 35
years.
On May 1, 1998, the Company completed the acquisition of Falcon
Belting, Inc. ("Falcon") of Oklahoma City, Oklahoma. The total acquisition cost
was $5,125,000, consisting of $2,636,000 in cash and the present value of
obligations to make future payments to the former owner of Falcon and
liabilities assumed or incurred of $2,489,000. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the purchase price has
been allocated to identifiable tangible and intangible assets purchased and
liabilities assumed or incurred based upon their fair value at the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired amounted to $1,995,000 and has been recorded as goodwill which
is being amortized on a straight-line basis over 30 years.
7
<PAGE> 8
On October 28, 1997, the Company completed the acquisition of Calnetics
Corporation ("Calnetics"). The total acquisition cost was $31,792,000,
consisting of cash due to former Calnetics shareholders of $22,335,000,
acquisition costs of $50,000, liabilities assumed or incurred of $8,062,000 and
an estimated fair value of $1,345,000 for stock options issued in conjunction
with the transaction, primarily replacement options issued to Calnetics
employees who continued with the Company. The acquisition has been accounted for
using the purchase method of accounting and, accordingly, the purchase price has
been allocated to identifiable tangible and intangible assets purchased and
liabilities assumed or incurred based upon their fair value at the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired amounted to $13,974,000 and has been recorded as goodwill which
is being amortized on a straight-line basis over 40 years.
The results of operations of Calnetics, Falcon and Plastron have been
included in the consolidated results of operations and the consolidated
statements of cash flows of the Company since October 28, 1997; May 1, 1998 and
March 5, 1999, the respective dates of the acquisitions. The following unaudited
pro forma financial information presents the results of operations of the
continuing businesses of the Company with Calnetics and Plastron as if they had
been acquired as of September 1, 1997. Pro forma adjustments have been made to
give effect to the amortization of goodwill, adjustments in depreciation and
inventory value, a reduction in redundant operating expense, interest expense
related to acquisition debt, the related tax effects and the effect upon basic
and diluted earnings per share of the stock options issued in conjunction with
the acquisitions. The following unaudited pro forma financial information does
not include adjustments to give effect to the Falcon acquisition as such
adjustments would not be material.
<TABLE>
<CAPTION>
Three months ended May 31 Nine months ended May 31
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .......................................... $28,160,000 $30,203,000 $80,015,000 $85,527,000
Income from continuing operations .................. 1,398,000 1,880,000 3,887,000 4,962,000
Income from continuing operations per common share:
basic ................................ $.33 $.44 $.86 $1.16
diluted .............................. $.31 $.42 $.81 $1.11
</TABLE>
The pro forma results in the preceding table are not necessarily
indicative of what the actual consolidated results of operations might have been
if the acquisitions had been effective at September 1, 1997 or the results which
may be achieved in the future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Statements contained in this Quarterly Report on Form 10-Q, which are
not purely historical, are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including but not limited to statements regarding Summa's
expectations, hopes, beliefs, intentions or strategies regarding the future,
such as those set forth in Part II, Item 1 "Legal Proceedings" below. Actual
results could differ materially from those projected in any forward-looking
statements as a result of a number of factors, including those detailed in this
"Management's Discussion and Analysis" section (including, without limitation,
the potential material adverse consequences to the Company of the Year 2000
issue) and elsewhere herein and in the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1998. The forward-looking statements are made
as of the date hereof, and the Company assumes no obligation to update the
forward-looking statements, or to update the reasons why actual results could
differ materially from those projected in the forward-looking statements.
8
<PAGE> 9
The Company designs and manufactures injection-molded plastic optical
components for OEM customers in the lighting industry; molded plastic modular
conveyor belt and chain for the food processing industry; engineered plastic
fittings, valves, filters and tubing for the agricultural irrigation industry;
thermoplastic coil forms for electrical device manufacturers; and other molded
and extruded plastic components for diverse industries. Growth has been achieved
by acquisition, development of new products and expansion of the Company's sales
organization. There can be no assurance that the Company will be able to
continue to consummate acquisitions, develop new products or expand sales to
sustain rates of revenue growth and profitability in future periods comparable
to those experienced in the past several years.
Any future success that the Company may achieve will depend upon many
factors, including factors which may be beyond the control of the Company or
which cannot be predicted at this time. These factors may include changes in the
markets for the products offered by the Company through its operating
subsidiaries, increased levels of competition including the entry of additional
competitors and increased success by existing competitors, reduced margins
caused by competitive pressures and other factors, increases in operating costs
including costs of production, supplies, personnel, equipment, import duties and
transportation, increases in governmental regulation imposed under federal,
state or local laws, including regulations applicable to environmental, labor
and trade matters, changing customer profiles and general economic and industry
conditions that affect customer demand and sales volume, both domestically and
in international markets, the introduction of new products by the Company or its
competitors, the need to make material capital expenditures, the timing of the
Company's advertising and promotional campaigns, and other factors.
RESULTS OF OPERATIONS
The following table sets forth certain income information for the
Company's continuing operations as a percent of sales for the three-month and
nine-month periods ended May 31, 1998 and 1999, and the Company's effective
income tax rate during those periods.
<TABLE>
<CAPTION>
Three months ended May 31 Nine months ended May 31
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales .............................. 68.7% 69.4% 69.4% 68.9%
----- ----- ----- -----
Gross profit ............................... 31.3% 30.6% 30.6% 31.1%
S,G & A and other expenses ................. 19.5% 17.9% 20.0% 19.2%
----- ----- ----- -----
Operating income from continuing operations 11.8% 12.7% 10.6% 11.9%
Interest expense, net ...................... 2.1% 2.6% 1.9% 2.0%
----- ----- ----- -----
Income from continuing operations before tax 9.7% 10.0% 8.7% 9.9%
Provision for income taxes ................. 4.1% 3.8% 3.6% 3.8%
----- ----- ----- -----
Income from continuing operations .......... 5.6% 6.2% 5.1% 6.1%
===== ===== ===== =====
Effective tax rate ......................... 42.6% 38.1% 41.7% 38.6%
</TABLE>
Sales for the third quarter ended May 31, 1999 increased $6,349,000, or
27%, compared to the same period in the prior year due to acquisitions and
growth in the same business sales of 4%.
Sales for the nine months ended May 31, 1999 increased $15,763,000, or
26%, from the comparable prior year period primarily due to acquisitions and due
to growth in the same business sales of 3%.
9
<PAGE> 10
Gross profit for the third quarter increased $4,597,000, or 28%, from
the comparable prior year period, primarily due to the effects of acquisitions
and sales growth. As a percentage of sales, gross profit decreased from 31.3% to
30.6%, as a result of the blending of newly acquired businesses with
historically lower gross margins and a one-time charge to cost of sales of
$148,000, or 0.5% of sales, for the write-up of inventories of acquired
operations, partially offset by the benefit of increased volume and cost
reduction initiatives.
Gross profit for the nine months ended May 31, 1999 increased
$10,585,000, or 25%, from the comparable prior year period, primarily due to the
effects of acquisitions. As a percentage of sales, gross profit increased from
30.6% to 31.1%, primarily as a result of the benefit of increased volumes, and
cost reduction initiatives.
Operating expenses for the third quarter increased $745,000, or 16%,
from the comparable prior year quarter, primarily due to the inclusion of the
operating expenses of recently acquired businesses. As a percentage of sales,
operating expenses decreased from 19.5% to 17.9%, because of the blending of
newly acquired businesses with historically lower operating expenses and the
benefit of increased volumes. Operating margin for the third quarter increased
from 11.8% to 12.7%, as a result of the changes in gross margin and operating
expenses discussed above.
Operating expenses for the nine months ended May 31, 1999 increased
$2,527,000, or 21%, from the comparable prior year period, primarily due to the
inclusion of the operating expenses of recently acquired businesses. As a
percentage of sales, operating expenses decreased from 20.0% to 19.2% primarily
as a result of the benefit of increased volumes. Operating margin for the nine
month period increased from 10.6% to 11.9%, as a result of the changes in gross
margin and operating expenses discussed above.
Net interest expense for the third quarter ended May 31, 1999 increased
$292,000 from the prior year third quarter, primarily due to increased debt
levels. For the nine month period ended May 31, 1999, interest expense increased
$387,000 from the comparable prior year period, due primarily to increased debt
levels related to acquisitions.
The decrease in the effective tax rate in the current three month and
nine month periods is due to a lower effective combined state income tax rate
and increased foreign sales corporation tax benefit.
The Company's backlog of unfilled orders, believed to be firm,
increased from $7,198,000 at August 31, 1998 to $9,813,000 at May 31, 1999 due
to the inclusion of the backlog of acquired operations and increased bookings.
Because the length of time between entering an order and shipping the product is
typically shorter than one month, backlog levels are not a reliable indicator of
future sales volume.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. The Company's working capital at May 31, 1999 was
$10,881,000 compared to $10,854,000 at August 31, 1998. Increases in accounts
receivable and inventory during the third quarter, primarily due to an
acquisition, were offset by increases in the current portion of debt and other
current liabilities.
Financing Arrangements. The Company has several debt relationships in
place as described below. Substantially all of the Company's assets are pledged
to secure debt. The term debt and revolving line of credit require compliance
with various bank covenants.
Summary of the Company's debt at May 31, 1999:
<TABLE>
<CAPTION>
Weighted Average Additional
Description of Debt Balance Interest Rate Availability Due
- ------------------- ------- ---------------- ------------ ---
<S> <C> <C> <C> <C>
Bank line of credit .............. $10,642,000 7.4% $6,358,000 2001
Bank term loans .................. 20,276,000 7.7% --- 1999-2004
Industrial revenue bonds and other 6,406,000 6.4% 780,000 1999-2021
----------- --- ----------
Total debt ....................... $37,324,000 7.4% $7,138,000
=========== === ==========
</TABLE>
Interest rates on bank debt are subject to reduction as the Company
achieves certain financial milestones.
The Company announced a stock buy-back program September 28, 1998 which
authorized the Company to purchase its common stock in an aggregate amount of up
to $2,000,000. During the first quarter, the Company repurchased and retired
18,000 shares of its common stock in block trades, at an average price of $8.48
per share. There were no repurchases during the second or third quarters.
Summa believes that cash flows from operations and existing credit
facilities will be sufficient to fund working capital requirements, planned
capital expenditures and debt service for the next twelve months. The Company
has a strategy of growth by acquisition. In the event an acquisition plan is
adopted which requires funds exceeding the availability described above, 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 4,299,826 shares were outstanding at May 31, 1999 and 5,000,000 shares of
"blank check" preferred stock authorized of which none is outstanding. The
Company could issue additional shares of common or preferred stock or enter into
new or revised borrowing arrangements to raise funds.
YEAR 2000 COMPLIANCE
The Company is continuing to analyze operations to determine and
implement the procedures necessary to ensure timely Year 2000 compliance. The
Company is also in the process of identifying and contacting key customers,
vendors and suppliers to request confirmation of timely external Year 2000
compliance.
Each of the Company's facilities utilizes and is dependent upon data
processing systems and software to conduct business. The Company has received
confirmation from vendors of most of the business software used by the Company
that such software is designed to be Year 2000 compliant. Further, for reasons
generally unrelated to the Year 2000 issue, the Company is in the process of
purchasing and installing new systems for certain operations at a cost of
several hundred thousand dollars. The Company currently anticipates that all
internally used software will be Year 2000 compliant in a timely manner.
Additionally, various machines and other types of personal property at each
facility have
11
<PAGE> 12
computer controls and/or contain integrated circuits that may be affected, and
the Company is in the process of identifying and analyzing such property to
determine Year 2000 compliance.
Although, the Company currently believes that it will be internally
Year 2000 compliant in all material respects prior to January 1, 2000 and that
the effort to achieve Year 2000 compliance has not and will not have a
significant impact on the financial condition or results of future operations of
the Company, the Company remains concerned that the failure to comply by a
relatively small number of large customers and/or vendors, including banking
institutions, utilities, telecommunications and transportation companies, could
significantly disrupt operations at one or more of the Company's facilities. The
Company does not have a formalized Company-wide contingency plan covering worst
case scenarios in the event of Year 2000 non-compliance, but any such plan, if
and when formalized, would likely include technical contacts, access to backup
systems and alternative vendor sources, among other things. See the introductory
paragraph above in this "Management's Discussion and Analysis" section for
forward looking statements disclaimer.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company encounters lawsuits from time to time in the ordinary
course of business and, at May 31, 1999, the Company or its affiliates were
parties to several civil lawsuits. Any losses that the Company may suffer from
current or future lawsuits, and the effect such litigation may have upon the
reputation and marketability of the Company's products, could have a material
adverse impact on the results of future operations, the financial condition and
prospects of the Company.
ITEM 2. CHANGES IN SECURITIES
On March 31, 1999, following consummation of the acquisition of assets
of Plastron Industries, L.P., the Company sold 24,267 restricted shares of the
Company's common stock to certain management employees of Plastron, at the then
current market price, for a total consideration of $231,800, and granted
non-qualified stock options to certain Plastron employees, at the then current
market price. The options will vest based on the percentage obtained by dividing
the cumulative net income of Plastron after March 5, 1999 by $3.0 million, or
fully in nine years.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Prior to October 1986, a previously owned business unit of one of the
Company's subsidiaries operated a facility on property within an area
subsequently designated as a federal Superfund site. The Company learned that
hazardous substances have been detected in the subsurface of the property and
that the current owner has been requested by a state agency to undertake
additional investigation at the property. The Company is also aware that the
property has been subject to a general notice letter issued by the United States
Environmental Protection Agency under the federal Superfund law. The Company, as
the successor to one of several prior tenants of the property, may be held
responsible for the contamination at the site regardless of whether its
subsidiary caused the contamination. The Company does not believe it is
responsible for any contamination at the property, and has not been notified or
contacted by any governmental authority in that regard, nor named in any
proceeding relating to the property. However, if the Company
12
<PAGE> 13
were held liable under federal Superfund law, or other environmental law, or had
to defend itself against such a claim, the consequences could be material to the
Company's financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
4.1 Warrant dated March 5, 1999 issued by the Company to Plastron
Industries, L.P., providing for the issuance from time to time
of up to 200,000 shares of the Company's common stock at an
exercise price of $11.75 per share, including registration
rights.*
10.1 Amended and Restated Loan Agreement dated March 5, 1999
between the Company and Comerica Bank - California. *
10.2 Plastron Industries Acquisition Stock Option Plan providing
for the issuance of options to purchase up to 200,000 shares
of the Company's common stock.*
27.1 Financial Data Schedule
--------------------
* Incorporated by reference from the Company's Form 8-K dated
March 5, 1999 relating to the acquisition of Plastron
Industries, L.P.
(b) CURRENT REPORTS ON FORM 8-K.
Form 8-K dated March 5, 1999 relating to the acquisition of
Plastron Industries, L.P. by the Company.
13
<PAGE> 14
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 June 18, 1999.
SUMMA INDUSTRIES
/s/ James R. Swartwout /s/ Trygve M. Thoresen
- ---------------------- ----------------------
James R. Swartwout Trygve M. Thoresen
President and Chief Financial Officer Vice President and Secretary
14
<PAGE> 15
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
------- -----------
4.1 Warrant dated March 5, 1999 issued by the Company to Plastron
Industries, L.P., providing for the issuance from time to time of
up to 200,000 shares of the Company's common stock at an exercise
price of $11.75 per share, including registration rights.*
10.1 Amended and Restated Loan Agreement dated March 5, 1999 between
the Company and Comerica Bank - California. *
10.2 Plastron Industries Acquisition Stock Option Plan providing for
the issuance of options to purchase up to 200,000 shares of the
Company's common stock.*
27.1 Financial Data Schedule
- --------------------
* Incorporated by reference from the Company's Form 8-K dated
March 5, 1999 relating to the acquisition of Plastron
Industries, L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> AUG-31-1999 AUG-31-1999
<PERIOD-START> MAR-01-1998 SEP-01-1998
<PERIOD-END> MAY-31-1999 MAY-31-1999
<CASH> 0 291,000
<SECURITIES> 0 0
<RECEIVABLES> 0 17,020,000
<ALLOWANCES> 0 0
<INVENTORY> 0 11,607,000
<CURRENT-ASSETS> 0 30,303,000
<PP&E> 0 34,596,000
<DEPRECIATION> 0 9,964,000
<TOTAL-ASSETS> 0 87,925,000
<CURRENT-LIABILITIES> 0 19,422,000
<BONDS> 0 0
0 0
0 0
<COMMON> 0 19,151,000
<OTHER-SE> 0 14,252,000
<TOTAL-LIABILITY-AND-EQUITY> 0 87,925,000
<SALES> 30,203,000 76,461,000
<TOTAL-REVENUES> 30,203,000 76,461,000
<CGS> 20,974,000 52,706,000
<TOTAL-COSTS> 20,974,000 52,706,000
<OTHER-EXPENSES> 5,394,000 14,658,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 798,000 1,546,000
<INCOME-PRETAX> 3,037,000 7,551,000
<INCOME-TAX> 1,157,000 2,912,000
<INCOME-CONTINUING> 1,880,000 4,639,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,880,000 4,639,000
<EPS-BASIC> .44 1.09
<EPS-DILUTED> .42 1.04
</TABLE>
