<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6322
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Medalist Industries, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0873294
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10850 West Park Place, Suite 150
Milwaukee, Wisconsin 53224
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(Address of principal executive offices)
(Zip Code)
(414) 359-3000
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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 since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of common stock outstanding as of May 9, 1996:
3,916,281 par value $1.00 per share
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PART I -- FINANCIAL INFORMATION
Item 1. Financial statements.
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that its review
of estimates and accruals each quarter, and the disclosures included herein,
are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the Company's
latest Annual Report on Form 10-K.
Financial statements presented are:
Balance sheets -- March 31, 1996 and December 31, 1995.
Statement of operations for the three months ended March 31, 1996 and
1995.
Statement of cash flows for the three months ended March 31, 1996 and
1995.
Notes to condensed financial statements -- March 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Revenues of $34.4 million for the first quarter ended March 31, 1996 were
flat when compared to the same period in 1995. The Company's CTech Division
revenues increased 6% as it began to benefit from having signed on ten new
customers during 1995. The Industrial Fastener Division's revenues, adversely
affected by the recent GM slowdown, were nearly flat period to period. The
Hardware Division reported decreased revenues for the three month period -
unable to match record level revenues during the first quarter of 1995.
Gross margins as a percentage of net sales for the first quarter of 1996
(28.6%) improved significantly from the first quarter of 1995 (24.7%).
Improved cost controls and revised pricing on new parts continued to have a
positive impact at the Company's Industrial Fastener Division as its gross
margin percentage increased from 22.8% for the first quarter of 1995 to 28.8%
for the first quarter of 1996.
Selling, general and administrative expenses increased 2.5% when compared
to the first quarter of 1995. The CTech Division reported a 14% increase in SG
& A expenses which was primarily the result of increased travel to and staffing
of branch locations in order to service new customers. The Hardware
and Industrial Fastener Divisions both experienced lower SG & A expenses for
the first quarter of 1996 when compared to the first quarter of 1995.
Interest expense for the first quarter was down 19.8% from the comparable
period a year ago. This improvement is due to lower loan interest charges
negotiated with the Company's bank group at the end of 1995 and significantly
lower debt levels.
Net income for the quarter was $1.9 million versus net income of $.5
million for the same quarter of last year. The Company had no provision for
income taxes in 1996 or 1995 due to utilization of net operating loss
carryforwards.
<PAGE> 3
CHANGES IN FINANCIAL CONDITION
The Company's working capital increased from $27.5 million at December 31,
1995 to $27.8 million at March 31, 1996. A $1.8 million increase in accounts
receivable, due to seasonality and increased sales at the CTech Division, was
offset by increases in accounts payable and accruals. The increase in accounts
payable was concentrated at the CTech Division as this division built up
inventory to meet new customer demand. The inventory build up at CTech was
offset by decreases at the Company's other two divisions. The Company had no
material outstanding commitments for capital expenditures at March 31, 1996.
Improved operating results and cash flows enabled the Company to pay down
$2.3 million of its bank debt during the first three months of 1996. Its debt
to equity ratio decreased from 51.3% at December 31, 1995, to 48.0% at March
31, 1996. As reported in the Company's Annual Report on Form 10-K, the
Company's credit facility was amended effective January 2, 1996. Through this
amendment, the Company's lenders extended the Company's credit facility
through January 14, 1998, revised covenants for 1996 and reduced loan interest
charges. The first quarter results were within these 1996 covenants.
On January 8, 1996 the Company announced that its Board of Directors had
approved merger plans with Illinois Tool Works Inc. (ITW). Under the merger
agreement, each share of Medalist stock would be valued at $14.50 and converted
into the appropriate number of ITW shares, based upon an average closing price
for ITW shares for the ten day period just prior to the closing date of the
merger. The merger requires a 66 2/3% affirmative vote by Medalist
shareholders of record. A special shareholders meeting has been scheduled for
May 29, 1996 to consider and vote upon the proposed merger.
<PAGE> 4
Balance sheets
Dollars in thousands (unaudited)
================================================================================
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
Assets
Current assets:
Cash $ 1,062 $ 434
Accounts receivable, less allowance
for doubtful accounts of $666 and $704 16,822 14,997
Inventories 28,872 29,030
Prepaid expenditures and other 2,614 2,772
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Total current assets 49,370 47,233
Other assets:
Intangibles less accumulated amortization
of $5,752 and $5,476 20,406 20,682
Other noncurrent assets 5,716 5,674
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Total other assets 26,122 26,356
Plant and equipment, at cost:
Land & buildings 604 593
Machinery and equipment 27,188 27,010
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Total 27,792 27,603
Less accumulated depreciation 13,847 13,205
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Net plant and equipment 13,945 14,398
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Total assets $ 89,437 $ 87,987
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 11,374 $ 10,231
Accrued income taxes 154 183
Accrued liabilities 7,016 6,258
Current maturities of long term debt 3,016 3,017
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Total current liabilities 21,560 19,689
Long-term liabilities:
Long-term debt 23,801 26,134
Convertible subordinated debentures 7,242 7,242
Other Liabilities 3,160 3,234
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Total long-term liabilities 34,203 36,610
Stockholders' equity
Common stock ($1.00 par value), authorized
10,000,000 shares, issued 3,898,281 shares
March 31, 1996 and 3,881,025 shares
December 31, 1995 3,898 3,881
Capital in excess of par value 17,265 17,170
Retained earnings 12,511 10,637
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Total stockholders' equity 33,674 31,688
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Total liabilities and stockholders' equity $ 89,437 $ 87,987
============ ===========
</TABLE>
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<PAGE> 5
Statement of operations
Dollars in thousands except per share data (unaudited)
==============================================================================
<TABLE>
<CAPTION>
Three months
--------------------------
Periods ended March 31
--------------------------
1996 1995
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<S> <C> <C>
Net sales $ 34,352 $ 34,419
Cost of products sold 24,542 25,919
Selling, general & administration 7,114 6,940
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Operating income 2,696 1,560
Interest expense 822 1,025
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Income before income taxes 1,874 535
Provision for income taxes 0 0
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Net income $ 1,874 $ 535
========= ========
Earnings per share
(based on average outstanding
common stock and common stock equivalents)
Primary
Net income $ 0.47 $ 0.14
========= ========
Assuming full dilution
Net income $ 0.46 $ 0.14
========= ========
Average shares outstanding:
Primary 4,001,022 3,854,408
Full Dilution 4,414,889 3,854,408
</TABLE>
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<PAGE> 6
Statement of cash flows
Dollars in thousands (unaudited)
==============================================================================
<TABLE>
<CAPTION>
Three months
--------------------------
Periods ended March 31
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,874 $ 535
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation 741 820
Amortization 276 307
Changes in
Accounts receivable (1,825) (2,152)
Inventories 158 ( 213)
Prepaid expenditures 135 122
Accounts payable and accrued liabilities 1,965 611
Accrued income taxes (29) 0
Noncurrent assets and liabilities (116) (234)
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Net cash provided by (used in) continuing
operations 3,179 (204)
Cash flows (used) by
discontinued operations (42) (83)
Cash flows from investing activities
Purchases of plant and equipment (287) (154)
Proceeds from disposal of plant and equipment 0 29
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Net cash used by investing activities (287) (125)
Cash flows from financing activities
Net bank debt (decrease) (2,328) (519)
Net subordinated debenture (decrease) 0 (484)
Net capital lease (decrease) (6) (6)
Proceeds from sale of common stock 112 142
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Net cash (used) by financing activities (2,222) (867)
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Net increase (decrease) in cash 628 (1,279)
Cash at beginning of period 434 1,765
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Cash at end of period $ 1,062 $ 486
============ ===========
Cash paid for:
Interest $ 619 $ 882
Income taxes $ 29 $ 15
</TABLE>
<PAGE> 7
Notes to condensed financial statements
Dollars in thousands (unaudited)
==============================================================================
1. The statements presented herein reflect all normal recurring adjustments
which, in the opinion of management, are necessary for a fair statement of the
results of the interim periods shown. Operating results for the period
ending March 31, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996.
2. Inventories are stated at the lower of last-in-first-out cost or market.
Inventory cost includes material, labor, and all work associated with
production. The major classes of inventory are not segregated on the books of
the Company as to raw materials, work in process, and finished products,
except at the date of a physical inventory, which are at interim dates for
most divisions. However, a reasonable estimate of these allocations of
inventory are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
Raw materials $ 3,876 $ 4,108
Work in process 4,049 4,525
Finished product 20,947 20,397
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Total $ 28,872 $ 29,030
=========== ===========
</TABLE>
3. The earnings per common share computation for the periods ended
March 31, are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------------
1996 1995
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Shares Earnings Shares Earnings
------ -------- ------ --------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 3,894,808 3,854,408
Net income $ 1,874 $ 535
Assumed issuance of stock upon
the exercise of stock options 106,214 0 0 0
--------- -------- --------- --------
Basis of primary computation 4,001,022 $ 1,874 3,854,408 $ 535
========= ======== ========= ========
Income per share $ 0.47 $ 0.14
======== ========
Fully diluted
Average shares outstanding 3,894,808 3,854,408
Net income $ 1,874 $ 535
Assumed issuance of stock upon
the exercise of stock options 106,214 0 0 0
Assumed issuance of common
stock upon the conversion of
Convertible Subordinated
Debentures and the
elimination of related
after-tax expense 413,867 146 0 0
--------- -------- --------- --------
Basis of fully-diluted
computation 4,414,889 $ 2,020 3,854,408 $ 535
========= ======== ========= ========
Income per share $ 0.46 $ 0.14
======== ========
</TABLE>
<PAGE> 8
PART II -- OTHER INFORMATION
Item 1. Legal proceedings. N/A
Item 2. Changes in securities. N/A
Item 3. Defaults upon senior securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information.
The Company filed its report on Form 10-K on April 1, 1996 and
filed its proxy statement on April 22, 1996.
Item 6. Exhibits and reports on Form 8-K.
The Company filed a report on Form 8-K on January 8, 1996 reporting
that its Board of Directors had approved merger plans with Illinois Tool Works
Inc., subject to a favorable shareholder vote which is scheduled for
May 29, 1996. The merger is expected to become effective as soon as possible
thereafter.
<PAGE> 9
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.
Medalist Industries, Inc.
By: /s/ James S. Dahlke 05/14/96 /s/ John T. Paprocki 05/14/96
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James S. Dahlke Date John T. Paprocki Date
President and Chief Executive Officer Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,062
<SECURITIES> 0
<RECEIVABLES> 16,822
<ALLOWANCES> 666
<INVENTORY> 28,872
<CURRENT-ASSETS> 49,370
<PP&E> 27,792
<DEPRECIATION> 13,847
<TOTAL-ASSETS> 89,437
<CURRENT-LIABILITIES> 21,600
<BONDS> 7,242
0
0
<COMMON> 3,898
<OTHER-SE> 29,736
<TOTAL-LIABILITY-AND-EQUITY> 89,437
<SALES> 34,352
<TOTAL-REVENUES> 34,352
<CGS> 24,542
<TOTAL-COSTS> 7,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 822
<INCOME-PRETAX> 1,874
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,874
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
