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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1994 Commission File No. 1-4290
ANTHONY INDUSTRIES, INC.
(exact name of registrant as specified in its charter)
DELAWARE 95-2077125
(State of Incorporation) (I.R.S. Employer Identification No.)
4900 South Eastern Avenue
Los Angeles, California 90040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 724-2800
Former name, former address and former fiscal year, if changed since last
report:
Not applicable
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
-
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 31, 1994.
Common Stock, par value $1 11,244,855 Shares
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FORM 10-Q QUARTERLY REPORT PART- 1 FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF CONSOLIDATED INCOME (condensed)
In thousands except for per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30
------------------------------- -----------------------------
1994 1993 (a) 1994 1993 (a)
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales $131,765 $112,867 $241,500 $210,843
Other income 725 427 1,093 820
-------- -------- -------- --------
132,490 113,294 242,593 211,663
Costs and expenses
Cost of products sold 95,295 82,844 178,348 156,173
Selling, G&A expenses 27,797 22,708 52,563 44,619
Interest expense 1,694 1,478 3,268 3,238
-------- -------- -------- --------
124,786 107,030 234,179 204,030
Pretax income 7,704 6,264 8,414 7,633
Provision for income taxes 2,695 2,190 2,945 2,670
-------- -------- -------- --------
NET INCOME $ 5,009 $ 4,074 $ 5,469 $ 4,963
======== ======== ======== ========
PER SHARE
Net income $ .44 $ .36 $ .48 $ .44
Cash dividend $ .11 $ .105 $ .22 $ .21
Average shares outstanding 11,336 11,190 11,336 11,190
</TABLE>
(a) Shares and per share figures have been retroactively adjusted for the 5%
stock dividend paid in December 1993.
See notes to financial statements.
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CONSOLIDATED BALANCE SHEETS (condensed)
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
(Unaudited)
------------ ------------
(thousands)
<S> <C> <C>
Assets
------
Current Assets
Cash and cash equivalents $ 5,835 $ 5,860
Accounts receivable, less allowances of
$4,618 in 1994 and $7,262 in 1993 98,864 90,056
Inventories
Finished goods 62,987 55,322
Work in process 8,233 8,985
Raw materials 25,443 24,164
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96,663 88,471
Less LIFO reserve 6,373 6,096
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90,290 82,375
Deferred taxes 5,287 6,392
Prepaid expenses and other current assets 4,012 3,073
-------- --------
Total current assets 204,288 187,756
Property, Plant and Equipment 126,515 122,085
Less allowance for depreciation 76,256 71,991
-------- --------
50,259 50,094
Intangibles, principally goodwill 15,887 15,829
Other 3,157 3,600
-------- --------
Total Assets $273,591 $257,279
======== ========
</TABLE>
See notes to financial statements.
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CONSOLIDATED BALANCE SHEETS (condensed)
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
(Unaudited)
------------ ------------
(thousands)
<S> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities
Bank loans $ 5,399 $ 6,288
Accounts payable 28,030 25,144
Accrued payroll and related 18,949 17,442
Other accruals 17,872 14,378
Current portion of long-term debt 6,941 6,724
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Total current liabilities 77,191 69,976
Long-Term debt 92,115 87,271
Deferred taxes 11,284 11,376
Shareholders' Equity
Preferred Stock $1 par value, authorized
12,500,000 shares, none issued
Common Stock, $1 par value, authorized
$40,000,000 shares, issued shares -
11,714,536 in 1994 and 11,681,393 in 1993 11,715 11,681
Additional paid-in capital 57,156 56,863
Retained eamings 33,893 30,895
Employee Stock Ownership Plan and
stock option loans (3,453) (3,361)
Treasury shares at cost, 469,681 shares (3,993) (3,993)
Cumulative translation adjustments (2,317) (3,429)
-------- --------
Total Shareholders' Equity 93,001 88,656
-------- --------
Total Liabilities and Shareholder's Equity $273,591 $257,279
======== ========
</TABLE>
See notes to financial statements.
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STATEMENTS OF CONSOLIDATED CASH FLOWS (condensed)
<TABLE>
<CAPTION>
(Unaudited)
Six months
ended June 30
----------------------------------------------
1994 1993
-------------------- -----------------
(thousands)
<S> <C> <C>
Operating Activities
Net income $ 5,469 $ 4,963
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 4,878 4,608
Deferred taxes 1,013 694
Changes in operating assets and liabilities:
(Increase) in accounts receivable (8,808) (4,534)
(Increase) in inventories (7,915) (1,301)
(Increase) decrease in prepaid expense and other
current assets (939) 1,137
Increase in accounts payable 2,886 2,609
Increase (decrease) in payroll, taxes and
other accruals 5,001 (125)
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Net cash provided by operating activities 1,585 8,051
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Investing Activities
Property, plant & equipment expenditures (4,391) (3,599)
Disposals of property, plant & equipment 41 48
Other items, net 1,039 (802)
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Net cash used in investing activities (3,311) (4,353)
Financing Activities
Borrowings under long-term debt and revolving
lines of credit 8,747 2,113
Payments of long-term debt and revolving
lines of credit (3,686) (500)
Dividends paid (2,471) (2,331)
Net (decrease) in short-term bank loans (889) (1,362)
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Net cash provided by (used by) financing activities 1,701 (2,080)
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Net increase (decrease) in cash and cash equivalents (25) 1,618
Cash and cash equivalents at beginning of year 5,860 2,123
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Cash and cash equivalents at end of period $ 5,835 $ 3,741
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 3,159 $ 3,323
Income taxes paid 1,932 2,010
------- -------
$ 5,091 $ 5,333
======= =======
</TABLE>
See notes to financial statements.
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NOTE 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 and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and six month period ended
June 30, 1994 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1994. For further information, refer to the
Consolidated Financial Statements and Notes to Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
NOTE 2 - Borrowings
On July 22, 1994, the Company increased its unsecured revolving credit facility
from $60 million to $70 million and extended its due date one year to June 28,
1997. All other terms and conditions of the facility remained unchanged.
The $70 million revolving credit line is subject to an agreement which, among
other things, restricts amounts available for payment of cash dividends by the
Company. As of June 30, 1994, retained earnings of $6.5 million were free of
such restrictions.
NOTE 3 - Adoption of Statement of Accounting Standards No. 115 for Cash
Equilvalents
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under Statement 115, debt securities that the Company has both the
positive intent and ability to hold to maturity may be carried at amortized
cost. All of the Company's cash equivalents are debt securities and are
classified as "hold-to-maturity." The adoption of Statement 115 had no effect
on the Company's financial position or results from operations.
NOTE 4 - Commitments and Contingencies
The Company is subject to various legal actions and proceedings in the normal
course of business. While the ultimate outcome of these matters cannot be
predicted with certainty, management does not believe these matters will have a
material adverse effect on the Company's financial position or results from
operations.
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ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
A. Comparative Second Quarter Results of Operations
Record sales and earnings were achieved for the second quarter of 1994. Net
income for the quarter rose 23% to $5.0 million, or 44 cents a share, from $4.1
million, or 36 cents a share in the year-earlier period. Sales advanced 17% to
$131.8 million from $112.9 million in 1993.
Net sales of the Recreational Products Group increased 16% to $86.5 million from
$74.3 million in the prior year. The increase in sales was broadly based, with
improvements reported by each business in the Group. Increased pool
construction in the Northeast, Florida and Texas together with strong demand for
pool remodeling were the driving factors in the growth at the Anthony swimming
pool business. The successful worldwide introduction of K2 Exotech in-line
skates and continued growth in snowboard sales spurred the sales improvement at
K2, which experienced a slight decline in global ski shipments because of
weaknesses in the European economies. Growth at Shakespeare fishing tackle and
Stearns was due to strong support from mass merchants, particularly for Ugly
Stik fishing rods and recreational flotation devices, and new model
introductions of activewear to the ad specialty business improved Hilton's
sales. Sales of the group also benefited 3% from the inclusion of Proflex
full-suspension mountain bikes and Girvin accessories. The bike and accessories
business was aquired in late 1993.
Sales of the Industrial Products Group advanced 17% to 45.3 million from $38.6
million in the prior year. The Shakespeare Monofilament division reported
higher sales due to strong demand for its paperweaving monofilaments. Simplex
benefited from higher sales of its Thermo-ply, Barricade and Finestone building
products as housing starts rose during the period. Sales of fiberglass light
poles, utility poles and ornamental poles continued to increase.
Cost of sales as a percent of sales declined to 72.3% from 73.4% in the year ago
period. Fishing tackle, active wear, flotation devices and building products
were manufactured more efficiently as a result of continued process improvement.
This favorable impact on earnings was partially offset by significant raw
material cost increases incurred in the manufacture of certain paper-based
building products. Selling, general and administrative expenses increased $5.1
million over the prior year primarily reflecting an increase in selling-related
expenses incurred to support the higher sales volume. Interest expense,
benefiting only slightly from lower interest rates rose $234,000 on $14.5
million of higher average borrowings. Pretax income increased $1.4 million
reflecting the impact of the higher sales volume described above.
B. Comparative Six-Month Results of Operations
Net sales for the six months ended June 30, 1994 increased $30.7 million to
$241.5 million as compared with the prior year. Net income of $5.5 million, or
48 cents a share, advanced from the $5.0 million, or 44 cents a share, reported
in 1993.
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Net sales of the Recreational Products Group increased 13% to $156.3 million
from $135.3 million in the 1993 period. Worldwide shipments of snowboards and
K2 Exotech in-line skates accounted for a large increase in sales at the ski
business. Soft demand for snow skis in Europe only partially offset the
increases reported of these products. Swimming pool sales and the remodel
business both increased in the Northeast, Florida and Texas regions during the
period. New product introductions at Hilton Active Apparel and Stearns largely
accounted for the overall sales increases in these businesses. Sales of Ugly
Stik fishing rods to domestic mass merchants boosted the Shakespeare fishing
tackle business. Sales of the Group also benefited 3% from inclusion of
Proflex full-suspension mountain bikes and Girvin accessories. The Industrial
Products Group reported sales of $85.2 million, up 13% from prior year's total
of $75.5 million. The improvement was primarily due to sales gains in
residential and industrial building products, fiberglass light poles and
European paperweaving monofilaments and textile monofilaments.
Cost of sales as a percent of net sales was comparable to the prior year's
period. The current year included over $2.0 million of costs incurred in the
development of the processes and equipment to manufacture cap skis for sale
under the K2, Olin and Pre brands. Significant raw material cost increases
were also incurred in the latter part of the period in the manufacture of
certain buildings products. Offsetting these cost increases were improvements
implemented in the manufacture of active wear, personal flotation devices and
monfilaments. The increase in selling, general and administrative expenses was
primarily volume-related. Higher average borrowings of $12.5 million, incurred
to finance the seasonal working capital requirements to support the higher sales
volume, increased interest expense by $403,000. However, a reduction in
worldwide interest rates, principally in the first quarter, produced a virtual
offsetting benefit of $373,000.
Pretax income increased $781,000 reflecting the net effect of the increased
volume and improved manufacturing efficiencies, previously described, reduced
by the significant nonrecurring cap ski conversion costs and higher raw material
building product costs.
C. Financial Condition
Cash provided by operations for the six months ended June 30, 1994 was $1.6
million as compared with $8.1 million in the prior year. The reduction
reflected the increased seasonal working capital required to fund the higher
sales, the new products and the new Proflex and Girvin bicycle and component
business. Consistent with prior years, the allowance for doubtful items
decreased as a result of a seasonal reduction in the allowance for volume
discounts.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(i) First Amendment to the Credit Agreement dated as of June 28,
1994 between Anthony Industries, Inc. the Banks, and Bank of
America National Trust and Savings Association as a Bank and as
Agent for the Banks
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
June 30, 1994.
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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.
ANTHONY INDUSTRIES, INC.
(registrant)
Date: August 12, 1994 /s/ Bernard I. Forester
-----------------------
B.I. Forester
Chairman and Chief Executive
Date: August 12, 1994 /s/ John J. Rangel
------------------
John J. Rangel
Senior Vice President - Finance
10
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Exhibit 10(i)
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is
dated as of July 22, 1994 and is entered into by and among Anthony Industries,
Inc., a Delaware corporation (the "Company"), the financial institutions
listed on the signature pages hereto (the "Banks"), and Bank of America
National Trust and Savings Association, as the agent for the Banks (the
"Agent") and amends that certain Credit Agreement dated as of June 28, 1993
among the Company, the Banks and the Agent (the "Agreement").
RECITAL
-------
The Company has required the banks and the Agent to extend the
Termination Date pursuant to Section 2.14 of the Agreement and to increase the
Commitments of the Banks, and the Agent are willing to do so on the terms and
conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as
follows:
1. Terms. All terms used herein shall have the same meanings as in
-----
the Agreement unless otherwise defined herein. All references to the
Agreement shall mean the Agreement as hereby amended.
2. Amendments to Agreement.
-----------------------
2.1 Pursuant to Section 2.14 of the Agreement, the Banks hereby agree
to extend the Termination Date to June 28, 1997.
2.2 Schedule 1.1 is amended and restated in its entirety as set forth
on Schedule 1.1 hereto.
3. Representations and Warranties. The Company represents and
------------------------------
warrants to Banks and Agents that, on and as of the date hereof, and after
giving effect to this First Amendment:
3.1 Authorization. The execution, delivery and performance of this
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First Amendment have been duly authorized by all necessary corporate action by
the Company and this First Amendment has been duly executed and delivered by
the Company.
3.2 Binding Obligations. This First Amendment is the legal, valid and
-------------------
binding obligation of Company, enforceable against the Company in accordance
with its terms.
3.3 No Legal Obstacle to Amendment. The execution, delivery andd
------------------------------
performance of the First Amendment will not (a) contravene the terms of the
Company's
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certificte of incorporation, by-laws or other organization document;
(b) conflict with or result in any breach or contravention of the provisions
of aany contract to which the Company is a party, or the violation of any law,
juddgement, decree or governmental order, rule or regulation applicable to
Company, or result in the creation under any agreement or instrument of any
security interest, lein, charge, or encumbrance upon any of the assets of the
Company. No approval or authorization of any governmental authority is
required to permit the execution, delivery or performance by the Company of
this First Amendment, or the transactions contemplated hereby.
3.4 Incorporation of Certain Representations. The representations and
----------------------------------------
warranties of the Company set forth in Dection 7 of the Agreement are true and
correct in all respects on and as of the date hereof as though made on and as
of the date hereof, except as to such representations made as of an earlier
specified date.
3.5 Default. No Default or Event of Default under the Agreement
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has occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this First Amendment
-------------------------
shall be subbject to the compliance by tthe Company with its agreements herein
contained, and to the delivery of the following to the Agent in form and
substance satisfactory to the Agent:
4.1 Corporate Resolutions. A copy of a resolution or resolutions
---------------------
passed by the Board of Directors of the Company, certified by the Secretary or
an Assistant Secretary of the Company as being in full force and effect on the
effective date of this First Amendment, authorizing the amendments to the
Agreemet herein provided for and the execution, delivery and performance of
this Firsst Amendment and any note or other instrument or agreement required
hereunder.
4.2 Authorized Signatories. A certicate, signed by the Secretary or
-----------------------
an Assistant Secretary of the Company dated the date of this First Amendment,
as to the incumbency of the person or persons authorized to execute and
deliver this First Amendment and any instrument or agreement reqquired
hereunder on behalf of the Company.
4.3 Other Evidence. Such other evidence with respect to the Company
--------------
or any other person as the Agent or any Bank may reasonbly request in
connection with tis First Amendment and the compliance with the conditions set
forth herein.
5. Miscellaneous.
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5.1 Effectiveness of Agreement. Except as hereby expressly amended,
---------------------------
the Agreement and each other Loan Document shall each remian in full forcce
and effect, and are hereby ratified and confirmed in all respects on and as of
the date hereof.
5.2 Waivers. This First Amenment is specific in time and in intent
--------
and does not condtitute, nor should it be construed as, a waiver of any other
right, power or privilege under the Loan Documents, or under any agreement,
contract, indenture, document or instrument
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mentioned in the Loan Documents; nor does it preclude any excercise thereof or
the exercise of any other right, power, or privilege, nor shall any future
waiver of any right, power, privilege or default hereunder, or under any
agreement, contract, indenture, document or instrument mentioned in the Loan
Documents, constiute a waiver of any other default of the same or of any other
term or provision.
5.3 Counterparts. This First Amendment may be executed in any number
------------
of counterparts and all of such counterparts taken together shall be deemed to
sonstitute one and the same instrument. This First Amendment shall not become
effective until the Company, the Banks and the Agents shall have signed a copy
hereof, whether the same or counterparts, and the same shall have been
delivered to the Agent.
5.4 Jurisdictions. This First Amendment shall be governed by and
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construed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered as of the date first written
above.
ANTHONY INDUSTRIES, INC.
By: /s/ John J. Rangel
-------------------
Title: Senior Vice President - Finance
13
