<PAGE>
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 September 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 October 31, 1994.
Common Stock, par value $1 11,248,386 Shares
<PAGE>
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 ended Nine Months ended
September 30 September 30
-------------------------------------------------
1994 1993(a) 1994 1993(a)
--------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales $127,863 $113,963 $369,363 $324,806
Other income 101 276 1,194 1,096
-------- ----------- --------- -----------
127,964 114,239 370,557 325,902
Costs and expenses
Cost of products sold 93,387 83,537 271,735 239,710
Selling, G&A expenses 25,668 23,379 78,231 67,998
Interest expense 1,937 1,502 5,205 4,740
-------- ----------- --------- -----------
120,992 108,418 355,171 312,448
Pretax income 6,972 5,821 15,386 13,454
Provision for income taxes 2,440 2,040 5,385 4,710
-------- ----------- --------- -----------
NET INCOME $4,532 $3,781 $10,001 $8,744
======== =========== ========= ===========
PER SHARE
Net income $.40 $.34 $.88 $.78
Cash dividend $.11 $.105 $.33 $.315
Average shares outstanding 11,343 11,211 11,343 11,211
</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.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS (condensed)
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
(Unaudited)
------------ -----------
(thousands)
Assets
------
<S> <C> <C>
Current Assets
Cash and cash equivalents $5,067 $5,860
Accounts receivable, less allowances of
$4,838 in 1994 and $7,262 in 1993 105,660 90,056
Inventories
Finished goods 68,302 55,322
Work in process 9,513 8,985
Raw materials 26,366 24,164
-------------- ------------
104,181 88,471
Less LIFO reserve 6,524 6,096
-------------- ------------
97,657 82,375
Deferred taxes 5,158 6,392
Prepaid expenses and other current assets 5,571 3,073
-------------- ------------
Total current assets 219,113 187,756
Property, Plant and Equipment 129,358 122,085
Less allowance for depreciation 78,422 71,991
-------------- ------------
50,936 50,094
Intangibles, principally goodwill 16,020 15,829
Other 3,393 3,600
-------------- ------------
Total Assets $289,462 $257,279
============== ============
</TABLE>
See notes to financial statements.
3
<PAGE>
CONSOLIDATED BALANCE SHEETS (condensed)
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
(Unaudited)
-------------- ------------
(thousands)
<S> <C> <C>
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities
Bank loans $8,570 $6,288
Accounts payable 28,848 25,144
Accrued payroll and related 19,402 17,442
Other accruals 17,750 14,378
Current portion of long-term debt 6,949 6,724
-------------- ------------
Total current liabilities 81,519 69,976
Long-Term Debt 100,020 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 earnings 37,188 30,895
Employee Stock Ownership Plan and
stock option loans (3,850) (3,361)
Treasury shares at cost, 469,681 shares (3,993) (3,993)
Cumulative translation adjustments (1,577) (3,429)
-------------- ------------
Total Shareholders' Equity 96,639 88,656
-------------- ------------
Total Liabilities and Shareholders' Equity $289,462 $257,279
============== ============
</TABLE>
See notes to financial statements.
4
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS (condensed)
<TABLE>
<CAPTION>
(Unaudited)
Nine months
ended September 30
----------------------------
1994 1993
----------------------------
(thousands)
<S> <C> <C>
Operating Activities
Net income $10,001 $8,744
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,409 6,786
Deferred taxes 1,142 202
Changes in operating assets and liabilities:
(Increase) in accounts receivable (15,604) (18,173)
(Increase) in inventories (15,282) (6,608)
(Increase) decrease in prepaid expense and other
current assets (2,498) 602
Increase in accounts payable 3,704 5,847
Increase in payroll, taxes and other accruals 5,333 2,893
----------- -----------
Net cash provided by (used in) operating activities (5,795) 293
----------- -----------
Investing Activities
Property, plant & equipment expenditures (7,561) (5,319)
Disposals of property, plant & equipment 310 69
Other items, net 705 (182)
----------- -----------
Net cash used in investing activities (6,546) (5,432)
Financing Activities
Borrowings under long-term debt and revolving
lines of credit 16,666 21,500
Payments of long-term debt and revolving
lines of credit (3,692) (6,476)
Dividends paid (3,708) (3,500)
Net increase (decrease) in short-term bank loans 2,282 (3,237)
----------- -----------
Net cash provided by financing activities 11,548 8,287
----------- -----------
Net increase (decrease) in cash and cash equivalents (793) 3,148
Cash and cash equivalents at beginning of year 5,860 2,123
----------- -----------
Cash and cash equivalents at end of period $5,067 $5,271
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $4,001 $4,019
Income taxes paid 4,243 4,109
----------- -----------
$8,244 $8,128
=========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
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 nine month period
ended September 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 September 30, 1994, retained earnings of $7.5 million were free
of such restrictions.
NOTE 3 - Adoption of Statement of Accounting Standards No. 115 for Cash
Equivalents
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.
6
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
A. Comparative third quarter results of operations
Net income for the quarter rose 20% to $4.5 million, or 40 cents a share, from
$3.8 million, or 34 cents a share in the year-earlier period. Sales advanced
12% to $127.9 million from $114.0 million in 1993.
Sales for the Recreational Products Group rose 11%, to $86.3 million, from $77.9
million in the prior year. The $8.4 million increase is largely attributable to
the extension of K2's, Shakespeare's and Stearns' brands into new products -
particularly, in-line skates, fishing reels, kits and combos and wetsuits and
rainwear - and to improved sales of Hilton activewear, K2 snowboards and Anthony
swimming pools. Sales were also boosted by Girvin's Pro-flex full-suspension
mountain bikes, a business purchased in late 1993. Sales of alpine skis, mainly
in Europe, declined reflecting the lagging economies in that market.
Sales of the Industrial Products Group advanced 15%, to $41.6 million, from
$36.1 million in the prior year. Higher demand for Simplex building products,
particularly Thermo-ply, Barricade, and Finestone, sharply higher sales of
fiberglass light poles and distribution poles and interest in specialty
paperweaving monofilaments contributed to the sales improvement.
Cost of sales as a percent of sales declined slightly from the year ago period.
Process improvement has continued to drive down the costs of manufacturing, but
this gain was tempered in the third quarter by significant raw material cost
increases in the manufacture of paper-based building products. A percentage of
these cost increases have since been passed on. Selling, general and
administrative expenses, as a percent of sales decreased slightly. Interest
expense, while benefiting slightly from lower interest rates rose $435,000 on
$15.7 million of higher average borrowings. The additional debt was incurred to
finance the growth in new product sales and the acquisition of Girvin Inc. in
the fourth quarter of 1993. Pretax income increased $1.2 million reflecting the
impact of the higher sales volumes and efficiencies described above.
B. Comparative Nine- Month Results of Operations
Net sales for the nine months ended September 30, 1994 increased $44.6 million
to $369.4 million as compared with the prior year. Net income of $10.0 million,
or 88 cents a share, increased from the $8.7 million, or 78 cents a share
reported in 1993.
Net sales of the Recreational Products Group increased 14% to $242.6 million
from $213.2 million in the 1993 period. Worldwide shipments of K2 snowboards
and K2 Exotech in-line skates accounted for a large portion of the increase.
Swimming pool sales and the remodel business increased in virtually all regions
of the country during the period. New product sales of active apparel, rainwear
and wetsuits accounted for the overall sales increases at Hilton and Stearns.
Sales of the Group also benefited from the inclusion of Girvin's Pro-flex
mountain bikes and accessories. The Industrial Products Group reported sales of
$126.8 million, up 14%
7
<PAGE>
from prior year's total of $111.6 million. The improvement was due to sales
gains in the residential and industrial building products, fiberglass light and
distribution poles and technical paperweaving monofilaments.
Cost of sales as a percent of sales was comparable to the prior year's period.
The current year included a continuation of costs incurred in the development of
cap skis, for sale under the K2, Olin and Pre brands, a product development
program which commenced in late 1993. Cost of sales was also impacted by the
higher unit cost of the manufactured cap skis. Significant raw material cost
increases were incurred during the latter part of the period in the manufacture
of paper-based building products. However, price increases initiated in
September have partially offset these higher costs. Cost reductions achieved
through process improvement offset the remaining cost increases described above.
The increase in selling, general and administrative expenses were primarily
volume-related. Higher average borrowings of $13.6 million, incurred to finance
the seasonal working capital requirements of the growth in sales of existing and
new products, increased interest expense by $675,000. A reduction in worldwide
interest rates, principally in the first quarter, produced a benefit of
$210,000.
Pretax income increased $1.9 million reflecting the net effect of the increased
volume and manufacturing efficiencies, previously described, reduced by the
nonrecurring cap ski conversion costs, higher raw material building product
costs and higher cost cap skis.
C. Financial Condition
Cash used by operations for the nine months ended September 30, 1994 was $5.8
million as compared with $293,000 provided in the prior year. The larger cash
usage reflected the increased seasonal working capital requirements required to
fund the higher sales, the new products and the new Pro-flex and Girvin mountain
bike 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.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(i) Amendment dated October 20, 1994 to amended and
related employment agreement dated as of December
31, 1991 between the Company and B. I. Forester,
filed as Exhibit 10(a) to Form 10-K for the year
ended December 31, 1991 and incorporated herein by
reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended September 30, 1994.
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: November 11, 1994 /s/ Bernard I. Forester
-----------------------
B.I. Forester
Chairman and Chief Executive
Date: November 11, 1994 /s/ John J. Rangel
------------------
John J. Rangel
Senior Vice President - Finance
9
<PAGE>
EXHIBIT 10(i)
- - -------------
AMENDMENT dated as of October 20, 1994 between Anthony Industries,
Inc. (the "Company") and B. I. Forester ("Forester").
Section 4 of the Agreement dated as of December 31, 1991 between the
Company and Forester is hereby amended to read in full as follows:
"Unless the Employment Period is terminated by the Company for cause
pursuant to Section 5(a)(i)(y) hereof, commencing with the first day of the
month following the month in which Forester (a) attains age 65 or (b) is no
longer employed by the Company on a full-time basis, whichever later occurs, and
continuing monthly thereafter during Forester's lifetime, the Company shall pay
to Forester an amount equal to (i) 4.6% of Average Accounting Base Compensation
(as defined herein), reduced by (ii) the monthly amount received by Forester
under the Company's Pension Plan (the "Pension Plan"), or, if Forester receives
a lump sum distribution under the Pension Plan, the monthly amount he would have
received if his benefit thereunder were being paid as a qualified joint and 50%
survivor annuity. If at the time of his death, Forester is receiving or would
be (assuming he had left full-time employment as of the date of death) entitled
to receive payments pursuant to the preceding sentence, the Company shall pay to
Forester's widow (provided that Forester shall not have filed a written notice
with the Company to the contrary) a monthly benefit in an amount equal to (i)
4.6% of Average Accounting Base Compensation less (ii) any monthly amount
received by Forester's widow under the Pension Plan or, if Forester received a
lump sum distribution under the Pension Plan, the monthly amount she would have
received under a qualified joint and 50% survivor annuity, commencing on the
first day of the month following the month in which Forester dies and ending on
the earlier of (x) the date of Forester's widow's death and (y) the completion
of a five-year period. For purposes of this Agreement, Average Accounting Base
Compensation shall mean the average of the highest three calendar years of
Accounting Base Compensation, and Accounting Base Compensation for a calendar
year shall mean the sum of Forester's Basic Compensation and incentive
compensation awarded in respect of such calendar year. Notwithstanding the
10
<PAGE>
foregoing provisions of this Section 4, if Forester terminates the Employment
Period in accordance with Section 5(a)(ii) hereof, or if the Company breaches
this Agreement, the Company shall pay to Forester within 7 days after the Date
of Termination (as defined in Section 5(a)(ii) hereof) or the date of Breach (as
defined in Section 6 hereof), as the case may be, in lieu of all payments
otherwise due under this Section 4, an amount equal to the Lump-sum Equivalent
(as defined herein). The Lump-sum Equivalent shall mean an amount equal to
114.696 times the monthly amount otherwise payable to Forester under this
Section 4, which amount shall be reduced (a) if Forester has not yet attained
age 65 as of the Date of Termination or the Date of Breach, as the case may be,
by discounting said amount at the rate of 7.5% compounded annually for the
period beginning with the first complete month from the date of payment until
the first day of the month following the month in which Forester will attain age
65, or (b) if Forester has attained age 66 as of the Date of Termination or the
Date of Breach, as the case may be, by reducing the amount of 114.696 to an
amount which is twelve times the average of the male and female immediate
annuity factors found in the GAM 83 Table, using a 7.5% interest rate, for a
person whose age is Forester's age as of the Date of Termination or the Date of
Breach, as the case may be."
ANTHONY INDUSTRIES INC.
By /s/ John J. Rangel
---------------------------------
John J. Rangel
Senior Vice President - Finance
/s/ B. I. Forester
-------------------------------------
B.I. Forester
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 5,067
<SECURITIES> 0
<RECEIVABLES> 110,498
<ALLOWANCES> (4,838)
<INVENTORY> 97,657
<CURRENT-ASSETS> 219,113
<PP&E> 129,358
<DEPRECIATION> 78,422
<TOTAL-ASSETS> 289,462
<CURRENT-LIABILITIES> 81,519
<BONDS> 0
<COMMON> 11,715
0
0
<OTHER-SE> 84,924
<TOTAL-LIABILITY-AND-EQUITY> 289,462
<SALES> 369,363
<TOTAL-REVENUES> 370,557
<CGS> 271,735
<TOTAL-COSTS> 271,735
<OTHER-EXPENSES> 77,155
<LOSS-PROVISION> 1,076
<INTEREST-EXPENSE> 5,205
<INCOME-PRETAX> 15,386
<INCOME-TAX> 5,385
<INCOME-CONTINUING> 10,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 10,001
<NET-INCOME> 0
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
</TABLE>
