<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended: Commission File No.:
June 30, 1997 0-12392
RAWSON-KOENIG, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-1957377
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2301 Central Parkway, Houston, Texas 77092
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 688-4414
------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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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.
Yes: X No:
--- ---
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the registrant's common stock as of June
30, 1997: 3,901,190 shares of common stock.
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Rawson-Koenig, Inc.
Condensed Balance Sheets
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- -------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 465 $ 334
Accounts receivable, net 1,746 1,269
Inventories:
Raw materials 1,469 1,391
Work in process 1,127 1,554
Finished goods 647 996
Prepayments and other 571 107
------- -------
Total current assets 6,025 5,651
------- -------
Property, plant and equipment, at cost:
Land and buildings 3,829 3,815
Machinery and equipment 6,829 6,725
Accumulated depreciation and amortization (5,987) (5,702)
------- -------
Property, plant and equipment, net 4,671 4,838
------- -------
Total assets $10,696 $10,489
======= =======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-2-
<PAGE>
Rawson-Koenig, Inc.
Condensed Balance Sheets, continued
(Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 280 $ 229
Accounts payable 748 685
Accrued expenses 428 858
Income taxes payable 94 79
------- -------
Total current liabilities 1,550 1,851
Long-term debt, less current portion 943 1,435
Deferred income taxes 84
------- -------
Total liabilities 2,577 3,286
------- -------
Shareholders' equity:
Preferred stock, $10 par value, 1,000,000
shares authorized, none issued
Common stock, no par, $1,000 stated value,
5,000,000 shares authorized, 3,901,190
shares issued and outstanding 1 1
Additional paid-in capital 4,529 4,529
Retained earnings 3,589 2,673
------- -------
Total shareholders' equity 8,119 7,203
------- -------
Total liabilities and shareholders' equity $10,696 $10,489
======= =======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-3-
<PAGE>
Rawson-Koenig, Inc.
Condensed Statements of Operations
(Unaudited)
(in thousands, except per share data and average shares outstanding)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 5,980 $ 5,562 $ 11,391 $ 10,598
Cost of sales 4,466 4,249 8,456 8,117
---------- ---------- ---------- ----------
Gross profit 1,514 1,313 2,935 2,481
Selling, general and
administrative expenses 910 724 1,716 1,460
---------- ---------- ---------- ----------
Income from operations 604 589 1,219 1,021
Other income (expense):
Interest expense (30) (35) (64) (79)
Other, net 12 18 4
---------- ---------- ---------- ----------
Income before income taxes 586 554 1,173 946
Income taxes:
Federal 138 164 220 276
State 22 27 37 46
---------- ---------- ---------- ----------
Net income $ 426 $ 363 $ 916 $ 624
========== ========== ========== ==========
Net income per share $.10 $.09 $.23 $.16
========== ========== ========== ==========
Average shares outstanding 3,901,190 3,901,190 3,901,190 3,901,190
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-4-
<PAGE>
Rawson-Koenig, Inc.
Condensed Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 916 $ 624
----- -----
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 295 245
Change in assets and liabilities, net (511) 56
----- -----
Total adjustments (216) 301
----- -----
Net cash provided by operating activities 700 925
Cash flows from investing activities:
Purchase of property and equipment, net (128) (193)
Cash flows from financing activities:
Decrease in borrowings, net (441) (754)
----- -----
Net increase (decrease) in cash and cash
equivalents 131 (22)
Cash and cash equivalents at beginning
of period 334 315
----- -----
Cash and cash equivalents at end of period $ 465 $ 293
===== =====
Supplemental cash flow disclosure:
Income taxes paid $ 217 $ 278
===== =====
Interest paid $ 65 $ 80
===== =====
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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<PAGE>
Rawson-Koenig, Inc.
Notes to Condensed Financial Statements
June 30, 1997 and 1996
(Unaudited)
1. Nature of Organization
Rawson-Koenig, Inc. (the "Registrant"), a Texas corporation, designs,
manufactures and markets certain equipment for light trucks. Its chief products
are truck tool boxes, truck service bodies, winches and truck mounted cranes.
2. Basis for Preparation of the Condensed Financial Statements
The condensed financial statements for the three months and six months ended
June 30, 1997 and 1996, have been prepared by the Registrant and are unaudited.
Certain information and footnote disclosures, including significant accounting
policies, normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or omitted;
however, the Registrant believes that the disclosures are adequate to make the
information presented not misleading. All the adjustments which are, in the
opinion of management, necessary for a fair statement of the results of the
interim periods have been included. These condensed financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Registrant's latest Annual Report to Shareholders on Form 10-K.
3. Accrued Expenses
During the quarter ended March 31, 1997, the liability for potential claims
against the Registrant by its employees arising from injuries incurred in the
normal course of business prior to May 1, 1994, was reduced from $400,000 to
120,000. This decrease of $280,000 was recorded as a reduction to cost of sales
in the quarter ended March 31, 1997. During the quarter ended June 30, 1997,
the remaining liability claims of $120,000 were settled and paid.
4. Debt Agreement
On June 18, 1997, the Registrant amended its debt agreement with its primary
lender. The amended agreement provides funding for the Registrant's tender
offer described in Note 6. The amended agreement allows the Registrant to
borrow up to $4,200,000 under a loan that is collateralized by the Registrant's
real estate (the "Real Estate Loan"). On June 18, 1997, the Registrant's
existing Houston real estate loan was rolled into the Real Estate Loan. At June
30, 1997, the Real Estate Loan had a balance of approximately $1,223,000 and is
due in monthly principal payments of $23,333 plus interest at the bank's prime
rate (8.5% per year at June 30, 1997) with the unpaid balance due June 18, 2002.
-6-
<PAGE>
The amended agreement also allows the Registrant to borrow up to $1,390,000
under a loan that is collateralized by account receivable , inventory and
equipment (the "Equipment Loan"). Borrowings under the Equipment Loan will be
due in equal monthly principal payments based on a seven year amortization plus
interest at the bank's prime rate with the unpaid balance due June 18, 2002. At
June 30, 1997, the Equipment Loan had a balance of zero.
The amended agreement extended the maturity date of the Registrant's
revolving line of credit to April 30, 1999. Interest on the revolving line of
credit remains payable monthly at the bank's prime rate and the maximum amount
of credit available under the line remains at $2,200,000. At June 30, 1997, the
revolving line had a balance of zero.
The amended agreement also amended the terms of the Registrant's advancing
term equipment loan. The amended agreement allows the Registrant to borrow up
to $1,000,000 to finance equipment purchases through June 18, 1998. Any
borrowings outstanding as of June 18, 1998, will be converted to a five year
term loan that will be due in sixty equal principal payments, beginning in July
1998, plus interest at the bank's prime rate. At June 30, 1997, the advancing
term equipment loan had a balance of zero.
On June 18, 1997, the Registrant paid-off its Fort Worth loan which had a
balance due of approximately $135,000 at pay-off.
5. Income Taxes
The provisions for federal and state income taxes for the three months and
six months ended June 30, 1997 and 1996, were computed by applying the estimated
effective annual tax rate to income before income taxes.
6. Tender Offer
On June 4, 1997, the Registrant announced that its Board of Directors had
approved a tender offer by the Registrant to acquire all of its issued and
outstanding shares of common stock. The Rawson family currently owns
approximately 60% of the issued and outstanding shares of the Registrant, and
does not intend to tender those shares. The offer price is $2.15 net per share
to sellers in cash. The Registrant will pay all fees and expenses of the tender
offer. The tender offer will be immediately followed by a 1 for 100 reverse
stock split, which will result in all remaining odd-lot shareholders receiving
$2.15 net per share in cash for each share held prior to the reverse split.
After the tender offer and reverse split, it is anticipated that all remaining
shares will be converted into the right to receive $2.15 per share (as adjusted
for the reverse stock split) in a merger with a newly formed company that will
be wholly owned by the Rawson family. After the consummation of the tender offer
and reverse split (and the merger, if necessary) (collectively the "Offer") the
Rawson family will own 100% of the Registrant.
-7-
<PAGE>
The Registrant estimates that the total purchase price of the Offer will
approximate $3,702,000, including Offer costs of approximately $350,000.
The following pro forma condensed financial information is based on
estimated costs and assumes that all the Registrant's shares not owned by the
Rawson family will be acquired by the Registrant through the Offer. The pro
forma condensed balance sheet as of June 30, 1997, gives effect to the Offer as
if it had occurred on that date. The pro forma condensed statement of
operations for the six months ended June 30, 1997, gives effect to the Offer as
if it had occurred on January 1, 1997.
-8-
<PAGE>
Koenig, Inc.
Pro Forma Condensed Balance Sheet
June 30, 1997
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ------------ ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 465 $ (10) (a) $ 455
Accounts receivable, net 1,746 1,746
Inventories 3,243 3,243
Prepayments and other 571 (51) (b) 520
------- ------- -------
Total current assets 6,025 (61) 5,964
Property, plant and equipment, net: 4,671 4,671
Other assets 10 (a) 10
------- ------- -------
Total assets $10,696 $ (51) $10,645
======= ======= =======
Current liabilities:
Current portion of long-term debt $ 280 $ 96 (c) $ 376
Other current liabilities 1,270 1,270
------- ------- -------
Total current liabilities 1,550 96 1,646
Long-term debt, less current portion 943 3,555 (c) 4,498
Deferred income taxes 84 84
------- ------- -------
Total liabilities 2,577 3,651 6,228
------- ------- -------
Shareholders' equity:
Common stock 1 1
Additional paid-in capital 4,529 (3,702) (d) 827
Retained earnings 3,589 3,589
------- ------- -------
Total shareholders' equity 8,119 (3,702) 4,417
------- ------- -------
Total liabilities and shareholders'
equity $10,696 $ (51) $10,645
======= ======= =======
</TABLE>
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<PAGE>
Rawson-Koenig, Inc.
Pro Forma Condensed Statement of Operations
For the six months ended June 30, 1997
(Unaudited)
(in thousands, except per share data and average shares outstanding)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------- ------------- -----------
<S> <C> <C> <C>
Sales $ 11,391 $ 11,391
Cost of sales 8,456 8,456
--------- ----------
Gross profit 2,935 2,935
Selling, general and
administrative expenses 1,716 $ 1 (e) 1,717
--------- ---------- ----------
Income from operations 1,219 (1) 1,218
Other income (expense):
Interest expense (64) (153)(f) (217)
Other, net 18 18
--------- ---------- ----------
Income before income taxes 1,173 (154) 1,019
Income taxes:
Federal 220 (29)(g) 191
State 37 (5)(g) 32
--------- ---------- ----------
Net income $ 916 $ (120) $ 796
========= ========== ==========
Net income per share $ .23 $ .34
========= ==========
Average shares outstanding 3,901,190 (1,559,088)(h) 2,342,102
========= ========== ==========
</TABLE>
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<PAGE>
Notes to pro forma condensed financial statements (in thousands, except
per share data):
(a) Bank loan fees based on .25% of bank loan proceeds.
(b) Offer costs that have been paid as of June 30, 1997.
(c) Summary of bank loan proceeds to finance the Offer:
Purchase price including estimated Offer costs, see (d) $3,702
Less Offer costs paid as of June 30, 1997, see (b) (51)
------
Total loan proceeds 3,651
Less current portion (96)
------
Long-term portion $3,555
======
(d) Purchase of all public shares, except those held by the Rawson
family:
Shares held by public shareholders 1,559
Times $2.15 per share Offer price x $2.15
-------
Purchase price before Offer costs $ 3,352
Estimated Offer costs 350
-------
Purchase price including estimated Offer costs $ 3,702
=======
(e) Bank loan fees amortized on the straight-line method over a five year
life.
(f) Interest expense at 8.5% per year for the six months ended June 30,
1997.
(g) Income tax effect of (e) and (f) for the six months ended June 30,
1997.
(h) Maximum number of shares to be purchased under the Offer.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following table sets forth for the periods indicated (i) the percentages
which certain items reflected in the statements of operations bear to total
sales of the Registrant and (ii) the percentage increase (decrease) of such
items as compared to the corresponding prior year period.
<TABLE>
<CAPTION>
Percentage of Percentage of
Sales Sales
3 Months Ended Percentage 6 Months Ended Percentage
June 30, Increase June 30, Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
----- ----- ---------- ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0 100.0 7.5 100.0 100.0 7.5
Cost of sales 74.7 76.4 5.1 74.2 76.6 4.2
Selling, general
and administrative
expenses 15.2 13.0 25.7 15.1 13.8 17.5
Interest expense .5 .6 (14.3) .6 .7 (19.0)
Other income, net (.2) - 100.0 (.2) - 350.0
Income before
income taxes 9.8 10.0 5.8 10.3 8.9 24.0
Income taxes 2.7 3.5 (16.2) 2.3 3.0 (20.2)
Net income 7.1 6.5 17.4 8.0 5.9 46.8
</TABLE>
Results of Operations
Sales increased approximately $418,000 (7.5%) during the three months ended
June 30, 1997, and increased approximately $793,000 (7.5%) during the six months
ended June 30, 1997, compared to the same periods of 1996. These increases
resulted primarily from the Registrant's intensified marketing efforts in
several territories and a price increase that was effective in January 1997.
Cost of sales as a percentage of sales decreased from 76.4% to 74.7% for the
three months ended June 30, 1996 and 1997, respectively, and decreased from
76.6% to 74.2% for the six months ended June 30, 1996 and 1997, respectively.
These decreases were due primarily to Management's continued program of
upgrading equipment and refining production methods and due to a $280,000
reduction in the accrued liability for potential claims arising from employee
injuries incurred in the normal course of business prior to May 1, 1994 that was
recorded in the three months ended March 31, 1997. (See Note 3 on Page 6.)
-12-
<PAGE>
Selling, general and administrative expenses increased 25.7% for the three
months ended June 30, 1997, and increased 17.5% for the six months ended June
30, 1997, compared to the same periods of 1996. These increases were primarily
due to increases in health insurance costs and payroll-related expenses.
Interest expense decreased 14.3% for the three months ended June 30, 1997,
and decreased 19.0% for the six months ended June 30, 1997, compared to the same
periods of 1996. These decreases were primarily due to lower average borrowings
during 1997.
Income taxes decreased 16.2% for the three months ended June 30, 1997, and
decreased 20.2% for the six months ended June 30, 1997, compared to the same
periods of 1996. These decreases were due primarily to the effects of the
$280,000 reduction in the accrued liability for potential claims arising from
employee injuries incurred in the normal course of business prior to May 1,
1994.
Financial Condition
The Registrant generated approximately $700,000 in cash from operations
during the six months ended June 30, 1997. The Registrant plans to fund future
operations from cash on hand, cash from operations and use of its credit
facility, which had an available revolving line of credit of $2,200,000 at June
30, 1997.
The Registrant plans to use its Real Estate Loan and Equipment Loan to
finance the tender offer described in Note 6 on Page 7. The Registrant also has
an agreement with a bank to borrow up to an aggregate of $1,000,000 to finance
equipment purchases.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended June
30, 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAWSON-KOENIG, INC.
Date: August 7, 1997 /s/ Thomas C. Rawson
---------------------------
Thomas C. Rawson
Chairman of the Board
/s/ Catherine A. Rawson
---------------------------
Catherine A. Rawson
Principal Financial Officer
/s/ Leslie T. Horvath
---------------------------
Leslie T. Horvath
Controller
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 465
<SECURITIES> 0
<RECEIVABLES> 1,746
<ALLOWANCES> 0
<INVENTORY> 3,243
<CURRENT-ASSETS> 6,025
<PP&E> 10,658
<DEPRECIATION> 5,987
<TOTAL-ASSETS> 10,696
<CURRENT-LIABILITIES> 1,550
<BONDS> 943
0
0
<COMMON> 1
<OTHER-SE> 8,118
<TOTAL-LIABILITY-AND-EQUITY> 10,696
<SALES> 11,391
<TOTAL-REVENUES> 11,391
<CGS> 8,456
<TOTAL-COSTS> 8,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 1,173
<INCOME-TAX> 257
<INCOME-CONTINUING> 916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 916
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
