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.:
September 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
------------------------------------------------------
(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
September 30, 1997: 3,901,190 shares of common stock.
-1-
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Rawson-Koenig, Inc.
Condensed Balance Sheets
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 333 $ 334
Accounts receivable, net 1,641 1,269
Inventories:
Raw materials 1,461 1,391
Work in process 1,221 1,554
Finished goods 621 996
Prepayments and other 327 107
------- -------
Total current assets 5,604 5,651
------- -------
Property, plant and equipment, at cost:
Land and buildings 3,829 3,815
Machinery and equipment 6,847 6,725
Accumulated depreciation and amortization (6,059) (5,702)
------- -------
Property, plant and equipment, net 4,617 4,838
------- -------
Other assets, net 36
------- -------
Total assets $10,257 $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>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 280 $ 229
Accounts payable 806 685
Accrued expenses 571 858
Income taxes payable 51 79
------- -------
Total current liabilities 1,708 1,851
Long-term debt, less current portion 223 1,435
Deferred income taxes 123
------- -------
Total liabilities 2,054 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 3,673 2,673
------- -------
Total shareholders' equity 8,203 7,203
------- -------
Total liabilities and shareholders' equity $10,257 $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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 5,522 $ 4,827 $ 16,913 $ 15,425
Cost of sales 4,275 3,671 12,731 11,788
--------- --------- --------- ---------
Gross profit 1,247 1,156 4,182 3,637
Selling, general and
administrative expenses 889 722 2,605 2,182
--------- --------- --------- ---------
Income from operations 358 434 1,577 1,455
Other income (expense):
Interest expense (16) (34) (80) (113)
Other, net 31 9 49 13
--------- --------- --------- ---------
Income before income taxes
and extraordinary item 373 409 1,546 1,355
Income taxes:
Federal 103 115 323 391
State 14 20 51 66
--------- --------- --------- ---------
Income before extraordinary
item 256 274 1,172 898
Extraordinary item -
tender offer expenses (172) (172)
--------- --------- --------- ---------
Net income $ 84 $ 274 $ 1,000 $ 898
========= ========= ========= =========
Earnings per share:
Income before
extraordinary item $ .07 $ .07 $ .30 $ .23
Extraordinary item (.04) (.04)
--------- --------- --------- ---------
Net income per share $ .03 $ .07 $ .26 $ .23
========= ========= ========= =========
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>
Nine Months Ended
September 30,
1997 1996
------ ------
<S> <C> <C>
Cash flow from operating activities:
Net income $1,000 $ 898
------ ------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Deferred income tax 21
Depreciation and amortization 455 370
Change in assets and liabilities, net (46) 165
------ ------
Total adjustments 430 535
------ ------
Net cash provided by operating activities 1,430 1,433
Cash flows from investing activities:
Purchase of property and equipment, net (232) (256)
Cash flows from financing activities:
Decrease in borrowings, net (1,161) (816)
Bank loan costs (38)
------ ------
Net increase (decrease) in cash and cash
equivalents (1) 361
Cash and cash equivalents at beginning
of period 334 315
------ ------
Cash and cash equivalents at end of period $ 333 $ 676
====== ======
Supplemental cash flow disclosure:
Income taxes paid $ 426 $ 410
====== ======
Interest paid $ 83 $ 114
====== ======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-5-
<PAGE>
Rawson-Koenig, Inc.
Notes to Condensed Financial Statements
September 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 nine months
ended September 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. Other Assets
At September 30, 1997, other assets consist of costs related to
obtaining bank loans. These costs are capitalized and amortized over the
lives of the related loans using the effective interest method.
4. 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.
-6-
<PAGE>
5. Debt Agreement
On June 18, 1997, the Registrant amended its debt agreement with its
primary lender. The agreement was amended to provide funding for the
Registrant's tender offer described in Note 8. 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. The Real Estate Loan is due in monthly
principal installments of $23,333 plus interest at the bank's prime rate
(8.5% per year at September 30, 1997) with the unpaid balance being due
June 18, 2002. During the three months ended September 30, 1997, in
addition to paying the scheduled monthly payments on the Real Estate Loan,
the Registrant also made a $750,000 principal payment. At September 30,
1997, the Real Estate Loan had a balance of approximately $403,000.
The amended agreement further allows the Registrant to borrow up to
$1,390,000 under a loan that is collateralized by the Registrant's accounts
receivable, inventory and equipment (the "Equipment Loan"). Borrowings
under the Equipment Loan will be due in equal monthly principal
installments based on a seven year amortization plus interest at the bank's
prime rate with the unpaid balance being due June 18, 2002. At September
30, 1997, the Equipment Loan had a zero balance.
The amended agreement extends 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
September 30, 1997, the revolving line had a balance of $100,000.
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
installments beginning in July 1998, plus interest at the bank's prime
rate. At September 30, 1997, the advancing term equipment loan had a zero
balance.
On June 18, 1997, the Registrant retired its Fort Worth loan which had
a balance due of approximately $135,000.
6. Income Taxes
The provisions for federal and state income taxes for the three months
and nine months ended September 30, 1997 and 1996, were computed by
applying the estimated effective annual tax rate to income before income
taxes.
-7-
<PAGE>
7. Extraordinary Item - Tender Offer Expenses
Expenses of the "going private" tender offer described in Note 8 have
been recorded as an extraordinary item. As of September 30, 1997, the
Registrant had incurred approximately $172,000 of such expenses that
consist mainly of legal, accounting, investment banker, printing and
mailing fees. These expenses have no tax effect as they are not deductible
for income tax purposes.
8. Tender Offer
On June 4, 1997, the Board of Directors of the Registrant approved a
tender offer (the "Offer") by the Registrant to acquire up to 100% of its
issued and outstanding shares of common stock at a price of $2.15 net per
share to sellers in cash. The Registrant will pay all fees and expenses of
the Offer. The Rawson family currently owns approximately 60% of the
issued and outstanding shares of the Registrant, which were not tendered
pursuant to the Offer. The Offer expired on October 31, 1997 and it is
anticipated that shares tendered pursuant to the Offer will be paid in cash
during the week of November 3, 1997. After the tendering shares have been
acquired, it is anticipated that all remaining shares (except those owned
by the Rawson family) will be converted into the right to receive $2.15 per
share in a merger with a newly formed company that will be wholly owned by
the Rawson family. After the consummation of the Offer and the merger the
Rawson family will own 100% of the Registrant.
The Registrant estimates that the total cost of the Offer will
approximate $3,702,000, including expenses 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 September 30, 1997, gives
effect to the Offer as if it had occurred on that date. The pro forma
condensed statement of operations for the nine months ended September 30,
1997, gives effect to the Offer as if it had occurred on January 1, 1997.
-8-
<PAGE>
Rawson-Koenig, Inc.
Pro Forma Condensed Balance Sheet
September 30, 1997
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 333 $ $ 333
Accounts receivable, net 1,641 1,641
Inventories 3,303 3,303
Prepayments and other 327 327
------- ------- -------
Total current assets 5,604 5,604
Property, plant and equipment, net 4,617 4,617
Other assets, net 36 36
------- ------- -------
Total assets $10,257 $ - $10,257
======= ======= =======
Current liabilities:
Current portion of long-term debt $ 280 $ $ 280
Other current liabilities 1,428 1,428
------- ------- -------
Total current liabilities 1,708 1,708
Long-term debt, less current portion 223 3,530 (a) 3,753
Deferred income taxes 123 123
------- ------- -------
Total liabilities 2,054 3,530 5,584
------- ------- -------
Shareholders' equity:
Common stock 1 1
Additional paid-in capital 4,529 (3,530) (b) 999
Retained earnings 3,673 3,673
------- ------- -------
Total shareholders' equity 8,203 (3,530) 4,673
------- ------- -------
Total liabilities and shareholders'
equity $10,257 $ - $10,257
======= ======= =======
</TABLE>
-9-
<PAGE>
Rawson-Koenig, Inc.
Pro Forma Condensed Statement of Operations
For the nine months ended September 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 $ 16,913 $ $ 16,913
Cost of sales 12,731 12,731
--------- --------- ---------
Gross profit 4,182 4,182
Selling, general and
administrative expenses 2,605 4 (c) 2,609
--------- --------- ---------
Income from operations 1,577 (4) 1,573
Other income (expense):
Interest expense (80) (220) (d) (300)
Other, net 49 49
--------- --------- ---------
Income before income taxes
and extraordinary item 1,546 (224) 1,322
Income taxes:
Federal 323 (73) (e) 250
State 51 (10) (e) 41
--------- --------- ---------
Income before extraordinary
item $ 1,172 $ (141) $ 1,031
========= ========= =========
Income per share before
extraordinary item $ .30 $ .44
========= =========
Average shares outstanding 3,901,190 (1,559,088) (f) 2,342,102
========= ========= =========
</TABLE>
-10-
<PAGE>
Notes to pro forma condensed financial statements (in thousands, except
per share data):
(a) Summary of bank loan proceeds to finance the Offer:
Estimated total cost of the Offer, including expenses,
see (b) $3,702
Less expenses incurred as of September 30, 1997 (172)
------
$3,530
======
(b) Purchase of all public shares, except those owned by the Rawson
family:
Shares held by public shareholders 1,559
Times $2.15 per share Offer price x $2.15
-------
Purchase price before expenses $ 3,352
Estimated expenses 350
-------
Total cost of the Offer, including expenses 3,702
Less expenses incurred as of September 30, 1997 (172)
-------
$ 3,530
=======
(c) Amortization of bank loan costs.
(d) Interest expense at 8.5% per year for the nine months ended
September, 30, 1997.
(e) Income tax effect of (c) and (d) for the nine months ended
September, 30, 1997.
(f) 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 9 Months Ended Percentage
September 30, Increase September 30, Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
----- ----- ---------- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0 100.0 14.4 100.0 100.0 9.6
Cost of sales 77.4 76.0 16.5 75.3 76.4 8.0
Selling, general
and administrative
expenses 16.1 15.0 23.1 15.4 14.2 19.4
Interest expense .3 .7 (52.9) .5 .7 (29.2)
Other income, net (.5) (.2) 244.4 (.3) (.1) 276.9
Income before
income taxes and
extraordinary item 6.7 8.5 (8.8) 9.1 8.8 14.1
Income taxes 2.1 2.8 (13.3) 2.2 3.0 (18.2)
Income before
extraordinary item 4.6 5.7 (6.6) 6.9 5.8 30.5
Extraordinary item (3.1) - (100.0) (1.0) - (100.0)
Net income 1.5 5.7 (69.3) 5.9 5.8 11.4
</TABLE>
Results of Operations
Sales increased approximately $695,000 (14.4%) during the three months
ended September 30, 1997, and increased approximately $1,488,000 (9.6%)
during the nine months ended September 30, 1997, compared to the same
periods of 1996. These increases resulted primarily from the Registrant's
intensified marketing efforts in several territories.
-12-
<PAGE>
Cost of sales as a percentage of sales increased from 76.0% to 77.4%
for the three months ended September 30, 1996 and 1997, respectively, and
decreased from 76.4% to 75.3% for the nine months ended September 30, 1996
and 1997, respectively. The increase for the three months ended September
30, 1997, was due primarily to increases in material costs. The decrease
for the nine months ended September 30, 1997, was due primarily 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 4 on page 6.)
Selling, general and administrative expenses increased 23.1% for the
three months ended September 30, 1997, and increased 19.4% for the nine
months ended September 30, 1997, compared to the same periods of 1996.
These increases were due primarily to increases in payroll-related
expenses.
Interest expense decreased 52.9% for the three months ended September
30, 1997, and decreased 29.2% for the nine months ended September 30, 1997,
compared to the same periods of 1996. These decreases were due primarily
to lower average borrowings during the applicable periods.
Income taxes decreased 13.3% for the three months ended September 30,
1997, and decreased 18.2% for the nine months ended September 30, 1997,
compared to the same periods of 1996. The decrease for the three months
ended September 30, 1997, was due primarily to the decrease in income. The
decrease for the nine months ended September 30, 1997, was 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.
During the three months ended September 30, 1997, the Registrant
recorded an extraordinary item of $172,000 for expenses of the "going
private" tender offer described in Note 8 on page 8.
Financial Condition
The Registrant generated approximately $1,430,000 in cash from
operations during the nine months ended September 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 $2,100,000 at September 30, 1997, based on the applicable borrowing base
calculation.
The Registrant plans to use its Real Estate Loan (and Equipment Loan,
if necessary) to finance the tender offer described in Note 8 on page 8.
The Registrant also has an agreement with a bank to borrow up to an
aggregate of $1,000,000 to finance equipment purchases.
-13-
<PAGE>
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
September 30, 1997.
-14-
<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: November 5, 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
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 333
<SECURITIES> 0
<RECEIVABLES> 1,641
<ALLOWANCES> 0
<INVENTORY> 3,303
<CURRENT-ASSETS> 5,604
<PP&E> 10,676
<DEPRECIATION> 6,059
<TOTAL-ASSETS> 10,257
<CURRENT-LIABILITIES> 1,708
<BONDS> 223
0
0
<COMMON> 1
<OTHER-SE> 8,202
<TOTAL-LIABILITY-AND-EQUITY> 10,257
<SALES> 16,913
<TOTAL-REVENUES> 16,913
<CGS> 12,731
<TOTAL-COSTS> 12,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 1,546
<INCOME-TAX> 374
<INCOME-CONTINUING> 1,172
<DISCONTINUED> 0
<EXTRAORDINARY> (172)
<CHANGES> 0
<NET-INCOME> 1,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
