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 April 2, 1995
Commission File Number 0-12948
CHEMFAB CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 03-0221503
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Daniel Webster Highway
Merrimack, New Hampshire 03054
(Address of principal executive office) (Zip Code)
Registrant's telephone number including
area code: (603) 424-9000
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 .
------ -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 5, 1995
Common Stock, $ .10 par value 5,232,033 shares
CHEMFAB CORPORATION
INDEX
Part I - Financial Information: Page No.
Item 1 - Financial Statements
--------------------
Consolidated Balance Sheets at April 3 - 4
2, 1995 and June 30, 1994
Consolidated Statements of Income for 5
the Three Months and None Months Ended
April 2, 1995 and March 27, 1994
Consolidated Statements of Cash Flows 6
for the Nine Months Ended April 2, 1995
and March 27, 1994.
Notes to Consolidated Financial Statements 7 - 8
Item 2 - Management's Discussion and Analysis of 8 - 12
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Part II - Other Information: 13
Item 6(a) - Exhibits 13
--------
Signatures 14
PART I - FINANCIAL INFORMATION
<TABLE>
<S><C>
CHEMFAB CORPORATION
CONSOLIDATED BALANCE SHEETS
April 2, June 30,
1995 1994
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 3,583,000 $ 7,923,000
Marketable Securities 1,000,000 0
Receivables:
Trade 14,731,000 10,804,000
Progress billings 0 511,000
Retainages 149,000 253,000
Other 187,000 212,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 595,000 372,000
Inventories 13,459,000 9,683,000
Prepaid expenses, and other 1,298,000 803,000
Deferred tax assets 851,000 640,000
------------ ------------
Total current assets 35,853,000 31,201,000
Property, plant and equipment at cost 36,613,000 32,464,000
Less accumulated depreciation
and amortization 16,461,000 14,575,000
------------ ------------
20,152,000 17,889,000
Goodwill, net 12,926,000 2,869,000
Investments in joint ventures and
other assets 2,449,000 1,835,000
------------ ------------
Total assets $ 71,380,000 $ 53,794,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<TABLE>
<S><C>
CHEMFAB CORPORATION
CONSOLIDATED BALANCE SHEETS
April 2, June 30,
1995 1994
------------ ------------
(Unaudited)
Current liabilities:
Accounts payable and accrued
expenses $ 9,352,000 $ 6,887,000
Accrued income taxes 970,000 1,285,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts 114,000 99,000
------------ ------------
Total current liabilities 10,436,000 8,271,000
Deferred income taxes 1,151,000 1,151,000
Long-term debt 11,347,000
Shareholders' equity:
Preferred stock, par value $.50:
authorized - 1,000,000 shares,
none issued - -
Common stock, par value $.10:
authorized - 15,000,000 shares;
issued and outstanding - 5,230,233
at April 2, 1995 and 5,203,483
at June 30, 1994 523,000 521,000
Additional paid-in capital 16,583,000 16,371,000
Retained earnings 31,525,000 28,241,000
Foreign currency translation
adjustment (185,000) (761,000)
------------ ------------
Total shareholders' equity 48,446,000 44,372,000
------------ ------------
Total liabilities and shareholders' equity $ 71,380,000 $ 53,794,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<TABLE>
<S><C>
CHEMFAB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
Apr. 2, 1995 Mar. 27, 1994 Apr. 2, 1995 Mar. 27, 1994
------------- ------------- ------------- -------------
Net sales $ 17,510,000 $ 12,502,000 $ 46,733,000 $ 36,779,000
Cost of sales 11,878,000 8,553,000 31,983,000 25,060,000
------------ ------------ ------------ ------------
Gross profit 5,632,000 3,949,000 14,750,000 11,719,000
Selling, general and
administrative expenses 3,184,000 2,505,000 8,713,000 7,279,000
Research and development expenses 605,000 426,000 1,576,000 1,415,000
Other income, net (52,000) (150,000) (115,000) (285,000)
Interest expense 134,000 7,000 147,000 22,000
Interest income (66,000) (72,000) (248,000) (287,000)
Results of equity operations (21,000) 12,000 116,000 28,000
------------ ------------ ------------ ------------
Income before income taxes 1,848,000 1,221,000 4,561,000 3,547,000
Provision for income taxes 531,000 276,000 1,277,000 904,000
------------ ------------ ------------ ------------
Net income $ 1,317,000 $ 945,000 $ 3,284,000 $ 2,643,000
============ ============ ============ ============
Weighted average common and
common equivalent shares 5,334,000 5,303,000 5,310,000 5,285,000
============ ============ ============ ============
Earnings per common share $0.25 $0.18 $0.62 $0.50
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
<S><C>
CHEMFAB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------------------
4/2/95 3/27/94
------------ ------------
Cash flows from operating activities:
Net income $ 3,284,000 $ 2,643,000
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 2,322,000 1,906,000
Results of equity operations 116,000 28,000
Deferred gain on sale/leaseback 0 (80,000)
Change in assets and liabilities:
Receivables (874,000) (790,000)
Costs and estimated earnings in excess
of billings on uncompleted contracts,net (223,000) (109,000)
Inventories (1,891,000) (1,117,000)
Prepaid expenses and other (483,000) (212,000)
Other assets long-term (568,000) (324,000)
Accounts payable and accrued expenses 1,711,000 (1,187,000)
Accrued income taxes (344,000) 25,000
Deferred income taxes (211,000) 17,000
------------ ------------
Total adjustments (445,000) (1,843,000)
------------ ------------
Net cash provided by operations 2,839,000 800,000
Cash flows from investing activities:
Purchase of Tygaflor (16,344,000) 0
Capital expenditures (net) (1,391,000) (2,265,000)
Purchase of marketable securities (1,000,000) (3,200,000)
Purchase of NH Real Estate 0 (5,246,000)
Sale of NY real estate and equipment 0 1,100,000
------------ ------------
Net cash used in investing activities (18,735,000) (9,611,000)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 11,060,000
Proceeds from exercise of stock options 189,000 158,000
------------ ------------
Net cash provided by financing activities 11,249,000 158,000
Effect of exchange rate changes on cash 307,000 22,000
------------ ------------
Net decrease in cash and cash equivalents (4,340,000) (8,631,000)
Cash and cash equivalents at beginning of year 7,923,000 14,024,000
------------ ------------
Cash and cash equivalents at end of period $ 3,583,000 $ 5,393,000
============ ============
Interest paid $ 143,000 $ 23,000
Income taxes paid $ 1,592,000 $ 567,000
</TABLE>
See accompanying notes to the Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 The consolidated financial statements of Chemfab
Corporation (the Company) included in this report reflect all
adjustments (consisting of only normally recurring accruals)
which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial position at April 2,
1995 and June 30, 1994 and the consolidated statements of income
for the three months and nine months ended April 2, 1995 and
March 27, 1994 and consolidated statements of cash flows for the
nine months ended April 2, 1995 and March 27, 1994. The unaudited
results of operations for the interim periods reported are not
necessarily indicative of results to be expected for the year.
Certain notes and other information have been condensed or
omitted from these interim financial statements. The statements,
therefore, should be read in conjunction with the consolidated
financial statements and related notes included in the Chemfab
Corporation Annual Report on Form 10-K for the year ended June
30, 1994 (file no. 0-12948).
Note 2 Inventories consist of the following:
April 2, 1995 June 30,1994
_____________ ____________
Finished Goods $ 4,469,000 $3,573,000
Work in Process 5,479,000 3,568,000
Raw Materials 3,511,000 2,542,000
__________ __________
$13,459,000 $9,683,000
=========== ==========
Note 3 In connection with obtaining incentive grants from the
Industrial Development Authority of Ireland to subsidize
investments in plant and equipment in Ireland, the Company's
Irish subsidiary, Chemfab Europe, has agreed to restrict
repatriation of 410,000 Irish pounds (U.S. $669,000) of its
retained earnings to fund repayment of the grants in the event of
default under the agreement. Chemfab Corporation has also
provided a parent company guarantee in the event that the
subsidiary's equity so restricted is not sufficient to repay any
amount due.
Various lawsuits and claims are pending or have been asserted
against the Company, including the matter previously disclosed by
the Company involving the Bennington Landfill Superfund site, in
Bennington Vermont. Although the outcome of such matters cannot
be predicted with certainty and some lawsuits or claims may be
disposed of unfavorably to the Company, management believes their
disposition, to the extent not covered by insurance, will not
have a material adverse effect on the Company's financial
condition and results of operations.
Note 4 Acquisition of Tygaflor Business
--------------------------------
On February 17, 1995, the Company purchased the Tygaflor
fluoropolymer products business of the Advanced Materials
Division of Courtaulds Aerospace Ltd. (Tygaflor) for
approximately $16.3 million in cash, including associated
transaction costs and anticipated severance costs. Assets
acquired included working capital, machinery and equipment,
goodwill and other intangibles. Tygaflor, based in
Littleborough, Lancashire, England, manufacturs and markets
fluoropolymer-based composite materials and fabricated products
for a broad range of industrial applications.
In connection with the acquisition, the Company borrowed
$11,347,000 (Pounds Stlg 7,000,000) from a commercial bank in
Ireland. The loan has a five (5) year term and requires no
principal repayments for the first year. After the first year,
quarterly principal payments of approximately $709,000 (Pounds
Stlg 437,500) are required. One half of the loan amount
(approximately $5.7 million) carries a 3 year fixed interest rate
of 10.14%; the other half carries a variable interest rate of 1-
1/2% over LIBOR, which currently equates to 8.375%. In
conjunction with the loan, the Company also established a
$1,600,000 (Pounds Stlg 1,000,000) short-term credit facility in
Europe.
The bank loan, which is secured by substantially all of the
Company's Europe-based assets (including the assets of Tygaflor)
and by a U.S. parent company guarantee, is subject to certain
company-wide restrictive covenants including maximum debt to
tangible net worth ratios and limits on the pledging of assets.
In addition, a sub-group consisting of the Company's European
subsidiaries must maintain minimum net worth levels and are
subject to separate maximum levels of debt to net worth.
ITEM 2 Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Three Months Ended April 2, 1995
--------------------------------
Net Sales
---------
The Company's consolidated net sales for the three months ended
April 2, 1995, the third quarter of fiscal 1995, increased 40% to
$17,510,000 from $12,502,000 for the same period in the prior
year. Measured in constant foreign currency exchange rates,
third quarter sales would have increased 37% over the same
quarter a year ago. Revenue growth was broad-based, reflecting
strong industrial product shipments from the Company's factories
in the U.S. and Europe and strong sales of architectural products
into the Far East. Reported revenue growth also reflected the
positive impact of revenues from the Company's Canton Bio-Medical
subsidiary which was acquired in April 1994, and the Tygaflor
fluoropolymer products business which was acquired in February
1995. Excluding the third quarter revenues of Canton Bio-Medical
and Tygaflor, which amounted to $2,762,000 in the aggregate,
sales increased 16% (measured in constant foreign currency
exchange rates) over the third quarter of the prior year.
Engineered Products - U.S. Sourced sales (which include all non-
architectural product sales from the Company's U.S. manufacturing
plants; principal geographic markets are the Americas and the Far
East) increased 21% to $9,464,000 from $7,797,000 for the same
period in the prior year. This increase resulted from strong
demand in the U.S. for the Company's industrial products and from
the Canton Bio-Medical acquisition.
Engineered Products - Europe Sourced sales (which include product
sales from the Company's European manufacturing plants; principal
geographic markets are Western Europe, Africa, the Middle East
and the Far East) increased 77% to $5,946,000 from $3,365,000 for
the same period in the prior year. If foreign currency exchange
rates had remained unchanged from the prior year, the sales
increase would have been 66%. This increase resulted principally
from strong industrial product demand within Europe and from the
Tygaflor acquisition.
Architectural Product sales increased 57% to $2,100,000 from
$1,340,000 for the third quarter of the prior year. This
increase resulted principally from higher shipments to the
Company's Japanese joint venture company, Nitto Chemfab Co.,
Ltd., during the quarter. Architectural product shipments are
expected to remain strong through the end of the current fiscal
year and into the next fiscal year due primarily to increased
demand in the Far East.
Gross Profit Margins
--------------------
Gross profit margins as a percentage of net sales were 32%, the
same as the third quarter of the prior year. The positive impact
of higher production volumes on unit costs of production, which
otherwise would have caused margins to exceed those of the prior
year, was offset by lower gross profit margins at the Company's
Canton Bio-Medical subsidiary.
Selling, Administrative, Research and Development Expenses
----------------------------------------------------------
Selling, general and administrative expenses increased 27% to
$3,184,000 from $2,505,000 for the third quarter a year ago.
Increased expenditures resulted principally from the effect of
the acquisitions of Canton Bio-Medical and Tygaflor on the
consolidated expense structure. In addition, normal wage and
salary increases, and the impact of higher foreign currency
exchange rates when translating European expenses, also
contributed to higher reported costs. Absent the impact of
Canton Bio-Medical and Tygaflor, third quarter selling, general
and administrative expenses would have increased 9% over the
prior year. Research and development expenses increased 42% to
$605,000 from $426,000 for the third quarter of fiscal 1994.
This increase resulted principally from increased development
expenditures in the areas of food processing and cast film products.
Other (Income) Expense, Net
---------------------------
Other income, net was $52,000 compared with $150,000 for the
third quarter of fiscal 1994. Current quarter income resulted
principally from net foreign exchange gains. The prior year's
amount resulted primarily from the reversal of previously
established accruals in excess of amounts ultimately needed to
cover the cost of relocating the Company's Buffalo, New York
operations to its New Hampshire facility.
Interest Income and Results of Equity Operations
------------------------------------------------
The Company had net interest expense of $68,000 for the three
month period ended April 2, 1995, compared to $65,000 of net
interest income for the same period in the prior year. This
difference was principally due to interest expense of $125,000 on
long-term bank debt incurred to finance the Tygaflor acquisition
as described in Note 4 of Notes To Consolidated Financial
Statements.
Results of equity operations for the three months ended April 2,
1995 generated income of $21,000 compared with a loss of $12,000
for the same period in fiscal 1994. For both periods, these
results relate to the activities of the Company's Japanese joint
venture.
Nine Months Ended April 2, 1995
-------------------------------
Net Sales
---------
The Company's consolidated net sales for the nine months ended
April 2, 1995 increased 27% to $46,733,000 from $36,779,000 for
the same period in the prior year. Measured in constant foreign
currency exchange rates, year-to-date sales would have increased
25% over the same period a year ago. Revenue growth was broad-
based, extending over all the Company's business units, and also
reflected the positive impact of revenues from the Company's
Canton Bio-Medical subsidiary which was acquired in April 1994
and the Tygaflor fluoropolymer products business which was
acquired in February 1995.
Engineered Products - U.S. Sourced sales (which include all non-
architectural product sales from the Company's U.S. manufacturing
plants; principal geographic markets are the Americas and the Far
East) increased 18% to $28,117,000 from $23,929,000 for the same
period in the prior year. This year-to-date increase resulted
from strong demand in the U.S. for the Company's industrial
products net of a current year decline in the sale of wire
insulation materials for use in Boeing aircraft, and from the
Canton Bio-Medical acquisition.
Engineered Products - Europe Sourced sales (which include product
sales from the Company's European manufacturing plants; principal
geographic markets are Western Europe, Africa, the Middle East
and the Far East) increased 38% to $13,373,000 from $9,658,000
for the same period in the prior year. If foreign currency
exchange rates had remained unchanged from the year-to-date
period in the prior year, the sales increase would have been 31%.
The increase resulted principally from higher sales into the food
processing, medical/pharmaceutical and general distributor
markets within Europe, and from the Tygaflor acquisition.
Year-to-date Architectural Product sales increased 64% to
$5,243,000 from $3,192,000 for the same period in the prior year.
This increase resulted principally from higher shipments to the
Company's Japanese joint venture, Nitto Chemfab Co., Ltd., during
the current year period.
Gross Profit Margins
--------------------
Gross profit margins as a percentage of net sales were 32%, the
same as for the first nine months of the prior year. The
positive impact of higher production volumes on unit costs of
production was offset by lower gross profit margins at the
Company's Canton Bio-Medical subsidiary.
Selling, Administrative, Research and Development Expenses
----------------------------------------------------------
Year-to-date selling, general and administrative expenses
increased 20% to $8,713,000 from $7,279,000 for the same period
in the prior year. Increased expenditures resulted principally
from the effect of the acquisitions of Canton Bio-Medical and
Tygaflor on the consolidated expense structure. In addition,
normal wage and salary increases and the impact of higher foreign
currency exchange rates when translating European expenses, also
contributed to higher reported costs. Absent the impact of
Canton Bio-Medical and Tygaflor, year-to-date selling, general
and administrative expenses would have increased 8% over the
prior year.
Research and development expenses for the first nine months of
fiscal 1995 increased 11% to $1,576,000 from $1,415,000 for the
same period in the prior year. The increase resulted principally
from increased development expenditures in the areas of food
processing and cast film products.
Other Income, Net
-----------------
Other income, net was $115,000 compared with $285,000 for the
first nine months of fiscal 1994. Current period income relates
principally to realized foreign exchange gains and the reversal
of previously established accruals in excess of amounts
ultimately needed. The prior year's amount resulted primarily
from the recovery of legal costs previously paid and the reversal
of previously established accruals in excess of amounts
ultimately needed to cover the cost of relocating the Company's
Buffalo, New York operations to its New Hampshire facility.
Interest Income and Results of Equity Operations
------------------------------------------------
The Company generated net interest income of $101,000 for the
nine months ended April 2, 1995, compared to $285,000 for the
same period in the prior year. This decrease was principally due
to interest expense of $125,000 on the long-term debt established
to finance the Tygaflor acquisition as described in Note 4 of
Notes To Consolidated Financial Statements. Results of equity
operations for the nine months ended April 2, 1995 was a loss of
$116,000 compared with a loss of $28,000 for the same period in
fiscal 1994. For both periods, these losses relate to the activities
of the Company's Japanese joint venture.
Liquidity and Capital Resources
-------------------------------
During the nine month period ended April 2, 1995, the Company
generated $2,747,000 of cash from operations. The exercise of
stock options provided an additional $189,000 during the period.
The Company invested $ 1,391,000 in property, plant and equipment
additions and $1,000,000 of excess cash in higher yielding,
short-term marketable securities. Working capital increased to
$25,496,000 as compared to $22,930,000 at the end of fiscal 1994.
As described in Note 4 of Notes To Consolidated Financial
Statements, the Company financed the acquisition of Tygaflor
from available cash reserves and a long-term bank loan. In
connection with the bank loan, the Company also established a
$1,600,000 (Pounds Stlg 1,000,000) short-term credit facility in
Europe. A $5 million revolving credit facility continues to be
available in the U.S. to finance working capital requirements.
Management believes that cash and marketable securities on hand,
together with working capital facilities available, will be
adequate to finance operations for the foreseeable future,
including any liabilities which might arise from the
contingencies described in Note 3 of Notes To Consolidated
Financial Statements.
PART II - OTHER INFORMATION
---------------------------
ITEM 6 - Exhibits and Reports on Form 8-K
--------------------------------
6(a) Exhibits
None
6(b) Reports on Form 8-K
A report on form 8-K was filed dated March 2, 1995 which
described a transaction reportable under Item 2, Acquisition or
Disposition of Assets. This filing described the acquisition of
the Tygaflor business on February 17, 1995. No financial
statements were filed with this report.
CHEMFAB CORPORATION
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.
CHEMFAB CORPORATION
-------------------
(Registrant)
by:/S/ Duane C. Montopoli
-------------------------------------------
Duane C. Montopoli
President and Chief Executive Officer
by:/S/ William H. Everett
-------------------------------------------
William H. Everett
Vice President-Finance and Administration
(Principal Financial Officer)
by:/S/ Laurence E. Richard
------------------------------------------
Laurence E. Richard
Controller
(Principal Accounting Officer)
Date: May 12, 1995
CHEMFAB CORPORATION
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.
CHEMFAB CORPORATION
-------------------
(Registrant)
by:
-------------------------------------------
Duane C. Montopoli
President and Chief Executive Officer
by:
-------------------------------------------
William H. Everett
Vice President-Finance and Administration
(Principal Financial Officer)
by:
------------------------------------------
Laurence E. Richard
Controller
(Principal Accounting Officer)
Date: May 12, 1995
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