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 March 31, 1996
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 9, 1996
Common Stock, $ .10 par value 7,988,825 shares
CHEMFAB CORPORATION
INDEX
Part I - Financial Information: Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets at March 3 - 4
31, 1996 and June 30, 1995
Consolidated Statements of Income for 5
the Three Months and Nine Months Ended
March 31, 1996 and April 2, 1995
Consolidated Statements of Cash Flows 6
for the Nine Months Ended March 31, 1996
and April 2, 1995
Notes to Consolidated Financial Statements 7 - 8
Item 2 - Management's Discussion and Analysis of 8 - 11
Financial Condition and Results of Operations
Part II - Other Information: 12
Item 6(a) - Exhibits 12
Item 6(b) - Reports on Form 8-K 12
Signatures 13
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PART I - FINANCIAL INFORMATION
CHEMFAB CORPORATION
CONSOLIDATED BALANCE SHEETS
Mar. 31, June 30,
1996 1995
(Unaudited)
----------- ----------
Current assets:
Cash and cash equivalents $ 4,185,000 $ 3,780,000
Receivables:
Trade 17,687,000 16,009,000
Retainages 148,000 148,000
Other 179,000 324,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 708,000 692,000
Inventories 14,184,000 13,110,000
Prepaid expenses, and other 1,219,000 901,000
Deferred tax assets 1,157,000 1,152,000
---------- ----------
Total current assets 39,467,000 36,116,000
Property, plant and equipment at cost 38,963,000 36,869,000
Less accumulated depreciation
and amortization 19,009,000 17,036,000
---------- ----------
19,954,000 19,833,000
Goodwill, net 11,187,000 12,260,000
Investments in joint ventures and
other assets 2,456,000 2,410,000
---------- ----------
Total assets $ 73,064,000 $ 70,619,000
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<TABLE>
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CHEMFAB CORPORATION
CONSOLIDATED BALANCE SHEETS
Mar. 31, June 30,
1996 1995
(Unaudited)
----------- ----------
Current liabilities:
Accounts payable and accrued
expenses $ 9,721,000 $ 8,757,000
Accrued income taxes 993,000 1,736,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts 560,000 122,000
---------- ----------
Total current liabilities 11,274,000 10,615,000
Long-term debt 4,430,000 8,132,000
Deferred income taxes 1,462,000 1,551,000
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 - 7,977,763
at March 31, 1996 and 7,853,469
at June 30, 1995 798,000 785,000
Additional paid-in capital 17,610,000 16,609,000
Retained earnings 38,478,000 33,290,000
Foreign currency translation
adjustment (988,000) (363,000)
---------- ----------
Total shareholders' equity 55,898,000 50,321,000
---------- ----------
Total liabilities and shareholders' equity $ 73,064,000 $ 70,619,000
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<TABLE>
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CHEMFAB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
Mar. 31, 1996 Apr. 2, 1995 Mar. 31, 1996 Apr. 2, 1995
------------- ------------ ------------- ------------
Net sales $ 21,814,000 $ 17,510,000 $ 61,165,000 $ 46,733,000
Cost of sales 14,477,000 11,878,000 40,987,000 31,983,000
---------- ---------- ---------- ----------
Gross profit 7,337,000 5,632,000 20,178,000 14,750,000
Selling, general and
administrative expenses 3,638,000 3,184,000 10,520,000 8,713,000
Research and development expenses 614,000 605,000 1,730,000 1,576,000
Other expense (income), net (15,000) (52,000) 15,000 (115,000)
Interest expense 229,000 134,000 568,000 147,000
Interest income (34,000) (66,000) (137,000) (248,000)
Results of equity operations 0 (21,000) 0 116,000
---------- ---------- ---------- ----------
Income before income taxes 2,905,000 1,848,000 7,482,000 4,561,000
Provision for income taxes 892,000 531,000 2,289,000 1,277,000
---------- ---------- ---------- ----------
Net income $ 2,013,000 $ 1,317,000 $ 5,193,000 $ 3,284,000
============ ============ ============ ============
Weighted average common and
common equivalent shares 8,250,000 8,001,000 8,191,000 7,965,000
========= ========= ========= =========
Earnings per common share $0.24 $0.16 $0.63 $0.41
===== ===== ===== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
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CHEMFAB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------
Mar. 31, Apr. 2,
1996 1995
Cash flows from operating activities: ---------- ----------
Net income $ 5,193,000 $ 3,284,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,818,000 2,322,000
Results of equity operations 0 116,000
Change in assets and liabilities:
Receivables (1,956,000) (874,000)
Costs and estimated earnings in excess
of billing on uncompleted contracts, net (16,000) (223,000)
Inventories (1,279,000) (1,891,000)
Prepaid expenses and other (197,000) (483,000)
Other assets long-term (345,000) (568,000)
Accounts payable and accrued expenses 1,645,000 1,711,000
Accrued income taxes (708,000) (344,000)
Deferred tax liabilities (89,000) (211,000)
Deferred tax assets (5,000) 0
----------- -----------
Total adjustments (132,000) (445,000)
----------- -----------
Net cash provided by operating activities 5,061,000 2,839,000
Cash flows from investing activities:
Purchase of Tygaflor 0 (16,344,000)
Capital expenditures (net) (2,106,000) (1,391,000)
----------- ------------
Net cash used in investing activities (2,106,000) (17,735,000)
Cash flows from financing activities:
(Repayment) Proceeds of long-term debt (3,513,000) 11,060,000
Proceeds from excercise of stock options 1,013,000 189,000
----------- ----------
Net cash (used in) provided by financing activities (2,500,000) 11,249,000
Effect of exchange rate changes on cash (50,000) 307,000
----------- ----------
Net increase (decrease) in cash & marketable securities 405,000 (3,340,000)
Cash and marketable securities at beginning of year 3,780,000 7,923,000
Cash and marketable securities at end of period $ 4,185,000 $ 4,583,000
============ ============
Interest paid $ 602,000 $ 143,000
Taxes paid $ 2,560,000 $ 1,592,000
</TABLE>
See accompanying Notes to 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 March 31, 1996 and June 30, 1995 and the consolidated statements of income
and cash flows for the three months and nine months ended March 31, 1996 and
April 2, 1995. 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, 1995 (file no. 0-12948).
Note 2 Inventories consist of the following:
Mar. 31, 1996 June 30,1995
------------- ------------
Finished Goods $ 4,452,000 $3,953,000
Work in Process 5,727,000 5,089,000
Raw Materials 4,005,000 4,068,000
---------- ---------
$14,184,000 $13,110,000
=========== ===========
Note 3 In connection with obtaining incentive grants from the Industrial
Development Authority of Ireland to subsidize certain 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. $646,000)
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 All reported share data has been adjusted to reflect the Company's
3 for 2 stock split in the form of a stock dividend in February 1996.
Note 5 Subsequent Event
On May 2, 1996, Chemfab Corporation's Board of Directors authorized the
repurchase, at management's discretion, of up to 400,000 shares of the
Company's common stock during any one fiscal year.
Shares repurchased under this authorization will be used to offset the
dilution caused by the Company's employee stock option plans.
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended March 31, 1996
Net Sales
The Company's consolidated net sales for the three months ended March 31,
1996, the third quarter of fiscal 1996, increased 25% to $21,814,000 from
$17,510,000 for the same period in the prior year. Revenue growth was
achieved in both the U.S. and European business operations and reflected the
positive impact of the Company's February 1995 acquisition of the Tygaflor
fluoropolymer products business in England. The impact of changes in foreign
currency exchange rates on reported revenue growth for the quarter was
immaterial.
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 9% to
$10,318,000 from $9,464,000 for the same period in the prior year. This sales
increase resulted principally from continued strength in the Company's
communications and protective systems product areas. It is expected that
revenues from sales of U.S. Sourced - Engineered Products for the fourth
quarter of fiscal 1996 will show continued growth compared to the same period
a year ago.
Engineered Products - Europe Sourced sales (which include product sales from
the Company's European manufacturing plants; principal geographic markets are
Europe, Africa and the Middle East) increased 37% to $8,162,000 from
$5,946,000 for the same period in the prior year. This increase resulted
from the February 1995 acquisition of the Tygaflor business, which has since
been combined with the Company's pre-existing United Kingdom subsidiary, and
from strong demand for the Company's industrial products in Europe. Had this
acquisition not occurred, it is estimated that European sourced revenues
would have increased by approximately 20% compared with the same period of the
prior year.
Architectural Product sales increased 59% to $3,334,000 from $2,100,000 for
the third quarter of the prior fiscal year. Architectural product sales
during the quarter were principally to the Company's Japanese joint venture
company, Nitto Chemfab Co., Ltd. Architectural product sales are expected to
remain strong through the end of the current fiscal year due primarily to
continued strong demand for such products in Japan.
Gross Profit Margins
Gross profit margins as a percentage of consolidated net sales reached 34% for
the quarter, up from 32% for the third quarter of the prior year. The
improvement is principally attributable to the leveraging effect of increased
revenues on a relatively stable overhead cost structure.
Selling, Administrative, Research and Development Expenses
Selling, general and administrative expenses increased 14% to $3,638,000 from
$3,184,000 for the third quarter of last year. Increased expenditures
resulted from the combined effects of the acquisition of the Tygaflor business
and a somewhat higher cost structure to support growth of the underlying
business. Absent the Tygaflor acquisition, it is estimated that third quarter
selling, general and administrative expenses would have increased
approximately 6% over the level of the previous year. The percentage of
selling, general and administrative expenses to total revenues decreased to
17% as compared to 18% for the third quarter of last year.
Research and development expenses totaled $614,000, an increase of 1% over
last year's level of $605,000. This level of spending, at approximately 3% of
consolidated sales, is consistent with recent actual and currently planned
levels of R&D spending for the Company.
Interest Expense (Income)
The Company had net interest expense of $195,000 for the three months ended
March 31, 1996, compared to net interest expense of $68,000 for the same
period in the prior year. This was the net result of (1) a full quarter of
interest charges this year on the Tygaflor acquisition bank debt (the Tygaflor
Debt) as compared to a half quarter of such charges last year, (2)
approximately $100,000 in breakage costs incurred to convert part of the fixed
interest rate portion of the Tygaflor Debt to a variable rate, and (3)
partially offset by a lower Tygaflor Debt principal balance this year due to
debt repayments since the date of acquisition.
Nine Months Ended March 31, 1996
Net Sales
The Company's consolidated net sales for the nine months ended March 31, 1996
increased 31% to $61,165,000 from $46,733,000 for the same period a year ago.
Revenue growth was achieved in both the U.S. and European business operations
and reflected the positive impact of the Company's February 1995 acquisition
of the Tygaflor fluoropolymer products business in England. The impact of
changes in foreign currency exchange rates on reported revenue growth for the
nine month period was immaterial.
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 5% to
$29,641,000 from $28,117,000 for the same period in the prior year. This
sales increase was the result of strength in the Company's communications,
food processing and protective systems markets, which was partially offset by
softness in the aerospace, lab test / healthcare and energy/environment
markets.
Engineered Products - Europe Sourced sales (which include product sales from
the Company's European manufacturing plants; principal geographic markets are
Europe, Africa and the Middle East) increased 62% to $21,678,000 from
$13,373,000 for the same period in the prior year. This increase was due
primarily to the February 1995 acquisition of the Tygaflor business which has
since been combined with the Company's pre-existing United Kingdom subsidiary.
Had this acquisition not occurred, it is estimated that European sourced
revenues would have increased by approximately 14% compared with the first
nine months of last year.
Architectural Product sales for the first nine months this year increased 88%
to $9,846,000 from $5,243,000 for the same period a year ago. Architectural
product sales during the current year period were principally to the
Company's Japanese joint venture company, Nitto Chemfab Co., Ltd.
Gross Profit Margins
Gross profit margins as a percentage of consolidated net sales reached 33% for
the current year period, up from 32% for the first nine months of the prior
year. The improvement is principally attributable to the leveraging effect of
increased revenues on a relatively stable overhead cost structure.
Selling, Administrative, Research and Development Expenses
Year-to-date selling, general and administrative expenses increased 21% to
$10,520,000 from $8,713,000 for the same period a year ago. Increased
expenditures resulted principally from the combined effects of the acquisition
of the Tygaflor business and a somewhat higher cost structure to support
growth of the underlying business. Absent the Tygaflor acquisition, it is
estimated that selling, general and administrative expenses would have
increased approximately 8% over the level of the prior period. The percentage
of selling, general and administrative expenses to total revenues decreased to
17% as compared to 19% for the first nine months of last year.
Research and development expenses totaled $1,730,000, an increase of 10% over
last year's level of $1,576,000. This level of spending, at approximately 3%
of consolidated sales, is consistent with recent actual and currently planned
levels of R&D spending for the Company.
Interest Expense (Income)
The Company had net interest expense of $431,000 for the nine month period
ended March 31, 1996, compared to net interest income of $101,000 for the same
period in the prior year. This change resulted principally from using
previously invested cash, and issuing long-term debt, to finance the
acquisition of the Tygaflor business in February, 1995.
Liquidity and Capital Resources
During the nine month period ended March 31, 1996, the Company generated
$5,061,000 of cash from operations. The Company invested $2,106,000 in
property, plant and equipment additions and repaid $3,513,000 of its long-term
debt. The Company also received $1,013,000 in cash proceeds and related tax
benefits from the exercise of stock options during this period.
Working capital increased to $28,193,000 from $25,501,000 at the end of fiscal
1995. As of March 31, 1996, the Company had approximately $6.5 million of
additional credit available under its domestic and international borrowing
facilities. Management believes that the combination of cash on hand, cash
expected to be generated from operations, and available credit facilities,
will be adequate to finance operations during calendar 1996 and to deal with
any liabilities or contingencies described in Note 3 to the 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
None.
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/ Laurence E. Richard
Laurence E. Richard
Controller
(Principal Accounting Officer)
Date: May 14, 1996
<TABLE> <S> <C>
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<NAME> LAURENCE E. RICHARD
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