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 December 31, 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 February 2, 1996
Common Stock, $ .10 par value 5,301,446 shares
CHEMFAB CORPORATION
INDEX
Part I - Financial Information: Page No.
--------
Item 1 -Financial Statements
Consolidated Balance Sheets at December 3 - 4
31, 1995 and June 30, 1995
Consolidated Statements of Income for 5
the Three Months and Six Months Ended
December 31, 1995 and January 1, 1995
Consolidated Statements of Cash Flows 6
for the Six Months Ended December 31, 1995
and January 1, 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:
Item 4 - Submission of Matters to a Vote of
Security Holders 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
Dec. 31, June 30,
1995 1995
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 3,800,000 $ 3,780,000
Receivables:
Trade 15,400,000 16,009,000
Retainages 149,000 148,000
Other 182,000 324,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,259,000 692,000
Inventories 13,773,000 13,110,000
Prepaid expenses, and other 718,000 901,000
Deferred tax assets 1,197,000 1,152,000
----------- -----------
Total current assets 36,478,000 36,116,000
Property, plant and equipment at cost 38,121,000 36,869,000
Less accumulated depreciation
and amortization 18,356,000 17,036,000
----------- -----------
19,765,000 19,833,000
Goodwill, net 11,520,000 12,260,000
Investments in joint ventures and
other assets 2,360,000 2,410,000
----------- -----------
Total assets $ 70,123,000 $ 70,619,000
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<TABLE>
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CHEMFAB CORPORATION
CONSOLIDATED BALANCE SHEETS
Dec. 31, June 30,
1995 1995
---------- ----------
(Unaudited)
Current liabilities:
Accounts payable and accrued
expenses $ 8,224,000 $ 8,757,000
Accrued income taxes 549,000 1,736,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts 249,000 122,000
----------- -----------
Total current liabilities 9,022,000 10,615,000
Long-term debt 5,668,000 8,132,000
Deferred income taxes 1,491,000 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 - 5,299,821
at December 31, 1995 and 5,235,646
at June 30, 1995 530,000 524,000
Additional paid-in capital 17,414,000 16,609,000
Retained earnings 36,731,000 33,551,000
Foreign currency translation
adjustment (733,000) (363,000)
----------- -----------
Total shareholders' equity 53,942,000 50,321,000
----------- -----------
Total liabilities and shareholders' equity $ 70,123,000 $ 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 Six Months Ended
------------------------------ --------------------------------
Dec. 31, 1995 Jan. 1, 1995 Dec. 31, 1995 Jan. 1, 1995
------------- ------------ ------------- ------------
Net sales $ 20,885,000 $ 15,501,000 $ 39,351,000 $ 29,223,000
Cost of sales 13,943,000 10,746,000 26,510,000 20,105,000
----------- ----------- ----------- -----------
Gross profit 6,942,000 4,755,000 12,841,000 9,118,000
Selling, general and
administrative expenses 3,621,000 2,753,000 6,882,000 5,529,000
Research and development expenses 571,000 489,000 1,116,000 971,000
Other expense (income), net 31,000 (57,000) 30,000 (63,000)
Interest expense 157,000 7,000 339,000 13,000
Interest income (59,000) (96,000) (103,000) (182,000)
Results of equity operations 0 114,000 0 137,000
----------- ----------- ----------- -----------
Income before income taxes 2,621,000 1,545,000 4,577,000 2,713,000
Provision for income taxes 800,000 401,000 1,397,000 746,000
----------- ----------- ----------- -----------
Net income $ 1,821,000 $ 1,144,000 $ 3,180,000 $ 1,967,000
=========== =========== =========== ===========
Weighted average common and
common equivalent shares 5,474,000 5,311,000 5,446,000 5,300,000
=========== =========== =========== ===========
Earnings per common share $ 0.33 $ 0.22 $ 0.58 $ 0.37
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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CHEMFAB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Six Months Ended
------------------------------
12/31/95 1/1/95
---------- ---------
Cash flows from operating activities:
Net income $ 3,180,000 $ 1,967,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,992,000 1,449,000
Results of equity operations 0 137,000
Change in assets and liabilities:
Receivables 594,000 532,000
Costs and estimated earnings in excess
of billing on uncompleted contracts, net (567,000) (152,000)
Inventories (748,000) (1,204,000)
Prepaid expenses and other 178,000 (744,000)
Other assets long-term (139,000) (296,000)
Accounts payable and accrued expenses (270,000) (340,000)
Accrued income taxes (1,169,000) (728,000)
Deferred tax liabilities (60,000) 0
Deferred tax assets (45,000) 0
----------- -----------
Total adjustments (234,000) (1,346,000)
----------- -----------
Net cash provided by operating activities 2,946,000 621,000
Cash flows from investing activities:
Capital expenditures (net) (1,399,000) (898,000)
----------- -----------
Net cash used in investing activities (1,399,000) (898,000)
Cash flows from financing activities:
Repayment of long-term debt (2,309,000) 0
Proceeds from excercise of stock options 812,000 180,000
----------- -----------
Net cash (used in) provided by financing activities (1,497,000) 180,000
Effect of exchange rate changes on cash (30,000) 74,000
----------- -----------
Net increase (decrease) in cash & marketable securities 20,000 (23,000)
Cash and marketable securities at beginning of year 3,780,000 7,923,000
Cash and marketable securities at end of period $ 3,800,000 $ 7,900,000
=========== ===========
Interest paid $ 169,000 $ 6,000
Taxes paid $ 2,317,000 $ 1,455,000
</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 December 31, 1995 and June 30, 1995 and the consolidated
statements of income and cash flows for the three months and six months
ended December 31, 1995 and January 1, 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:
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Dec. 31, 1995 June 30,1995
------------- ------------
Finished Goods $ 4,294,000 $ 3,953,000
Work in Process 4,769,000 5,089,000
Raw Materials 4,710,000 4,068,000
__________ __________
$13,773,000 $13,110,000
</TABLE>
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. $656,000)
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 Subsequent Event
On February 1, 1996, Chemfab Corporation's Board of Directors declared a
3 for 2 stock split of the Company's common stock.
The stock split will be effected in the form of a 50% stock dividend
and, upon completion of the transaction, the Company's shares
outstanding will increase to approximately 7,950,000 shares. The stock
split will be applicable to all shareholders of record at the close of
business on February 12, 1996, and the payable date will be February 22,
1996.
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Three Months Ended December 31, 1995
Net Sales
The Company's consolidated net sales for the three months ended December
31, 1995, the second quarter of fiscal 1996, increased 35% to
$20,885,000 from $15,501,000 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 based
in England. The impact of changes in foreign currency exchange rates on
reported revenue growth 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 10% to $10,420,000 from $9,466,000 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 both the aerospace
and energy and environment markets.
Engineered Products - Europe Sourced sales (which include product sales
from the Company's European manufacturing plants; principal geographic
markets are Western Europe, Africa and the Middle East) increased 81% to
$7,240,000 from $4,009,000 for the same period in the prior year. This
increase was due primarily to the February 1995 acquisition of the
Tyg aflor 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 10% for the quarter.
Architectural Product sales increased 59% to $3,225,000 from $2,026,000
for the second quarter of the prior fiscal year. Architectural products
were sold principally to the Company's Japanese joint venture company,
Nitto Chemfab Co., Ltd., during the second quarter of fiscal 1996.
Architectural product sales are expected to continue to be strong
through the end of the current fiscal year due primarily to continued
strong demand in the Japanese market.
Gross Profit Margins
Gross profit margins as a percentage of consolidated net sales were 33%,
up from 31% in the second quarter of the prior year. The increase in
gross margins 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 30% to $3,621,000
from $2,753,000 for the second quarter of fiscal 1996. Increased
expenditures were principally the result of the combined effects of the
acquisition of the Tygaflor business and a somewhat higher cost
structure to support the growth of the underlying business. Absent the
impact of the Tygaflor business, it is estimated that selling, general
and administrative expenses would have increased approximately 13% over
the level of the second quarter of last year. The percentage of
selling, general and administrative expenses to total revenues decreased
to 17% as compared to 18% for the second quarter of fiscal 1995.
Research and development expenses were $571,000, an increase of 17% from
last year's level of $489,000. This level of spending, at approximately
3% of total revenues, is consistent with recent, as well as planned,
levels of research and development spending.
Interest Expense (Income)
The Company had net interest expense of $98,000 for the three-month
period ended December 31, 1995, compared to net interest income of
$89,000 for the same period in the prior year. This change was
principally due to the use of previously invested cash and the issuance
of long-term debt to finance the acquisition of the Tygaflor business
in February 1995.
Six Months Ended December 31, 1995
Net Sales
The Company's consolidated net sales for the six months ended December
31, 1995, the first half of fiscal 1996, increased 35% to $39,351,000
from $29,223,000 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 based in England. The
impact of changes in foreign currency exchange rates on reported revenue
growth 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 4% to $19,323,000 from $18,653,000 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 and
energy and environment markets. It is expected that revenues from sales
of U.S. Sourced - Engineered Products for the second half 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 Western Europe, Africa and the Middle East) increased 82% to
$13,516,000 from $7,427,000 for the same period in the prior year. This
increase was due primarily to the February 1995 acquisition of the
Tygaflor business which has 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 10% compared with the first half of last year.
Architectural Product sales increased 107% to $6,512,000 from $3,143,000
for the first six months of the prior fiscal year. Architectural
products were principally sold to the Company's Japanese joint venture
company, Nitto Chemfab Co., Ltd., during the first half of fiscal 1996.
Architectural product sales are expected to continue to be strong
through the end of the current fiscal year due primarily to continued
strong demand in the Japanese market.
Gross Profit Margins
Gross profit margins as a percentage of consolidated net sales were 33%,
up from 31% in the first half of the prior year. The increase in gross
margins 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 24% to $6,882,000
from $5,529,000 for the second half of fiscal 1996. Increased
expenditures were principally the result of the combined effects of the
acquisition of the Tygaflor business and a somewhat higher cost
structure to support the growth of the underlying business. Absent the
impact of the Tygaflor business, it is estimated that selling, general
and administrative expenses would have increased approximately 6% over
the level of the first half of last year. The percentage of selling,
general and administrative expenses to total revenues, decreased to 17%
as compared to 19% for the first six months of fiscal 1995.
Research and development expenses were $1,116,000, an increase of 15%
from last year's level of $971,000. This level of spending, at
approximately 3% of total revenues, is consistent with recent, as well
as planned, levels of research and development spending.
Interest Expense (Income)
The Company had net interest expense of $236,000 for the six month
period ended December 31, 1995, compared to net interest income of
$169,000 for the same period in the prior year. This change was
principally due to the use of previously invested cash and the issuance
of long-term debt to finance the acquisition of the Tygaflor business
in February, 1995.
Liquidity and Capital Resources
During the six month period ended December 31, 1995, the Company
generated $2,946,000 of cash from operations. The Company invested
$1,399,000 in property, plant and equipment additions and repaid
$2,309,000 of its long-term debt. The Company also received $812,000 in
cash proceeds and related tax benefits from the exercise of stock
options during this period.
Working capital increased to $27,456,000 as compared to $25,501,000 at
the end of fiscal 1995. As of December 31, 1995, the Company had
approximately $6.6 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 4 - Submission of Matters to a Vote of Security Holders
On October 26, 1995, the Company held its Annual Meeting of
Shareholders. At the meeting, Shareholders voted to elect directors of
the Corporation; to increase the number of shares of common stock
authorized for issuance under the Corporation's Amended and Restated
1991 Stock Option Plan from 700,000 to 1,000,000; and to ratify the
selection of Ernst & Young LLP as independent auditors of the
Corporation for the year ended June 30, 1996.
The vote tally for these actions is a follows:
Directors For Against Abstain
-------------------- --------- ------- -------
Paul M. Cook 4,206,728 309,350 0
Warren C. Cook 4,206,718 309,360 0
Robert E. McGill III 4,206,728 309,350 0
James E. McGrath 4,206,728 309,350 0
Duane C. Montopoli 4,206,718 309,360 0
Nicholas Pappas 4,206,728 309,350 0
Stock Option Amendment 2,624,184 591,632 224,957
Ernst & Young 4,467,121 1,104 47,853
ITEM 6 - Exhibits and Reports on Form 8-K
6(a) Exhibits
10 (a)(12) First Amendment to Amended and Restated
1991 Stock Option Plan.
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/ 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: February 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000725813
<NAME> LAURENCE E. RICHARD
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<PERIOD-END> DEC-31-1995
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0
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<SALES> 39351000
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</TABLE>
CHEMFAB CORPORATION
FIRST AMENDMENT
TO
AMENDED AND RESTATED 1991 STOCK OPTION PLAN
This FIRST AMENDMENT (this "Amendment") to the Amended and
Restated 1991 Stock Option Plan (the "Plan") of Chemfab
Corporation, a Delaware corporation (the "Company"), is being
adopted by the Board of Directors of the Company at a meeting
held on August 3, 1995, subject to ratification and approval by
the stockholders of the Company as set forth in Section 3 below.
1.Amendment of Section 5 of the Plan. Section 5 of the Plan is
hereby amended by replacing the number "700,000" in the first
line thereof with the number "1,000,000".
2.Ratification, etc. Except to the extent amended by this
Amendment, all of the terms, provisions and conditions set forth
in the Plan are hereby ratified and confirmed and remain in full
force and effect. The Plan and this Amendment shall be read and
construed together as a single instrument.
3.Effective Date. This Amendment shall not become effective
until and unless ratified and approved by the stockholders of the
Company on or before August 3, 1996. In the event that the
stockholders of the Company shall not ratify and approve this
Amendment, the Plan, as previously adopted and approved, shall
remain in full force and effect.
