SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 26, 1999
Commission File Number 1-12767
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 October 29, 1999
Common Stock, $0.10 par value 7,685,756 Shares
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CHEMFAB CORPORATION
INDEX
Page No.
Part I - Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheets at September 3
26, 1999 and June 30, 1999
Consolidated Statements of Income for 5
the Three Months Ended September 26,
1999 and September 27, 1998
Consolidated Statements of Cash Flows 6
for the Three Months Ended September
26, 1999 and September 27, 1998
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of 10
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Financial Condition and Results of Operations
---------------------------------------------
Signatures 14
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CHEMFAB CORPORATION
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CONSOLIDATED BALANCE SHEETS
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(in thousands except par value amounts)
September 26, June 30,
1999 1999
(Unaudited)
Current assets:
Cash and cash equivalents $ 6,450 $ 4,783
Receivables:
Trade 24,374 25,020
Other 62 92
Inventories 21,691 19,649
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,593 958
Prepaid expenses, and other current assets 3,379 3,266
Deferred tax assets 1,248 1,248
--------- ----------
Total current assets 58,797 55,016
Property, plant and equipment, at cost 60,868 59,418
Less: accumulated depreciation (30,671) (29,466)
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Property, plant and equipment, net 30,197 29,952
Goodwill, net 20,544 19,297
Other assets 2,159 2,103
---------- -----------
Total assets $ 111,697 $ 106,368
========== ===========
See accompanying Notes to Consolidated Financial Statements. (page 1 of 2)
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CHEMFAB CORPORATION
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CONSOLIDATED BALANCE SHEETS
===============================================================================
(in thousands except par value amounts)
===============================================================================
September 26, June 30,
1999 1999
(Unaudited)
Current liabilities:
Accounts payable and accrued
Expenses $ 15,935 $ 14,974
Short term borrowings 12,820 11,028
Accrued income taxes 2,440 1,209
Billings in excess of costs and
estimated earnings on
uncompleted contracts 123 250
----------- ----------
Total current liabilities 31,318 27,461
----------- ----------
Deferred tax liabilities 2,051 2,051
Shareholders' equity:
Preferred stock, par value $0.50:
authorized - 1,000 shares,
none issued - -
Common stock, par value $0.10:
authorized - 15,000 shares;
issued 8,852 shares at September 26, 1999 885 883
and 8,828 shares at June 30, 1999
Additional paid-in capital 27,081 26,829
Retained earnings 72,122 69,972
Treasury stock, at cost
(1,196 shares at September 26, 1999
and 1,091 at June 30, 1999) (20,800) (19,012)
Accumulated other comprehensive income (960) (1,816)
------------ ---------
Total shareholders' equity 78,328 76,856
------------ ---------
Total liabilities and shareholders' $ 111,697 $ 106,368
============ =========
See accompanying Notes to Consolidated Financial Statements. (page 2 of 2)
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CHEMFAB CORPORATION
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CONSOLIDATED STATEMENTS OF INCOME
===============================================================================
(Unaudited)
(in thousands except par value amount)
===============================================================================
Three Months Ended
================================
Sept. 26, 1999 Sept. 27, 1998
Net sales $ 26,038 $ 25,233
Cost of sales 16,722 16,796
-------------- --------------
Gross profit 9,316 8,437
Selling, general and
administrative expenses 5,301 4,254
Research and development 712 860
Other expense (income) 153 (124)
Interest expense (income), net 79 (103)
-------------- ---------------
Income before income taxes 3,071 3,550
Provision for income taxes 921 1,157
-------------- ----------------
Net income $ 2,150 $ 2,393
=============== ================
Earnings per share:
- Basic $0.28 $0.31
- Diluted $0.27 $0.30
Weighted average common share outstanding:
- Basic 7,702 7,816
- Diluted 7,864 8,092
See accompanying Notes to Consolidated Financial Statements.
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CHEMFAB CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
(in thousands)
-------------------------------------------------------------------------------
Three Months Ended
-----------------------
Sept. 26, Sept. 27,
1999 1998
-----------------------
Cash flows from operating activities:
Net income $ 2,150 $ 2,393
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation 1,069 937
Amortization 540 401
Special Charges, non cash portion (630) 0
Change in working capital:
Receivables 1,261 2,619
Inventories (1,357) (1,324)
Costs and estimated earnings in excess
of billings on uncompleted contracts, net (763) (531)
Prepaid expenses and other current assets (229) (251)
Other assets (513) (531)
Accounts payable and accrued expenses 979 (37)
Accrued income taxes 1,171 588
Deferred tax assets and liabilities 0 (1)
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Total adjustments 1,528 1,870
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Net cash provided by operations 3,678 4,263
Cash flows from investing activities:
Acquisitions, net of cash acquired (1,236) (6,123)
Capital expenditures (net) (1,122) (4,933)
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Net cash used in investing activities (2,358) (11,056)
Cash flows from financing activities:
Short-term borrowings (repayments), net 1,739 0
Proceeds from exercise of stock options 254 108
Purchase of treasury shares (1,788) 0
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Effect of exchange rate changes on cash 142 54
---------- -----------
Net increase/(decrease) in cash and cash equivalents 1,667 (6,631)
Cash and cash equivalents at beginning of year 4,783 11,099
Cash and cash equivalents at end of period $ 6,450 $ 4,468
========= ===========
Interest paid $ 158 $ 0
Income taxes paid $ 52 $ 677
See accompanying Notes to Consolidated Financial Statements.
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CHEMFAB CORPORATION
Notes To Consolidated Financial Statements.
September 26, 1999
(Unaudited)
Note 1 - Significant Accounting Policies
Principles of Consolidation:
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 September 26, 1999 and June 30, 1999 and the
consolidated statements of income and cash flows for the three months
ended September 26, 1999 and September 27, 1998. 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, 1999 (file no.
1-12767).
Note 2 - Acquisitions
On July 16, 1999, the Company completed the purchase of the capital
stock of Holding Christian Cases S.A. (HCC) for $1,236,000 in net
cash, including associated transaction costs. The purchase agreement
also requires the payment of approximately $100,000 in each of the
following two years for a non-compete agreement. The acquisition was
accounted for using the purchase method of accounting. Prior to the
acquisition, the main business of HCC and its subsidiaries was in the
fabrication and distribution of PTFE composite products in France
principally purchased from Chemfab. This business is expected to
continue. The acquisition of HCC resulted in the recognition of
goodwill of approximately $858,000 which will be amortized over 15
years.
In June 1999, the Company entered into an agreement to acquire
UroQuest Medical Corporation (Uroquest). The Company is scheduled,
subject to the completion of standard transaction contingencies, to
consummate the acquisition of UroQuest in the second quarter of fiscal
2000. (See Liquidity and Capital Resources, page 11.)
Note 3 - Debt:
In September 1999, the Company has amended its $20,000,000 revolving
credit agreement with two commercial banks, one based in the U.S. and
the other in Ireland. Under the terms of the agreement, the Company
has available a $20,000,000 unsecured credit facility until December
31, 1999. The loan agreement requires that any balance outstanding
will at December 31, 1999, convert into a four-year loan with a
five-year amortization schedule and a lump sum payment due December
31, 2003. In connection with the planned acquisition of UroQuest, the
Company is currently negotiating to replace its' existing credit
facility.
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Note 4 - Inventories:
Inventories consisted of the following:
Sept. 26, 1999 June 30,1999
(in thousands)
Finished Goods $ 7,152 7,541
Work in Process 7,519 6,160
Raw Materials 7,020 5,948
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$21,691 $19,649
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Note 5 - Comprehensive Income:
The components of comprehensive income were as follows:
Sept. 26, 1999 Sept. 27, 1998
(in thousands)
Net income $ 2,150 $ 2,393
Foreign currency 856 523
translation adjustments
------- -------
Comprehensive income $ 3,006 $ 2,916
======= =======
Note 6 - Segment Reporting:
The Company adopted Statement of Financial Accounting Standards No.
131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and
Related Information" in fiscal 1999. SFAS No. 131 establishes
standards for the way the Company reports information about its
operating segments. The quarterly information required by SFAS No. 131
is presented below:
Americas European Other Consolidation
Business Business
Group Group
Three months ended Sept. 26, 1999
Revenue from
external customers $15,284 $ 7,794 $2,960 $ 26,038
Intersegment sales 729 176 0 905
Operating income 1,039 1,039 194 456 1,689
Identifiable assets 59,699 47,981 4,343 112,023
Three months ended Sept. 27, 1998
Revenue from
external customers $16,148 $ 6,429 $2,656 $ 25,233
Intersegment sales 983 273 0 1,256
Operating income 1,364 1,364 316 297 1,977
Identifiable assets 55,505 34,570 4,402 94,477
<PAGE>
The following is the reconciliation from Segment Reporting to Consolidated
Results:
September 26, 1999 September 27, 1998
Revenue
Total external revenues
for reportable segments $23,078 $22,577
Intersegment revenues for
reportable segments 905 1,256
Other 2,960 2,656
Elimination of Intersegment
Revenue (905) (905) (1,256)
Total consolidated revenues $26,038 $25,233
Operating profit
Total profit for
reportable segment $1,689 $1,977
Interest charged on
capital employed 1,470 1,470
Net interest (expense) income (88) 103
Income before income taxes $3,071 $3,550
Note 7 - Special Charge:
The Company booked a special pre-tax charge in fiscal 1999 amounting to
$3,986,000 for streamlining its European manufacturing operations, consolidating
its acquired fabrication distribution in Germany and changes to a marketing
agreement. The plan anticipates the redundancy of approximately 45 employees,
principally in manufacturing. As of September 26, 1999 five employees had been
involuntarily terminated. The remaining accrual balance as of September 26, 1999
was as follows: Accrued Amounts Restructuring Charge Utilized Charge
Employee termination and severance costs 1,213 24 1,189
Equipment write-downs 1,326 1,001 325
Contract cancellations 373 210 163
Professional services 99 99
Lease termination costs 183 25 158
Marketing agreement costs 792 792 -
----- ----- -----
3,986 2,052 1,934
===== ===== =====
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Note 8 - Commitments and Contingencies:
Various lawsuits and claims are pending or have been asserted by and
against the Company, including matters previously disclosed by the
Company in its Form 10-K for the year ended June 30, 1999. 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 that the disposition of its current legal
proceedings, to the extent not covered by insurance, will not have a
material adverse effect on the Company's financial condition and
results of operations.
<PAGE>
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended September 26, 1999
Net Sales
The Company's consolidated net sales for the three months ended September 26,
1999, the first quarter of fiscal 2000, increased 3.2% to $26,038,000 from
$25,233,000 in the same quarter last year. Shipments of the Company's Engineered
Products worldwide increased 14% over the year earlier period while shipments of
architectural products decreased 35%. Measured in constant foreign currency
rates, consolidated revenue would have increased by 3.5%.
The Americas Business segment sales (which include all Engineered Product sales
from the Company's U.S. manufacturing plants into principal geographic markets
in the Americas and Architectural Product sales worldwide) decreased 5% to
$15,284,000 from $16,148,000 for the same quarter last year. This sales decrease
resulted from low Architectural Product sales in the quarter which declined 35%
compared with the same period last year. The Architectural decline was offset by
10% growth in Engineered Product sales. It is expected that revenues from sales
of Engineered Products and Architectural Products, particularly into the
Americas, will remain relatively solid through the end of the fiscal year.
The European Business segment sales (which include all Engineered Product sales
from the Company's European manufacturing plants; principal geographic markets
are Europe and Africa) increased 21% to $7,794,000 from $6,429,000 in the same
quarter last year. Acquisitions completed last year contributed $1,833,000 of
the increased revenue in the European Business segment. Sales growth for the
balance of the European Business segment is expected to continue at
approximately the same rate for the remainder of the fiscal year.
Sales in our other Business segment, which includes all Engineered Product sales
to the Far East and sales from the Company's High Performance Elastomer Division
(HPE) combined, increased 11% to $2,960,000 from $2,656,000 in the same quarter
last year. This increase is due to a strengthening of the economy in certain
Asian countries and to expansion of HPE's domestic and European markets. Revenue
growth in the Asia Pacific Business segment and the High Performance Division is
expected to continue at approximately this same rate through the remainder of
the fiscal year.
Gross Profit Margins
Gross profit margins as a percentage of consolidated net sales increased to
35.8% for the quarter, up from 33.4% for the first quarter of last year. The
increase is due to a greater proportion of high margin products and lower
Architectural sales, and the incremental gross profits from our European
fabrication acquisitions.
<PAGE>
Selling, Administrative, Research and Development Expenses
Selling, general and administrative expenses increased 25% to $5,301,000 from
$4,254,000 in the same quarter last year. Increased selling, general and
administration expenditures resulted from additional expenses relating to the
acquisitions completed in the last fiscal year, as well as normal increases in
salaries and other costs. Selling, general and administrative expenses as a
percentage of sales were 20%, up from the first quarter of last year. Research
and development expenses were $712,000 compared to last year's level of
$860,000. 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, Net
The Company had net interest expense of $79,000 for the quarter compared to net
interest income of $103,000 for the same quarter last year, largely as a result
of a lower average cash balance and borrowings made to fund acquisitions.
Special Charge
The Company booked a special pre-tax charge in fiscal 1999 amounting to
$3,986,000 for streamlining its European manufacturing operations, consolidating
its acquired fabrication distribution in Germany and changes to a marketing
agreement. The streamlining of the European operations and the consolidation of
the German businesses are on plan. The plan anticipates the redundancy of
approximately 45 employees, principally in manufacturing. As of September 26,
1999 five employees had been involuntarily terminated. The short-term cash
requirements will be funded from the company's operations, cash on hand and
available line of credit, and it is not expected that the Company's liquidity
will be adversely affected. Period costs related to the restructuring activities
were $125,000.
Liquidity and Capital Resources
During the quarter ended September 26, 1999, the Company generated $3,678,000 of
cash from operations, which was down from the same quarter of the prior year.
During this same period, the Company invested $1,122,000 in property, plant and
equipment additions and expended $1,788,000 for the acquisition of treasury
shares. The Company also received $254,000 in cash proceeds and related tax
benefits from the exercise of stock options during this period.
Working capital decreased to $27,479,000 from $27,555,000 at the end of fiscal
1999. As of September 26, 1999, the Company had an aggregated line of credit of
approximately $20,000,000. As of September 26, 1999, the Company had
approximately $4,369,000 available under this facility. 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
fiscal 2000 and to deal with any liabilities or contingencies described in Note
7 to the Consolidated Financial Statements. The Company is scheduled, subject to
the completion of standard transaction contingencies, to consummate the
implementation of a new $60,000,000 unsecured credit loan facility during the
second quarter of fiscal 2000. The new facility will be used to fund the
UroQuest acquisition and to replace the existing credit loan facility.
<PAGE>
Year 2000
In 1993, the Company began its program to prepare for the Year 2000 issues.
The Company has made steady progress since then in addressing this computer
programming challenge. The Company is continuing to analyze operations to
determine and implement the procedures necessary to ensure timely and effective
Year 2000 compliance. The Company has generally completed the identification and
assessment phase of its Year 2000 program. The Company believes that all of its
major information management and operations systems are currently Year 2000
compliant.
The Company has spent approximately $1,525,000 to become Year 2000 capable,
and does not expect any additional material out-of pocket expenses to become Y2K
compliant.
The Company has also identified and been in communication with its key
third party vendors and suppliers, both to determine the extent to which the
Company might be vulnerable to such parties' failure to resolve their own Year
2000 issues, and to plan for the satisfactory resolution of any such
contingencies. Where practicable, the Company will continue to assess and
attempt to mitigate its risks with respect to the failure of its suppliers to be
Year 2000 ready. The Company has surveyed its key customers, and where
appropriate, made plans in light of their state of Year 2000 readiness. One
contingency plan, for example, provides for the Company to continue to serve its
customers through redundant manual order-entry and other systems.
The Company has had continuing discussions with its key vendors and
customers about contingency plans for operational, systems and infrastructure
failures resulting from the Year 2000 problem.
While no assurance can be given, the Company does not anticipate at this
time that the Year 2000 problem will have a material adverse impact on the
Company's business, financial condition or results of operation. In the event of
a business interruption as a result of a Year 2000 problem at one facility, the
Company plans to shift necessary production to the extent possible to utilize
capacity at other sites. Similarly, most of the Company's vendors and customers
have more than one production site from, or to, which orders can be fulfilled or
sent. In the worst case, however, there could be a temporary shutdown of
production and an associated slippage or even loss of revenues (to the extent
not made up in subsequent time periods).
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended. Investors are cautioned
that forward-looking statements are inherently uncertain. Actual performance and
results may differ materially from those projected or suggested due to certain
risks and uncertainties, including the integration, transition, and where
appropriate, consolidation of the UroQuest transaction and other acquisitions
already completed. Additional information concerning certain risks and
uncertainties that could cause actual results to differ materially from those
projected or suggested is contained in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999 which has been filed with the Securities
and Exchange Commission. The forward-looking statements contained herein
represent the Company's judgment as of the date of this filing, and the Company
cautions readers not to place undue reliance on such statements.
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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/ John W. Verbicky
President, Chief Executive Officer and Director
By:/S/Laurence E. Richard
Laurence E. Richard
Vice President - Finance, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By:/S/ Hilary A. Arwine
Hilary A. Arwine
Corporate Controller
(Principal Accounting Officer)
Date: July 5, 2000
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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:
John W. Verbicky
President, Chief Executive Officer and Director
By:
Laurence E. Richard
Vice President - Finance, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By:
Hilary A. Arwine
Corporate Controller
(Principal Accounting Officer)
Date: July 5, 20000
