<PAGE>
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 Quarter Ended June 30, 1995 Commission File Number 1-10665
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U. S. INTEC, INC
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(Exact name of registrant as specified in its charter)
Texas 74-2118350
_______________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1212 Brai Drive, Port Arthur, Texas 77643
_______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(409) 724-7024
_______________________________________________________________________________
(Registrant's telephone number, including area code)
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 the
filing requirements for at least 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:
Number of shares outstanding
Class as of August 9, 1995
----------------------- ----------------------------
Common Stock (par value 3,040,911
$ .02 per share)
<PAGE>
INDEX
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PAGE
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PART I. Financial Information
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Item 1. Financial Statements
Consolidated Statements of Earnings - Three months
ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Earnings - Six months
ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets - June 30, 1995 and
December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - Six months
ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 7
PART II. Other Information. . . . . . . . . . . . . . . . . . . . . . . 8
---------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
------------------------------
U.S. INTEC, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended June 30
1995 1994
------------ ------------
Sales:
Continuing operations $ 29,923,061 $ 25,068,370
Discontinued operations 382,703 257,687
------------ ------------
30,305,764 25,326,057
Cost of Sales:
Continuing operations 25,134,027 18,727,318
Discontinued operations 762,022 546,457
Writedown of assets - discontinued operations 2,148,598
------------ -----------
28,044,647 19,273,775
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GROSS PROFIT 2,261,117 6,052,282
Selling, general and administrative expenses 5,566,219 4,901,865
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EARNINGS (LOSS) FROM OPERATIONS (3,305,102) 1,150,417
Other income 81,218 88,013
Interest expense 855,087 269,323
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EARNINGS (LOSS) BEFORE INCOME TAXES (4,078,971) 969,107
Provision (benefit) from income taxes (1,674,378) 393,605
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NET EARNINGS (LOSS) $ (2,404,593) $ 575,502
============ ===========
NET EARNINGS (LOSS) PER SHARE $ (.79) $ .19
============ ===========
Average shares outstanding during the period 3,040,911 3,000,911
============ ===========
See notes to consolidated financial statements.
1
<PAGE>
U.S. INTEC, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Six Months Ended June 30
1995 1994
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Sales:
Continuing operations $ 54,953,826 $ 41,763,925
Discontinued operations 614,372 278,282
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55,568,198 42,042,207
Cost of Sales:
Continuing operations 45,067,961 31,303,461
Discontinued operations 1,434,064 702,186
Writedown of assets - discontinued operations 2,148,598
------------ -----------
48,650,623 32,005,647
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GROSS PROFIT 6,917,575 10,036,560
Selling, general and administrative expenses 10,865,949 8,951,527
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (3,948,374) 1,085,033
Other income 166,629 145,560
Interest expense 1,467,233 548,480
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EARNINGS (LOSS) BEFORE INCOME TAXES (5,248,978) 682,113
Provision (benefit) from income taxes (2,152,081) 279,666
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NET EARNINGS (LOSS) $ (3,096,897) $ 402,447
============ ===========
NET EARNINGS (LOSS) PER SHARE $ (1.02) $ .13
============ ===========
Average shares outstanding during the period 3,040,690 2,997,458
============ ===========
See notes to consolidated financial statements.
2
<PAGE>
U. S. INTEC, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1995 Dec. 31,1994
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(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 161,195 $ 867,701
Accounts receivable - trade (net of
allowances of $592,945 in 1995 and
$515,461 in 1994) 20,605,564 13,281,014
Other receivables 2,628,549 1,443,593
Inventories - raw materials 9,105,675 8,555,546
Inventories - finished goods 8,793,149 4,232,325
Prepaid expenses 302,967 408,874
Due from affiliate 723,681 395,181
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TOTAL CURRENT ASSETS 42,320,780 29,184,234
PROPERTY, PLANT AND EQUIPMENT
Land 1,699,595 1,441,712
Buildings and leasehold improvements 14,028,103 9,743,369
Manufacturing equipment 48,291,076 32,557,939
Furniture and fixtures 1,680,384 1,841,032
Automotive equipment 576,987 576,987
Construction in progress 39,198 22,512,932
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66,315,343 68,673,971
Less accumulated depreciation (25,216,017) (25,470,696)
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41,099,326 43,203,275
OTHER ASSETS
Note receivable from officer 2,803,000 2,803,000
Deferred charges and other 369,505 368,230
Goodwill and intangibles (net of
accumulated amortization of $1,755,818
in 1995 and $1,581,314 in 1994) 2,219,307 2,348,359
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TOTAL OTHER ASSETS 5,391,812 5,519,589
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$ 88,811,918 $ 77,907,098
============= =============
See notes to consolidated financial statements.
3
<PAGE>
U. S. INTEC, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, 1995 Dec. 31, 1994
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(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable and bank overdrafts $ 19,575,218 $ 15,589,471
Current portion of long-term debt 1,321,811 867,299
Other accrued liabilities 4,246,043 2,031,189
Current portion of reserve for
warranty and other claims 1,400,000 1,422,003
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TOTAL CURRENT LIABILITIES 26,543,072 19,909,962
LONG-TERM DEBT 35,912,634 28,181,726
DEFERRED INCOME TAXES 673,221 1,273,578
RESERVE FOR WARRANTY AND OTHER CLAIMS 5,919,720 5,751,397
SHAREHOLDERS' EQUITY
Preferred stock ($1 par value, 1,000,000
shares authorized, none issued)
Common stock ($.02 par value, 10,000,000
shares authorized, 3,040,911 shares issued
in 1995 and 3,030,911 shares issued in 1994) 60,819 60,619
Additional paid-in capital 7,437,660 7,368,127
Retained earnings 12,264,792 15,361,689
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TOTAL SHAREHOLDERS' EQUITY 19,763,271 22,790,435
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$ 88,811,918 $ 77,907,098
============= =============
See notes to consolidated financial statements.
4
<PAGE>
U.S. INTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
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1995 1994
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OPERATING ACTIVITIES
Net earnings (loss) $ (3,096,897) $ 402,447
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation 1,520,374 1,042,292
Amortization 174,504 177,243
Writedown of assets - discontinued
operations 2,148,598 0
Provision for losses on accounts receivable 77,484 43,255
Benefit from deferred taxes (600,357) 0
Other (46,727) 213,598
Changes in operating assets and liabilities:
Accounts receivable (7,402,034) (6,939,793)
Due from affiliate (328,500) (1,214,796)
Inventories (5,110,953) (792,276)
Prepaid expenses 105,907 (161,790)
Other receivables (1,184,956) 409,662
Accounts payable 3,985,747 5,573,121
Accrued expenses 2,214,854 1,250,696
Reserve for warranty and other claims 146,320 127,597
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NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (7,396,636) 131,256
INVESTING ACTIVITIES
Purchase of property, plant & equipment (1,598,488) (9,778,018)
Other 33,465 3,823
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NET CASH USED IN INVESTING ACTIVITIES (1,565,023) (9,774,195)
FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term borrowings 11,721,662 12,139,748
Principal payments on revolving line
of credit and long-term borrowing (3,514,509) (2,849,806)
Proceeds from exercise of stock options 48,000 103,750
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NET CASH PROVIDED BY FINANCING ACTIVITIES 8,255,153 9,393,692
<PAGE>
DECREASE IN CASH AND CASH EQUIVALENTS (706,506) (249,247)
Cash and cash equivalents at beginning of
period $ 867,701 $ 666,496
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 161,195 $ 417,249
============ ===========
See notes to consolidated financial statements.
5
<PAGE>
U. S. INTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
in accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain amounts presented for 1994 have
been reclassified to conform with the presentation used in 1995. These
reclassifications have no effect on net earnings. In the opinion of
management, all adjustments (consisting only of normal accruals) considered
necessary for the fair presentation of the financial statements have been
included. For further information, refer to the financial statements and
footnotes included in the Annual Report on Form 10-K of U. S. Intec, Inc.
(the "Company") for the fiscal year ended December 31, 1994.
NOTE B - CONTINGENCIES
There are pending against the Company lawsuits and claims arising in the
regular course of business. In the opinion of management, recoveries, if
any, by plaintiffs or claimants that may result from litigation and claims
which have been made or threatened will not be material in relation to the
financial position of the Company.
NOTE C - DISCONTINUED OPERATIONS
During the second quarter of 1995, the Company made the decision to
discontinue production of a modified specialty product which it has produced
since the first quarter of 1994. The decision was the result of projected
operating losses attributable to weak demand for this product and higher than
anticipated production costs. The charge to second quarter earnings of
$2,149,000 reflects a writedown of related assets, primarily manufacturing
equipment, to estimated net realizable value. The Company will continue to
produce these products until October 1995 under the terms of an
exclusive manufacturing agreement. The Company expects further operating losses
in the third and fourth quarters of 1995 associated with the phase-out of
product production. The amount of these operating losses is dependent upon
production levels, but is expected to range from $500,000 to $1,000,000.
6
<PAGE>
PART I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three months ended June 30, 1994 and 1995. The operating results relating
to the production of a modified specialty product are presented as discontinued
operations. The Company made the decision during the second quarter of 1995
to discontinue the production of this product as a result of projected
operating losses attributable to weak demand for the product and higher
than anticipated production costs. The charge to second quarter earnings of
$2,149,000 reflects a writedown of related assets, primarily manufacturing
equipment, to estimated net realizable value. The Company will continue to
produce products associated with the discontinued operations until October 1995
under the terms of an exclusive manufacturing agreement. The Company expects
further operating losses in the third and fourth quarters of 1995 associated
with the phase-out of product production. The amount of these operating losses
is dependent upon production levels, but is expected to range from $500,000
to $1,000,000.
Sales from continuing operations increased $4,855,000 to $29,923,000 in 1995,
up from $25,068,000 in 1994. The increase relates primarily to the addition of
a shingle product line and to increased relabeled product sales, which are
products manufactured by outside suppliers.
Gross profit from continuing operations decreased $1,552,000 from $6,341,000,
or 25.3% of sales, in 1994 to $4,789,000, or 16.0% of sales, in 1995. The
decrease in profit margin percentage associated with continuing operations is
due principally to the new Houston shingle manufacturing facility. In February
1995, the Company began production at it's new Houston facility, and although
production levels continue to increase each month, production levels during
the quarter were low as a percentage of capacity. As a result, fixed
manufacturing costs were spread over a small production base, which reduced
gross profit associated with the Houston operations. The Company expects this
downward pressure on earnings to continue until production volumes increase
significantly or until the Company is able to move most of the Houston
production capacity over to it's new modified laminate product, which is
expected to be a gradual process that will be completed after 1995.
Selling, general and administrative expenses increased from $4,902,000, or
19.4% of sales, in 1994 to $5,566,000, or 18.4% of sales, in 1995. The
increase in expense primarily relates to the increase in sales volume.
Interest expense increased $586,000 from $269,000 in 1994 to $855,000 in 1995.
The increase is the result of increased debt associated with the Houston
facility and to increased inventory levels. With the start of production at the
<PAGE>
new Houston facility in February 1995, the Company ceased capitalizing
construction period interest costs associated with the acquisition and build
out of the facility.
The net loss for the second quarter of 1995 was $2,405,000, or $.79 per share,
compared with a net earnings of $576,000, or $.19 per share, in the second
quarter of 1994.
Six months ended June 30, 1994 and 1995. Operating results associated with
discontinued operations are presented for the six month period in the same
manner as discussed in the three month comparison.
Sales from continuing operations increased $13,190,000 in 1995 to $54,954,000
from $41,764,000 in 1994. The increase relates primarily to the addition of a
shingle product line, to increased roll sales associated with aggressive spring
promotional programs, and to increased relabeled product sales.
7
<PAGE>
Gross profit from continuing operations decreased $574,000 from $10,460,000,
or 25.0% of sales, in 1994 to $9,886,000, or 18.0% of sales, in 1995. Gross
profit decreased for the reasons noted in the three month comparison.
Selling, general and administrative expenses increased from $8,952,000, or
21.3% of sales, in 1994 to $10,866,000, or 19.6% of sales, in 1995. The
increase in expense primarily relates to the increase in sales volume.
Interest expense increased $919,000 from $548,000 in 1994 to $1,467,000 in
1995 for the reasons noted in the three month comparison.
The net loss for the first six months of 1995 was $3,097,000, or $1.02 per
share, as compared with net earnings of $402,000, or $.13 per share, for
the same period in 1994.
Liquidity and Capital Resources. Working capital as of June 30, 1995 was
$15,778,000 compared with $9,274,000 at December 31, 1994, an increase of
$6,504,000. Accounts receivable increased $7,325,000 as a result of
increased second quarter sales. Inventory increased $5,111,000 in
anticipation of increased seasonal demand and as a result of the start-up of
production in Houston. Accounts payable increased $3,986,000 as a result
of the increased production volumes and inventory levels. Debt increased
$8,185,000 primarily as a result of increased accounts receivable.
Due to the cash requirements of the Houston facility and to losses associated
with the discontinued operations, the Company expects to require borrowings in
excess of its projected borrowing base and to not meet its tangible net worth
loan covenants. As a result, the Company plans to restructure its revolving
credit facility during the third or fourth quarter of 1995. The restructuring
will utilize real property and certain manufacturing equipment as collateral to
secure long-term financing.
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 6 not applicable
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. INTEC, INC.
DATE: August 11, 1995 BY: s/s J. Roane Ruddy
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J. Roane Ruddy
Chief Financial Officer
DATE: August 11, 1995 BY: s/s Danny J. Adair
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Danny J. Adair
Chief Executive Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 161,195
<SECURITIES> 0
<RECEIVABLES> 21,198,509
<ALLOWANCES> 592,945
<INVENTORY> 17,898,824
<CURRENT-ASSETS> 42,320,780
<PP&E> 66,315,343
<DEPRECIATION> 25,216,017
<TOTAL-ASSETS> 88,811,918
<CURRENT-LIABILITIES> 26,543,072
<BONDS> 0
<COMMON> 60,819
0
0
<OTHER-SE> 19,702,452
<TOTAL-LIABILITY-AND-EQUITY> 88,811,918
<SALES> 55,568,198
<TOTAL-REVENUES> 55,568,198
<CGS> 48,650,623
<TOTAL-COSTS> 59,516,572
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,467,233
<INCOME-PRETAX> (5,248,978)
<INCOME-TAX> (2,152,081)
<INCOME-CONTINUING> (3,096,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,096,897)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
