SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-10740
AMSTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3382652
(State of incorporation) (I.R.S. Employer Identification No.)
Long Wharf Maritime Center
555 Long Wharf Drive, Suite 12
New Haven, CT 06511
(Address of principal executive offices)
(203) 777-2274
(Registrant's telephone number)
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
As of May 8, 1995 a total of 1,000 shares of common stock of the
Company was outstanding. All of the common stock is owned by
ESSTAR Incorporated.
<PAGE>
PART 1. FINANCIAL INFORMATION
AMSTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars)
QUARTER ENDED MARCH 31,
1995 1994
Net sales $93,851 $78,759
Costs of products sold 62,968 54,335
Gross profit 30,883 24,424
Selling, general and admin-
istrative expenses 17,151 14,834
Amortization of goodwill
and other intangibles 1,033 1,033
Operating income 12,699 8,557
Interest expense, net (6,095) (5,925)
Other expense, net (65) (191)
Income before provision for
income taxes 6,539 2,441
Provision for income taxes:
Federal 2,202 878
State 1,047 664
3,249 1,542
Net income $ 3,290 $ 899
See accompanying notes
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<PAGE> AMSTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
March 31, December 31,
1995 1994
ASSETS
Current Assets:
Cash and cash equivalents $ 3,135 $ 2,065
Accounts receivable 60,618 61,694
Receivable from ESSTAR Incorporated 7,402 5,194
Inventories 55,526 47,155
Other 627 783
Total current assets 127,308 116,891
Property, plant and equipment, net 71,742 71,051
Goodwill and other intangibles, net 94,027 95,178
Other assets 1,009 1,075
Total Assets $294,086 $284,195
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ 45,100 $10,000
Accounts payable 20,627 21,312
Accrued interest 2,777 8,331
Accrued payroll and benefits 7,415 13,607
Accrued income taxes 851 1,973
Deferred income taxes 3,396 3,349
Accrued distributor rebates 2,351 4,975
Other accrued expenses 6,568 7,275
Total current liabilities 89,085 70,822
Long-term debt 195,300 195,300
Deferred income taxes 2,790 4,200
Other noncurrent liabilities 21,659 21,911
Stockholder's Equity (Deficit):
Common stock $.01 par value,
1000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 64,814 64,814
Retained earnings 28,197 34,907
Notes and accrued interest
receivable from related party (107,759) (107,759)
Total stockholder's equity(deficit) (14,748) (8,038)
Total Liabilities and Stockholder's
Equity (Deficit) $294,086 $284,195
See accompanying notes
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<PAGE> AMSTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
Quarter Ended March 31,
1995 1994
Cash flows from operating activities:
Net income $ 3,290 $ 899
Adjustments to reconcile net income
to net cash used for operations:
Depreciation 2,198 1,882
Deferred income taxes (1,403) (903)
Amortization of goodwill and
other intangibles 1,033 1,033
5,118 2,911
Change in operating assets and liabilities,
net of accounting changes:
Receivables (1,132) (1,154)
Inventories (8,371) (5,364)
Other current assets 156 (258)
Other assets 184 214
Accounts payable (685) 1,908
Accrued income taxes (1,122) (543)
Other current liabilities (15,037) (11,221)
Other noncurrent liabilities (252) (273)
Net cash used for operations (21,141) (13,780)
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (2,889) (3,084)
Dividend paid (10,000) --
Net cash used for investing activities (12,889) (3,084)
Cash flows from financing activities:
Increase in revolving credit
agreement borrowings 35,100 14,373
Net cash provided by financing
activities 35,100 14,373
Increase (Decrease) in cash and cash
equivalents 1,070 (2,491)
Cash and cash equivalents, beginning
of period 2,065 2,554
Cash and cash equivalents, end of period $ 3,135 $ 63
See accompanying notes
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein
have been prepared by Amstar Corporation ("Amstar" or the "Company"),
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. The information reported
reflects all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary to a
fair statement of the results for the periods reported. The results
of operations for the three month period ended March 31, 1995, are
not necessarily indicative of the results to be expected for the full
year. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
2. On June 30, 1989, the holders of all then outstanding shares of
common stock of Amstar exchanged (the "Amstar Exchange") such shares
for shares of common stock of ESSTAR Holdings Inc., a Delaware
corporation, now known as ESSTAR Incorporated ("Esstar").
Simultaneously with the Amstar Exchange, the holders of all then
outstanding shares of common stock of EI Holdings Corp., a Delaware
corporation ("EI Holdings"), exchanged such shares for shares of
Esstar common stock (together with the Amstar Exchange, the
"Combination"). As a result of the Combination, Amstar and EI
Holdings each became direct, wholly owned subsidiaries of Esstar.
The Company holds an investment in certain securities of ESSEX
Holdings, Inc. ("Essex") formerly known as ESSEX Industries Inc., a
subsidiary of EI Holdings. (See "Long-Term Investments" on page 8.)
3. Operations include Milwaukee Electric Tool Corporation
("METCO"), which produces and sells heavy-duty portable electric
power tools and accessories.
4. Inventories, which are stated at the lower of cost, under the
last-in, first-out (LIFO) method, or market, consisted of the
following (thousands of dollars):
March 31, December 31,
1995 1994
Raw materials and parts $26,961 $24,672
In-process 1,411 1,423
Finished products 27,154 21,060
$55,526 $47,155
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<PAGE>
5. The Company adopted FAS 109 effective January 1, 1993.
Accordingly, deferred income taxes reflect the tax consequences on
future years of differences between the tax and financial reporting
bases of assets and liabilities.
Under the terms of a tax sharing arrangement with Esstar, Amstar
provides for income taxes as if it files its own consolidated
return. The provision for income taxes for the quarters ended
March 31, 1995 and 1994 were as follows (thousands of dollars):
Quarter Ended March 31,
1995 1994
Current:
Federal $ 3,625 $1,801
State 1,027 644
4,652 2,445
Deferred:
Federal (1,423) (923)
State 20 20
(1,403) (903)
Total Provision $ 3,249 $1,542
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Quarter Ended March 31, 1995 and 1994
Sales
Net sales were $93.9 million during the quarter ended March
31, 1995, an increase of $15.1 million, or 19.2%, over the prior
year period. The increase is due to a 13.2% increase in unit sales
of tools and accessories and a 5.3% increase in the average tool
unit and accessory selling price.
Income from Operations
Operating income was $12.7 million during the quarter ended
March 31, 1995, compared with $8.6 million during the comparable
1994 quarter. The greater operating income was the result of
higher gross profit, partially offset by increased selling, general
and administrative expenses during the current quarter.
During the quarter ended March 31, 1995, gross profit was $6.5
million greater than the comparable prior year quarter. Of this
increase, $4.7 million was attributed to greater sales volume.
Gross margin increased during the current quarter to 32.9% of net
sales from 31.0% during the prior year quarter, resulting in an
additional $1.8 million in gross profit.
Selling, general and administrative expenses, including
corporate expenses, increased $2.3 million during the quarter ended
March 31, 1995, in comparison to the comparable prior year period.
These expenses increased primarily as a result of greater costs
incurred relating to selling and marketing programs. However, this
represents a decrease of 0.6%, as a percentage of sales.
Other Items
Interest expense, net, which primarily reflects interest on
the 11.375% Senior Subordinated Notes (the "Notes"), increased by
$0.2 million, primarily as a result of greater average outstanding
balances on the Company's revolving credit facility.
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<PAGE>
Financial Condition
Working Capital
Exclusive of the current portion of long-term debt, the
Company's working capital was $83.3 million on March 31, 1995,
compared with $56.1 million on December 31, 1994. The increase is
primarily due to an increase in inventories of $8.4 million, and
decreases in accrued interest and accrued payroll and benefits of
$5.6 and $6.2 million, respectively. Increased sales have
necessitated higher inventory levels. Accrued interest decreased
as a result of the timing of the semiannual interest payment on the
Notes, which was paid on February 15, 1995. Accrued payroll and
benefits decreased primarily as result of the payment of METCO's
year-end profit sharing benefits. All other working capital
changes, are normal period-to-period variations.
Long-Term Investments
On June 30, 1989, in connection with the Combination, the
Company made the Intercompany Loan to Essex (the "Intercompany
Loan"). The Intercompany Loan was evidenced by $152.7 million
aggregate principal amount of Senior Subordinated Discount Notes
due 1997 (the "Discount Notes") and $100.0 million aggregate
principal amount of 14% Subordinated Debentures due 1997 (the
"Debentures"). Interest on the Debentures was payable
semi-annually, on August 1 and February 1 of each year. Essex paid
the Company $1.2 million, due on August 1, 1989, and $7.0 million
due on each of February 1, 1990, August 1, 1990, February 1, 1991
and August 1, 1991, of interest in cash on the Debentures, as
required under the terms thereof. On December 31, 1991, the
Discount Note Indenture was amended to provide that, among other
things, at the option of Essex, the date from and after which cash
interest must be paid on the Discount Notes may be extended to the
maturity of the Discount Notes, February 1, 1997. Pursuant to a
Debt Exchange Agreement dated as of December 31, 1991, between
Amstar and Essex, Amstar exchanged $100.0 million aggregate
principal amount of the Debentures, plus the right to accrued
interest thereon, and $25.0 million accreted value of the Discount
Notes, for $86.6 million of the Notes (the "Debt Swap"). As of
December 31, 1993, the Company held approximately $107.8 million
accreted value of Discount Notes. Subsequent to December 31, 1993,
Essex informed the Company that as of December 31, 1993, Essex
wrote off the remaining balance of its goodwill of $82.3 million.
Based on this information, the Company determined that, as of
December 31, 1993, the ultimate realization of a portion of the
Discount Notes may be in doubt. Accordingly, the Company has
-8-
<PAGE>
classified the accreted value of the Discount Notes as an offset to
stockholder's equity in the consolidated balance sheets as of
December 31, 1993, and thereafter, and has reserved in full against
the accretion of interest on the Discount Notes subsequent to
December 31, 1993. As a result, the Company has not included
Essex's financial statements or a discussion of the results of
operations and financial condition of Essex.
Leverage, Credit Availability and Liquidity
Subsequent to December 31, 1993, Essex informed the Company
that Essex wrote off the remaining balance of its goodwill (See
"Long-Term Investments" on page 8.) Accordingly, as of December
31, 1993, and thereafter, the Company classified the Discount Notes
as an offset to stockholder's equity in the consolidated financial
statements, resulting in a reduction in net equity of $107.8
million. Exclusive of this reduction, the total debt to equity
ratio was 2.6 to 1.0 on March 31, 1995, as compared to 2.1 to 1.0
on December 31, 1994.
As of March 31, 1995, the Company's debt included $195.3
million principal amount of the Notes (excluding $3.5 million
principal amount of Notes beneficially owned by the Company that
are held pursuant to an escrow agreement to secure certain
obligations of the Company).
On December 31, 1991, METCO entered into a credit agreement
(the "Credit Agreement") with Heller Financial, Inc. The Credit
Agreement, as amended, provides for a primary revolving loan
facility of $45.0 million (up to $15.0 million of which may be used
for letters of credit), and a secondary revolving loan facility of
$15.0 million (collectively the "Credit Facility"). In addition,
the Credit Agreement provides for a primary letter of credit
facility of $15.0 million.
Borrowings under the primary revolving facility are limited to
90% of eligible accounts receivable of METCO, as defined, 65% of
eligible inventory, as defined, and the primary letter of credit
borrowing base of $15.0 million, as defined. Borrowings under the
Credit Facility bear interest at either the London Interbank
Offered Rate (LIBOR), plus 3.0% to 3.75%, or the prime rate plus
1.75% to 2.5%, with borrowings under the secondary revolving loan
facility bearing the higher interest rates. There is a 2.0% per
annum fee on all outstanding letters of credit and a 0.5% per annum
fee on the unused portion of the Credit Facility. In addition, if
METCO's operating cash flow, as defined, does not meet certain
minimum ratios for a specified period of time, these interest rates
will increase by 1.0% on the Credit Facility borrowings and by 0.5%
on the outstanding letters of credit. As of April 30, 1995,
METCO's operating cash flow met those ratios.
-9-
The loans made and letters of credit issued pursuant to the
Credit Agreement are secured by substantially all the real and
personal property of METCO, the capital stock of METCO and 65% of
the capital stock of METCO's subsidiaries. Additionally, the
Company has guaranteed the indebtedness of METCO under the Credit
Agreement.
The Credit Agreement expires on December 31, 1995 and all
obligations outstanding thereunder become due and payable at that
time. As such, outstanding obligations under the Credit agreement
of $45.1 million have been reflected as a current obligation on the
balance sheet of the Company as of March 31, 1995.
On March 31, 1995, there was $45.0 million outstanding under
the primary revolving facility, including $7.5 million of letters
of credit, and $7.6 million outstanding under the secondary
revolving loan facility. Additionally, there was $15.0 million of
letters of credit outstanding under the primary letter of credit
facility. As of the same date, there was $7.4 million of available
credit remaining under the terms of the Credit Agreement.
As of May 4, 1995, there was $45.0 million outstanding under
the primary revolving facility, including $7.5 million of letters
of credit, and $8.3 million outstanding under the secondary
revolving loan facility. Additionally, there was $15.0 million of
letters of credit outstanding under the primary letter of credit
facility. There was $6.7 million of availability remaining under
the terms of the primary revolving facility as of the same date.
The indenture for the Notes and the Credit Agreement contain
various covenants that restrict the business activities of the
Company. As of April 30, 1995, Amstar was in compliance with the
covenants in those agreements. The Company anticipates that the
Company and its subsidiaries will remain in compliance with all
such covenants through the expiration of the Credit Agreement on
December 31, 1995.
Management believes that funds generated by the operations of
the Company combined with its credit availability are adequate to
meet its working capital, capital expenditure, and other funding
requirements.
Debt and preferred stock agreements of Esstar require that the
Company apply the proceeds of certain asset sales to reduce the
Company's indebtedness. These agreements may require Amstar to
repurchase a portion of the outstanding Notes as well as repay
other borrowings which may be outstanding.
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<PAGE>
The Company is in the process of reviewing various
alternatives to its present capital structure, including the
potential refinancing of indebtedness outstanding under the Notes.
The availability of refinancing, if pursued, would be subject to a
number of factors, including market conditions, economic conditions
and the Company's operating performance. While the Company has
experienced positive trends in its fiscal 1994 operating results
and in its first quarter 1995 operating results, there can be no
assurance as to the Company's operating performance during the
remainder of 1995 or as to the other conditions necessary to
consummate a refinancing. Therefore, there can be no assurance
that a refinancing or other transaction, if pursued, would occur.
Esstar has advised the Company that it is reviewing potential
alternatives with respect to its consolidated financial and
corporate structure.
Dividends
On March 27, 1995, the Company declared, and subsequently paid
on March 29, 1995, a dividend in the aggregate amount of $10.0
million on its issued and outstanding shares of capital stock, all
of which are owned by Esstar.
Cuban Claim
The Company holds a claim for compensation for operations of
a predecessor corporation seized by Cuba in 1960. The amount of
the claim, certified at approximately $81.0 million in 1969 by the
Foreign Claims Settlement Commission of the United States, plus
interest accrued in accordance with the terms of the certification,
currently is up to approximately $587.0 million. There is no
assurance that the Company will ever receive compensation in
settlement of the claim, and no value is recorded on the Company's
financial statements for this claim. The receipt of consideration
in satisfaction of such claim will depend on a number of
uncertainties, including economic and political conditions in Cuba
and the policies of the United States government.
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<PAGE>
Part II. OTHER INFORMATION
None
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.
AMSTAR CORPORATION
(Registrant)
Dated: May 13, 1995 By/s/ Jeffrey A. Mereschuk Principal
Jeffrey A. Mereschuk Financial
Vice President, Officer
Treasurer and Chief
Financial Officer
Dated: May 13, 1995 By/s/ John D. Speridakos Principal
John D. Speridakos Accounting
Controller Officer
-12-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,135
<SECURITIES> 0
<RECEIVABLES> 60,618
<ALLOWANCES> 0
<INVENTORY> 55,526
<CURRENT-ASSETS> 127,308
<PP&E> 71,742
<DEPRECIATION> 2,198
<TOTAL-ASSETS> 294,086
<CURRENT-LIABILITIES> 89,085
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (14,748)
<TOTAL-LIABILITY-AND-EQUITY> 294,086
<SALES> 93,851
<TOTAL-REVENUES> 93,851
<CGS> 62,968
<TOTAL-COSTS> 62,968
<OTHER-EXPENSES> 18,184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,095
<INCOME-PRETAX> 6,539
<INCOME-TAX> 3,249
<INCOME-CONTINUING> 3,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,290
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
