<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 28, 1994
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 0-10023
------------------------
SUDBURY, INC.
-------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
DELAWARE 34-1546292
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30100 CHAGRIN BOULEVARD, SUITE 203
CLEVELAND, OHIO 44124
- -----------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (216) 464-7026
-------------
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 ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES __X__ NO _____ (See below)
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: COMMON SHARES,
$0.01 PAR VALUE AS OF MARCH 31, 1994: 9,868,746 -------------
- ------------------------------------- ---------
Total Pages - 19 Exhibit Index - Page 16
<PAGE> 2
INDEX
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
PART I - FINANCIAL INFORMATION PAGE
----
<CAPTION>
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets
as of February 28, 1994 and May 31, 1993 3 - 4
Condensed Consolidated Statements of
Operations for the three-month periods
ended February 28, 1994 and February 28,
1993 5
Condensed Consolidated Statements of
Operations for the nine-month periods
ended February 28, 1994 and February 28,
1993 6
Condensed Consolidated Statements of
Cash Flows for the nine-month periods
ended February 28, 1994 and February 28,
1993 7
Notes to Condensed Consolidated
Financial Statements 8 - 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12 - 14
</TABLE>
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
-2-
<PAGE> 3
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
SUDBURY, INC. AND SUBSIDIARIES
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1994 1993
(UNAUDITED) (AUDITED)
------------ ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,884 $ 5,284
Accounts receivable, net of allowance 36,885 32,902
Inventories 20,807 19,853
Net assets of businesses held for sale - 500
Prepaid expenses and other 2,252 4,183
-------- --------
TOTAL CURRENT ASSETS 61,828 62,722
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 2,191 2,222
Buildings 15,560 15,421
Machinery and equipment 38,224 33,830
-------- --------
55,975 51,473
Less accumulated depreciation 10,021 4,991
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 45,954 46,482
OTHER ASSETS
Notes Receivable 521 2,770
Net assets of businesses held for sale 2,000 2,000
Intangible pension asset 758 758
Other assets 1,382 1,724
-------- --------
TOTAL OTHER ASSETS 4,661 7,252
-------- --------
$112,443 $116,456
======== ========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
- 3 -
<PAGE> 4
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - (CONTINUED)
SUDBURY, INC. AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1994 1993
(UNAUDITED) (AUDITED)
----------- ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $ 17,927 $ 19,665
Accrued compensation and employee benefits 11,554 11,712
Income taxes 692 609
Environmental reserves 1,408 1,550
Other accrued expenses 7,479 9,817
Current maturities of long-term debt 2,444 3,088
-------- --------
TOTAL CURRENT LIABILITIES 41,504 46,441
LONG-TERM DEBT 39,070 45,984
OTHER LONG-TERM LIABILITIES 7,688 6,673
DEFERRED INCOME TAXES 550 550
STOCKHOLDERS' EQUITY
Common Stock - par value $0.01 per
share; authorized 20,000,000 shares;
10,185,033 (10,000,000 at May 31,
1993) shares issuable and deemed
outstanding 102 100
Capital in excess of par value 19,060 13,900
Retained earnings 4,469 2,808
-------- --------
TOTAL STOCKHOLDERS' EQUITY 23,631 16,808
-------- --------
$112,443 $116,456
======== ========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
- 4 -
<PAGE> 5
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
FEBRUARY 28, FEBRUARY 28,
(In thousands, except per share amounts) 1994 1993
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net sales:
Ongoing operations $ 60,765 $ 52,242
Businesses held for sale - 2,046
-------- --------
Total 60,765 54,288
Costs and expenses:
Costs of products sold:
Ongoing operations 51,727 45,466
Businesses held for sale - 1,687
-------- --------
Total 51,727 47,153
Selling and administrative expenses:
Ongoing operations 5,774 5,283
Businesses held for sale - 374
-------- --------
Total 5,774 5,657
Special charges 5,956 146
-------- --------
OPERATING (LOSS) INCOME (2,692) 1,332
Interest expense - net (884) (1,280)
Settlement of preconfirmation liabilities 846 -
Other income (expense) 90 (167)
-------- --------
Loss before income taxes (2,640) (115)
Income tax expense 13 90
-------- --------
NET LOSS $ (2,653) $ (205)
======== ========
Net loss per share:
Primary $ (.21) $ (.02)
======== ========
Fully diluted $ (.21) $ (.02)
======== ========
Common shares and common share equivalents:
Primary 12,483 11,756
======== ========
Fully diluted 12,510 11,758
======== ========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
- 5 -
<PAGE> 6
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
FEBRUARY 28, || FEBRUARY 28,
(In thousands, except per share amounts) 1994 || 1993
(UNAUDITED) || (UNAUDITED)
----------- || -----------
<S> <C> || <C>
Net sales: ||
Ongoing operations $175,793 || $159,597
Businesses held for sale 315 || 49,606
-------- || --------
Total 176,108 || 209,203
||
Costs and expenses: ||
Costs of products sold: ||
Ongoing operations 150,438 || 136,596
Businesses held for sale 151 || 42,565
-------- || --------
Total 150,589 || 179,161
||
Selling and administrative expenses: ||
Ongoing operations 16,726 || 16,015
Businesses held for sale 164 || 5,881
-------- || --------
Total 16,890 || 21,896
||
Special charges 5,956 || 1,735
-------- || --------
||
OPERATING INCOME 2,673 || 6,411
||
Interest expense - net (Contractual interest for ||
the period ended February 28, 1993, $4,870) (2,789) || (4,370)
Settlement of preconfirmation liabilities 846 || -
Other income (expense) 529 || (532)
-------- || --------
||
Income before income taxes 1,259 || 1,509
Income tax (benefit) expense (402) || 250
-------- || --------
||
INCOME BEFORE EXTRAORDINARY GAIN 1,661 || 1,259
||
Extraordinary gain - forgiveness of ||
pre-petition liabilities - || 78,805
-------- || --------
||
NET INCOME $ 1,661 || $ 80,064
======== || ========
||
Net income per share: ||
Primary $ .14 ||
======== ||
Fully diluted $ .13 ||
======== ||
Common shares and common share equivalents: ||
Primary 12,246 ||
======== ||
Fully diluted 12,502 ||
======== ||
<FN>
See notes to condensed consolidated financial statements. As discussed
in Note B, the amounts presented for the nine months ended February 28, 1993 are
not comparable to those for the nine months ended February 28, 1994, and as such
a solid double line has been placed between the amounts. Also, net income per
share amounts for the nine months ended February 28, 1993 are not presented as
they are irrelevant as a result of the reorganization.
</TABLE>
- 6 -
<PAGE> 7
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
FEBRUARY 28, || FEBRUARY 28,
(Dollars in thousands) 1994 || 1993
(UNAUDITED) || (UNAUDITED)
----------- || -----------
<S> <C> || <C>
OPERATING ACTIVITIES: ||
Income before extraordinary gain $ 1,661 || $ 1,259
Items included not affecting cash: ||
Depreciation and amortization: ||
Ongoing operations 6,170 || 5,945
Businesses held for sale 47 || 1,962
Special charges 5,956 || -
Settlement of preconfirmation liabilities (846) || -
Other 164 || (56)
Changes in operating assets and liabilities: ||
Ongoing operations (7,271) || (6,186)
Businesses held for sale (28) || (3,402)
-------- || --------
NET CASH PROVIDED BY (USED IN) OPERATING ||
ACTIVITIES 5,853 || (478)
||
INVESTING ACTIVITIES: ||
Purchases of property, plant and equipment: ||
Ongoing operations (4,787) || (2,235)
Businesses held for sale - || (199)
Proceeds from collection of notes receivable 2,249 || -
Proceeds from sale of businesses 666 || 34,391
Contingent payments to former owners ||
of acquired businesses (188) || (678)
Proceeds from sale of property, plant, ||
equipment and other - net 141 || 35
-------- || --------
NET CASH (USED IN) PROVIDED BY INVESTING ||
ACTIVITIES (1,919) || 31,314
||
FINANCING ACTIVITIES: ||
Borrowings, refinancings and repayments: ||
Short and long-term borrowings 175,406 || 564
Reductions of debt: ||
Ongoing operations (183,252) || (38,849)
Businesses held for sale - || (468)
Common stock issued 512 || -
-------- || --------
NET CASH USED IN FINANCING ACTIVITIES (7,334) || (38,753)
-------- || --------
||
DECREASE IN CASH (3,400) || (7,917)
||
Cash at beginning of period 5,284 || 12,386
-------- || --------
||
CASH AT END OF PERIOD $ 1,884 || $ 4,469
======== || ========
<FN>
See notes to consolidated financial statements. As discussed in Note B,
the amounts presented for the nine months ended February 28, 1993 are not
comparable to those for the nine month period ended February 28, 1994, and as
such a solid double line has been placed between the amounts.
</TABLE>
- 7 -
<PAGE> 8
PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine month periods ended February 28, 1994 are not necessarily indicative of
the results that may be expected for the fiscal year ending May 31, 1994. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended May 31, 1993. Certain 1993 amounts have been restated to conform
with the 1994 presentation.
NOTE B -- PROCEEDINGS UNDER CHAPTER 11 AND RESTRUCTURING
On January 10, 1992, Sudbury, Inc. (the "Company") filed a petition
(relative only to Sudbury, Inc. and not to its subsidiaries) under Chapter 11
of the United States Bankruptcy Code. The Chapter 11 filing was made to
implement an agreement in principle which had been reached with the Company's
major creditor groups regarding a restructuring plan and the related sales of a
substantial number of its business units.
The Company's amended Plan of Reorganization (the "Plan") was confirmed
by the Bankruptcy Court by Order dated August 18, 1992 and became effective on
September 1, 1992 (the "Effective Date"). Distributions under the Plan
commenced on October 15, 1992.
The Plan implemented a restructuring of the Company by providing for a
new amortization schedule for the repayment of the indebtedness owed to its
secured lender banks and a significant reduction of the Company's indebtedness
to subordinated debtholders and certain other unsecured creditors.
In order to repay the indebtedness owed to the secured lender banks as
provided by the Plan, the Company implemented a business plan with an asset
disposition program involving the sale of a substantial number of its
subsidiaries. Through February 28, 1994 the asset disposition program
generated aggregate net cash proceeds of approximately $37.6 million.
- 8 -
<PAGE> 9
PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE B -- PROCEEDINGS UNDER CHAPTER 11 AND RESTRUCTURING - CONTINUED
In February 1993 the Company proceeded with a plan to refinance its
existing bank debt and on May 28, 1993 the Company successfully completed the
refinancing by obtaining a three-year asset-based $48,000,000 Credit Facility
("Credit Facility") with a new secured lender group. This new Credit Facility
allowed the Company to retain six core businesses and cease the previous asset
sale process except for the Company's 35% investment in General Products
Delaware Corporation which is still held for sale.
As a result of the Company's emergence from Chapter 11, certain amounts
presented on the statements of operations for the nine month period ended
February 28, 1993, principally for interest expense, and on the statements of
cash flows for the nine months ended February 28, 1993 are not comparable to
the current period and therefore a solid double line has been placed between
the amounts. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended May 31, 1993.
NOTE C -- CASH
As of February 28, 1994 and May 31, 1993, $1,656,000 and $6,339,000 of
the cash balances, respectively, consisted of funds restricted as to their use.
$1,656,000 and $1,503,000 of the restricted amounts, respectively, reflected
funds set aside to pay prospective property and casualty insurance claims at
the Company's captive insurance company. The balance of restricted amounts at
May 31, 1993 was used to reduce bank debt subsequent to the end of the fiscal
year.
NOTE D -- INVENTORIES
<TABLE>
<CAPTION>
The components of inventories are summarized as follows (in thousands):
February 28, May 31,
1994 1993
----------- -------
<S> <C> <C>
Raw materials and supplies $ 8,205 $ 7,619
Work in process 8,972 8,275
Finished products 3,856 4,202
------- -------
Total at FIFO 21,033 20,096
Less excess of FIFO cost over LIFO values 226 243
------- -------
$20,807 $19,853
======= =======
</TABLE>
- 9 -
<PAGE> 10
PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE E -- SPECIAL CHARGES
Special charges of $5,956,000 for the three and nine month periods
ended February 28, 1994 relate to accruals recorded in connection with the
achievement of certain performance targets established in the January 1992
employment agreement ("Agreement") with Jacques R. Sardas, Chairman, President
and Chief Executive Officer of the Company. The Agreement was confirmed as
part of the Plan of Reorganization. The special charges include a noncash
charge of $4,650,000 which represents the estimated value of 653,595 stock
options granted to Mr. Sardas on September 1, 1992 which are exercisable in
increments once the fair value of the Company exceeds value targets ranging
from $15,000,000 to $35,000,000. The Company has determined, and an appraisal
by an investment banking firm has confirmed, that performance targets
established in the Agreement have been met as of February 28, 1994 and
therefore the options are exercisable. The remaining $1,306,000 of the special
charges represents expense associated with the estimated cash bonus payable to
Mr. Sardas at the end of the Agreement in January 1996. The charge for the
cash bonus is based on 5% of the net fair value of the Company in excess of
$35,000,000 at the end of the Agreement and is being amortized over the term of
the Agreement.
Special charges of $146,000 and $1,735,000 for the three and nine month
periods ended February 28, 1993 related to consulting and other expenses
incurred under the Company's restructuring program.
NOTE F -- SETTLEMENT OF PRECONFIRMATION LIABILITIES
Two lawsuits which had been pending in United States Bankruptcy Court
against the Company and several of its former officers and directors were
settled in February 1994. The lawsuits related to events which occurred prior
to the Company's entry into and emergence from bankruptcy. Under its Plan of
Reorganization, the Company had retained certain indemnification obligations
with respect to the defendants, former officers, or directors of the Company.
These obligations were limited to $2 million. The lawsuits were settled using
$765,000 of funds which had been previously held in escrow, $616,000 of the
Company's funds, and funds contributed by co-defendants. The Company also
resolved an insurance-related bankruptcy claim in February 1994. As a result
of these two settlements, the Company recognized an $846,000 benefit as such
settlements were for less than the amount reserved for such claims.
NOTE G -- CONTINGENCIES
The Company is party to a number of lawsuits and claims arising out of
the conduct of its business, including those relating to commercial
transactions, product liability and environmental, safety and health matters.
- 10 -
<PAGE> 11
PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE G -- CONTINGENCIES -- CONTINUED
As a general matter, the confirmation of the Plan by the Bankruptcy
Court precludes plaintiffs in pending litigation from prosecuting their claims
against the Company. To the extent any such plaintiffs filed claims in the
Company's bankruptcy proceeding, such claims will be treated in such bankruptcy
proceeding. Any distributions on account of such claims will be made in the
form of securities of the Company rather than in cash.
The Company has been named as a potentially responsible party for
cleanup costs by the United States Environmental Protection Agency with respect
to several sites. The Company has initiated corrective action and/or
preventative environmental projects to ensure the safe and lawful operation of
its facilities. All operating locations acquired by the Company since 1984
operate in a variety of locations and industries where environmental situations
could exist based on past practices. For known environmental situations, the
Company, with the assistance of environmental engineers and consultants, has
accrued amounts to cover estimated future environmental expenditures. There
could exist, however, current environmental situations for which the future
cost is not known or accrued at February 28, 1994.
While the ultimate result of the above contingencies cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
- 11 -
<PAGE> 12
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS - THREE MONTHS ENDED FEBRUARY 28, 1994 COMPARED TO THREE
MONTHS ENDED FEBRUARY 28, 1993
SALES. The Company's net sales from ongoing operations for the third
quarter of fiscal 1994 increased by 16% to $60.8 million from $52.2 million in
the prior year's quarter. Sales to the automotive industry through the
Company's Wagner Castings Company ("Wagner") and Industrial Powder Coatings,
Inc. ("IPC") subsidiaries increased by $5.6 million (18%) over the prior year
period as a result of $1.5 million in net new business and $4.1 million in
increased volumes of existing products. Sales through the Company's Iowa Mold
Tooling ("IMT") subsidiary increased by $2.7 million over the prior year period
as a result of increases in its order backlog due to improvement in several of
its construction-related markets.
Sales of businesses held for sale were eliminated to zero from $2
million recorded in the prior year period due to the sale of 15 of the
Company's businesses since the beginning of fiscal 1993.
NET lOSS. Net loss for the third quarter of fiscal 1994 was $2.7
million compared to $.2 million in the prior year period. The current period
loss was due to special charges of $6.0 million recorded as a result of
expenses recognized in connection with the January 1992 employment agreement
with the Company's Chairman, President, and Chief Executive Officer. These
noncash charges include expenses associated with stock options and a cash bonus
which are subject to the achievement of certain performance targets described
in "Note E -- Special Charges." The stock options have become exercisable as
a result of the determination by the Company, which was confirmed by an
appraisal performed by an investment banking firm, that certain performance
targets in the employment agreement have been met. Because these options are
currently exercisable, no future charges will be required to account for these
options. Expense for Mr. Sardas' cash bonus, which is payable in January 1996,
is being accrued over the period of the employment agreement and may vary with
changes in the market value of the Company's Common Stock. Other variations
between the current period net loss compared to the prior period are discussed
below.
Operating income of ongoing operations before special charges improved
by $1.8 million, from $1.5 million to $3.3 million principally as a result of
the increased sales discussed previously. Operating margins were negatively
impacted by $.5 million during the period due to significant price increases in
scrap steel which is the principal raw material used at Wagner. Commitments
with most of Wagner's major customers allow Wagner to pass on the majority of
increases or decreases in the cost of scrap steel on to those customers,
however, these adjustments are generally passed along three to six months
subsequent to the time the change occurs.
- 12 -
<PAGE> 13
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS - THREE MONTHS ENDED FEBRUARY 28, 1994 COMPARED TO THREE
MONTHS ENDED FEBRUARY 28, 1993 - CONTINUED
Interest expense decreased by $.4 million due to (a) reductions in debt
caused by the Company's asset sale program, (b) reductions in debt in
connection with the Company's new Credit Facility which provides the Company
with a revolving line of credit, as the Company's previous credit facility did
not include a revolving line of credit and cash balances could not be applied
against debt, and (c) reductions in debt due to cash flow from increased
profitability before special charges.
The Company favorably settled two lawsuits and resolved a
preconfirmation liability resulting in income of $.8 million in the third
quarter.
As approximately half of the Company's sales are dependent on the
automotive markets in the United States and Europe, related profits will be
dependent on sales of vehicles in these markets for the remainder of the fiscal
year. The Company has experienced strong sales from this market during the
fiscal year and expects this to continue through the fiscal fourth quarter.
- 13 -
<PAGE> 14
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS - NINE MONTHS ENDED FEBRUARY 28, 1994 COMPARED TO NINE
MONTHS ENDED FEBRUARY 28, 1993
SALES. The Company's net sales from ongoing operations for the
current nine month period increased by 10% to $175.8 million from $159.6
million in the prior year period. Automotive related sales through Wagner and
IPC increased by $14.3 million (15%) over the prior year's period as a result
of $6.3 million in net new business and $8.0 million in increased volumes of
existing products. Sales through IMT increased by $1.4 million over the prior
year's period as a result of increases in its order backlog due to improvements
in several of IMT's construction-related markets.
Sales of businesses held for sale decreased to $.3 million from $49.6
million recorded in the prior year period due to the sale of 15 of the
Company's businesses since the beginning of fiscal 1993. In July 1993, the
Company sold RD&D Corporation, the last of its wholly-owned subsidiaries being
held for sale.
NET INCOME. Income before extraordinary gain for the current nine
month period was $1.7 million compared to $1.3 million in the prior year
period. Principal variations between the current period net income compared to
the prior period are discussed below.
Operating income of ongoing operations before special charges increased
by $1.6 million, principally as a result of the increase in sales described
above. Operating margins were negatively impacted by $1.2 million during the
period due to significant price increases in scrap steel at Wagner which were
previously discussed in the results of operations for the three months ended
February 28, 1994.
Operating income of businesses held for sale before special charges
decreased by $1.2 million reflecting the impact of their sale over the past
year.
Special charges increased by $4.2 million as a result of expenses
recognized in connection with the January 1992 employment agreement with the
Company's Chairman, President, and Chief Executive Officer described previously
in the results for the three months ended February 28, 1994. Special charges
of $1.7 million for the nine month period ended February 28, 1993 related to
consulting and other expenses incurred under the Company's restructuring
program.
The Company's interest expense decreased by $1.6 million due
principally to reductions in debt over the past fiscal year. The Company
settled two lawsuits and resolved a preconfirmation liability resulting in
income of $.8 million. Other income of $.5 million in the current period
principally relates to the receipt of miscellaneous contingent proceeds and
escrows relating to the sale of assets.
- 14 -
<PAGE> 15
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
As previously discussed, effective September 1, 1992, the Company emerged
from reorganization under Chapter 11 of the United States Bankruptcy Code.
In May 1993, the Company completed the refinancing of its then existing
bank debt with a three year asset-based $48,000,000 credit facility with a new
lender group. The Credit Facility provides the Company with a $33.8 million
revolving credit facility, an $11.2 million term loan and a $3.0 million
capital expenditure facility. As of February 28, 1994, the Company had
borrowed $18.3 million under its revolving credit facility and had $11.6
million of additional borrowing capacity based on the asset-based advance rate
formulas contained in the Credit Facility agreement. The Company had not
borrowed under the capital expenditure facility as of February 28, 1994. This
facility provides the Company funds for 75% of the cost of eligible capital
expenditures.
For the first nine months of fiscal 1994, operating activities provided
cash of $5.9 million compared to a usage of $.5 million in the prior year
period. The increase in cash provided in fiscal 1994 was due to higher income
before special charges.
Capital expenditures for ongoing operations were $4.8 million in fiscal
1994 compared with $2.2 million in the prior year period. The increase in
capital expenditures was mainly due to the Company's improved liquidity and its
ability, under its new Credit Facility, to invest more money in its businesses.
Capital expenditures had been low for the past several years due to constraints
under the Company's credit agreement with its previous bank group and the
Company's efforts to increase its liquidity.
During the first nine months of fiscal 1994, the Company received $2.2
million from the collection of notes receivable related to subsidiaries which
were sold in fiscal 1993. These funds were used by the Company to reduce bank
debt under its Credit Facility.
The Company believes that funds available under the Credit Facility, funds
generated from operations and the utilization of the Company's net operating
loss carryforward to reduce income tax liabilities will be sufficient to
satisfy its anticipated operating needs and capital improvements for the next
year.
- 15 -
<PAGE> 16
PART II OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
-----------------
As a general matter, confirmation of the Company's Plan by the
Bankruptcy Court precludes plaintiffs in pre-bankruptcy litigation from
continuing to prosecute their claims against the Company. To the extent any
such plaintiffs have filed claims in the Company's bankruptcy proceeding, such
claims will be determined in such bankruptcy proceeding. Under the terms of
the Company's Plan, distributions on account of such claims will generally be
made in the form of securities of the Company rather than in cash.
Certain litigation was described in the Company's annual report on Form
10-K for the year ended May 31, 1993. As described therein, litigation was
brought in 1991 and 1992 by Ross D. Lake and others and by John Escott, Sr. and
John Escott, Jr. asserting various securities fraud, common law fraud and
related causes of action against the Company and/or certain of its former
officers and directors. Although those actions were initiated in Illinois and
Texas, they were transferred to the United States District Court for the
Northern District of Ohio. Pursuant to orders entered on February 9, 1994 such
actions were settled and dismissed as to the Company and all other defendants.
The Company's direct and indirect contributions to the settlement payments
aggregated approximately $1.4 million, which amounts are within the amounts
previously set aside in trust by the Company or reserved for such claims as
discussed in "Note F -- Settlement of Preconfirmation Liabilities."
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
The Company did not file any reports on Form 8-K during the three months
ended February 28, 1994.
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
EXHIBIT SEQUENTIAL PAGE NUMBER
- ------- ----------------------
<S> <C> <C>
(11) Statement re: Computation of
Per Share Earnings 18 - 19
</TABLE>
- 16 -
<PAGE> 17
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.
SUDBURY, INC.
(Registrant)
By: /s/Jacques R. Sardas
-----------------------------------
Jacques R. Sardas
Chairman of the Board
and Chief Executive Officer
By: /s/Mark E. Brody
-----------------------------------
Mark E. Brody
Vice President of Finance and Controller
(Chief Accounting Officer)
Date: April 12, 1994
- 17 -
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
FEBRUARY 28, FEBRUARY 28,
1994 1993
----------- -----------
(Amounts in thousands, except per share data)
<S> <C> <C>
PRIMARY
Average shares outstanding 10,062 10,000
Net effect of dilutive stock
options and other common
stock equivalents - based
on the treasury stock
method using average
market price 2,421 1,756
------- -------
TOTAL 12,483 11,756
======= =======
Net loss $(2,653) $ (205)
======= =======
Per share amount $ (.21) $ (.02)
======= =======
FULLY DILUTED
Average shares outstanding 10,062 10,000
Net effect of dilutive stock
options and other common
stock equivalents - based
on the treasury stock
method using the quarter end
market price if higher than
average market price 2,448 1,758
------- -------
TOTAL 12,510 11,758
======= =======
Net loss $(2,653) $ (205)
======= =======
Per share amount $ (.21) $ (.02)
======= =======
</TABLE>
- 18 -
<PAGE> 2
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
FEBRUARY 28, || FEBRUARY 28,
1994 || 1993
----------- || -----------
||
(Amounts in thousands, except per share data) ||
<S> <C> || <C>
PRIMARY ||
||
Average shares outstanding 10,021 ||
Net effect of dilutive stock ||
options and other common ||
stock equivalents - based ||
on the treasury stock ||
method using average ||
market price 2,225 ||
------- ||
TOTAL 12,246 ||
======= ||
||
Net income $ 1,661 ||
======= ||
Per share amount $ .14 || (A)
======= ||
||
||
FULLY DILUTED ||
||
Average shares outstanding 10,021 ||
Net effect of dilutive stock ||
options and other common ||
stock equivalents - based ||
on the treasury stock ||
method using the quarter end ||
market price if higher than ||
average market price 2,481 ||
------- ||
TOTAL 12,502 ||
======= ||
||
Net income $ 1,661 ||
======= ||
Per share amount $ .13 || (A)
======= ||
<FN>
(A) As a result of the changes in ownership and capital structure
from the Plan, primary and fully diluted net income per share calculations
are not relevant for the nine month period ended February 28, 1993.
</TABLE>
19
