<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 AUGUST 31, 1996
---------------
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
------- -------
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 SEPTEMBER 27, 1996: 11,309,792
<PAGE> 2
INDEX
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SUDBURY, INC. AND SUBSIDIARIES
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of August 31, 1996 and May 31, 1996 3 - 4
Condensed Consolidated Statements of Income for the
three-month periods ended August 31, 1996 and August
31, 1995 5
Condensed Consolidated Statements of Cash Flows for
the three-month periods ended August 31, 1996 and
August 31, 1995 6
Notes to Condensed Consolidated
Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9 - 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
-2-
<PAGE> 3
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
SUDBURY, INC. AND SUBSIDIARIES
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1996 1996
(UNAUDITED) (AUDITED)
----------- ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,996 $ 10,645
Accounts receivable, net of allowance 40,774 38,299
Inventories 22,217 18,871
Other 3,318 3,898
-------- --------
TOTAL CURRENT ASSETS 68,305 71,713
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 1,430 1,421
Buildings 8,503 8,466
Machinery and equipment 69,998 66,833
-------- --------
79,931 76,720
Less accumulated depreciation 22,999 21,247
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 56,932 55,473
OTHER ASSETS 5,163 5,166
-------- --------
$130,400 $132,352
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE> 4
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - (CONTINUED)
SUDBURY, INC. AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1996 1996
(UNAUDITED) (AUDITED)
----------- ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $ 22,708 $ 26,606
Accrued compensation and employee benefits 6,769 8,018
Accrued income taxes 3,228 3,773
Other accrued expenses 9,994 10,143
Current maturities of long-term debt 288 282
--------- ---------
TOTAL CURRENT LIABILITIES 42,987 48,822
LONG-TERM DEBT 10,192 10,113
OTHER LONG-TERM LIABILITIES 10,482 10,805
STOCKHOLDERS' EQUITY
Common Stock - par value $0.01 per
share; authorized 20,000,000 shares;
10,931,051 (10,616,361 at May 31,
1996) shares issued and outstanding 109 106
Additional paid-in capital 25,081 23,731
Retained earnings 41,855 39,081
Minimum pension liability adjustment - net (306) (306)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 66,739 62,612
--------- ---------
$ 130,400 $ 132,352
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 5
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
AUGUST 31, AUGUST 31,
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
(In thousands, except per share amounts)
Net sales $ 72,078 $ 71,213
Costs of products sold 62,191 60,192
-------- --------
GROSS PROFIT 9,887 11,021
Selling and administrative expenses 5,455 6,403
-------- --------
OPERATING INCOME 4,432 4,618
Interest expense-net (61) (460)
Other income (expense) (3) 77
-------- --------
Income before income taxes 4,368 4,235
Income tax expense 1,594 1,546
-------- --------
NET INCOME $ 2,774 $ 2,689
======== ========
Net income per common share:
Primary $ .21 $ .21
======== ========
Fully diluted $ .21 $ .21
======== ========
Average common shares and common share
equivalents outstanding:
Primary 12,999 12,752
======== ========
Fully diluted 13,136 12,854
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 6
PART I, ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
AUGUST 31, AUGUST 31,
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,774 $ 2,689
Items included not affecting cash:
Depreciation and amortization 1,964 2,387
Other (209) 230
Changes in operating assets and liabilities (11,082) (5,080)
-------- --------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (6,553) 226
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (3,225) (2,457)
Proceeds from sale of property, plant,
equipment and other - net 7 153
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,218) (2,304)
FINANCING ACTIVITIES:
Borrowings, refinancings and repayments:
Long-term borrowings 200 17,600
Reductions of debt (266) (19,456)
Common stock issued 1,188 472
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,122 (1,384)
-------- --------
DECREASE IN CASH (8,649) (3,462)
Cash and cash equivalents at beginning
of period 10,645 3,548
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1,996 $ 86
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE> 7
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
of a normal recurring nature considered necessary for a fair presentation have
been included. Operating results for the three month period ended August 31,
1996 are not necessarily indicative of the results that may be expected for the
fiscal year ending May 31, 1997. 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, 1996.
Net income per common share was calculated by dividing net income
applicable to common stock by the average number of shares of common stock
outstanding and common stock equivalents under the treasury stock method.
Effective August 30, 1996, the trigger price for the Company's 1,448,410 Series
C Participation Certificates was attained and these certificates became
exercisable. As the Series C Participation Certificates were triggered on August
30, 1996, the weighted average impact on net income per common share at August
31, 1996 from the inclusion of these securities was not material.
NOTE B -- INVENTORIES
The components of inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
August 31, May 31,
1996 1996
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 7,207 $ 7,204
Work in process 10,443 8,464
Finished products 4,958 3,599
------- -------
Total at FIFO 22,608 19,267
Less excess of FIFO cost over LIFO values 391 396
------- -------
$22,217 $18,871
======= =======
</TABLE>
NOTE C -- 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.
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<PAGE> 8
PART I, ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUDBURY, INC. AND SUBSIDIARIES
NOTE C -- CONTINGENCIES (CONTINUED)
All operating locations acquired by the Company since 1984 operate in a
variety of locations where environmental situations could exist based on current
or past operations. Certain operating and non-operating subsidiaries of the
Company have been named as potentially responsible parties liable for cleanup of
known environmental conditions. For known situations, the Company, with the
assistance of environmental engineers and consultants, has accrued amounts to
cover estimated future environmental expenditures. The Company has initiated
corrective action and/or preventative environmental projects to ensure the safe
and lawful operation of its facilities. There could exist, however, more
extensive or unknown environmental situations at existing or previously owned
businesses for which the future cost is not known or accrued at August 31, 1996.
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, results of
operations, or liquidity of the Company.
The Company has an employment agreement with Jacques R. Sardas, its
Chairman, President and Chief Executive Officer, which extends through January
1998. The agreement provides that if Mr. Sardas' employment is terminated other
than for cause, or from Mr. Sardas' death or disability, the Company continues
to be obligated to pay Mr. Sardas the fair value of the common stock underlying
the 1,764,706 options he was granted under his 1992 Employment Agreement (the
"Option Stock"). At Mr. Sardas' election the Company is also obligated to
purchase the Option Stock at fair value in five separate approximately
semi-annual installments commencing February 7, 1996 through January 13, 1998.
Under the employment agreement, fair value is determined based on quoted prices
on the principal stock exchange on which the Company's Common Stock is traded.
Mr. Sardas generally may delay his right to sell any installment of the Option
Stock until the next succeeding purchase date. If at that next succeeding
purchase date Mr. Sardas does not tender such shares of Option Stock, the
Company's obligation to purchase the Option Stock with respect to such
installment will terminate. Mr. Sardas has not exercised his right to have the
Company purchase the Option Stock subject to the February 7, 1996 or July 13,
1996 installment dates and the Company's obligation with respect to the February
7, 1996 installment date has terminated. The Company is the beneficiary of a
key-man life insurance policy on Mr. Sardas' life in the amount of $14,000,000.
The proceeds of the policy would be used to fulfill the Company's obligation in
the event of Mr. Sardas' death.
-8-
<PAGE> 9
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 AUGUST 31, 1996 COMPARED TO THREE
MONTHS ENDED AUGUST 31, 1995
SALES. The Company's net sales for the first quarter of fiscal 1997
increased by 1% to $72.1 million from $71.2 million in the prior year quarter.
Fiscal 1996 first quarter results included sales of $6.0 million from South
Coast Terminals, Inc. ("South Coast") prior to its divestiture in December 1995.
After adjusting for the impact of the sale of South Coast, sales from the
Company's other five subsidiaries increased in the first quarter of fiscal 1997
by $6.8 million or 10% over the prior year quarter. The Company's Frisby P.M.C.,
Industrial Powder Coatings ("IPC") and Iowa Mold Tooling subsidiaries all
experienced sales increases. Sales at Wagner Castings Company ("Wagner") were
relatively flat when compared to the prior year period, reflecting the phase out
of its malleable castings operations.
The $6.8 million of comparable company sales improvement resulted from
a $4.0 million increase in net new business, $.5 million of price increases and
a $2.3 increase in sales of existing products.
GROSS PROFIT. Gross profit for the first quarter of fiscal 1997
decreased by $1.1 million to $9.9 million from $11.0 million. Gross profit as a
percentage of net sales was 13.7% for the first quarter of fiscal 1997 compared
to 15.5% in the first quarter of the prior fiscal year. The decrease in the
margin rate resulted from: a) the sale of South Coast, whose gross margins were
higher than the average for the Company's other subsidiaries, b) the impact of
$2.1 million higher pass-through steel blank material costs at IPC due to
increased volume, and c) planned start-up costs of $.7 million associated with
Wagner's new ductile iron casting line and IPC's new facility in Monterrey,
Mexico.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses as a percentage of net sales decreased from 9.0% in the prior year
quarter to 7.6% for the current quarter. In terms of dollars, such expenses
decreased from $6.4 million in the prior year quarter to $5.5 million in the
current year quarter. The decrease resulted from expenses related to South Coast
and an accrual for a contractual bonus obligation paid in January 1996, both of
which were included in the prior year quarter.
INTEREST EXPENSE. Interest expense decreased by $.4 million due to
significantly reduced debt levels and capitalized interest of $.2 million on the
Wagner and IPC capital projects discussed above.
-9-
<PAGE> 10
PART I, ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUDBURY, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first three months of fiscal 1997, operating activities used
cash of $6.6 million. In the prior year period, operating activities provided
cash of $.2 million. The difference was a result of an increase in working
capital.
Long-term debt (including current maturities) at August 31, 1996 was
$10.5 million, which compared to $10.4 million at May 31, 1996. Long-term debt
represented 14% of long-term debt plus stockholders' equity at both August 31,
1996 and May 31, 1996. At August 31, 1996, the Company had the ability to borrow
$38.7 million under its revolving credit facility.
Capital expenditures were $3.2 million in the first quarter of fiscal
1997 compared with $2.5 million in the prior year quarter. The Company expects
capital expenditures for fiscal 1997 to be less than the $22.6 million made in
fiscal 1996. Capital expenditures for Wagner's new ductile iron casting line and
IPC's plant in Monterrey, Mexico of in excess of $15 million were made in fiscal
1996. Projects of this magnitude are not planned for fiscal 1997.
The Company believes that funds available under its current bank
facility and funds generated from operations will be sufficient to satisfy its
anticipated operating needs and capital improvements for the remainder of the
fiscal year.
OTHER MATTERS
- -------------
Approximately 60% of the Company's sales are dependent on the
automotive and light truck markets in the United States and Europe; therefore,
related profits will be dependent on sales of vehicles in these markets for the
remainder of the year.
Effective August 30, 1996, the trigger price for the Company's
1,448,410 Series C Participation Certificates was attained and these
certificates are currently exercisable at $5.165 per share. Such exercise price
increases annually. As the Series C Participation Certificates were triggered on
August 30, 1996, the weighted average impact on net income per common share at
August 31, 1996 from the inclusion of these securities was not material. In the
future, to the extent the Series C Participation Certificates are exercised by
their holders, these securities will be included in the average number of shares
of common stock outstanding. To the extent the Series C Participation
Certificates are not exercised, these securities will be accounted for under the
treasury stock method in computing net income per common share.
-10-
<PAGE> 11
PART II OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
-----------------
Certain litigation was described in the Company's annual report on
Form 10-K for the year ended May 31, 1996. There have been no material
developments in the described cases for the fiscal quarter ended
August 31, 1996.
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 August 31, 1996.
EXHIBIT INDEX
-------------
EXHIBIT SEQUENTIAL PAGE NUMBER
(11) Statement re: Computation of Per Share 13
Earnings
(27) Financial Data Schedule
-11-
<PAGE> 12
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 and
Chief Financial Officer
(Chief Accounting Officer)
Date: October 7, 1996
-12-
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SUDBURY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
AUGUST 31, AUGUST 31,
1996 1995
---------- -----------
(In thousands, except per share data)
PRIMARY
<S> <C> <C>
Average shares outstanding 10,701 10,349
Net effect of dilutive stock
options and other common
stock equivalents - based
on the treasury stock
method using average
market price 2,298 2,403
------- -------
TOTAL 12,999 12,752
======= =======
Net income $ 2,774 $ 2,689
======= =======
Per share amount $ .21 $ .21
======= =======
FULLY DILUTED
Average shares outstanding 10,701 10,349
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 2,435 2,505
------- -------
TOTAL 13,136 12,854
======= =======
Net income $ 2,774 $ 2,689
======= =======
Per share amount $ .21 $ .21
======= =======
-13-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 1,996
<SECURITIES> 0
<RECEIVABLES> 40,774
<ALLOWANCES> 0
<INVENTORY> 22,217
<CURRENT-ASSETS> 68,305
<PP&E> 79,931
<DEPRECIATION> 22,999
<TOTAL-ASSETS> 130,400
<CURRENT-LIABILITIES> 42,987
<BONDS> 10,192
<COMMON> 109
0
0
<OTHER-SE> 66,630
<TOTAL-LIABILITY-AND-EQUITY> 130,400
<SALES> 72,078
<TOTAL-REVENUES> 72,078
<CGS> 62,191
<TOTAL-COSTS> 5,455
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 4,368
<INCOME-TAX> 1,594
<INCOME-CONTINUING> 2,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,774
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
