<PAGE> 1
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 April 30, 1997
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: 0-22798
--------------------------------------------------------
SPECIALTY EQUIPMENT COMPANIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3337593
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1245 Corporate Blvd., Suite 401, Aurora, IL 60504
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 585-5111
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all and 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 requirement 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 Section 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.
Class Outstanding at June 10, 1997
- ----------------------------- ----------------------------
Common Stock, $0.01 par value 18,101,118 shares
The exhibit index is on page 15.
<PAGE> 2
Page 2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SPECIALTY EQUIPMENT COMPANIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1996 1997
---- ----
<S> <C> <C>
Revenue .......................................... $105,305 $109,242
Cost of sales .................................... 72,661 76,309
-------- --------
Gross margin ............................... 32,644 32,933
Selling, general and administrative expenses ..... 15,636 15,831
Amortization ..................................... 441 187
Other income, net ................................ (10) (3)
-------- --------
Earnings from operations before interest and
income taxes ................................... 16,577 16,918
Interest expense, net ............................ 4,992 4,129
-------- --------
Earnings from operations before
income taxes ................................... 11,585 12,789
Income taxes ..................................... 4,508 4,576
-------- --------
Net earnings ............................... $ 7,077 $ 8,213
======== ========
Net earnings per common and dilutive
common equivalent share ........................ $ 0.33 $ 0.38
======== ========
Average number of common and dilutive common
equivalent shares outstanding .................. 21,497 21,384
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 3
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SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
January 31, April 30,
1997 1997
-------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................. $ 7,787 $ 21,855
Accounts receivable, net ................... 53,486 66,226
Inventories ................................ 55,311 49,471
Other current assets ....................... 15,847 15,877
-------- --------
Total current assets .................... 132,431 153,429
Net property, plant and equipment ............ 34,217 33,794
Restricted cash equivalents .................. 3,059 2,933
Intangible assets, net ....................... 5,861 6,305
Other assets ................................. 1,348 1,090
-------- --------
Total assets............................. $176,916 $197,551
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt ..... $ 141 $ 94
Accounts payable ........................... 25,371 25,707
Accrued expenses ........................... 59,852 67,873
Accrued income taxes ....................... 4,939 9,244
-------- --------
Total current liabilities ............... 90,303 102,918
Long-term debt, excluding current
installments ............................... 155,440 155,440
Other non-current liabilities ................ 2,404 2,362
Stockholders' equity (deficit):
Common stock ............................... 180 180
Additional paid-in capital ................. 54,501 54,431
Accumulated deficit ........................ (125,583) (117,370)
Other ...................................... (329) (410)
-------- --------
Total stockholders' deficit ............. (71,231) (63,169)
Total liabilities and stockholders'
equity (deficit)............................ $176,916 $197,551
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
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SPECIALTY EQUIPMENT COMPANIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ............................. $ 7,077 $ 8,213
Items not affecting cash:
Depreciation and amortization ................. 1,085 1,137
Amortization .................................. 441 187
Utilization of NOL carry forward .............. 273 273
Gain from asset sales ......................... (10) -
Changes in current assets and liabilities:
Accounts receivable, net ........................ (14,117) (12,740)
Inventories ..................................... 2,492 5,840
Other current assets ............................ 240 370
Accounts payable and other current
liabilities, excluding current installments
of long-term debt.............................. 9,177 12,465
-------- --------
Net cash flows from operations ................... 6,658 15,745
Cash flows from investing activities:
Additions to property, plant and equipment ...... (1,550) (714)
Disposals of property, plant and equipment ...... 10 -
Cash equivalents restricted for capital
additions ...................................... 725 126
Acquisition of net assets of business .......... (1,322) (883)
-------- --------
Net cash used in investing activities ......... (2,137) (1,471)
-------- --------
Cash flows from financing activities:
Net decrease in revolving credit facility ....... - -
Repayments of long-term debt .................... (44) -
Proceeds from long-term debt .................... - -
Proceeds from stock options exercised ........... 67 176
Cancellation of stock options ................... - (520)
Refinancing costs ............................... - -
-------- --------
Net cash used in financing activities .......... 23 (344)
-------- --------
Other ............................................ (4) 138
-------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 4,540 14,068
Cash and cash equivalents:
Beginning of period.............................. 28,447 7,787
-------- --------
End of period.................................... $ 32,987 $ 21,855
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
<PAGE> 5
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SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. General
These financial statements should be read with the financial statements and the
notes thereto for the fiscal year ended January 31, 1997 included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("Commission") on March 27, 1997.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three month period ended April 30, 1996 and 1997, (b) the
financial position at January 31, 1997 and April 30, 1997 and (c) the
statements of cash flows for the three month periods ended April 30, 1996 and
1997, have been made. The financial results for the three months ended April
30, 1997 are not necessarily indicative of the financial results for the entire
1998 fiscal year. Certain reclassifications have been made to the prior period
financial statements to conform with the current period presentation.
Net earnings per common and dilutive common equivalent share is computed based
on the weighted average number of common and dilutive common equivalent shares
outstanding during the period.
2. Accounts Receivable
Accounts receivable at the following dates consisted of the following:
<TABLE>
<CAPTION>
January 31, April 30,
Description 1997 1997
------------ -----------
(in thousands)
<S> <C> <C>
Accounts receivable ........................ $58,145 $70,832
Less: allowance for doubtful accounts ...... 4,659 4,606
------- -------
Total ................................ $53,486 $66,226
======= =======
</TABLE>
3. Inventories
Inventories at the following dates consisted of the following:
<TABLE>
<CAPTION>
January 31, April 30,
1997 1997
------------ -----------
(in thousands)
<S> <C> <C>
Raw materials............................... $27,082 $26,843
Work in progress ........................... 8,005 7,699
Finished goods ............................. 20,224 14,929
------- -------
55,311 49,471
Less: excess of FIFO cost over LIFO cost - -
------- -------
Total ................................. $55,311 $49,471
======= =======
</TABLE>
The Company uses the LIFO method of valuing inventories. LIFO had a de
minimis effect on the cost of sales for the three month periods ended April 30,
1996 and 1997.
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SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Intangibles:
<TABLE>
<CAPTION>
January 31, April 30,
1997 1997
------------ ----------
(in thousands)
Intangibles consisted of the following:
<S> <C> <C>
Patents ..................................... $ 991 $ 991
Other intangibles ........................... 49,571 50,202
Deferred pension costs ...................... 1,603 1,603
Less: accumulated amortization .............. 46,304 46,491
-------- --------
Net intangibles ............................. $ 5,861 $ 6,305
======== ========
</TABLE>
Other intangibles primarily include deferred financing fees, engineering
drawings, distribution networks and skilled workforce.
5. Income Taxes
The Company follows the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes"("Statement 109"). At January 31, 1997, the Company had a net deferred
tax asset of $32.3 million less a valuation allowance of $22.1 million. The
Company has approximately $16.1 million in NOL carry forwards. However, a
number of issues regarding the treatment of certain changes in ownership of the
Company pursuant to certain provisions of the Internal Revenue Code of 1986, as
amended, may arise which, if determined adversely, could limit the amount
and/or use of the NOL carry forwards. The NOL carry forwards are available
through fiscal 2008.
6. Long-Term Debt
Long-term debt at the following dates consisted of the following:
<TABLE>
<CAPTION>
January 31, April 30,
Description 1997 1997
------------ -----------
(in thousands)
<S> <C> <C>
Revolving line of credit .................... $ - $ -
11-3/8% senior subordinated notes due 2003 .. 149,040 149,040
Industrial project revenue bonds due 2008 ... 6,400 6,400
Capitalized leases .......................... 141 94
-------- --------
155,581 155,534
Less: current installments ................. 141 94
-------- --------
Total long-term debt, less current
installments........................... $155,440 $155,440
======== ========
</TABLE>
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SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. Commitments and Contingent Liabilities
The Company is involved in litigation and claims incidental to its business.
The ultimate outcome of these matters cannot presently be determined because of
the uncertainties inherent in litigation. However, such claims are being
vigorously contested and management does not believe that it is probable that
the ultimate outcome of the loss contingencies relating to such litigation and
claims will have, individually or in the aggregate, a material adverse impact
upon the financial condition or results of operations of the Company.
The following is a summary of the more significant litigation and claims.
Litigation
The Company was a defendant along with other defendants in an action filed
on July 20, 1995 entitled "Thermodyne Food Service Products, Inc. and AFTEC,
Inc. v. McDonald's Corporation, et al." in the United States District Court,
Northern District of Illinois, Eastern Division. Plaintiffs alleged that the
Company and other defendants misappropriated trade secrets in connection with
the Company's development of an oven for McDonald's and OSI. As a result of a
ruling on a motion to dismiss, all the claims against the Company other than
the trade secret claim were dismissed. The case was settled by the terms of a
confidential settlement agreement dated May 28, 1997 pursuant to which one of
the defendants agreed to make a settlement payment in a confidential amount.
Although the Company is not required under the terms of this settlement
agreement to pay any damages or make any settlement payments, it is possible
that the codefendant who did make a settlement payment will seek contribution
from the Company. The Company has not established a reserve in its financial
statements relating to this matter.
The Company and certain of its current and former directors are named as
defendants in an action filed by Virginia A. Noerr, who claims to be a
stockholder of the Company's common stock. The action "Noerr v. Greenwood et
al.," C.A. No. 14320, is pending in the Court of Chancery for the State of
Delaware in and for New Castle County, Delaware. Plaintiff purports to bring
this action both as a class action on behalf of all stockholders of record on
April 2, 1993 and derivatively for the benefit of the Company. The amended
complaint alleges that the named individual defendants breached fiduciary
duties of care and loyalty owed to the Company with regard to stock options
granted to the named individual defendants and with regard to the accuracy of
the disclosures in the proxy statement which sought stockholder approval.
Plaintiff also alleges, among other things, that implementation of the
Company's stock option plan constituted self-dealing transactions not entirely
fair to the Company in that the exercise price of the options was so
unreasonably low that the issuance of Common Stock pursuant to the options
constitute waste. The amended complaint seeks, among other things, entry of
judgment against defendants permanently enjoining them from exercising the
stock options; imposing a constructive trust for the benefit of the Company
upon any profits the individual named defendants may have made through exercise
of their options, and monetary damages, costs and expenses. In May 1996
plaintiff filed an amended complaint. The amended complaint, among other
things, corrects certain errors in the original filing and expands the
complaint to include the Company's Executive Long-Term Incentive Plan. The
individual defendants have made demand upon the Company for indemnification.
The Company believes that if the Company were liable to the individual
defendants for indemnification, the uninsured portion of such liability would
not be material to the Company. The Company and the individual defendants
believe that the plaintiff's allegations are without merit and are factually
incorrect and the Company intends to contest these allegations vigorously. A
decision on the Company's and the individual defendant's joint motion to
dismiss all of the plaintiff's claims is currently pending before the court.
The Company was a defendant, along with a number of its current and former
officers and directors, its former lender, General Electric Capital Corporation
("GECC"), and the underwriters with respect to the Company's 1988 offering of
debentures, in a securities class action filed by Melvin C. Nielsen (the
"Nielsen Case") alleging that the Company's prospectus and registration
statement with respect to such debentures contained material misrepresentations
and omissions, and seeking rescission of the sale of all $150 million
<PAGE> 8
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SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
of debentures, and other compensatory and exemplary damages, and costs and
expenses. The claim was discharged against the Company pursuant to the
Company's plan of reorganization ("POR") and the Company was subsequently
dismissed from this case. In February of 1993, the Court dismissed plaintiff's
claims under Rule 10b-5 and common law fraud. In October of 1996, the Court
certified a class under Section 11 of the Securities Act and then entered
summary judgment in favor of all defendants as to all pending claims. The
period for appealing this judgment expired on February 22, 1997 and no appeals
were filed.
Environmental and Related Matters
On May 5, 1994, the Company (doing business as Taylor Freezer Company) was
among more than 80 parties notified as potential third-party defendants in an
action involving the clean up of the MIG/Dewane Landfill near Belvidere,
Illinois. A third-party complaint has been filed by the principal owners and
operators of the landfill. Those owners and operators were sued by the
principal users of the landfill who in turn had been sued by the Environmental
Protection Agency ("EPA") in April, 1992. The complaint seeks contribution for
the proposed clean up of the site. The Company has not received settlement
offers from the EPA, but it settled its alleged liability with the private
plaintiffs for $54,000 for the costs associated with the remedial investigation
of the site. The Company has not settled its alleged liability for clean up
costs at the site. Beatrice Company (ConAgra) has assumed defense of the
matter and has agreed to defend and indemnify the Company for claims related to
the MIG/Dewane site to the extent they are related to Taylor and the events
giving rise to the claims occurring during the Beatrice Company (ConAgra)
period of ownership. Based upon presently available information, management
does not believe this matter will have a material effect on the Company's
results of operation or financial condition.
The Company has also received notice of potential environmental actions from
(i) the South Carolina Department of Health and Environmental Control
("SCDHEC") and the EPA with respect to drums of hazardous waste materials
disposed of in South Carolina, (ii) the SCDHEC with respect to the clean up of
the Unisphere Hazardous Waste Site in Spartanburg County, South Carolina, and
(iii) the Nevada Department of Conservation and Natural Resources, Division of
Environmental Protection ("NDEP"), which issued a finding of alleged violation
and order relating to alleged soil and ground water contamination. With
respect to the SCDHEC matter discussed in (i) above, management is unable to
determine the existence or amount of its potential liabilities because no
formal proceedings have been commenced and no notifications have been received
regarding this matter since December, 1992. The Company has reason to believe
that this site will be the subject of no further action by the EPA. With
respect to the SCDHEC matter discussed in (ii) above, management is unable to
determine the existence or amount of its potential liability, if any, because
the use of the site by Beverage-Air occurred prior to the purchase of the
Beverage-Air assets by the Company from Gerlach Industries in November, 1986.
With respect to the NDEP matter discussed in (iii) above, the Company has spent
approximately $314,000 to conduct tests and to implement a remediation program,
but given the pendency of the Company's appeal and its uncertain outcome,
management cannot estimate what, if any, additional expenditures might be
required.
Letters of Credit
As of April 30, 1997, the Company had letters of credit outstanding totaling
$10.3 million, which guarantee various business activities, including $6.5
million of letters of credit which guarantee the Industrial Project Revenue
Bonds (see note 6 above).
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SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. Stock Option Plan and Stock Warrants
On May 6, 1993 the stockholders approved long-term incentive plans for both
non-employee directors and employees. Pursuant to the Non-Employee Directors
Long-Term Incentive Plan ("Director Plan") each non-employee director was
granted an option to purchase 175,241 shares of the Company's common stock at a
price of $1.00 per share (which was not less than management's determination of
the fair market value of the underlying shares on the date of grant). The
aggregate grants under the Director Plan totaled 876,205 shares.
The Executive Long-Term Incentive Plan, as amended, ("Employee Plan") allows
for the issue of a total of 4,004,814 shares of the Company's common stock. All
of the options granted are at an exercise price which was not less than
management's determination of the fair market value of the underlying shares at
the respective dates of grant.
The options under the Director Plan all vested and became exercisable on May 6,
1995, as on such date all of the conditions to vesting were satisfied. All
options awarded pursuant to the Director Plan expire on May 6, 2000.
The following sets forth information with respect to options issued and
outstanding:
<TABLE>
<CAPTION>
Average option
Shares price per share
------ ---------------
<S> <C> <C>
Options outstanding at January 31, 1997 2,995,537 $ 2.42
Options exercised (105,700) (1.00)
Options canceled (33,400) (1.00)
--------- ------
Options outstanding at April 30, 1997
(2,806,437 exercisable) 2,856,437 $ 2.48
========= ======
</TABLE>
Options canceled represent options which are withheld by the Company, upon
exercise by the grantee, to satisfy the grantee's withholding tax liability.
The options canceled cannot be reissued.
A non-employee director has stock warrants currently exercisable to purchase
approximately 1,129,856 shares of Common Stock at approximately $2.01 per
share.
<PAGE> 10
Page 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF THE OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The following table sets forth selected operating data as a percentage of
Company net revenue:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1996 1997
----- -----
<S> <C> <C>
Net revenue:
Beverage-Air....................................... 36.5% 44.8%
Taylor Company..................................... 47.5 39.6
Wells Manufacturing/Bloomfield .................... 13.5 13.3
World Dryer........................................ 2.5 2.3
----- -----
Net revenue ....................................... 100.0 100.0
Gross margin ...................................... 31.0 30.1
Selling, general and administrative expenses....... 14.9 14.5
Amortization ...................................... 0.4 0.1
Earnings from operations before ----- -----
interest expense and income taxes ................ 15.7 15.5
Interest expense .................................. 4.7 3.8
----- -----
Earnings (loss) from operations
before income taxes .............................. 11.0 11.7
Income taxes ...................................... 4.3 4.2
----- -----
Net earnings (loss)................................ 6.7% 7.5%
===== =====
</TABLE>
Three Month Period Ended April 30, 1997 (Fiscal 1998) Compared to Three Month
Period Ended April 30, 1996 (Fiscal 1997).
Revenue. Revenue for the three months ended April 30, 1997 increased 3.7% to
$109.2 million compared with $105.3 million for the comparable period in fiscal
1997. The revenue increase was primarily attributable to increased sales of
refrigeration and glass door merchandising equipment to the soft drink bottler
industry (principally from sales of products for use outside the United States)
offset by lower sales of freezer and cooking grill equipment (which decline
is largely attributable to the conclusion of Taylor's ice cream freezer
trade-in program in the second quarter of fiscal 1997). Revenue attributable
to sales of products for use outside the United States increased by 29.6% in
the first three months of fiscal 1998, as compared with the comparable period
in fiscal 1997. For the first three months of fiscal 1998, revenue from sales
of products for use outside the United States was 33.9% of revenue as compared
with 27.2% for the same period in fiscal 1997.
<PAGE> 11
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Gross Margin. Gross margin for the three months ended April 30, 1997 increased
0.9% to $32.9 million, compared with $32.6 million for the comparable period in
fiscal 1997. As a percent of revenue, gross margin decreased from 31.0% of
revenue for the three months ended April 30, 1996 to 30.1% of revenue in the
three months ended April 30, 1997. The decline in gross margin as a percent of
revenue for the three months ended April 30, 1997 compared to the prior year
periods was primarily due to a higher percentage of sales to the soft drink
bottler market which carries lower gross margins and increased price
competition in the international soft drink bottler market.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expense for the three months ended April 30, 1997
increased 1.2% to $15.8 million. As a percent of revenue, SG&A declined from
14.9% to 14.5% in the three months ended April 30, 1997 compared to the
comparable periods in fiscal 1997. The three month period ended April 30,
1997 included sales promotion expense of $0.6 million reflecting credits given
under a freezer trade-in program and $0.2 million to promote the sale of a
counter top refrigerator model. The freezers sold under the trade-in program
were reported as sales at their normal selling price. These expense
reductions in fiscal 1998 were more than offset by less favorable medical and
casualty insurance experience of $0.3 million; the impact of purchasing Taylor
Chicago resulting in increased SG&A expense of $0.4 million in the three month
period ended April 30, 1997; and increased research and development expense of
$0.4 million.
Amortization. Amortization for the three months ended April 30, 1997 decreased
to $187,000 compared with $441,000 for the comparable period in fiscal 1997.
The decrease for the three month period is attributable to the fact that a
majority of the Company's intangible assets were fully amortized as of January
31, 1997.
Interest Expense. Interest expense for the three months ended April 30, 1997
decreased 17.3% to $4.1 million compared with $5.0 million for the comparable
period in fiscal 1997. The decrease is principally due to a decrease in average
amounts borrowed as a result of the acquisition by the Company in August 1996
of $31.0 million of its 11-3/8% senior subordinated notes.
Liquidity and Capital Resources
Net cash flows from operations were $15.7 million for the three months ended
April 30, 1997 compared with $6.7 million for the three months ended April 30,
1996. The increase is primarily the result of a $5.9 million decrease in
working capital compared to the prior year. See -- "Results of Operations --
Revenue."
<PAGE> 12
Page 12
Net cash used in investing activities was $1.5 million for the three months
ended April 30, 1997 compared with $2.1 million for the three months ended
April 30, 1996. The Company anticipates that capital expenditures for fiscal
1998 will be approximately $7.5 million. The Company's capital spending for
the balance of fiscal 1998 is expected to be related to the acquisition,
installation, improvement and equipping of its Beverage-Air and Taylor
production facilities.
As of April 30, 1997, the Company had net working capital of $50.5 million. The
Company's average operating working capital (defined as average monthly gross
accounts receivable and net inventory less accounts payable) as a percentage of
sales declined from 22% during fiscal year 1997 to 21% for the three months
ended April 30, 1997. The Company's earnings from operations were sufficient
to cover fixed charges for the three months ended April 30, 1997.
As of April 30, 1997, the Company had no borrowings under the revolving credit
facility of its credit agreement. However, it had outstanding letters of
credit in the amount of $10.3 million, including $6.5 million of letters of
credit which guarantee the Industrial Project Revenue Bonds (referenced in
note 6 to the financial statements included as item 1 hereto). Under the
Revolving Credit Facility, the Company had $45.0 million available for
additional borrowings. In addition, the Company had cash and cash equivalents
of $21.9 million as of April 30, 1997.
The Company had four financial covenants to meet at April 30, 1997 under its
credit agreement -- a liquidity ratio covenant at April 30, 1997 of at least
1.25:1.00; a senior funded debt to cash flow ratio covenant for the twelve
months ended April 30, 1997 of not greater than 2.00:1.00; a total funded debt
to cash flow covenant ratio for the twelve months ended April 30, 1997 of not
greater than 3.50:1.00 and an interest coverage covenant ratio of at least
2.00:1.00. The Company met each of these covenants as it had a liquidity ratio
of 21.95:1.00 at April 30, 1997; a senior funded debt to cash flow ratio of
0.09:1.00 for the twelve months ended April 30, 1997; a total funded debt to
cash flow coverage ratio for the twelve months ended April 30, 1997 of
2.28:1.00 and an interest coverage ratio for the twelve months ended April 30,
1997 of 3.60:1.00.
Management believes that its credit agreement and the other sources of capital
described above, together with internally generated funds, will be adequate to
meet the Company's anticipated capital and cash requirements for at least the
next twelve months. Were the Company to pursue acquisition opportunities it may
require additional capital.
Impact of Inflation
Management does not believe that inflation has had a material impact on the
Company's operations during the first three months of fiscal 1998. Management
believes that the Company may face increasing costs during the balance of the
fiscal year as a result of inflation which the Company may not fully be able to
offset with increased productivity or pass on to its customers due to
competitive factors within the industry.
Safe Harbor for Forward-Looking Statements Under the Securities Litigation
Reform Act of 1995
Except for historical information contained herein, this Quarterly Report to
Stockholders contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those anticipated and discussed herein. These factors include:
general economic conditions and their impact on the growth of the quick service
restaurant and soft drink bottler industries, the Company's dependence on its
major customer and key management personnel, the effects of competition, the
significance of the Company's outstanding indebtedness and other factors
detailed elsewhere from time to time in the Company's filings with the
Securities and Exchange Commission.
<PAGE> 13
Page 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See note 7 of "Notes to Unaudited Consolidated Financial Statements" included
in Part I. Item 1. of this Form 10-Q.
Item 4. Submissions of Matters to a Vote of Security Holders
Election of Directors. At the Company's Annual Meeting of Stockholders, held
on April 30, 1997, the following members were elected to the Company's Board of
Directors, each by the respective vote indicated to the right of such nominee's
name:
<TABLE>
<CAPTION>
Authority For term expiring
Nominee For Withheld in fiscal year
------- ---------- -------- --------------
<S> <C> <C> <C>
Malcolm I. Glazer 15,594,429 38,216 2001
Barry L. MacLean 15,593,429 39,216 2001
Jeffrey P. Rhodenbaugh 15,594,429 38,216 2001
William E. Dotterweich 15,594,429 38,216 1999
</TABLE>
The terms of office of the remaining directors continued following the meeting.
Plan of Internal Restructuring. At the Company's Annual Meeting of
Stockholders, the Company's Plan of Internal Restructuring was approved by
stockholders, by the respective vote:
<TABLE>
<CAPTION>
Abstentions/
For Against Not voting
--- ------- ----------
<S> <C> <C>
13,539,452 56,116 2,137,077
</TABLE>
There were no other matters submitted to a vote of stockholders for the quarter
ended April 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
27.1 Financial Data Schedule
2. Reports on Form 8-K.
None.
<PAGE> 14
Page 14
SIGNATURE
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.
Specialty Equipment Companies, Inc.
(Registrant)
Date: June 13, 1997 /s/ Jeffrey P. Rhodenbaugh
------------------ -----------------------------------------------
Jeffrey P. Rhodenbaugh, Chief Executive Officer
(Principal Executive Officer)
Date: June 13, 1997 /s/ Donald K. McKay
------------------ -----------------------------------------------
Donald K. McKay, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 15
Page 15
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<S> <C> <C>
27.1 Financial data schedule. 16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 21,855
<SECURITIES> 0
<RECEIVABLES> 70,832
<ALLOWANCES> (4,606)
<INVENTORY> 49,471
<CURRENT-ASSETS> 153,429
<PP&E> 54,603
<DEPRECIATION> (20,809)
<TOTAL-ASSETS> 197,551
<CURRENT-LIABILITIES> 102,918
<BONDS> 155,440
0
0
<COMMON> 180
<OTHER-SE> (63,349)
<TOTAL-LIABILITY-AND-EQUITY> 197,551
<SALES> 109,242
<TOTAL-REVENUES> 109,242
<CGS> 76,309
<TOTAL-COSTS> 76,309
<OTHER-EXPENSES> 16,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,129
<INCOME-PRETAX> 12,789
<INCOME-TAX> 4,576
<INCOME-CONTINUING> 8,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,213
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0
</TABLE>
