UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 1-9844
SHELTER COMPONENTS CORPORATION
(Exact name of Registrant as specified in its charter)
Indiana 22-2825183
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
2831 Dexter Drive, Elkhart, Indiana 46514
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (219) 262-1514
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common, $.01 par 7,733,872 outstanding at August 13, 1997
PAGE 1
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SHELTER COMPONENTS CORPORATION
INDEX
FINANCIAL INFORMATION PAGES
PART I
Item 1 Financial Statements:
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 3
Consolidated Statements of Income - three and six
months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows - six
months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II OTHER INFORMATION 12
Signatures 13
PAGE 2
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PART I FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (unaudited)
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
(in thousands, except per share data)
June 30, 1997 December 31, 1996
ASSETS -------------- -----------------
CURRENT ASSETS
Cash $ 10,503 $ 21,096
Trade receivables, net 31,237 22,827
Inventories 38,060 41,475
Deferred income taxes 2,128 2,128
Prepaid expenses and other 766 595
Real estate held for sale 622 2,576
-------- --------
Total current assets 83,316 90,697
PROPERTY, PLANT AND EQUIPMENT, NET 25,071 19,381
COST IN EXCESS OF NET ASSETS ACQUIRED,
net of accumulated amortization 12,982 10,312
OTHER ASSETS 1,074 520
-------- --------
Total assets $122,443 $120,910
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ -- $ 6,000
Current maturities of long-
term debt 2,257 1,904
Accounts payable, trade 26,435 23,067
Accrued expenses and income
taxes payable 7,212 9,642
-------- --------
Total current liabilities 35,904 40,613
-------- --------
LONG-TERM DEBT 18,032 16,639
-------- --------
DEFERRED INCOME TAXES 745 745
-------- --------
OTHER DEFERRED LIABILITIES 193 133
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value -- --
Common stock, $.01 par value 76 76
Additional paid-in capital 12,533 11,914
Retained earnings 54,997 50,827
-------- --------
67,606 62,817
Less, Treasury stock 37 37
-------- --------
Total stockholders' equity 67,569 62,780
-------- --------
Total liabilities and stock-
holders' equity $122,443 $120,910
======== ========
The accompanying notes are a part of the consolidated financial statements.
PAGE 3
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales $122,801 $137,958 $229,333 $257,754
Cost of sales 105,912 118,277 197,163 220,557
-------- -------- -------- --------
Gross profit 16,889 19,681 32,170 37,197
Commission income 706 605 1,366 1,118
-------- -------- -------- --------
17,595 20,286 33,536 38,315
Operating expenses 13,394 15,146 26,534 28,993
-------- -------- -------- --------
Operating income 4,201 5,140 7,002 9,322
Gains on sales
of real estate 308 --- 434 ---
Interest income 289 44 511 68
Interest expense (375) (450) (782) (938)
-------- -------- -------- --------
Income before
income taxes 4,423 4,734 7,165 8,452
Income taxes 1,703 1,846 2,759 3,296
-------- -------- -------- --------
Net income $ 2,720 $ 2,888 $ 4,406 $ 5,156
======== ======== ======== ========
Earnings per common
and common equivalent
share $ .35 $ .37 $ .57 $ .67
======== ======== ======== ========
Weighted average common
and common equivalent
shares outstanding 7,804 7,749 7,779 7,734
======== ======== ======== ========
Cash dividends
per share $ .03 $ .02 $ .03 $ .02
======== ======== ======== ========
The accompanying notes are a part of the consolidated financial statements.
PAGE 4
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
(in thousands)
Six Months Ended
June 30,
1997 1996
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,670 $ 9,330
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment (4,233) (4,550)
Acquisition of business, net of cash acquired (787) --
Proceeds from sale of property, plant
and equipment 1,672 --
Other, net (674) (29)
-------- --------
Net cash used in investing activities (4,022) (4,579)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 2,010 43,076
Repayment of debt (11,698) (47,809)
Other, net 447 (17)
-------- --------
Net cash used in financing activities (9,241) (4,750)
-------- --------
Increase (decrease) in cash (10,593) 1
Cash, beginning of period 21,096 24
-------- --------
Cash, end of period $ 10,503 $ 25
======== ========
SUPPLEMENTAL INFORMATION:
Non cash investing and financing activities:
Acquisition of a business:
Obligations assumed $ 2,372 --
Long-term debt issued 3,500 --
-------- -------
$ 5,872 $ 0
======== ========
The accompanying notes are a part of the consolidated financial statements.
PAGE 5
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SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
NOTE A--BASIS OF PRESENTATION
The financial statements have been prepared from the unaudited financial
records of the Corporation. In the opinion of management, the financial
statements include all adjustments consisting only of normal recurring
adjustments, necessary for a fair statement of the results of operations
and financial position for the interim periods. The results of operations for
the three months and six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year ending December 31,
1997.
The Consolidated Balance Sheet at December 31, 1996 has been derived from the
Audited Consolidated Financial Statements at that date, but does not include
all disclosures required by generally accepted accounting principles.
The Consolidated Statements of Income and Cash Flows for the three and six
months ended June 30, 1996 include the results of operations and cash flows of
Danube Carpet Mills, Inc. ("Danube"), the business operations and certain
assets of which were sold on December 31, 1996. Note E of the Notes to
Consolidated Financial Statements includes proforma information relating to
the sale of Danube.
NOTE B--INVENTORIES
Inventories at June 30, 1997 and December 31, 1996 consisted of the following
components (in thousands):
6/30/97 12/31/96
-------- --------
Raw materials $ 6,066 $ 5,466
Work in process 461 382
Finished goods 720 814
Goods held for resale 30,813 34,813
-------- --------
$ 38,060 $ 41,475
======== ========
NOTE C--DEBT
In January 1997, the Corporation repaid the $6 million revolving line of credit
balance using funds available from the December 31, 1996 sale of Danube's
operations. There were no outstanding borrowings under the $25 million bank
revolver at June 30, 1997.
In February 1997, the Corporation paid the final $1.5 million principal
installment on a 6.4% institutional investor note.
In June 1997, the Corporation issued convertible 7% notes payable totaling $3.5
million in connection with the acquisition of Plastic Solutions, Inc.
(See Note D). Principal and interest payments will be made annually with
final installments due February 2001. The notes also provide an option for
the noteholders to elect to receive payments in cash or in shares of the
Corporation's common stock or a combination thereof at each payment date.
The conversion price is $13.50 per share.
PAGE 6
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Note D-BUSINESS ACQUISITION
On June 27, 1997, the Corporation acquired, through its wholly-owned
subsidiary, Duo-Form of Michigan, Inc., the net assets and operations of
Plastic Solutions, Inc. ("PSI"), a South Bend, Indiana manufacturer of
injection molded plastic parts with annual sales of approximately $9 million.
The total purchase price of $6.6 million consisted of cash of approximately
$800,000, $3.5 million in convertible long-term notes payable to the sellers,
and $2.3 million of liabilities assumed. The purchase agreement also provides
for additional consideration payable to the sellers contingent upon the future
results of PSI. The excess of the purchase price over the fair value of the
acquired assets ("goodwill") was approximately $3.0 million.
The results of operations for all periods presented would not have been
materially different than reported if PSI had been acquired on January 1, 1996.
Note E-DISPOSAL OF CARPET BUSINESS
On December 31, 1996, the Corporation sold the operations and certain assets of
its carpet and yarn manufacturing subsidiary, Danube Carpet Mills, Inc. The
following reflects the 1996 proforma consolidated results of operations as if
Danube's results had been excluded from the three and six month periods ended
June 30, 1996:
In thousands Three Months Ended Six Months Ended
Except per share data June 30, 1996 June 30, 1996
- ------------------------ ----------------- ----------------
Net sales $118,243 $ 220,276
Net income $ 2,173 $ 3,757
Net income per share $ .28 $ .49
PAGE 7
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SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SIGNIFICANT FACTORS
The following discussion includes the financial condition, results of
operations, and liquidity for the Corporation and its subsidiaries as of
June 30, 1997, and for the three-month and six-month periods ended
June 30, 1997 and 1996. The 1996 results include the operations of Danube
Carpet Mills, Inc. ("Danube"), the operations and certain assets of
which were sold in December 1996. Proforma information regarding the 1996
results is reflected in Note E of the Notes to Consolidated
Financial Statements.
The following table sets forth the consolidated statements of income for the
three-month and six-month periods ended June 30, 1997 and 1996, expressed as
a percentage of net sales, including proforma results for the 1996 periods
which exclude the carpet and yarn manufacturing operations of Danube:
Three Months Ended Six Months Ended
June 30, June 30,
Proforma Proforma
1997 1996 1996(a) 1997 1996 1996(a)
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 86.2 85.7 86.3 86.0 85.6 86.3
------ ------ ------ ------ ------ ------
Gross profit 13.8 14.3 13.7 14.0 14.4 13.7
Commission income .5 .4 .5 .6 .4 .5
------ ------ ------ ------ ------ ------
14.3 14.7 14.2 14.6 14.8 14.2
Operating expenses 10.9 11.0 10.8 11.6 11.2 11.0
------ ------ ------ ------ ------ ------
Operating income 3.4 3.7 3.4 3.0 3.6 3.2
Gains on sale of real
estate .3 -- -- .2 -- --
Interest income .2 -- -- .2 -- --
Interest expense (.3) (.3) (.4) ( .3) (.3) (.4)
------ ------ ------ ------ ------ ------
Income before
income taxes 3.6 3.4 3.0 3.1 3.3 2.8
Income taxes 1.4 1.3 1.2 1.2 1.3 1.1
------ ------ ------ ------ ------ ------
Net income 2.2% 2.1% 1.8% 1.9% 2.0% 1.7%
====== ====== ====== ====== ====== ======
(a) Excludes results of Danube Carpet Mills, Inc. See Note E to the
Financial Statements.
PAGE 8
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2nd Quarter 1997 compared to 2nd Quarter 1996
Net sales decreased $15 million (11%) for the quarter ended June 30, 1997, as
compared to the 1996 quarter. Excluding the Danube carpet and yarn
manufacturing operations from the 1996 results, net sales increased by $4.6
million (4%) during the 1997 quarter. The 4% increase in net sales, on a same
operations basis, compared favorably to the 2.5% decrease in homes produced by
the Manufactured Housing Industry, the Corporation's primary market, for the
1997 quarter compared to the 1996 quarter. During the 1997 quarter net sales
on a same operations basis, of products manufactured by the Corporation
decreased by 6.4% while net sales of distributed products were up 7.1%
compared to the 1996 quarter.
Gross profit margins as a percentage of net sales were 13.8% for the 1997
quarter as compared to 14.3% for the 1996 quarter. On a same operations basis,
the 1996 gross profit margins were 13.7%. The slight increase in the gross
profit margins percentage is primarily attributed to lower cost of certain
materials in the Corporation's manufacturing operations coupled with reduced
manufacturing scrap levels.
Operating expenses as a percentage of net sales decreased to 10.9% for the
1997 quarter from 11.0% for the 1996 quarter. Proforma expenses were 10.8% of
proforma net sales for the 1996 quarter. The increase in this percentage
reflects the absorption of fixed administrative overhead costs by the
Corporation's remaining operations subsequent to the sale of the carpet and
yarn operations.
Interest income increased from $44,000 to $289,000 for the quarters ended June
30, 1996 and 1997, respectively, due to the short-term investment income
earned during the 1997 quarter on the proceeds from the December 31, 1996 sale
of Danube's operations.
Interest expense declined from $450,000 to $375,000 for the quarters ended
June 30, 1996 and 1997, respectively, due to reductions in the Corporation's
debt outstanding using funds available from the sale of Danube's operations
and positive operating cash flows during 1997.
Federal and state income taxes as a percentage of income before income taxes
declined from 39% for the 1996 quarter to 38.5% for the 1997 quarter,
reflecting efforts initiated by management to reduce state and local taxes.
Management anticipates that it can continue to reduce its combined effective
state and federal tax rate.
Net income was 2.2% of net sales for the 1997 quarter as compared to 2.1% for
the 1996 quarter including Danube. On a proforma basis, net income was 1.8%
of net sales for the 1996 quarter. The 1997 quarter included a $308,000 (pre-
tax) gain on the sale of certain excess real estate, which had a favorable
impact on net income of .2% of net sales. Management believes the Corporation
has the potential to increase the net income percentage through cost
reductions and through the addition of product lines and business
acquisitions.
PAGE 9
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Six Months 1997 Compared To Six Months 1996
Net sales decreased by $28 million (11%) for the first six months of 1997
compared to the same period in 1996. On a same operations basis (excluding
Danube) net sales increased by $9 million (4%). The Corporation's
distribution sales increased by 7% while (same operation) manufacturing sales
declined by 6%. The Corporation increased its market share in electrical,
plumbing and doors distributed during the period to overcome the 3% decline in
homes produced by the Manufactured Housing industry during the first half of
1997 compared to the same period in 1996.
Gross profit margins for the six months ended June 30, 1997 were 14.0%
compared to 14.4% for the first half of 1996. Proforma (excluding Danube)
gross profit margins were 13.7% for the first six months of 1996. The
Corporation experienced higher gross margins as lower raw material costs and
reduced scrap contributed to the improvements.
Operating expenses for the first six months of 1997 were 11.6% of net sales
compared to 11.2% for the first half of 1996. Proforma operating expenses
were 11.0% of net sales for the first half of 1996. The increase in this
percentage reflects higher self-insured medical claims in 1997 as well as the
absorption of fixed administrative overhead costs by the remaining operations
subsequent to the December 1996 sale of Danube's operations.
Management is directing its efforts towards reducing its fixed overhead as a
percentage of net sales and anticipates gradual improvement in this area in
the future.
Interest income increased to $511,000 from $68,000 for the six month periods
ended June 30, 1997 and 1996, respectively, due to the income earned on funds
available from the December 1996 sale of Danube's operations. Management's
objective is to invest in projects and business opportunities to increase
operating income, which would reduce excess cash and the related interest
income.
Interest expense decreased to $782,000 from $938,000 for the six months ended
June 30, 1997 and 1996, respectively, due to the elimination of short-term
borrowing requirements using funds available from the December 1996 sale of
Danube's operations, coupled with scheduled principal reductions in long-term
debt.
Federal and state income taxes as a percentage of income before income taxes
declined from 39% for the first half of 1996 to 38.5% for 1997 due to
strategies implemented by the Corporation to reduce its overall state and
local tax burdens.
Net income was 1.9% of net sales for the first half of 1997 compared to 2.0%
for the first half of 1996. Proforma net income was 1.7% of proforma net
sales for the first half of 1996. The 1997 results include gains on the sale
of certain excess real estate totaling $434,000 (pre-tax) which had a .1%
favorable impact on net income as a percentage of net sales.
PAGE 10
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Liquidity and Capital Resources
Net cash flows provided by operating activities totaled $2.7 million for the
six months ending June 30, 1997, primarily consisting of $4.4 million in net
income, $1.5 million in depreciation and amortization, reduction of
inventories of $4.1 million, and increase in accounts payable of $3.1 million.
This was offset by the seasonal increase in accounts receivable of $7.5
million and a $2.9 million decrease in other components of working capital.
The Corporation has increased its focus on working capital management by
linking capital management to incentive compensation using the EVA (Economic
Value Added) business management principles.
Capital expenditures during the six months ended June 30, 1997 were $4.2
million, compared to $4.5 million for the same period in 1996. Depreciation
expense for the first six months was $1.1 million. 1997 capital expenditures
are anticipated to be $6 to $7 million.
During the first six months of 1997, the Corporation reduced its short-term
debt by $6 million and reduced its long-term debt by $3.7 million, including
the $1.9 million payoff of debt assumed in the acquisition of PSI. The
Corporation issued $3.5 million of notes payable in connection with the June
27, 1997 acquisition of the operations and net assets of Plastic Solutions,
Inc.
The Corporation ended the quarter with $10.5 million in cash and cash
equivalents. Management continues to evaluate various alternative uses for
the remaining proceeds from the December 1996 sale of Danube's operations.
Management believes the Corporation to be in excellent financial condition and
has available adequate capital resources to enable the Corporation to expand
and meet its operating capital needs. The Corporation also has a $25 million
revolving bank line of credit which had no borrowings outstanding at June 30,
1997.
Forward-Looking Statements
From time to time, the Corporation may make oral or written forward-looking
statements regarding its anticipated sales, costs, expenses, earnings and
matters affecting its future financial condition and results of operations.
Such forward-looking statements are subject to a number of material factors
which could cause the statements or projections contained in them to be
materially inaccurate. Such factors include, without limitation, general
economic conditions, competitive factors, potential product liability and the
impact of the Corporation's 1996 Annual Report to Shareholders.
PAGE 11
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PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
Not applicable
Item 2 CHANGES IN SECURITIES
Not applicable
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The annual meeting of the shareholders of Shelter Components
Corporation was held on May 22, 1997.
b. The following Directors were elected Class "A" Directors for a
three-year term expiring in the year 2000. The tabulation of
votes on the election of these Directors was as follows:
Authority
For Withheld
Arthur M. Borden 5,512,621 306,837
Larry D. Renbarger 5,511,496 308,587
William B. Riblet 5,512,608 306,850
The other Directors whose term of office continued after the
meeting are as follows:
Class "B" Directors: Class "C" Directors
William N. Harper William J. Barrett
Ronald D. Minzey Herbert M. Gardner
Mark C. Neilson Cornelius J. Murphy
Gerald R. Stults
c. At the annual meeting, the shareholders were asked to vote on an
amendment to the Corporation's Articles of Incorporation, to
increase the number of authorized shares of Common Stock from
10,000,000 to 25,000,000. The tabulation of votes was as
follows:
For Against Abstain
To amend the Corporation's
Articles of
Incorporation 4,635,737 1,168,626 15,094
d. At the annual meeting, the shareholders were asked to ratify the
selection by the Board of Directors of Price Waterhouse LLP as
certified public accountants for the Corporation for the year
ending December 31, 1997. The tabulation of votes was as
follows:
For Against Abstain
Ratification of
Price Waterhouse LLP 5,807,601 5,508 6,349
All other items in Part II are either not applicable or answerable in the
negative.
PAGE 12
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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.
SHELTER COMPONENTS CORPORATION
(Registrant)
Dated: August 14, 1997 By: /S/ Larry D. Renbarger
------------------
Larry D. Renbarger
Chief Executive Officer and Director
Dated: August 14, 1997 By: /S/ Mark C. Neilson
------------------
Mark C. Neilson
VP Finance, Chief Financial Officer
(Principal Financial & Accounting
Officer) and Director
PAGE 13
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,503
<SECURITIES> 0
<RECEIVABLES> 30,059
<ALLOWANCES> 582
<INVENTORY> 38,060
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<PP&E> 32,652
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0
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<COMMON> 76
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<SALES> 229,333
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<CGS> 197,163
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