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....March 31, 1994
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( ) 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 0-18112
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MOMENTUM CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 91-1464018
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(State of incorporation) (I.R.S. Employer
Identification No.)
Koll Center Bellevue--Suite 1900, 500-108th Ave. N.E.,
Bellevue, WA. 98004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number:...(206) 450-6550
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Indicate by a 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at May 12, 1994
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Common stock, par value $1.00 3,437,912 shares
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MOMENTUM CORPORATION
INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets
March 31, 1994 and December 31, 1993 3
Statements of Income
Three Months Ended March 31, 1994 and 1993 4
Statements of Cash Flows
Three Months Ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MOMENTUM CORPORATION
BALANCE SHEETS
March 31, December 31,
1994 1993
(Thousands of dollars) (Unaudited)
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ASSETS
Current Assets:
Investments $ 5,213 $ 6,123
Receivables, less reserves of $524 and $374 25,747 20,841
Inventories 18,176 14,179
Other 1,345 1,051
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Total Current Assets 50,481 42,194
Property and Equipment 14,665 14,457
Less allowances for depreciation (7,577) (7,317)
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7,088 7,140
Goodwill and Other Assets 12,668 3,096
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$ 70,237 $ 52,430
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank checks outstanding less cash in bank $ 179 $ 1,925
Accounts payable and accrued liabilities 18,168 13,537
Short-term obligations 5,200
Current portion of long-term obligations 177 174
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Total Current Liabilities 23,724 15,636
Long-Term Obligations 11,438 1,793
Deferred Items 1,052 1,052
Shareholders' Equity
Preferred stock, $1 par value
1,000,000 shares authorized, none issued
Common stock, $1 par value
5,000,000 shares authorized,
3,558,903 issued 3,559 3,559
Other shareholders' equity 30,464 30,390
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34,023 33,949
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$ 70,237 $ 52,430
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See notes to consolidated financial statements
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MOMENTUM CORPORATION
STATEMENTS OF INCOME (Unaudited)
Three Months
Ended March 31,
(Thousands of dollars, ---------------------
except per share data) 1994 1993
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Sales $ 34,673 $ 30,003
Cost of sales 27,909 24,290
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Gross Margin 6,764 5,713
Selling & administrative expenses 6,437 6,099
Restructure expenses 182
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Income (Loss) From Operations 327 (568)
Interest expense (74) (112)
Other income-net 51
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Income (Loss) Before Income Taxes 304 (680)
Income tax expense (benefit) 145 (230)
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Income (Loss) from Continuing Operations $ 159 $ (450)
Income from discontinued operations 628
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Net Income $ 159 $ 178
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Income (Loss) Per Share
Continuing operations $ .05 $ (.12)
Discontinued operations .17
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Net Income $ .05 $ .05
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See notes to consolidated financial statements
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MOMENTUM CORPORATION
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months
Ended March 31,
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(Thousands of dollars) 1994 1993
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Operating Activities:
Net income (loss) from continuing operations $ 159 $ (450)
Adjustments to reconcile net income (loss)
from continuing operations to cash used
by operating activities
Depreciation and amortization 388 403
ESOP shares allocated 39 83
Change in assets and liabilities,
net of effect of business acquired
Receivables (2,112) (2,512)
Inventories 1,039 (2,003)
Other current assets (282) (667)
Accounts payable and accrued liabilities (533) 3,390
Deferred items (19)
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(1,302) (1,775)
Income from discontinued operations 628
Adjustments to reconcile income from discontinued
operations to cash provided by operating activities (1,151)
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Cash Used by Operating Activities (1,302) (2,298)
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Investing Activities:
Additions to property and equipment (49) (235)
Proceeds from sale of discontinued operations 2,363
Net reduction (increase) in goodwill and other assets (106) 7
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Cash Provided (Used) by Investing Activities 2,208 (228)
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Financing Activities:
Proceeds from long-term obligations 111 29,300
Repayment of long-term obligations (26,635)
Purchase of treasury shares (186)
Proceeds from exercise of stock options 5 18
Proceeds from issuance of stock 40
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Cash Provided (Used) by Financing Activities (70) 2,723
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Net Increase in Cash 836 197
Cash and cash equivalents at beginning of period 4,198 (1,259)
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Cash and cash equivalents at end of period $ 5,034 $ (1,062)
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Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 71 $ 186
Income taxes 286 316
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See notes to consolidated financial statements
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MOMENTUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. Adjustments
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information pursuant to the rules and regulations of the
Securities and Exchange Commission and instructions to Form 10-Q. While these
statements reflect all adjustments (consisting of normal recurring
accruals) which are, in the opinion of management, necessary to a fair
presentation of the results for the interim periods presented, they do not
include all of the information and disclosures required by generally accepted
accounting principles for complete financial statements. These statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's 1993 Annual Report as amended on
Form 10-K/A for further information.
2. Inventory Pricing
Inventories consist primarily of purchased goods for sale. The Company's
inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method of accounting. Because the inventory determination
under the LIFO method can only be made at the end of each fiscal year, interim
financial results are based on estimated LIFO amounts and are subject to final
year-end LIFO inventory adjustments.
3. Acquisition
Effective March 1, 1994, under the terms of an asset purchase agreement
consummated in April, 1994, the Company purchased substantially all of the
assets and assumed certain of the liabilities of Minneapolis-based, T.K. Gray
Inc., (Gray) a regional distributor of graphics arts and printed circuit
supplies and equipment. The purchase price was approximately $15.4 million
which was paid in April, 1994. At March 31, 1994, the liability for the
acquisition was shown as a current obligation to the extent of the Company's
short-term investments of approximately $5.2 million (which were redeemed in
April, 1994) with the balance of approximately $10.2 million (which was funded
through the Company's revolving credit agreements) included in long-term
obligations.
The acquisition of Gray (a closely-held Sub-Chapter S corporation) is
accounted for as a purchase. Assuming the acquisition had occurred at the
beginning of the period, unaudited pro-forma sales and net income for the
three months ended March 31, 1994 would have been approximately $42.3 million
and $41,000 ($.01 per share), respectively. For the three months ended March
31, 1993, unaudited pro-forma sales, loss from continuing operations and net
income would have been $41.0 million, $321,000 ($.09 loss per share) and
$307,000 ($.08 per share), respectively. The pro-forma net income has been
adjusted, in general, for reductions in officers' compensation pursuant to the
terms of individual employment contracts with Momentum, reduced legal and
accounting fees (in-house counsel and audit fees for one entity) and costs
associated with purchase price adjustments (amortization of intangibles, debt
service costs, and taxes).
4. Goodwill
Goodwill, the excess of the purchase price over the fair value of the net
assets of acquired businesses, is being amortized on a straight-line method
over a fifteen year period. Goodwill, net of amortization, was approximately
$9.5 million at March 31, 1994 and $.1 million at December 31, 1993.
5. Dividends
No dividends were paid for the quarter ended March 31, 1994. The Company has
no plans to pay any cash dividends.
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MOMENTUM CORPORATION
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
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Net income from continuing operations for the quarter ended March 31, 1994 was
$159,000 ($.05 per share) on sales of $34,673,000 compared to a net loss of
$450,000 ($.12 loss per share) on sales of $30,003,000 for the same quarter
last year.
The 15.6% sales increase for the quarter over the same quarter last year was
primarily due to the acquisition of Gray. Excluding the sales of Gray, the
Company's sales increase of 1.5% was below expectations. There are two
reasons. First, the industry's major manufacturers have not increased prices
since early 1993. Second, and more importantly, the industry's shift away
from the traditional procedures is accelerating toward the digital preparation
of text and images for printing. The Company has anticipated this change in
demand, and has gradually shifted its organization to increase its
participation in the areas of the industry which offer continued growth:
electronic pre-press systems and pressroom consumables. Revenues from pre-
press systems, which was the Company's first area of emphasis, increased 66%
(81% with Gray) over last year. The technical resources which the Company
believes are required to increase pressroom consumable sales were added during
the second half of 1993 and are anticipated to begin having a significant
impact on sales in the second half of the year.
Selling and administrative expenses were 18.6% of sales for the quarter
compared to 20.3% for the first quarter last year. This improvement is due to
the increased sales volume as a result of the Gray acquisition and the expense
reduction program established in 1993.
The restructure charge for 1993 of $182,000 represents salaries and benefits
applicable to positions which were eliminated as a result of the divestiture
of the discontinued operations.
The tax rate on income from continuing operations was 48% for the quarter
compared to a 34% benefit on the loss for the first quarter of last year. The
high tax rate for 1994, was due to state tax expenses and nondeductible
expenses.
Income from discontinued operations represents earnings from the Company's
Textiles Group which was disposed of in September, 1993.
Financial Condition and Liquidity
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The Company had a cash outflow from operating activities of $1.3 million
during the first quarter. This net outflow was the result of a $2.1 million
increase in receivables. Receivables at December 31, 1993 were at a low level
due to the traditionally lower sales levels in December. The Company
anticipates improvement in cash flow from operations during the remainder of
the year.
Cash flow from investing activities for the quarter consisted of $2.4 million
in additional proceeds from the 1993 sale of discontinued operations offset by
$49,000 in property and equipment additions and $106,000 in other asset
additions. During the second quarter, the Company received an additional $1
million from the sale of the discontinued operations and expended
approximately $15.4 million for payment of the acquisition of Gray.
Financing activities resulted in a net cash outflow of $70,000. This was the
result of the purchase of treasury shares offset primarily by an increase in
debt.
<PAGE>
The Company's primary source of debt financing is two revolving credit
agreements, with a total commitment of $17.5 million, subject to certain
covenant restrictions. One agreement expires in July, 1995 and the other in
January, 1996. At March 31, 1994, there was no outstanding debt under these
agreements.
At March 31, 1994, the Company had $5.2 million in short-term investments.
These investments combined with the revolving credit commitments provide over
$22 million in available funds. Approximately $15.4 million was expended in
April, 1994 to purchase Gray. The balance of these funds combined with
anticipated proceeds from operations plus $1.0 million additional proceeds
from the sale of the discontinued operations provide adequate financing for
the internal growth of the Company. Any additional expansion of the Company
through acquisitions would potentially require additional sources of
financing.
During inflationary times, the Company's prices generally rise in tandem with
costs. Operating results partially provide for the effects of inflation by
using LIFO inventory accounting, so that the cost of sales generally reflects
the most recent cost of the inventory sold. Asset values are based upon
historical costs that do not necessarily represent either replacement costs or
result in charges to operations based on replacement costs; however, since the
Company is not capital intensive, it is the Company's opinion that charging
operations for replacement costs of long-lived assets would not significantly
reduce income from operations.
On March 17, 1994, the Company signed an agreement in principle to combine
with Phillips & Jacobs, Incorporated (P&J), a national distributor of
photographic and graphic arts supplies and equipment with sales in excess of
$160 million. The combination is subject to the execution of a definitive
agreement, the approval of the shareholders of both Momentum and P&J,
satisfactory completion of due diligence investigations by both parties,
receipt of customary regulatory approvals, and satisfaction of certain other
standard conditions. Pending the above approvals, the combination is expected
to be completed in the late summer of 1994.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11 -- Earnings per share information.
b. Reports on Form 8-K:
On May 2, 1994, the Company filed a Form 8-K to report the
acquisition of substantially all of the assets and assumption of
certain of the liabilities of T.K. Gray Inc.
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SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(REGISTRANT) MOMENTUM CORPORATION
BY (SIGNATURE)
(NAME AND TITLE) PATSY R. TURNIPSEED
Senior Vice President
Chief Financial Officer
(principal financial and accounting officer)
DATE May 13, 1994
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EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION PAGE
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11 Computation of Earnings per Share Exhibit 11 - p.1
EXHIBIT-11
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COMPUTATION OF EARNINGS (LOSS) PER SHARE
Three Months
Ended March 31,
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(Amounts in thousands except per share data) 1994 1993
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PRIMARY
Average shares outstanding 3,435 3,547
Net effect of dilutive stock options-
based on the treasury stock method using
average market price 78 93
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3,513 3,640
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Income (Loss) from Continuing Operations $ 159 $ (450)
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Per share amount $ .05 $ (.12)
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Income from Discontinued Operations $ --- $ 628
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Per share amount $ --- $ .17
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Net Income $ 159 $ 178
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Per share amount $ .05 $ .05
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