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, 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 August 9, 1994
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Common stock, par value $1.00 3,437,912 shares
<PAGE>
MOMENTUM CORPORATION
INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets
June 30, 1994 and December 31, 1993 3
Statements of Operations
Three and Six Months Ended June 30, 1994 and 1993 4
Statements of Cash Flows
Three and Six Months Ended June 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MOMENTUM CORPORATION
BALANCE SHEETS
June 30, December 31,
1994 1993
(Thousands of dollars) (Unaudited)
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ASSETS
Current Assets:
Investments $ 6,123
Receivables, less reserves of $480 and $374 $ 21,373 20,841
Inventories 18,228 14,179
Other 1,356 1,051
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Total Current Assets 40,957 42,194
Property and Equipment 14,910 14,457
Less allowances for depreciation (7,866) (7,317)
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7,044 7,140
Goodwill and Other Assets 13,158 3,096
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$ 61,159 $ 52,430
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank checks outstanding less cash in bank $ 737 $ 1,925
Accounts payable and accrued liabilities 15,817 13,537
Current portion of long-term obligations 180 174
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Total Current Liabilities 16,734 15,636
Long-Term Obligations 9,509 1,793
Deferred Items 1,078 1,052
Shareholders' Equity
Preferred stock, $1 par value
1,000,000 shares authorized, none issued
Common stock, $1 par value
5,000,000 shares authorized,
3,558,903 issued 3,559 3,559
Other shareholders' equity 30,279 30,390
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33,838 33,949
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$ 61,159 $ 52,430
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See notes to consolidated financial statements
<PAGE>
MOMENTUM CORPORATION AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
(Thousands of dollars, --------------------- ---------------------
except per share data) 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Sales $ 40,332 $ 30,142 $ 75,005 $ 60,145
Cost of sales 32,529 24,204 60,438 48,494
---------- ---------- ---------- ----------
Gross Margin 7,803 5,938 14,567 11,651
Selling & admin. expenses 7,037 6,219 13,474 12,318
Restructure and other charges 1,180 1,362
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Income (Loss) From Operations 766 (1,461) 1,093 (2,029)
Interest expense (153) (137) (227) (249)
Other income-net 33 19 84 19
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Income (Loss) Before Income Taxes 646 (1,579) 950 (2,259)
Income tax expense (benefit) 280 (570) 425 (800)
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Income (Loss) From Continuing Operations
Before Extraordinary Expenses 366 (1,009) 525 (1,459)
Income from discontinued operations 584 1,212
Extraordinary expenses, merger costs (620) (620)
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Net Loss $ (254) $ (425) $ (95) $ (247)
========== ========== ========== ==========
Income (Loss) Per Share
Continuing operations
before extraordinary expenses $ .11 $ (.28) $ .15 $ (.41)
Discontinued operations .16 .34
Extraordinary expenses, merger costs (.18) (.18)
---------- ---------- ---------- ----------
Net loss $ (.07) (.12) (.03) (.07)
========== ========== ========== ==========
Weighted average shares outstanding 3,437,579 3,555,460 3,436,277 3,551,344
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
MOMENTUM CORPORATION
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months
Ended June 30,
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(Thousands of dollars) 1994 1993
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Operating Activities:
Income (loss) from continuing operations
before extraordinary expenses $ 525 $ (1,459)
Adjustments to reconcile income (loss)
from continuing operations before extraordinary
expenses to cash provided (used) by
operating activities
Depreciation and amortization 907 812
ESOP shares allocated 39 83
Change in assets and liabilities,
net of effect of business acquired
Receivables 1,262 (2,648)
Inventories 987 (1,482)
Other current assets (293) (510)
Accounts payable and accrued liabilities (2,504) 1,984
Deferred items 26 (45)
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949 (3,265)
Income from discontinued operations 1,212
Adjustments to reconcile income from discontinued
operations to cash provided by operating activities (968)
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Cash Provided (Used) by Operating Activities 949 (3,021)
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Investing Activities:
Additions to property and equipment (293) (570)
Proceeds from sale of discontinued operations 3,363
Acquisition of T.K. Gray, Inc. (15,407)
Payment of merger costs (330)
Net reduction (increase) in goodwill and other assets (769) 54
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Cash Provided (Used) by Investing Activities (13,436) (516)
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Financing Activities:
Proceeds from long-term obligations 27,301 47,300
Repayment of long-term obligations (19,579) (43,071)
Purchase of treasury shares (186)
Proceeds from exercise of stock options 16 32
Proceeds from issuance of stock 40
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Cash Provided by Financing Activities 7,552 4,301
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Net Increase (Decrease) in Cash and Cash Equivalents (4,935) 764
Cash and cash equivalents at beginning of period 4,198 (1,259)
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Cash and Cash Equivalents at End of Period $ (737) $ (495)
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 223 $ 481
Income taxes 201 544
========= =========
See notes to consolidated financial statements
<PAGE>
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 with proceeds from the redemption of short-term
investments of $5.0 million and the balance of $10.4 million funded through
the Company's revolving credit agreements.
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, income from continuing
operations before extraordinary expenses, and net loss for the six months
ended June 30, 1994 would have been approximately $82.7 million, $364,000
($.11 income per share), and $256,000 ($.07 loss per share), respectively.
For the six months ended June 30, 1993, unaudited pro-forma sales, loss from
continuing operations, and net loss would have been $81.9 million, $1,225,000
($.34 loss per share) and $13,000 (none per share), respectively. The pro-
forma results have been adjusted for 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
$9.4 million at June 30, 1994 and $.1 million at December 31, 1993.
<PAGE>
5. Merger/Merger Expenses
On March 17, 1994, the Company signed an agreement in principle to merge with
Phillips & Jacobs, Incorporated (P&J), a national distributor of photographic
and graphic arts supplies and equipment with 1993 sales in excess of $160
million. The merger is subject to shareholder approval at a special meeting
of shareholders to be held on September 1, 1994. Closing of the merger is
expected to occur immediately after the shareholders' approval.
Through June, 1994, the Company had incurred expenses, primarily professional
fees, associated with this merger of $620,000. These expenses, which are not
deductible for income tax purposes, are shown as an extraordinary item on the
statement of operations. The Company anticipates the total merger expenses to
be approximately $1 million. In addition, the Company anticipates to incur
employee severance costs of approximately $700,000.
6. Dividends
No dividends were paid for the quarter ended June 30, 1994. The Company has
no plans to pay any cash dividends.
<PAGE>
MOMENTUM CORPORATION
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
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Income from continuing operations before extraordinary expenses for the
quarter ended June 30, 1994 was $366,000 ($.11 per share) on sales of
$40,332,000 compared to a net loss of $1,009,000 ($.28 loss per share) on
sales of $30,142,000 for the same quarter last year. For the six months ended
June 30, 1994, income from continuing operations before extraordinary expenses
was $525,000 ($.15 per share) on sales of $75,005,000 compared to a net loss
of $1,459,000 ($.41 loss per share) on sales of $60,145,000 for the same
period last year. After including extraordinary expenses in 1994 and income
from discontinued operations in 1993, the net loss was $254,000 ($.07 loss per
share) and $425,000 ($.12 loss per share) for the quarters ended June 30, 1994
and 1993, respectively. For the six month period, the net loss was $95,000
($.03 loss per share) for 1994 and $247,000 ($.07 loss per share) for 1993.
The 34% sales increase for the quarter and 17% increase for the six month
period, compared to the same periods in 1993, is due to the acquisition of
Gray in March, 1994. Excluding the sales of Gray, the Company's sales were
down 4% for the quarter and 1% for the six month period. This decline is
primarily due to extremely weak sales in the Company's west coast locations.
In general, sluggish sales of consumables, especially those used in pre-press
operations, have been offset by strong sales of electronic pre-press products,
systems and services. For the six month period, revenues from pre-press
systems increased 58% (81% with Gray) over last year.
Compared to the same periods last year, selling and administrative expenses as
a percent of sales decreased from 20.6% to 17.4% for the quarter and from
20.5% to 18% for the six month period. This improvement is due primarily to
the increased sales volume as a result of the Gray acquisition and the expense
reduction program established in 1993.
The restructure and other charges for 1993 of $1,362,000 consists of $1
million of restructuring expenses for the reorganizing of the Company's sales
and marketing function (primarily employee severance and relocation costs) and
$362,000 of salaries and benefits applicable to positions which were
eliminated as a result of the divestiture of the discontinued operations. The
majority of the payments for the reorganizing of the sales and marketing
function were paid in the third and fourth quarter of 1993 with proceeds from
the sale of the Textiles Group.
The tax rate on income from continuing operations was 43% for the quarter
compared to a 36% benefit on the loss for the first quarter of last year. For
the six month period, the tax rate on income from continuing operations was
45% compared to a 35% benefit on the loss for 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.
Extraordinary expenses of $620,000 are costs (primarily professional fees)
associated with the merger with P&J. The Company anticipates the total merger
expenses to be approximately $1 million. In addition, the Company anticipates
to incur employee severance costs of approximately $700,000.
<PAGE>
Financial Condition and Liquidity
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The Company had a cash flow from operating activities of $949,000 during the
six months ended June 30, 1994. Non-cash expenses of $946,000 increased cash
flow, while an increase in working capital of $548,000 decreased cash flow.
The Company anticipates to continue to generate cash flow from operations over
the remainder of the year.
Cash outflow from investing activities for the six month period was $13.4
million. This was primarily due to the purchase of Gray for $15.4 million
offset by $3.4 million of proceeds received on the sale of the Textiles Group.
In addition, the Company had additional expenditures of $1.4 million for
property and equipment additions, other assets, and payment of merger costs.
During the remainder of the year, the Company anticipates additional merger
and employee severance costs of approximately $1.4 million. Additional
capital expenditures are not projected to be material.
Financing activities resulted in a net cash outflow of $7.6 million. This was
primarily the result of increased borrowing under the Company's revolving
credit lines for payment of the Gray acquisition.
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 June 30, 1994, $7.8 million was outstanding under these
agreements. The Company believes these credit facilities combined with the
cash flow from operations provide adequate financing for the Company.
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.
Effects of the Merger
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The merger would create a national distribution company, without incurring the
financial burdens of acquisition debt, with anticipated annualized revenues of
approximately $350 million and annualized earnings of approximately $5
million. Sales, especially to national accounts, are likely to increase, but
short-term cost reductions are not expected to be significant. Borrowings for
working capital are not expected to increase nor is it anticipated that there
will be any increase in capital expenditures above current levels. The
current ratio will increase somewhat as a result of the merger and working
capital will increase to over $50 million. Shareholders' equity will also
increase substantially to over $45 million, strengthening the combined
company's balance sheet and improving its borrowing power.
<PAGE>
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. On June 15, 1994,
this filing was amended to incorporate the financial information
required under Item 7 of the Form 8-K. The initial filing requested
a 60 day extension to provide such information.
<PAGE>
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 August 12, 1994
<PAGE>
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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<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS (LOSS) PER SHARE
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
(Amounts in thousands except per share data) 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 3,437,579 3,555,460 3,436,277 3,551,344
========== ========== ========== ==========
Income (Loss) from Continuing Operations
Before Extraordinary Expenses $ 366 $ (1,009) $ 525 $ (1,459)
========== ========== ========== ==========
Per share amount $ .11 $ (.28) $ .15 $ (.41)
========== ========== ========== ==========
Income from Discontinued Operations $ --- $ 584 $ --- $ 1,212
========== ========== ========== ==========
Per share amount $ --- $ .16 $ --- $ .34
========== ========== ========== ==========
Extraordinary Expenses, Merger Costs $ (620) $ --- $ (620) $ ---
========== ========== ========== ==========
Per share amount $ (.18) $ --- $ (.18) $ ---
========== ========== ========== ==========
Net Loss $ (254) $ (425) $ (95) $ (247)
========== ========== ========== ==========
Per share amount $ (.07) $ (.12) $ (.03) $ (.07)
========== ========== ========== ==========
Common stock equivalents have not been considered in computing losses per share as the effect
is anti-dilutive.
</TABLE>
