<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL QUARTER ENDED MARCH 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------- ----------------
Commission File No. 0-21954
IMAGE INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2962635
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1112 GEORGIA HIGHWAY 140
ARMUCHEE, GEORGIA 30105
(Registrant's address of principal executive offices, including zip code)
(706) 235-8444
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.01 PAR VALUE
(Title of Class)
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
---- -----
The number of shares of Registrant's Common Stock, outstanding as of
May 9, 1996 was 5,249,697 an additional 950,303 shares of Common Stock are
issuable within sixty (60) days upon the exercise of nonqualified and incentive
stock options, and an additional 44,612 shares of Common Stock are issuable
upon the exercise of incentive stock options but are not exercisable within
sixty (60) days.
================================================================================
<PAGE> 2
IMAGE INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I . FINANCIAL INFORMATION ----
<S> <C> <C> <C>
Item 1. Financial Statements...................................................................1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................................2
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................10
Item 2. Changes in Securities.................................................................10
Item 3. Defaults Upon Senior Securities ......................................................10
Item 4. Submission of Matters to a Vote of Security Holders ..................................10
Item 5. Other Information ....................................................................10
Item 6. Exhibits and Reports on Form 8-K......................................................10
SIGNATURES.......................................................................................................18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Financial Statements
<TABLE>
<S> <C>
Condensed Balance Sheets -
July 1, 1995 and March 30, 1996 (Unaudited) ...........................................................F-1
Condensed Statements of Earnings (Unaudited) for
the Three Months and Nine Months Ended April 1, 1995
and March 30, 1996.....................................................................................F-3
Condensed Statements of Cash Flows (Unaudited)
for the Nine Months Ended April 1, 1995
and March 30, 1996.....................................................................................F-4
Notes to Condensed Financial Statements ........................................................................F-5
</TABLE>
1
<PAGE> 4
IMAGE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
July 1, March 30,
ASSETS 1995 1996
------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 186 125
Trade accounts receivable, less allowance
of $176 and $103 at July 1, 1995 and March 30,
1996, respectively 18,378 22,094
Inventories (note 2) 31,549 31,981
Prepaid expenses and other current assets 134 1,960
Deferred income tax benefit 760 760
-------- --------
Total current assets 51,007 56,920
-------- --------
Property, plant and equipment, at cost 95,841 101,650
Less accumulated depreciation and amortization 21,250 26,005
-------- --------
Net property, plant and equipment 74,591 75,645
-------- --------
Other assets :
Deferred income tax benefit 5,474 5,119
Deposits and other 411 297
-------- --------
Total other assets 5,885 5,416
-------- --------
$131,483 137,981
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
F-1
<PAGE> 5
IMAGE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
July 1, March 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
---------- ---------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current installments of long term debt and
capital lease obligations $ 227 219
Trade accounts payable 14,072 10,831
Accrued expenses and other accounts payable 4,621 4,621
--------- --------
Total current liabilities 18,920 15,671
--------- --------
Long term debt and capital lease obligations,
excluding current installments 53,822 61,218
Deferred income tax liability 7,585 8,524
--------- --------
Total liabilities 80,327 85,413
--------- --------
Stockholders' equity:
Preferred stock, $.01 par value per share, authorized
10,000 shares; none issued and outstanding - -
Common stock, $.01 par value per share, authorized
20,000 shares; issued and outstanding 5,227
and 5,248 shares at July 1, 1995 and March 30,
1996, respectively 52 52
Additional paid-in capital 39,773 39,761
Retained earnings 11,331 12,755
--------- --------
Total stockholders' equity 51,156 52,568
--------- --------
$ 131,483 137,981
========= ========
</TABLE>
See accompanying notes to condensed financial statements.
F-2
<PAGE> 6
IMAGE INDUSTRIES, INC.
CONDENSED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
April 1, March 30, April 1, March 30,
1995 1996 1995 1996
------------- ------------- ------------- -------------
(Fiscal 1995) (Fiscal 1996) (Fiscal 1995) (Fiscal 1996)
<S> <C> <C> <C> <C>
Net sales $ 34,489 37,573 99,617 117,473
Cost of sales 26,672 31,544 75,605 97,130
------------- ------------- ------------- -------------
Gross profit 7,817 6,029 24,012 20,343
Selling, general and administrative expenses 4,946 4,881 14,420 14,992
------------- ------------- ------------- -------------
Operating income 2,871 1,148 9,592 5,351
Interest expense 471 1,042 943 3,083
Other (income) expense, net (26) 75 (26) 117
------------- ------------- ------------- -------------
Earnings before income taxes 2,426 31 8,675 2,151
Income tax provision (benefit) 765 (77) 3,158 727
------------- ------------- ------------- -------------
Net earnings $ 1,661 108 5,517 1,424
============= ============= ============= =============
Earnings per share information:
Net earnings $ 0.29 0.02 0.95 0.23
============= ============= ============= =============
Weighted average number of common and
common equivalent shares outstanding 5,812 6,203 5,807 6,205
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed financial statements.
F-3
<PAGE> 7
IMAGE INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
April 1, March 30,
1995 1996
------------- --------------
(Fiscal 1995) (Fiscal 1996)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,517 1,424
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization 3,069 4,991
Deferred income taxes 1,101 1,302
(Gain) Loss on disposal of fixed assets (9) 126
Changes in operating assets and liabilities (9,370) (9,216)
------------- --------------
Net cash provided by (used in) operating activities 308 (1,373)
------------- --------------
Cash flows from investing activities:
Capital expenditures (15,290) (6,060)
Proceeds from disposal of equipment 124 23
------------- --------------
Net cash used in investing activities (15,166) (6,037)
------------- --------------
Cash flows from financing activities:
Net borrowings under line
of credit agreements 15,104 7,534
Principal payments on long term debt
and capital lease obligations (160) (165)
Issuance of long term debt 26 -
Cost of issuance and registration of shares - (20)
------------- --------------
Net cash provided by financing activities 14,970 7,349
------------- --------------
Net decrease in cash 112 (61)
Cash at beginning of period 14 186
------------- --------------
Cash at end of period $ 126 125
============= ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,219 2,873
============= ==============
Cash paid during the period for income taxes $ 2,712 565
============= ==============
Incurrance of capital lease obligations for equipment $ - 19
============= ==============
</TABLE>
See accompanying notes to condensed financial statements.
F-4
<PAGE> 8
IMAGE INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED APRIL 1, 1995 AND MARCH 30, 1996 IS
UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended March
30, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 29, 1996. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be
read in conjunction with the financial statements and footnotes
thereto included in the Company's Form 10-K for the fiscal year ended
July 1, 1995, as filed with the Securities and Exchange Commission on
September 29, 1995.
(2) Inventories
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
July 1, March 30,
1995 1996
-------- ---------
(unaudited)
<S> <C> <C>
Raw materials $13,761 15,796
Work in process 1,890 2,254
Finished goods 15,898 13,931
------- ------
$31,549 31,981
======= ======
</TABLE>
(3) Segment Reporting
The Company's operations consist of two functional areas, carpet
manufacturing and plastics recycling. Income from operations by
segment is total sales to unaffiliated customers less expenses which
are deemed to be related to the operation of that functional area.
Amounts listed as "Other" are general in nature and are not directly
allocable to either segment. Financial information for these
identified segments is summarized in the following table (in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 30, 1996 March 30, 1996
-------------- --------------
Carpet Recycling Other Carpet Recycling Other
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $27,313 $ 9,573 $ 687 $89,905 $25,304 $2,264
Operating income 1,701 216 (769) 6,403 1,314 (2,366)
Identifiable assets:
Receivables 15,573 6,129 392 15,573 6,129 392
Inventory 18,862 13,119 - 18,862 13,119 -
Property, plant and equipment 54,546 46,820 284 54,546 46,820 284
Accumulated depreciation 17,474 8,349 182 17,474 8,349 182
Capital expenditures 368 1,191 - 4,377 1,683 -
</TABLE>
F-5
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Company has been involved in the manufacture and sale of carpet,
primarily for the residential market, since 1976. In 1990, the Company began
implementing a strategy of lowering its production costs and diversifying its
product mix through the backward integration of its operations to include the
production of polyester fiber, PET flake and pellet, primarily from recycled
post-consumer soda bottles. The Company completed its initial public offering
(the "Initial Public Offering") on August 18, 1993, and used the net proceeds
to prepay and refinance its debt. Since that time, the Company has expanded all
areas of its manufacturing capacity.
RESULTS OF OPERATIONS
TOTAL SALES
The following table sets forth sales data with respect to total sales (sales
dollars in thousands):
Three Months Ended Nine Months Ended
------------------ -----------------
April 1, 1995 $34,489 $99,617
March 30, 1996 37,573 117,473
------- -------
Change $ 3,084 $17,856
======= =======
Percentage 8.9% 17.9%
CARPET MANUFACTURING
The Company sells its carpet products in two primary markets described
below.
Domestic Carpet Sales
The following table sets forth sales data with respect to domestic
carpet (sales dollars and square yards in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Square Average Unit Square Average Unit
Sales Yards Selling Price Sales Yards Selling Price
-------- ------- ------------- ----- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 1995 $23,875 3,884 $ 6.15 $69,598 11,392 $6.11
March 30, 1996 23,396 3,765 $ 6.21 74,438 11,764 $6.33
--------------------- ---------------------
Change $ (479) (119) $ 4,840 372
===================== =====================
Percentage (2.0)% (3.1)% 7.0% 3.3%
</TABLE>
Unit sales volumes decreased modestly for the third quarter of fiscal
1996 as a result of the inclement weather conditions in the northern part of
the United States during the winter months, most particularly during the month
of January. For the nine months ended March 30, 1996, however, sales are
significantly ahead of amounts reported for the nine months ended April 1, 1995
as a result of steady market penetration. Sales of the Company's Enviro-Tech(R)
product line increased from approximately $4.1 million in the third quarter of
fiscal 1995 to $4.5 million in the third quarter of fiscal 1996 and from
approximately $11.5 million in the nine month period ended April 1, 1995 to
$13.7 million in the nine month period ended March 30, 1996. Domestic
2
<PAGE> 10
carpet sales have tended to follow a seasonal pattern. Historically, domestic
carpet sales increase in the fourth quarter as compared to the third quarter.
Export Carpet Sales
The following table sets forth sales data with respect to export
carpet (sales dollars and square yards in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Square Average Unit Square Average Unit
Sales Yards Selling Price Sales Yards Selling Price
---------- ------- ------------- ------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 1995 $ 6,136 1,347 $4.56 $19.014 4,208 $4.52
March 30, 1996 3,917 820 $4.78 15,467 3,170 $4.88
---------------------- ---------------------
Change $ (2,219) (527) $(3,547) (1,038)
======================= =====================
Percentage (36.2)% (39.1)% (18.7)% (24.7)%
</TABLE>
Since fiscal 1994, the Company has steadily pursued a strategy to
shift carpet sales away from the highly competitive Middle Eastern market. As a
result of this strategy, export sales have declined as a percentage of all
carpet sales. Management expects that export carpet sales to the Middle Eastern
market will continue to decline in the foreseeable future.
PLASTICS RECYCLING
Polyester fiber and the PET resin from which it is made are used in an
ever-growing variety of products. During fiscal 1995, demand for PET and
polyester fiber increased dramatically due to a shortage of cotton in world
markets. PET resin demand also increased in response to high prices for
competitive packaging materials such as aluminum and glass. The combined
increase in demand resulted in significant increases in selling prices for all
of the Company's recycled plastic products as compared to the first and second
quarters of fiscal 1995.
During the third quarter of fiscal 1996, the market price of polyester
fiber and PET resin fell significantly. This resulted in a decline in selling
prices of the Company's recycled plastics products during the third quarter of
fiscal 1996.
The Company sells its recycled plastics products in three primary markets as
described below.
3
<PAGE> 11
Polyester Fiber Sales
The following table sets forth sales data with respect to polyester
fiber (sales dollars and pounds in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Average Unit Average Unit
Sales Pounds Selling Price Sales Pounds Selling Price
-------- ------- -------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 1995 $1,227 2,265 $0.54 $ 3,075 5,909 $0.52
March 30, 1996 6,031 9,125 $0.66 14,962 22,135 $0.68
-------------------- --------------------
Change $4,804 6,860 $11,887 16,226
==================== ====================
Percentage 391.5% 302.9% 386.6% 274.6%
</TABLE>
Unit volume continued to show significant increases in both the
quarter and nine months ending March 30, 1995. However, as discussed above,
selling prices have started to fall in response to increasing worldwide
polyester fiber production. The Company's growth in fiber sales resulted from
the production of additional quantities of fiber from the Company's second
polyester fiber extrusion line which became fully operational in the fourth
quarter of fiscal 1995. Polyester fiber sales are expected to continue to
improve but at a slower rate than during the first nine months of fiscal 1996.
Management is investigating ways to increase fiber production within the
framework of existing facilities.
PET Flake Sales
The following table sets forth sales data with respect to PET flake
(sales dollars and pounds in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Average Unit Average Unit
Sales Pounds Selling Price Sales Pounds Selling Price
------- ------ ------------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 1995 $2,017 5,007 $ 0.40 $4,797 13,280 $0.36
March 30, 1996 2,677 5,411 $ 0.49 7,842 14,613 $0.54
-------------------- --------------------
Change $ 660 404 $3,045 1,333
==================== ====================
Percentage 32.7% 8.1% 63.5% 10.0%
</TABLE>
Increased PET flake sales have resulted from higher average selling
prices and significant growth in unit volume. However, as discussed above,
selling prices have begun to decline. This trend is expected to continue during
the fourth quarter of fiscal 1996 as well. The unit volume increases are
chiefly attributable to the completion of the Company's third PET flake
washline during the first quarter of fiscal 1996.
4
<PAGE> 12
PET Pellet Sales
The following table sets forth sales data with respect to PET Pellet
(sales dollars and pounds in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Average Unit Average Unit
Sales Pounds Selling Price Sales Pounds Selling Price
----- ------- ------------- ----- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 1995 $ 1,032 2,069 $ 0.50 $ 2,711 5,701 $ 0.48
March 30, 1996 865 1,439 $ 0.60 2,500 3,821 $ 0.65
----------------------- ----------------------
Change $ (167) (630) $ (211) (1,880)
======================= ======================
Percentage (16.2)% (30.4%) (7.8)% (33.0)%
</TABLE>
The market for the Company's PET pellet is heavily influenced by the
market for virgin PET resin, which is also sold in pellet form. As a result of
the dramatic increase in the cost of the Company's recycled PET raw materials
during the third and fourth quarters of fiscal 1995 and the first quarter of
fiscal 1996, the prices of the Company's PET pellet products was not
competitive with virgin PET resin, resulting in decreases in sales volumes.
Management does not expect significant improvement in PET pellet sales for the
remainder of fiscal 1996.
By-Product Sales
The Company has begun selling certain goods which are essentially
by-products of the recycling process. As the Company has increased the
production capacities of its recycled PET products, greater quantities of
by-products have been produced in the normal course of business, most notably
waste polyester fiber, polyvinyl chloride and high density polyethylene. The
net sales for these by-products during the third quarter of fiscal 1996 was
approximately $0.5 million. Sales in prior periods were not significant.
The Company does not expect seasonality to play an important role in
the quarterly sales of its plastic recycling products.
STATEMENT OF OPERATIONS DATA
The following table sets forth certain statement of operations data
for the periods ended April 1, 1995 and March 30, 1996, expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
APRIL 1, 1995 MARCH 30, 1996 APRIL 1, 1995 MARCH 30, 1996
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.3 83.9 75.9 82.7
---- ---- ----- ----
Gross margin 22.7 16.1 24.1 17.3
Selling, general and administrative
expenses 14.3 13.0 14.5 12.7
---- ---- ----- -----
Operating income 8.4% 3.1% 9.6% 4.6%
==== ==== ===== =====
</TABLE>
5
<PAGE> 13
Gross Margin
In the third quarter of fiscal 1996, gross margin decreased by 6.6% from
the comparable quarter of fiscal 1995. In the nine month period ended March 30,
1996, gross margin decreased by 6.8% from the comparable period in fiscal 1995.
High raw materials prices during the third and fourth quarters of fiscal 1995,
and the first quarter and part of the second quarter of fiscal 1996, have had a
negative impact on gross margin during the third quarter of fiscal 1996 and the
nine months ended March 30, 1996. Current pricing of recycled PET raw materials
has fallen approximately 50% since September 1995.
During the fourth quarter of fiscal 1995 and the first three quarters of
fiscal 1996, Management has taken several steps to reduce unit operating costs.
The first of these was the acquisition of the Company's third carpet yarn
spinning mill located in Rome, Georgia. The acquisition of this plant
significantly reduced the cost of yarn conversion on approximately 22 million
annual pounds of the Company's carpet yarn needs. Management's second action
was the construction of the Company's third recycled plastic sortation and
granulation line, which allowed the Company to shift its raw material supply
more toward less expensive whole bottles and away from pre-ground PET flake. A
fourth recycled plastic sortation line is currently under construction and is
expected to be operational by the first quarter of fiscal 1997. Once complete,
there will be sufficient capacity to eliminate the need to purchase pre-ground
PET raw materials which are significantly more expensive than whole bottles.
Finally, the Company completed construction of its third PET flake washing line
which improves the production efficiency and yield of this important process.
Management expects that these improvements and reduced raw materials costs,
taken as a whole, should result in improved gross margins beginning in the
fourth quarter of fiscal 1996.
Gross margin for the Company's overall operations was approximately 16.1%
of net sales in the third quarter of fiscal 1996 and 17.3% of net sales in the
nine months ended March 30, 1996. When analyzed by segment, the results are
somewhat different. For carpet products, gross margin was approximately 18.7%
for the third quarter of fiscal 1996 and 18.6% for the nine months ending March
30, 1996. For recycled plastic products, gross margin was approximately 2.7% of
net sales in the third quarter of fiscal 1996 and 5.9% of net sales in the nine
months ended March 30, 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to 13.0% of net
sales in the third quarter of fiscal 1996 compared to 14.3% of net sales in the
same period in fiscal 1995. Selling, general and administrative expenses
decreased to 12.7% of net sales in the nine months ended March 30, 1996
compared to 14.5% in the same period in fiscal 1995. These percentage decreases
are due primarily to the increased sales of polyester fiber, PET flake and PET
pellet.
Marketing carpet products to floor covering retailers requires significant
expenditures for product sampling, commission sales personnel, sales promotions
and administrative support. Recycled plastic products are sold in a commodity
marketplace that does not require the same commitment of administration and
marketing resources as do carpet products.
6
<PAGE> 14
In the three months and nine months ended March 30, 1996, selling, general
and administrative expenses attributable to all carpet products were
approximately $3.4 million and $10.4 million, respectively, representing 12.5%
and 11.5% of all carpet sales for each of the periods. In the three months and
nine months ended March 30, 1996, selling, general and administrative expenses
attributable to all recycled plastic products were less than $0.1 million and
$0.2 million respectively, representing 0.5% and 0.7% of recycled plastic sales
for each of the periods. Administrative costs of approximately $1.4 million in
the third quarter of fiscal 1996 and $4.4 million in the nine months ended
March 30, 1996 were general in nature and not directly attributable to either
sales segment in fiscal 1996.
Interest Expense
The increase in interest expense in the third quarter of fiscal 1996 and
the nine months ended March 30, 1996 over the comparable periods in fiscal 1995
was due primarily to the debt incurred to acquire the assets of Pharr Yarns of
Georgia, Inc. on June 30, 1995. Significant capital expenditures in fiscal 1995
and the Company's increased working capital requirements also contributed to
higher debt levels and interest expense. At March 30, 1996, approximately $3.7
million of the amounts owed under the Company's credit facility incurred
interest at the prime rate (8.25% at March 30, 1996). The remaining $55.0
million owed under the credit facility incurred interest at the Eurodollar rate
plus 1%, or approximately 6.72% at March 30, 1996. The Company has capitalized
approximately $0.1 million in interest costs in the nine months ending March
30, 1996.
Income Taxes
In the nine months ended March 30, 1996, the Company has recognized a net
provision of $0.7 million. This net provision includes a current benefit of
$0.5 million and a deferred provision of $1.3 million. The net provsion also
includes a $0.1 million in current benefit resulting from adjustments
determined upon the completion and filing of the Company's 1995 tax returns
during the third quarter of fiscal 1996.
In the nine months ended April 1, 1995, the Company recognized a net
provision of $3.2 million. This net provision included a current liability $2.8
million and a deferred provision of $0.5 million. The net provision in the nine
months ended April 1, 1995 also included a current benefit resulting from
adjustments determined upon the completion and filing of the Company's 1994 tax
returns during the third quarter of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
General
Net cash provided by operating activities was approximately $0.3 million
in the nine months ended April 1, 1995. In the nine months ended March 30,
1996, operating activities
7
<PAGE> 15
resulted in a net use of cash totaling approximately $1.4 million. All
components of working capital increased in accordance with the significantly
higher sales recorded in the first nine months of fiscal 1996. Net working
capital increased by $9.2 million between July 1, 1995 and March 30, 1996,
representing a growth of approximately 28.6% during the period.
At March 30, 1996, the Company had long-term debt and capital lease
obligations of approximately $61.4 million. At July 1, 1995, the Company had
long-term debt and capital lease obligations of approximately $54.0 million.
This increase is primarily attributable to capital expenditures and increased
working capital requirements.
As of March 30, 1996, the Company's obligations under purchase contracts
totaled approximately $0.3 million.
On November 3, 1995, the Company amended its credit facility with The
First National Bank of Boston, First Union National Bank of Georgia and
Wachovia Bank of Georgia, NA. The amended credit facility increased the
Company's line of credit from $60.0 million to $70.0 million. The Company's
borrowings under the amended credit facility are secured by a first priority
lien on all assets. The credit facility contains numerous covenants relating to
restrictions on certain types of indebtedness, minimum earnings levels and
tangible net worth. Management believes that the net cash provided by
operations and borrowings available under the credit facility are sufficient to
meet the Company's anticipated liquidity and capital expansion needs.
Capital Expenditures
In the third quarter of fiscal 1996, capital expenditures were $1.6
million. Capital expenditures for the nine months ended March 30, 1996 were
$6.1 million. In the third quarter of fiscal 1995, capital expenditures were
$4.1 million. Capital expenditures for the first nine months of fiscal 1995
were $15.3 million. Capital expenditures for the first nine months of fiscal
1996 primarily related to the purchase of additional yarn spinning, carpet
tufting and dyeing equipment as well as continued additions to PET bottle
sortation and granulation machinery and PET flake washing capacity. Capital
expenditures in the first nine months of fiscal 1995 primarily related to the
Company's second bottle sortation and granulation production line and the
Company's second recycled polyester fiber extrusion line and related
facilities. Expenditures were financed by funds borrowed under the Company's
credit facility. Projects which are currently in the early stages of design
include a new 300,000 square foot distribution center which will ultimately
replace all existing shipping facilities for the Company's carpet-related
products. This new facility is expected to be operational during the fourth
quarter of fiscal 1997. Capital expenditures for the remainder of fiscal 1996
are expected to be financed by funds borrowed under the credit facility.
Management estimates that capital expenditures to complete all projects
currently in progress will be approximately $3.4 million for the remainder of
fiscal 1996.
Long-Term Debt
The Company's long-term revolving credit facility allows for borrowings of
up to $70.0 million which incurs interest, at the Company's option, at the
prime interest rate (8.25% at March 30, 1996) or Eurodollar rate plus 1.0%
(approximately 6.72% at March 30, 1996). Refer to the Company's discussion in
"Liquidity and Capital Resources" for further discussion.
8
<PAGE> 16
The Company is in compliance with all covenants and restrictions contained
in the New Credit Facility.
Inflation
See the Company's discussion under "Plastics Recycling" and "Gross
Margin" for the effects of inflation on the Company's operations.
9
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 2.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.OTHER INFORMATION
None
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The Exhibits indicated below are either incorporated by reference herein
or are bound herewith.
EXHIBIT
NUMBER TITLE
3.1 - Amended and Restated Certificate of Incorporation (Exhibit 3.1 of
the Company's Registration Statement on Form S-1, File No.
33-62912, incorporated by reference herein)
3.2 - Amended and Restated Certificate of Incorporation (Exhibit 3.2 of
the Company's Registration Statement on Form S-1, File No. 33-75096,
incorporated by reference herein)
4.1 - Form of Common Stock Certificate (Exhibit 4.1 of the Company's
Registration Statement on Form S-1, File No. 33-62912, incorporated
by reference herein)
10
<PAGE> 18
4.2 - Stock Option Plan (with Form Agreements) (Exhibit 4.2 of the
Company's Registration Statement on Form S-1, File No. 33-62912,
incorporated by reference herein)
4.3 - Form of Nonqualified Stock Option Agreement (Exhibit 4.3 of the
Company's Registration Statement on Form S-1, File No. 33-62912,
incorporated by reference herein)
4.4 - H. Stanley Padgett Incentive Stock Option Agreement (Exhibit 4.5 of
the Company's Annual Report on Form 10-K for the fiscal year
ended July 3, 1993, incorporated by reference herein)
4.5 - Plan and Agreement of Conversion (Exhibit 4.6 of the Company's
Annual Report on Form 10-K for the fiscal year ended July 3, 1993,
incorporated by reference herein)
4.6 - Form of Replacement Stock Option Agreement (Exhibit 4.7 of the
Company's Registration Statement on Form S-1, File No. 33-62912,
incorporated by reference herein)
Executive Compensation Plans and Agreements
10.1 - Employment Contract between the Registrant and H. Stanley Padgett
(Exhibit 10.1 of the Company's Annual Report on Form 10-K for the
fiscal year ended July 3, 1993, incorporated by reference herein)
10.2 - Employment Contract between the Registrant and Larry M. Miller
(Exhibit 10.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended July 3, 1993, incorporated by reference herein)
10.3 - Employment Contract between the Registrant and Hugh D. Bennett
(Exhibit 10.3 of the Company's Annual Report on Form 10-K for the
fiscal year ended July 3, 1993, incorporated by reference herein)
10.4 - Employment Contract between the Registrant and Paul Meredith
(Exhibit 10.4 of the Company's Annual Report on Form 10-K for the
fiscal year ended July 3, 1993, incorporated by reference herein)
Other Material Agreements
10.5 - Indemnity Agreements (Exhibit 10.5 of the Company's Annual Report on
Form 10-K for the fiscal year ended July 3, 1993, incorporated by
reference herein)
11
<PAGE> 19
10.6 - Lease Agreement between Echota Realty and Registrant for Property
Located at North Elm Street, Rome, Georgia (Exhibit 10.12 of the
Company's Registration Statement on Form S-1, File No. 33-62912,
incorporated by reference herein)
10.7 - Lease Agreement between First Union National Bank of Georgia,
Trustee and Registrant for Property Located at Old Airport Road,
Rome, Georgia (Exhibit 10.14 of the Company's Registration
Statement on Form S-1, File No. 33-62912, incorporated by
reference herein)
10.8 - Lease Agreement between First American Bank of New York and
Registrant for Property Located at Lyerly, Georgia (and three
extension letters) (Exhibit 10.15 of the Company's Registration
Statement on Form S-1, File No. 33-62912, incorporated by reference
herein)
10.9 - Lease Agreement between the City of Summerville and Development
Authority of the City of Summerville (Exhibit 10.16 of the Company's
Registration Statement on Form S-1, File No. 33-62912, incorporated
by reference herein)
10.10 - Sub-Lease between the Development Authority of the City of
Summerville and Registrant (Exhibit 10.17 of the Company's
Registration Statement on Form S-1, File No. 33-62912, incorporated
by reference herein)
10.11 - Lease Extension Agreement between Echota Realty and Registrant for
property located at N. Elm Street, Rome, Georgia (Exhibit 10.39 of
the Company's Registration Statement on Form S-1, File No. 33-75096,
incorporated by reference herein)
10.12 - Option to Purchase Real Estate from the Development Authority of
the City of Summerville (Exhibit 10.41 of the Company's Registration
Statement on Form S-1, File No. 33-75096, incorporated by reference
herein)
10.13 - Form of Satisfaction Agreement (Exhibit 10.42 of the Company's
Registration Statement on Form S-1, File No. 33-75096, incorporated
by reference herein)
10.14 - Contract between Registrant and Neumag, GmbH and Neumag U.S.A. for
purchase of Polyester Fiber Extruder (Exhibit 10.43 of the Company's
Registration Statement on Form S-1, File No. 33-75096, incorporated
by reference herein)
10.15 - Proposal and Purchase Order for Plastic Bottle Separation Equipment
and Services Prepared for Registrant by MSS, Inc. (Exhibit 10.44 of
the Company's Registration Statement on Form S-1, File No. 33-75096,
incorporated by reference herein)
10.16 - Proposal and Purchase Order for Baler Sold to Registrant by Lummus
Corporation (Exhibit 10.45 of the Company's Registration Statement
on Form S-1, File No. 33- 75096, incorporated by reference herein)
12
<PAGE> 20
10.17 - Contract to Purchase Carpet Dyeing Equipment between Registrant and
Keiltex Industries, Inc. (Exhibit 10.46 of the Company's Registration
Statement on Form S-1, File No. 33-75096, incorporated by reference
herein)
10.18 - Letter Exercising Option to Purchase Real Property from the Development
Authority of the City of Summerville (Exhibit 10.47 of the Company's
Registration Statement on Form S-1, File No. 33-75096, incorporated by
reference herein)
10.19 - Construction Contract by and between Registrant and Garner Brothers
Co. for addition to West Rome Plant (Exhibit 10.48 of the Company's
Registration Statement on Form S-1, File No. 33-75096, incorporated by
reference herein)
10.20 - Letter Exercising Option to Renew Lease Agreement for Property Located
at Redmond Circle, Rome, Georgia (Exhibit 10.48 of the Company's
Quarterly Report on Form 10-Q for the quarter ended April 2, 1994,
incorporated by reference herein)
10.21 - Construction Contract by and between Registrant and Smithson Builders,
Inc. for additions to Summerville plant (Exhibit 10.50 of the
Company's Quarterly Report on Form 10-Q for the quarter ended April 2,
1994, incorporated by reference herein)
10.22 - Lease Agreement between General Wholesale Company and Registrant for
property located at 2400 Redmond Circle, Rome, Georgia (Exhibit 10.51
of the Company's Registration Statement on Form S-1, File No.
33-75096, incorporated by reference herein)
10.23 - Lease Agreement between Edward L. Weaver Estate for Property Located
at 200 Beasley Street, Calhoun, Georgia (Exhibit 10.52 of the
Company's Registration Statement on Form S-1, File No. 33-75096,
incorporated by reference herein)
10.24 - Amendment to Contract between Registrant and Neumag GmbH and Neumag
U.S.A. for the Purchase of Polyester Fiber Extruder (Confidential
Treatment Granted) (Exhibit 10.53 of the Company's Registration
Statement on Form S-1, File No. 33-75096, incorporated by reference
herein)
10.25 - Letter Exercising Option to Renew Lease Agreement for Property Located
at Old Airport Road, Rome, Georgia (Exhibit 10.40 the Company's Annual
Report on Form 10-K for the fiscal year ended July 2, 1994,
incorporated by reference herein)
10.26 - Amendment to Lease Agreement between Registrant and Charles Milford
Morgan, Jr. for Property Located at Lyerly, Georgia (Exhibit 10.41 of
the Company's Annual Report on Form 10-K for the fiscal year ended
July 2, 1994, incorporated by reference herein)
10.27 - Termination of Lease Agreement for Property Located at Westside
Industrial Boulevard, Rome, Georgia (Exhibit 10.39 of the Company's
Quarterly Report on Form 10-Q for the quarter ended October 1, 1994,
incorporated by reference herein)
13
<PAGE> 21
10.28 - Lease Agreement between Intermark USA, Inc. and Registrant for
Property Located at Highway 341, Kensington, Georgia. (Exhibit 10.40
of the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994, incorporated by reference herein)
10.29 - Amendment to Lease Agreement between Intermark USA, Inc. and
Registrant for property located at Highway 341, Kensington, Georgia.
(Exhibit 10.41 of the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994, incorporated by reference herein)
10.30 - Lease Agreement between Colonial Centre Co. and Registrant for
property located at 150 Broad Hollow Road, Melville, New York(Exhibit
10.40 of the Company's Quarterly Report on Form 10-Q for the quarter
ended April 1, 1995, incorporated by reference herein)
10.31 - Second Amendment to Lease Agreement between Intermark USA, Inc. and
Registrant for Property located at Highway 341, Kensington, Georgia.
(Exhibit 10.31 of the Company's Annual Report on Form 10-K for the
fiscal year ended July 1, 1995, incorporated by reference herein)
10.32 - Amended and Restated Credit Agreement between Registrant and
First National Bank of Boston, First Union National Bank of Georgia
and Wachovia Bank of Georgia, N.A., dated June 20, 1995 (Exhibit 10.32
of the Company's Annual Report on Form 10-K for the fiscal year ended
July 1, 1995, incorporated by reference herein)
10.33 - First Supplemental Trademark Collateral Security and Pledge Agreement
dated June 20, 1995 (Exhibit 10.33 of the Company's Annual Report on
Form 10-K for the fiscal year ended July 1, 1995, incorporated by
reference herein)
10.34 - Revolving Credit Note in the amount of $25,000,000 dated June 20, 1995
payable to the First National Bank of Boston (Exhibit 10.34 of the
Company's Annual Report on Form 10-K for the fiscal year ended July 1,
1995, incorporated by reference herein)
10.35 - Revolving Credit Note in the amount of $17,500,000 dated June 20, 1995
payable to First Union National Bank of Georgia (Exhibit 10.35 of the
Company's Annual Report on Form 10-K for the fiscal year ended July 1,
1995, incorporated by reference herein)
10.36 - Revolving Credit Note in the amount of $17,500,000 dated June 20, 1995
payable to Wachovia National Bank of Georgia (Exhibit 10.35 of the
Company's Annual Report on Form 10-K for the fiscal year ended July 1,
1995, incorporated by reference herein)
10.37 - Amended and Restated Security Agreement dated June 20, 1995 between
Registrant and First National Bank of Boston (Exhibit 10.37 of the
Company's
14
<PAGE> 22
Annual Report on Form 10-K for the fiscal year ended July 1,
1995, incorporated by reference herein)
10.38 - Third Amendment of Deed to Secure Debt and Security Agreement (Fee)
dated June 20, 1995 between Registrant and the First National Bank of
Boston ( Exhibit 10.38 of the Company's Annual Report on Form 10-K for
the fiscal year ended July 1, 1995, incorporated by reference herein)
10.39 - Third Amendment of Deed to Secure Debt and Security Agreement
(Leasehold) dated June 20, 1995 between Registrant and the First
National Bank of Boston ( Exhibit 10.39 of the Company's Annual Report
on Form 10-K for the fiscal year ended July 1, 1995, incorporated by
reference herein)
10.40 - Asset Purchase Agreement among Registrant, Stowe Pharr Mills, Inc.
and Pharr Yarns of Georgia, Inc. dated April 5, 1995 (Exhibit 2 of the
Company's Report of Form 8-K dated April 5, 1995, incorporated by
reference herein)
10.41 - Addendum to Asset Purchase Agreement among Registrant, Stowe Pharr
Mills, Inc. and Pharr Yarns of Georgia, Inc. dated June 30, 1995
(Exhibit 2.1 of the Company's Report of Form 8-K dated June 30, 1995
incorporated by reference herein)
10.42 - Lease Extension Agreement between Edward L. Weaver Estate and
Registrant for real property located at 200 Beasley Street, Calhoun,
Georgia ( Exhibit 10.42 of the Company's Annual Report on Form 10-K
for the fiscal year ended July 1, 1995, incorporated by reference
herein)
10.43 - Lease Agreement between Environmental Recycling Company, Inc. and
Registrant for property located at Highway 92, East Massena, Iowa
(Exhibit 10.43 of the Company's Annual Report on Form 10-K for the
fiscal year ended July 1, 1995, incorporated by reference herein)
10.44 - Lease Agreement between Raymond King and Estate of Kay D. Owens and
Registrant for real property located at River Street, Calhoun, Georgia
(Exhibit 10.44 of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, incorporated by reference herein)
10.45 - First Amendment to Amended and Restated Credit Agreement between
Registrant and First National Bank of Boston, First Union National
Bank of Georgia and Wachovia Bank of Georgia, N.A., dated August 8,
1995 (Exhibit 10.45 of the Company's Quarterly Report on Form 10-Q for
the quarter ended December 30, 1995, incorporated by reference herein)
10.46 - Second Amendment to Amended and Restated Credit Agreement between
Registrant and First National Bank of Boston, First Union National
Bank of Georgia and Wachovia Bank of Georgia, N.A., dated November 3,
1995 (Exhibit 10.46 of the Company's Quarterly Report on Form 10-Q for
the quarter ended December 30, 1995, incorporated by reference herein)
15
<PAGE> 23
10.47 - Amended and Restated Revolving Credit Note in the amount of $28,000,000
dated November 3, 1995 payable to the First National Bank of Boston
(Exhibit 10.47 of the Company's Quarterly Report on Form 10-Q for the
quarter ended December 30, 1995, incorporated by reference herein)
10.48 - Amended and Restated Revolving Credit Note in the amount of
$21,000,000 dated November 3, 1995 payable to First Union National
Bank of Georgia (Exhibit 10.48 of the Company's Quarterly Report on
Form 10-Q for the quarter ended December 30, 1995, incorporated by
reference herein)
10.49 - Amended and Restated Revolving Credit Note in the amount of
$21,000,000 dated November 3, 1995 payable to Wachovia National Bank
of Georgia (Exhibit 10.49 of the Company's Quarterly Report on Form
10-Q for the quarter ended December 30, 1995, incorporated by
reference herein)
10.50 - Fourth Amendment of Deed to Secure Debt and Security Agreement (Fee)
dated November 3, 1995 between Registrant and the First National Bank
of Boston (Exhibit 10.50 of the Company's Quarterly Report on Form
10-Q for the quarter ended December 30, 1995, incorporated by
reference herein)
10.51 - Fourth Amendment of Deed to Secure Debt and Security Agreement
(Leasehold) dated November 3, 1995 between Registrant and the First
National Bank of Boston (Exhibit 10.51 of the Company's Quarterly
Report on Form 10-Q for the quarter ended December 30, 1995,
incorporated by reference herein)
10.52 - Letter Dated August 18, 1995 Amending Lease Agreement between Intermark
USA, Inc. and Registrant for Property Located at Highway 341,
Kensington, Georgia (Exhibit 10.52 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 30, 1995, incorporated by
reference herein)
10.53 - Letter Dated January 26, 1996 Amending Lease Agreement between
Intermark USA, Inc. and Registrant for Property Located at Highway 341,
Kensington, Georgia (Exhibit 10.53 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 30, 1995, incorporated by
reference herein)
10.54 - Lease Termination and Release Agreement between Environmental Recycling
Company, Inc. and Registrant for property located at Highway 92, East
Massena, Iowa (Exhibit 10.54 of the Company's Quarterly Report on Form
10-Q for the quarter ended December 30, 1995, incorporated by
reference herein)
10.55 - Option to Renew Lease Agreement between Colonial Centre Co. and
Registrant for property located at 150 Broad Hollow Road, Melville,
New York (Exhibit 10.55 of the Company's Quarterly Report on Form 10-Q
for the quarter ended December 30, 1995, incorporated by reference
herein)
16
<PAGE> 24
10.56 - Amendment to Lease Agreement between Raymond King and Estate of Kay D.
Owens and Registrant for real property located at River Street,
Calhoun, Georgia (Exhibit 10.56 of the Company's Quarterly Report on
Form 10-Q for the quarter ended December 30, 1995, incorporated by
reference herein)
10.57 - Lease Agreement between Steve Pendley and Registrant for real property
located at 210 McConnell Street, Calhoun, Georgia (Exhibit 10.57 of
the Company's Quarterly Report on Form 10-Q for the quarter ended
December 30, 1995, incorporated by reference herein)
10.58 - Third Amendment to Amended and Restated Credit Agreement between
Registrant and First National Bank of Boston, First Union National
Bank of Georgia and Wachovia Bank of Georgia, N.A., dated March 27,
1996
11 - Statement Re: Computation of Per Share Earnings
27 - Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed
REPORTS ON FORM 8-K
None
17
<PAGE> 25
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.
IMAGE INDUSTRIES, INC.
/s/ H. Stanley Padgett President, Chief Executive Officer May 13, 1996
- - ------------------------ (Principal Executive Officer)
H. Stanley Padgett
/s/ Hugh D. Bennett Vice President - Finance May 13, 1996
- - ------------------------ (Principal Financial Officer)
Hugh D. Bennett
<PAGE> 1
EXHIBIT 10.58
THIRD AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Third Amendment") is made and entered into as of the 27th day of March, 1996,
by and among IMAGE INDUSTRIES, INC., a Delaware corporation (the "Borrower"),
THE FIRST NATIONAL BANK OF BOSTON ("FNBB"). FIRST UNION NATIONAL BANK OF
GEORGIA, WACHOVIA BANK OF GEORGIA, N.A. and the other banks which may become
parties to the Credit Agreement defined below (collectively, the "Banks") and
FNBB, as agent (the "Agent") for the Banks.
WHEREAS, the Borrower, the Banks and the Agent are parties to an
Amended and Restated Credit Agreement dated as of June 20, 1995, as amended by
a First Amendment to Credit Agreement dated as of June 20, 1995 and a Second
Amendment to Amended and Restated Credit Agreement dated as of November 3, 1995
(as so amended, the "Credit Agreement"), pursuant to which the Banks have
extended credit to the Borrower on the terms set forth therein;
WHEREAS, the Borrower has requested that the Banks amend the Credit
Agreement, and the Banks are willing to amend the Credit Agreement on the terms
set forth herein; and
WHEREAS, the parties desire to amend the Credit Agreement on the terms
set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Credit Agreement.
2. AMENDMENT TO THE CREDIT AGREEMENT. As of the Effective Date (as
hereinafter defined), the Credit Agreement is hereby amended as follows:
(a) Section 9.1 of the Credit Agreement is hereby amended by
deleting the table set forth therein and substituting the following new table
in place thereof:
<PAGE> 2
-2-
<TABLE>
<CAPTION>
"Quarter Ended Ratio
-------------- -----
<S> <C>
09/30/95 1.75 to 1.00
12/30/95 1.65 to 1.00
03/30/96 1.00 to 1.00
06/29/96 and thereafter 3.00 to 1.00"
</TABLE>
(b) Section 9.2 of the Credit Agreement is hereby amended by
deleting the table set forth therein and substituting the following new table
in place thereof:
<TABLE>
<CAPTION>
"Quarter Ended Ratio
------------- -----
<S> <C>
09/30/95 3.75 to 1.00
12/30/95 4.00 to 1.00
03/30/96 4.25 to 1.00
06/29/96 3.80 to 1.00
09/28/96 3.30 to 1.00
12/28/96 3.10 to 1.00
03/29/97 2.75 to 1.00
06/28/97 2.50 to 1.00
09/27/97 2.50 to 1.00
12/27/97 2.50 to 1.00
03/28/98 2.25 to 1.00
06/27/98 and thereafter 2.00 to 1.00"
</TABLE>
(c) Section 9.6 of the Credit Agreement is hereby amended by
deleting the words "the ratio of 1.70 to 1.00" set forth in the fifth and sixth
lines thereof after the words "less than" and substituting in place thereof the
words "(a) the ratio of 0.5 to 1.00 for the fiscal year ending June 29, 1996
and (b) the ratio of 1.70 to 1.00 for each fiscal year thereafter".
3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants as follows:
(a) The execution, delivery and performance by the
Borrower of this Third Amendment and the Credit Agreement as modified
hereby and the transactions contemplated hereby and thereby (a) are
within the corporate authority of the Borrower, (b) have been duly
authorized by all necessary corporate proceedings, (c) do not
conflict with or result in any necessary corporate proceedings, (c)
do not conflict with or result in any breach or contravention of any
provision of law, statute, rule or regulation to which the Borrower
is subject or any judgement, order, writ, injunction, license or
permit applicable to the Borrower and (d) do not conflict with
<PAGE> 3
-3-
any provision of the corporate charter or bylaws of, or any agreement
or other instrument binding upon, the Borrower.
(b) This Third Amendment and the Credit Agreement as
modified hereby and all of the terms and provisions hereof and
thereof are the legal, valid and binding obligations of the Borrower
enforceable in accordance with their respective terms except as
limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting the enforcement of creditors' rights generally, and
except as the remedy of specific performance or of injunctive relief
is subject to the discretion of the court before which any
proceeding therefor may be brought.
(c) The execution, delivery and performance by the
Borrower of the Third Amendment and the Credit Agreement as modified
hereby and this transactions contemplated hereby and thereby do not
require any approval or consent of, or filing or registration with,
any governmental or other agency or authority, or any other party
other than those already obtained.
(d) The representations and warranties contained in
Section 6 of the Credit Agreement are true and correct in all
material respects as of the date hereof as though made on and as of
the date hereof (except to the extent of changes resulting from
transactions contemplated or permitted by the Credit Agreement and
the other Loan Documents and changes occurring in the ordinary course
of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties
relate expressly to an earlier date).
(e) No Default or Event of Default under the Credit
Agreement has occurred and is continuing.
4. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement, the Security Documents, the other Loan Documents and all
documents, instruments and agreements related thereto are hereby ratified and
confirmed in all respects and shall continue in full force and effect. This
Third Amendment and the Credit Agreement shall hereafter be read and construed
together as a single document, and all references in the Credit Agreement or
any related agreement or instrument to the Credit Agreement shall hereafter
refer to the Credit Agreement as amended by this Third Amendment.
5. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL TAKE
<PAGE> 4
-4-
EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
6. COUNTERPARTS. This Third Amendment may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all which counterparts taken together shall be deemed to
constitute one and the same instrument.
7. EFFECTIVENESS. This Third Amendment shall become effective upon
the satisfaction of each of the following conditions (the "Effective Date"):
(a) This Third Amendment shall have been executed and
delivered by the respective parties hereto;
(b) All corporate action necessary for the valid
execution, delivery and performance by the Borrower of this Third
Amendment shall have been taken, and evidence thereof satisfactory to
the Banks shall have been provided to the Banks; and
(c) The Agent shall have received a certificate of the
Secretary or Assistant Secretary of the Borrower stating that no
amendments to the charter documents of the Borrower have been adopted
since June 20, 1995 (other than as set forth in such certificate) and
setting forth the names, titles and signatures of the officers of the
Borrower signing this Third Amendment.
<PAGE> 5
-5-
IN WITNESS WHEREOF, each of the undersigned have duly executed this
Third Amendment under seal as of the date first set forth above.
IMAGE INDUSTRIES, INC.
By: /s/ Hugh D. Bennett
------------------------------
Title: Vice President - Finance
--------------------------
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By: /s/ William C. Purinton
------------------------------
Title: Vice President
---------------------------
FIRST UNION NATIONAL BANK
OF GEORGIA
By: /s/ James DeVane
------------------------------
Title: Senior Vice President
---------------------------
WACHOVIA BANK OF GEORGIA,
N.A.
By:/s/ Susan E. Cates
-------------------------------
Title: Assistant Vice President
---------------------------
<PAGE> 6
ASSISTANT SECRETARY'S CERTIFICATE
The undersigned, Sue Pettit, certifies that she is the duly elected
and acting Assistant Secretary of Image Industries, Inc., a Delaware
corporation (the "Company"), and that she is authorized to execute this
Certificate on its behalf.
Capitalized terms used in this Certificate shall have the same
meaning as set forth in the Amended and Restated Credit Agreement by and among
the Company. The First National Bank of Boston, First Union National Bank of
Georgia, and Wachovia Bank of Georgia. N.A. dated as of June 20, 1995, as
amended as of June 20, 1995 and November 3, 1995 (the "Amended and Restated
Credit Agreement").
The undersigned further certifies that:
1. The Company's Certificate of Incorporation and Bylaws
as in effect as of June 20, 1995 have not been amended since said date.
2. Attached hereto as Exhibit "A" is a true and correct
copy of the Resolutions of the Board of Directors of the Company approving the
Third Amendment to the Amended and Restated Credit Agreement, authorizing the
performance of the Company thereunder, and such resolutions have been amended,
modified or rescinded and remain in full force and effect on the date hereof.
3. The individuals listed below are duly elected and
acting in the office of the Company set forth opposite his designated office,
and the signature of each such officer is his true and genuine signature.
<TABLE>
<CAPTION>
Name Office Held Signature
---- ----------- ---------
<S> <C> <C>
H. Stanley Padgett President /s/ H. Stanley Padgett, President
--------------------------------------------
Hugh D. Bennett Vice President-Finance /s/ Hugh D. Bennett, Vice President-Finance
--------------------------------------------
Michael W. Zima Corporate Controller /s/ Michael W. Zima, Corporate Controller
--------------------------------------------
W. Glenn Henderson Accounting Manager /s/ W. Glenn Henderson, Accounting Manager
--------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this 27th day of March 1996.
/s/ Sue Pettit, Asst. Sec.
-------------------------------------
SUE PETTIT, Assistant Secretary
[Corporate Seal]
<PAGE> 7
EXHIBIT "A"
WHEREAS, the Corporation desires to amend its Amended and
Restated Credit Agreement with the First National Bank of Boston, First Union
National Bank of Georgia, N.A. and Wachovia Bank of Georgia N.A. (the "Banks")
dated as of June 20, 1995, as amended as of June 20, 1995 and November 3, 1995
(the "Credit Agreement").
NOW THEREFORE, BE IT RESOLVED THAT, the Corporation is authorized to
enter into a Third Amendment to the Credit Agreement to amend certain of the
financial covenants contained in Section 9 thereof in such form and substance
as determined appropriate by the President and the Vice President - Finance of
the Corporation in their respective sole discretion, which approval shall be
conclusively evidenced by the execution of said Third Amendment by either such
officer, and to affirm certain representations, warranties, covenants and
agreements contained therein.
RESOLVED FURTHER THAT, the President and Vice President - Finance
and the Secretary or Assistant Secretary of the Company are authorized and
empowered in the name of and on behalf of the Company to execute, seal and
deliver to the Banks the Third Amendment to the Credit Agreement and such other
instruments, certificates, and documents as may be requested by the Banks and
agreed upon by said officers, the execution, sealing, acknowledgment and
delivery of which shall be conclusive evidence of such agreement.
RESOLVED FURTHER THAT, the Secretary and Assistant Secretary of the
Corporation be and they are hereby authorized and directed to certify to the
Banks a copy of these resolutions and the incumbency of the officers specified
herein and that the Banks may consider such officers to continue in office and
these resolutions to remain in full force and effect until written notice to
the contrary shall be received by an officer of the Banks.
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
The following set forth the computation of the shares used in the
earnings per common share calculations in the quarters and nine months ended
April 1, 1995 and March 30, 1996.
Earnings per share data for the quarters and nine months ended April
1, 1995 and March 30, 1996 are presented on a historical basis, including the
dilutive effect of the unexercised Replacement Stock Options and incentive
options.
<TABLE>
<S> <C>
Quarter ended April 1, 1995:
Weighted average common shares outstanding 4,814,225
Dilutive effect of options and incentive options 997,654
---------
5,811,879
=========
Nine months ended April 1, 1995:
Weighted average common shares outstanding 4,797,618
Dilutive effect of options and incentive options 1,009,735
---------
5,807,353
=========
Quarter ended March 30,1996:
Weighted average common shares outstanding 5,245,022
Dilutive effect of options and incentive options 957,507
---------
6,202,529
=========
Nine Months ended March 30, 1996:
Weighted average common shares outstanding 5,233,230
Dilutive effect of options and incentive options 971,333
---------
6,204,563
=========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AT MARCH 30, 1996, AND THE CONDENSED STATEMENT OF
EARNINGS FOR THE NINE MONTHS ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-Q
FOR IMAGE INDUSTRIES INC. FOR THE QUARTER ENDED MARCH 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> MAR-30-1996
<CASH> 125
<SECURITIES> 0
<RECEIVABLES> 22,197
<ALLOWANCES> 103
<INVENTORY> 31,981
<CURRENT-ASSETS> 56,920
<PP&E> 101,650
<DEPRECIATION> 26,005
<TOTAL-ASSETS> 137,981
<CURRENT-LIABILITIES> 15,671
<BONDS> 61,218
0
0
<COMMON> 52
<OTHER-SE> 52,516
<TOTAL-LIABILITY-AND-EQUITY> 137,981
<SALES> 117,473
<TOTAL-REVENUES> 117,473
<CGS> 97,130
<TOTAL-COSTS> 14,810
<OTHER-EXPENSES> 117
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 3,083
<INCOME-PRETAX> 2,151
<INCOME-TAX> 727
<INCOME-CONTINUING> 1,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,424
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
