SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 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 number 1-5034
CORE INDUSTRIES INC
(Exact name of registrant as specified in its charter)
Nevada 38-1052434
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P. O. Box 2000, Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 642-3400
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 [ ]
Common Stock outstanding at May 31, 1996 - 10,708,622 shares.
-1-
<PAGE>
<TABLE>
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
Third Quarter Ended Nine Months Ended
------------------------------ ------------------------------
May 31, 1995 May 31, 1996 May 31, 1995 May 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 52,426,000 $ 63,124,000 $ 140,432,000 $ 167,883,000
Cost of sales, exclusive of depreciation
and amortization $ 34,269,000 $ 41,525,000 $ 90,738,000 $ 109,697,000
Depreciation and amortization 1,050,000 1,506,000 3,093,000 4,245,000
Selling, general and administrative
expenses 11,388,000 13,721,000 32,564,000 37,718,000
Interest expense 808,000 1,020,000 2,557,000 3,030,000
Other income (29,000) (348,000) (597,000) (809,000)
------------- ------------- ------------- -------------
$ 47,486,000 $ 57,424,000 $ 128,355,000 $ 153,881,000
------------- ------------- ------------- -------------
Earnings from continuing operations
before taxes on income $ 4,940,000 $ 5,700,000 $ 12,077,000 $ 14,002,000
Taxes on income 1,917,000 2,080,000 4,488,000 5,110,000
------------- ------------- ------------- -------------
Earnings from continuing operations $ 3,023,000 $ 3,620,000 $ 7,589,000 $ 8,892,000
Income (loss) from discontinued
operations (net of income tax) $ 110,000 -- ($ 73,000) --
------------- ------------- ------------- -------------
Net earnings $ 3,133,000 $ 3,620,000 $ 7,516,000 $ 8,892,000
============= ============= ============= =============
Net earnings per share:
Continuing operations $ .30 $ .34 $ .77 $ .86
Discontinued operations .02 -- -- --
------------- ------------- ------------- -------------
Net earnings $ .32 $ .34 $ .77 $ .86
============= ============= ============= =============
Dividends per share $ .06 $ .06 $ .18 $ .18
============= ============= ============= =============
Average shares of stock outstanding 9,809,000 10,709,000 9,809,000 10,369,000
============= ============= ============= =============
<FN>
See notes to financial statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
Aug. 31, 1995 May 31, 1996
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,135,000 $ 1,449,000
Accounts receivable, less collection allowances of
$1,020,000 at August 31 and $1,260,000 at May 31 44,214,000 54,564,000
Inventories 41,276,000 52,373,000
Prepaid expenses 157,000 1,597,000
Deferred taxes on income 5,447,000 2,057,000
Net assets held for disposition 16,089,000 2,688,000
------------- -------------
TOTAL CURRENT ASSETS $ 108,318,000 $ 114,728,000
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $ 896,000 $ 896,000
Buildings 17,746,000 17,809,000
Machinery and equipment 36,532,000 40,612,000
------------- -------------
Total $ 55,174,000 $ 59,317,000
Less accumulated depreciation 32,332,000 34,872,000
------------- -------------
TOTAL PROPERTY, PLANT AND EQUIPMENT $ 22,842,000 $ 24,445,000
------------- -------------
OTHER ASSETS:
Excess of cost over net assets of companies acquired $ 6,774,000 $ 22,362,000
Investment in real estate partnership 1,323,000 1,260,000
Note receivable 1,500,000 1,300,000
Prepaid pensions and other 5,490,000 5,862,000
------------- -------------
TOTAL OTHER ASSETS $ 15,087,000 $ 30,784,000
------------- -------------
$ 146,247,000 $ 169,957,000
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Aug. 31, 1995 May 31, 1996
------------- -------------
(Unaudited)
CURRENT LIABILITIES:
Notes payable $ 787,000 $ 8,500,000
Accounts payable 7,581,000 11,657,000
Accrued payroll and other expenses 12,385,000 13,162,000
Dividends payable 589,000 643,000
Taxes on income 2,041,000 32,000
Long-term debt due within one year 4,610,000 4,610,000
------------- -------------
TOTAL CURRENT LIABILITIES $ 27,993,000 $ 38,604,000
------------- -------------
LONG-TERM DEBT, less amount due within one year 32,609,000 26,543,000
DEFERRED TAXES ON INCOME 1,690,000 1,680,000
ACCRUED EMPLOYEE BENEFITS 2,942,000 3,413,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1:
Authorized - 100,000 shares
Issued - none
Common stock, par value $1:
Authorized - 20,000,000 shares
Issued - 11,237,341 shares at August 31 and
11,261,499 shares at May 31 $ 11,237,000 $ 11,261,000
Additional paid-in capital 999,000 8,570,000
Retained earnings 74,499,000 81,516,000
Cumulative translation adjustments 976,000 996,000
Treasury stock (1,410,160 shares at August 31 and
552,877 shares at May 31) - at cost (6,698,000) (2,626,000)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY $ 81,013,000 $ 99,717,000
------------- -------------
$ 146,247,000 $ 169,957,000
============= =============
<FN>
See notes to financial statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustments Stock
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, August 31, 1995 $ 11,237,000 $ 999,000 $ 74,499,000 $ 976,000 ($ 6,698,000)
Net earnings 8,892,000
Cash dividends declared,
$.18 per share (1,875,000)
Exercise of stock options 24,000 69,000
Treasury shares issued
re: acquisition (Note D) 7,502,000 4,072,000
Foreign currency adjustments 20,000
------------ ------------ ------------ ------------ ------------
Balance, May 31, 1996 $ 11,261,000 $ 8,570,000 $ 81,516,000 $ 996,000 ($ 2,626,000)
============ ============ ============ ============ ============
<FN>
See notes to financial statements
</FN>
</TABLE>
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<TABLE>
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
--------------------------------
May 31, 1995 May 31, 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,516,000 $ 8,892,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation $ 2,857,000 $ 3,693,000
Amortization 301,000 552,000
Discontinued operations 73,000 --
(Increase) decrease in assets:
Accounts receivable (2,758,000) (4,847,000)
Inventories (5,454,000) (3,103,000)
Prepaid expenses 413,000 (1,409,000)
Taxes on income (89,000) (2,009,000)
Deferred taxes on income 370,000 3,380,000
Increase (decrease) in liabilities:
Accounts payable 191,000 1,038,000
Accrued payroll and other expenses 330,000 (291,000)
------------ ------------
TOTAL ADJUSTMENTS ($ 3,765,000) ($ 2,996,000)
------------ ------------
NET CASH FROM OPERATING ACTIVITIES $ 3,750,000 $ 5,896,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 3,982,000) ($2,691,000)
Acquisition of businesses (3,515,000) (15,643,000)
Discontinued operations (1,071,000) 13,402,000
Other 280,000 (22,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ($ 8,288,000) ($ 4,954,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on short-term notes -- $ 7,313,000
Reductions in long-term debt ($ 6,027,000) (6,066,000)
Cash dividends paid (1,766,000) (1,875,000)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES ($ 7,793,000) ($ 628,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (12,331,000) 314,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,643,000 1,135,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,312,000 $ 1,449,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 3,113,000 $ 3,644,000
============ ============
Income taxes paid $ 4,435,000 $ 3,981,000
============ ============
<FN>
See notes to financial statements
</FN>
</TABLE>
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<PAGE>
CORE INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A
The accompanying consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the information presented therein, and such adjustments are of a
normal recurring nature. Effective in Fiscal 1996, the Company changed its
accounting periods to a fixed 13 weeks per quarter.
NOTE B
Reference is made to the Company's Annual Report on Form 10-K for the
year ended August 31, 1995, for a description of accounting policies and other
detailed footnote information.
NOTE C - Inventories
<TABLE>
<CAPTION>
August 31, May 31,
1995 1996
----------- -----------
<S> <C> <C>
Raw materials and supplies $17,734,000 $22,605,000
Work in process 8,225,000 8,847,000
Finished goods 15,317,000 20,921,000
----------- -----------
$41,276,000 $52,373,000
=========== ===========
</TABLE>
NOTE D - Acquisitions
During this year's second quarter, the Company acquired two companies.
Effective December 2, 1995, the Company acquired the common stock of CMB
Industries, a privately held producer of specialty valves, with annual revenues
of approximately $30 million. Effective January 1, 1996, the Company purchased
Davis Filters, Ltd., a manufacturer of pipeline strainers located near
Birmingham, England, with annual sales of approximately $1 million.
These acquisitions were accounted for as purchases, and accordingly,
the operating results of the acquired businesses have been included in the
Company's financial statements from their acquisition dates. The pro forma
results of operations, as if the operations of the acquired businesses had been
included from September 1, 1995, would not differ materially from the amounts
reported in the statement of earnings. The total cost of these acquisitions
included a combination of cash, debt assumptions and notes payable issued
totaling approximately $14.3 million plus 857,283 shares of the Company's common
stock, which stock was valued at $13.50 per share.
NOTE E - Statement of Cash Flows
In connection with the acquisition of CMB Industries and Davis Filters
in the second quarter of fiscal 1996, the Company issued 857,283 shares of its
common stock from treasury valued at approximately $11,574,000, and issued a
note payable totaling $400,000.
NOTE F - Sale of Discontinued Operation
On March 28, 1996, the major portion of the Company's discontinued
Cherokee operation was sold for cash and notes payable, to a group led by the
senior management of Cherokee. It is anticipated that the provision established
in the fourth quarter of FY 1995 for Cherokee's disposition should be adequate
based on the anticipated remaining proceeds from the sale.
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<PAGE>
NOTE G - Product Segment Information
The Company classifies its products and services into three general
segments. Financial information by segment is summarized below.
<TABLE>
<CAPTION>
1995
---------------------------
Earnings
Before
Net Sales Income Taxes
------------ ------------
<S> <C> <C>
Third quarter ended May 31, 1995:
Fluid Controls and Construction Products $ 21,890,000 $ 2,724,000
Test, Measurement and Control 17,943,000 2,104,000
Farm Equipment 12,593,000 1,905,000
Corporate unallocated -- (985,000)
Interest expense -- (808,000)
------------ ------------
Total $ 52,426,000 $ 4,940,000
============ ============
Nine months ended May 31, 1995:
Fluid Controls and Construction Products $ 60,222,000 $ 8,012,000
Test, Measurement and Control 46,341,000 4,569,000
Farm Equipment 33,869,000 4,869,000
Corporate unallocated -- (2,816,000)
Interest expense -- (2,557,000)
------------ ------------
Total $140,432,000 $ 12,077,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------
Earnings
Before
Net Sales Income Taxes
------------ ------------
<S> <C> <C>
Third quarter ended May 31, 1996:
Fluid Controls and Construction Products $ 32,656,000 $ 4,320,000
Test, Measurement and Control 17,036,000 1,724,000
Farm Equipment 13,432,000 1,555,000
Corporate unallocated -- (879,000)
Interest expense -- (1,020,000)
------------ ------------
Total $ 63,124,000 $ 5,700,000
============ ============
Nine months ended May 31, 1996:
Fluid Controls and Construction Products $ 84,202,000 $ 11,131,000
Test, Measurement and Control 49,527,000 5,013,000
Farm Equipment 34,154,000 3,804,000
Corporate unallocated -- (2,916,000)
Interest expense -- (3,030,000)
------------ ------------
Total $167,883,000 $ 14,002,000
============ ============
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the first nine months of fiscal 1996 increased 20% rising to
$167,883,000 from $140,432,000. Net earnings of $8,892,000 rose 18% from net
earnings of $7,516,000 for the first nine months last year. Net earnings per
share increased 12% to $.86 from $.77 in the first nine months reflecting the
effect of issuing 857,283 shares of Core stock, along with some cash and debt
securities, to acquire CMB Industries.
For the third quarter of fiscal 1996, sales and earnings from
continuing operations were up 20% over last year. Sales for the third quarter of
fiscal 1996 were $63,124,000 compared with $52,426,000 a year ago. Earnings from
continuing operations increased to $3,620,000, or $.34 per share, from
$3,023,000, or $.30 per share, last year.
For the first nine months of fiscal 1996, the Company's Fluid Controls
and Construction Products Group provided 50% of total sales; the Test,
Measurement and Control Group, 30% of total sales; and the Farm Equipment Group,
20% of sales. The Fluid Controls and Construction Products Group had significant
improvements in both this year's third quarter and first nine months compared
with last year, with sales and earnings for the first nine months 40% and 39%
higher, respectively. This Group's performance benefited from both improvements
in its base businesses and the recent acquisition, CMB Industries. The Test,
Measurement and Control Group had improved sales and earnings for the first nine
months this year although its third quarter this year was unfavorably impacted
by late winter weather in the Northeast and an inventory adjustment program at a
key customer. The Farm Equipment Group had a decline in both sales and operating
earnings, primarily due to the effects of the near dust bowl conditions in the
lower Great Plains and higher grain prices.
Overall gross profit margins on net sales for the first nine months of
fiscal 1996 decreased to 34.7% from 35.4% last year as a result of product mix
changes. Selling, general and administrative expenses decreased to 22.5% of
sales for this year's first nine months compared to 23.2% last year, primarily
due to lower sales expenses.
Interest expense was 26% higher in this year's third quarter compared
with last year due to increased borrowings to finance recent acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company had working capital of $76.1 million and a
current ratio of 3.0 to 1, and the Company's capital employed (total debt and
equity) amounted to $139 million, with capital consisting of 28% debt and 72%
equity. During May, 1996, the Company reduced its 10% long-term debt by $6
million under maximum allowable prepayment options.
Effective December 2, 1995, the beginning of the Company's second
quarter, the Company acquired CMB Industries in a merger transaction, and
effective January 1, 1996, purchased the net assets of Davis Filters. The
capital investments included a combination of debt assumptions, notes payable
issued, and cash totaling approximately $14.3 million and 857,283 shares of the
Company's common stock, which stock was valued at $13.50 per share. The
necessary cash to facilitate the transaction was borrowed under the Company's
$20 million unsecured bank line of credit.
On March 28, 1996, in the Company's third quarter, the previously
announced divestiture of its Cherokee unit was completed. The Company received
$14.8 million in cash and a long-term note receivable of $5.9 million.
Management believes its current cash position, cash flows from
operations, along with its borrowing capacity, are adequate to fund its
strategies for future growth, including working capital, expenditures for
-8-
<PAGE>
manufacturing expansion and efficiencies, and acquisition activities. At the
Company's current dividend rate of $.06 per share, annual dividend payments
would approximate $2.6 million. Under the Company's debt agreement with
insurance companies, retained earnings of approximately $25 million are
available for dividends, subject to future earnings levels.
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<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5 of Part II are omitted because they are not
applicable or because they are not required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) With respect to the Company's sale of its discontinued
Cherokee operation, a Form 8-K was filed on April 8, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CORE INDUSTRIES INC
------------------------------------------
(Registrant)
Date: July 8, 1996 /s/ LAWRENCE J. MURPHY
------------ ------------------------------------------
Lawrence J. Murphy
Executive Vice President and Secretary
Date: July 8, 1996 /s/ THOMAS G. HOOPER
------------ ------------------------------------------
Thomas G. Hooper
Treasurer and Controller
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
*27 Financial Data Schedule
</TABLE>
*Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 1,449,000
<SECURITIES> 0
<RECEIVABLES> 55,824,000
<ALLOWANCES> (1,260,000)
<INVENTORY> 52,373,000
<CURRENT-ASSETS> 114,728,000
<PP&E> 59,317,000
<DEPRECIATION> 34,872,000
<TOTAL-ASSETS> 169,957,000
<CURRENT-LIABILITIES> 38,604,000
<BONDS> 26,543,000
0
0
<COMMON> 11,261,000
<OTHER-SE> 88,456,000
<TOTAL-LIABILITY-AND-EQUITY> 169,957,000
<SALES> 167,883,000
<TOTAL-REVENUES> 167,883,000
<CGS> 109,697,000
<TOTAL-COSTS> 151,660,000
<OTHER-EXPENSES> (809,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,030,000
<INCOME-PRETAX> 14,002,000
<INCOME-TAX> 5,110,000
<INCOME-CONTINUING> 8,892,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,892,000
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
