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, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
------- -------
Commission file number 1-5034
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 June 30, 1997 - 10,752,608 shares.
-1-
<PAGE>
<TABLE>
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In 000s, except per share data)
<CAPTION>
Third Quarter Ended Nine Months Ended
---------------------- -----------------------
05/31/97 05/31/96 05/31/97 05/31/96
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 76,562 $ 63,124 $ 192,817 $ 167,883
Cost of sales $ 51,096 $ 42,597 $ 127,313 $ 112,718
Selling, general and administrative
expenses 17,192 14,110 45,870 38,805
Interest expense 904 1,020 2,403 3,030
Other income (225) (303) (892) (672)
-------- --------- --------- ---------
$ 68,967 $ 57,424 $ 174,694 $ 153,881
-------- --------- --------- ---------
Earnings before taxes on income $ 7,595 $ 5,700 $ 18,123 $ 14,002
Taxes on income 2,870 2,080 6,770 5,110
-------- --------- --------- ---------
Net earnings $ 4,725 $ 3,620 $ 11,353 $ 8,892
======== ========= ========= =========
Net earnings per share $ 0.44 $ 0.34 $ 1.06 $ 0.86
======== ========= ========= =========
Dividends per share $ 0.06 $ 0.06 $ 0.18 $ 0.18
======== ========= ========= =========
Average shares of stock outstanding 10,723 10,709 10,721 10,369
======== ========= ========= =========
<FN>
See notes to financial statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in 000s)
ASSETS
<CAPTION>
05/31/97
(Unaudited) 08/31/96
---------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 952 $ 572
Accounts receivable, less collection allowances of
$1,810 at May 31 and $1,260 at August 31 56,706 56,923
Inventories 65,977 51,935
Prepaid expenses 2,117 1,199
Deferred taxes on income 2,117 2,167
--------- ---------
TOTAL CURRENT ASSETS $ 127,869 $ 112,796
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $ 1,306 $ 896
Buildings 18,244 17,552
Machinery and equipment 44,652 43,173
--------- ---------
Total $ 64,202 $ 61,621
Less accumulated depreciation 34,013 35,715
--------- ---------
TOTAL PROPERTY, PLANT AND EQUIPMENT $ 30,189 $ 25,906
--------- ---------
OTHER ASSETS:
Excess of cost over net assets of companies acquired $ 29,917 $ 22,251
Investment in real estate partnership 1,223 1,273
Notes receivable 1,032 4,311
Restricted cash 2,398 --
Prepaid pensions and other 6,950 6,412
--------- ---------
TOTAL OTHER ASSETS $ 41,520 $ 34,247
--------- ---------
$ 199,578 $ 172,949
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
05/31/97
(Unaudited) 08/31/96
---------- ---------
CURRENT LIABILITIES:
Notes payable $ 0 $ 5,100
Accounts payable 13,350 13,016
Accrued payroll and other expenses 19,621 15,721
Dividends payable 643 643
Taxes on income 1,081 1,090
Long-term debt due within one year 4,660 4,610
--------- ---------
TOTAL CURRENT LIABILITIES $ 39,355 $ 40,180
--------- ---------
LONG-TERM DEBT, less amount due within one year 42,188 24,520
DEFERRED TAXES ON INCOME 2,200 2,250
ACCRUED EMPLOYEE BENEFITS 3,632 3,355
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1:
Authorized - 100,000 shares
Issued - none
Common stock, par value $1:
Authorized - 20,000,000 shares
Issued - 11,276,000 shares at May 31
and 11,261,000 at August 31 $ 11,276 $ 11,261
Additional paid-in capital 8,701 8,570
Retained earnings 94,345 84,922
Cumulative translation adjustments 507 517
Treasury stock (553,000 shares) - at cost (2,626) (2,626)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 112,203 $ 102,644
--------- ---------
$ 199,578 $ 172,949
========= =========
<FN>
See notes to financial statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in 000s)
<CAPTION>
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustments Stock
-------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, August 31, 1996 $ 11,261 $ 8,570 $ 84,922 $ 517 ($ 2,626)
Net earnings 11,353
Cash dividends declared,
$.18 per share (1,930)
Stock issued - compensation
plans 15 131
Foreign currency adjustments (10)
-------- ------- -------- ----------- --------
Balance, May 31, 1997 $ 11,276 $ 8,701 $ 94,345 $ 507 ($ 2,626)
======== ======= ======== =========== ========
<FN>
See notes to financial statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in 000s)
<CAPTION>
Nine Months Ended
---------------------
05/31/97 05/31/96
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 11,353 $ 8,892
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 5,265 4,245
Deferred taxes on income -- 3,380
Net changes in:
Accounts receivable 4,936 (4,847)
Inventories (7,790) (3,103)
Prepaid expenses (909) (1,409)
Taxes on income (9) (2,009)
Accounts payable (1,466) 1,038
Accrued payroll and other expenses (30) (291)
Other non-current assets and liabilities (408) (91)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,942 $ 5,805
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 8,484) ($ 2,691)
Net proceeds from sale of division 556 --
Acquisition of businesses (18,800) (15,643)
Discontinued operations -- 13,402
Other 257 69
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ($26,471) ($ 4,863)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on short-term notes $ (5,100) $ 7,313
Industrial Development Bond financing 4,000 --
Restricted cash re: bond financing (2,398) --
Changes in long-term debt 15,490 (6,066)
Payments received on notes receivables 5,847 --
Cash dividends paid (1,930) (1,875)
-------- --------
NET CASH FROM (USED IN) FINANCING ACTIVITIES $ 15,909 ($ 628)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 380 314
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 572 1,135
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 952 $ 1,449
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 2,675 $ 3,644
======== ========
Income taxes paid $ 6,038 $ 3,981
======== ========
<FN>
See notes to financial statements
</FN>
</TABLE>
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<PAGE>
CORE INDUSTRIES INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in 000s unless otherwise stated)
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.
NOTE B
Reference is made to the Company's Annual Report on Form 10-K for the year
ended August 31, 1996, for a description of accounting policies and other
detailed footnote information.
NOTE C - Inventories
<TABLE>
<CAPTION>
05/31/97 08/31/96
-------- --------
<S> <C> <C>
Raw materials and supplies $ 29,891 $ 24,399
Work in process 13,726 7,864
Finished goods 22,360 19,672
-------- --------
$ 65,977 $ 51,935
======== ========
</TABLE>
NOTE D - Acquisition
Effective March 1, 1997, the Company acquired substantially all the assets
of Air Gage Company, a privately held producer of gaging products and systems,
with annual sales in excess of $30 million. The business was purchased for
approximately $18.8 million. This transaction was accounted for as a purchase
and Air Gage's results of operations have been included since March 1, 1997.
NOTE E - New Accounting Standards
During October, 1995, the Financial Accounting Standards Board issued
Statement No. 123. "Accounting for Stock-Based Compensation," which establishes
a fair value-based method of accounting for stock-based compensation and
incentive plans and requires additional disclosures for those companies that
elect not to adopt the new method of accounting. Adoption of this pronouncement
is required and the Company intends to adopt the reporting requirements of the
pronouncement in its financial statements for the year ended August 31, 1997.
The Company will continue to record compensation expense related to stock
options issued as prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which is required to be adopted by the
Company for the year ending August 31, 1998. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock options will
be excluded. The impact of this change will not materially affect the previously
reported earnings per share.
NOTE F - Subsequent Event
On June 25, 1997, the Company entered into a definitive agreement pursuant
to which all of the outstanding common stock of the Company is expected to be
acquired by United Dominion Industries Ltd. United Dominion has commenced a
tender offer to purchase for cash all of the outstanding common stock of Core
for $25 per share in cash.
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<PAGE>
NOTE G - Segment Information
<TABLE>
<CAPTION>
Third Quarter Ended
-----------------------
05/31/97 05/31/96
--------- ---------
<S> <C> <C>
Net Sales
Fluid Controls and Construction Products $ 31,290 $ 32,656
Test, Measurement and Control 28,242 17,036
Farm Equipment 17,030 13,432
--------- ---------
Total $ 76,562 $ 63,124
========= =========
Earnings Before Income Taxes
Fluid Controls and Construction Products $ 4,479 $ 4,320
Test, Measurement and Control 2,958 1,724
Farm Equipment 2,246 1,555
Corporate unallocated (1,184) (879)
Interest expense (904) (1,020)
--------- ---------
Total $ 7,595 $ 5,700
========= =========
Nine Months Ended
-----------------------
05/31/97 05/31/96
--------- ---------
Net Sales
Fluid Controls and Construction Products $ 86,366 $ 84,202
Test, Measurement and Control 61,665 49,527
Farm Equipment 44,786 34,154
--------- ---------
Total $ 192,817 $ 167,883
========= =========
Earnings Before Income Taxes
Fluid Controls and Construction Products $ 11,307 $ 11,131
Test, Measurement and Control 6,429 5,013
Farm Equipment 6,081 3,804
Corporate unallocated (3,291) (2,916)
Interest expense (2,403) (3,030)
--------- ---------
Total $ 18,123 $ 14,002
========= =========
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the first nine months of fiscal 1997, sales of $192,817,000 were up 15%
over $167,883,000 in the first nine months of fiscal 1996. The 1997 record nine
month net earnings of $11,353,000 or $1.06 per share were up 28% over the first
nine months of fiscal 1996 net earnings of $8,892,000 or $.86 per share.
For the third quarter of fiscal 1997, sales of $76,562,000 were 21% over
the sales for the same quarter of last year of $63,124,000. The net earnings for
the quarter rose 31% to a record $4,725,000 ($.44 per share) from $3,620,000
($.34 per share) for the third quarter of fiscal 1996.
For the first nine months of fiscal 1997, the Company's Fluid Controls and
Construction Products Segment provided 45% of total sales; the Test, Measurement
and Control Segment, 32% of total sales; and the Farm Equipment Segment, 23% of
sales. For the third quarter, each of the Company's segments grew its earnings
over the comparable period last year. The Farm Equipment Segment followed up a
very strong first six months with a strong third quarter with sales and earnings
before income taxes for the first nine months ahead of last year by 31% and 60%,
respectively. The improvement was helped by both the strong grain market and
excellent product acceptance. The Test, Measurement and Control Segment also had
a very strong third quarter with sales and earnings before taxes for the third
quarter 66% and 72% higher, respectively, compared with the 1996 third quarter.
This significant growth reflects improvements in their base businesses and the
acquisition of Air Gage Company, effective at the beginning of the third
quarter. The Fluid Controls and Construction Products Segment delivered higher
earnings in the third quarter (4% over last year) despite lower sales and
earnings at Flow Technologies in Houston. Other divisions within the Fluid
Control Group, especially CMB Industries, posted higher sales and earnings in
the third quarter compared with last year. The sale of Poly Craft, Inc. as of
April 25, 1997 also contributed to the lower sales in this segment.
Overall gross margins on net sales for the nine months of fiscal 1997
improved to 34.0% from 32.9% last year as a result of favorable product mix
changes. Selling, general and administrative expenses increased to 23.8% of
sales in this year's nine months from 23.1% last year, primarily due to higher
sales expenses at CMB Industries. CMB (acquired in the second quarter of fiscal
1996), traditionally has had higher selling expenses as a percent of sales than
Core due to its higher distribution costs.
Interest expense declined 21% in this year's first half compared with last
year due to reduced borrowings. The increase in other income for the first nine
months of 1997 compared with last year relates primarily to higher interest
income.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1997, the Company had working capital of $89 million and a
current ratio of 3.2 to 1, and the Company's capital employed (total debt and
equity) amounted to $159 million. The debt to capital ratio remains at the year
ago level of 28% despite significant investments made in the business. Over the
past 12 months $11.2 million was invested in capital expenditures and $18.8
million was invested in the acquisition of Air Gage Company, acquired effective
March 1, 1997. These investments were financed principally by the $19.3 million
in cash provided by operating activities and increases in long-term debt.
In January 1997, the Company replaced a $20 million line of credit facility
with a $50 million unsecured revolving agreement with a major domestic bank.
$21.6 million was borrowed under this facility at May 31, 1997. Management
believes that this new committed borrowing facility, together with the Company's
expected cash flows from operations are adequate to fund its strategies for
future growth, including working capital, expenditures for manufacturing
expansion and efficiencies, new product development, and future acquisitions.
In December 1996, the Company obtained $4,000,000 in low interest
industrial development revenue bond financing. These funds are being used to
support expansion at the Company's Sunflower Manufacturing facility in Beloit,
Kansas.
At the Company's current quarterly dividend rate of $.06 per share, annual
dividend payments would approximate $2.6 million. Under the Company's debt
agreements with insurance companies, retained earnings of approximately $34
million are available for dividends, subject to future earnings levels.
-9-
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, 3 and 4 of Part II are omitted because they are not applicable
or because they are not required.
ITEM 5. OTHER INFORMATION
On June 25, 1997, the Company entered into a definitive agreement pursuant
to which all of the outstanding common stock of the Company is expected to be
acquired by United Dominion Industries Ltd. United Dominion has commenced a
tender offer to purchase for cash all of the outstanding common stock of Core
for $25 per share in cash.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(k)(1) Change in Control Agreement with Mark J. MacGuidwin*
10(k)(2) Agreement and Plan of Merger, dated as of June 25,
1997, among the Company, Parent and Purchaser*
(b) With respect to the Company's acquisition of Air Gage Company, a
Form 8-K was filed on May 16, 1997.
*Incorporated by reference to the Company's Schedule 14D-9 Solicitation
Statement filed July 2, 1997.
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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, 1997 /s/ MARK J. MACGUIDWIN
------------ ----------------------------------------------------
Mark J. MacGuidwin
Vice President-Finance and Chief Financial Officer
Date: July 8, 1997 /s/ THOMAS G. HOOPER
------------ ----------------------------------------------------
Thomas G. Hooper
Treasurer and Controller
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 952,000
<SECURITIES> 0
<RECEIVABLES> 58,516,000
<ALLOWANCES> (1,810,000)
<INVENTORY> 65,977,000
<CURRENT-ASSETS> 127,869,000
<PP&E> 64,202,000
<DEPRECIATION> 34,013,000
<TOTAL-ASSETS> 199,578,000
<CURRENT-LIABILITIES> 39,355,000
<BONDS> 42,188,000
0
0
<COMMON> 11,276,000
<OTHER-SE> 100,927,000
<TOTAL-LIABILITY-AND-EQUITY> 199,578,000
<SALES> 192,817,000
<TOTAL-REVENUES> 192,817,000
<CGS> 127,313,000
<TOTAL-COSTS> 173,183,000
<OTHER-EXPENSES> (892,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,403,000
<INCOME-PRETAX> 18,123,000
<INCOME-TAX> 6,770,000
<INCOME-CONTINUING> 11,353,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,353,000
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
