United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 33-75154
J.B. POINDEXTER & CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0312814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Louisiana
Suite 5400
Houston, Texas
77002
(Address of principal executive offices)
(Zip code)
(713) 655-9800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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
There were 3,059 shares of Common Stock, $.01 par value, of the registrant
outstanding as of November 2, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, December 31,
1999 1998
------------- -------------
Current assets
Restricted cash ..................................... $ 991 $ 2,194
Accounts receivable, net of allowance for
doubtful accounts of $839 and $727, respectively .... 35,805 26,836
Inventories, net .................................... 33,747 32,151
Deferred income taxes ............................... 3,093 3,071
Prepaid expenses and other .......................... 1,009 562
------- -------
Total current assets ....................... 74,645 64,814
Property, plant and equipment, net .................. 38,991 38,211
Net assets of discontinued operations ............... 488 9,773
Goodwill, net ....................................... 15,049 14,517
Deferred income taxes ............................... 4,593 4,465
Other assets ........................................ 3,558 5,052
------ ------
Total assets ........................................ $137,324 $136,832
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current portion of long-term debt ................... $ 692 $ 1,019
Borrowings under the revolving credit facilities .... 17,176 18,433
Accounts payable .................................... 18,981 18,178
Accrued compensation and benefits ................... 7,144 4,657
Accrued interest .................................... 4,082 1,527
Accrued income taxes ................................ 74 483
Other accrued liabilities ........................... 8,552 5,965
------- -------
Total current liabilities .................. 56,701 50,262
------ ------
Noncurrent liabilities
Long-term debt, less current portion ........... 85,792 101,186
Employee benefit obligations and other ......... 3,191 2,583
------- -------
Total noncurrent liabilities ............... 88,983 103,769
------- -------
Commitments and contingencies
Stockholder's deficit
Common stock and paid-in-capital ..................... 16,486 16,486
Accumulated other element of comprehensive income .... (380) (491)
Accumulated deficit .................................. (24,466) (33,194)
--------- ---------
Total stockholder's deficit ...................... (8,360) (17,199)
--------- ---------
Total liabilities and stockholder's deficit ......$ 137,324 $ 136,832
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited- in thousands except share and per share amounts)
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net sales ....................................................... $ 103,880 $ 91,606 $ 333,636 $ 283,115
Cost of sales ................................................... 84,930 77,099 274,365 238,205
--------- --------- --------- ---------
Gross profit .................................................... 18,950 14,507 59,271 44,910
Selling, general and administrative expense ..................... 13,572 12,144 40,355 35,955
Other (income) expense .......................................... 35 36 (262) (177)
--------- --------- --------- ---------
Operating income ................................................ 5,343 2,327 19,178 9,132
Interest expense ................................................ 3,228 3,655 10,408 11,981
--------- --------- --------- ---------
Income (loss) from continuing operations, before
income taxes ............................................... 2,115 (1,328) 8,770 (2,849)
Income tax provision ............................................ 57 1,032 228 1,475
--------- --------- --------- ---------
Income (loss) from continuing operations ........................ 2,058 (2,360) 8,542 (4,324)
Income (loss) from discontinued operations,
less applicable taxes ...................................... -- 16,172 -- 674
Extraordinary gain (loss) on purchase of Senior Notes,
net of applicable taxes ................................... -- -- 186 --
--------- --------- --------- ---------
Net income (loss) ............................................... $ 2,058 $ 13,812 $ 8,728 $ (3,650)
========= ========= ========= =========
Basic and diluted income (loss) per share:
Income (loss) from continuing operations .................... $ 673 $ (771) $ 2,792 $(1,413)
Income (loss) from discontinued operations .................. -- 5,286 -- 220
Extraordinary gain (loss) on purchase of
Senior Notes ............................................ -- -- 61 --
------- ------- ------- -------
Net income (loss) ........................................... $ 673 $ 4,515 $ 2,853 $(1,193)
======= ======= ======= =======
Weighted average shares outstanding ........................ 3,059 3,059 3,059 3,059
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
For the Nine Months
Ended September 30,
1999 1998
-------- --------
Cash provided by operations .............................. $11,133 $10,419
------- -------
Cash flows provided by (used in) investing activities:
Proceeds from sales of businesses ................... 10,903 15,113
Proceeds from disposition of property, plant
and equipment ................................... -- 308
Acquisition of property, plant and equipment ........ (6,717) (4,926)
------- -------
Net cash provided by investing activities ....... 4,186 10,495
------- -------
Cash flows used in financing activities:
Net payments of revolving lines of credit and
short-term debt ................................ (1,314) (22,109)
Purchase of Senior Notes and payments of
other long-term debt ........................... (15,208) (939)
-------- --------
Net cash used in financing activities .......... (16,522) (23,048)
-------- --------
Decrease in restricted cash and cash equivalents ........ (1,203) (2,134)
Restricted cash and cash equivalents, beginning of period 2,194 3,191
-------- --------
Restricted cash and cash equivalents, end of period ..... $ 991 $ 1,057
======== ========
Supplemental information:
Cash paid for income taxes, net of refunds ........... $ 453 $ 605
====== ======
Cash paid for interest ............................... $7,266 $9,465
====== ======
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Business. J.B. Poindexter & Co., Inc. (JBPCO) and its
subsidiaries (the Subsidiaries, and, together with JBPCO, the Company), operate
primarily manufacturing businesses. Subsidiaries consist of Morgan Trailer Mfg.
Co., (Morgan), Truck Accessories Group, Inc., (TAG), EFP Corporation, (EFP) and
Magnetic Instruments Corp., (MIC Group).
The consolidated financial statements included herein have been prepared by
the Company, without audit, following the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
information furnished reflects all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair presentation of the
results of the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted following such
rules and regulations. However, the Company believes that the disclosures are
adequate to make the information presented understandable. These financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 1998 filed with the
Securities and Exchange Commission on Form 10-K.
(2) Segment Data. The following is a summary of the business segment data
(dollars in thousands):
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
Net Sales:
Morgan ................. $ 60,647 $ 48,970 $ 200,752 $ 156,130
TAG .................... 31,812 26,466 95,564 78,312
EFP .................... 8,633 9,928 26,038 27,036
MIC Group .............. 3,477 6,900 11,971 22,295
Intercompany Sales ..... (689) (658) (689) (658)
--------- --------- --------- ---------
Net Sales .............. $ 103,880 $ 91,606 $ 333,636 $ 283,115
========= ========= ========= =========
Operating Income (Loss):
Morgan .................. $ 4,397 $ 950 $ 16,295 $ 3,488
TAG ..................... 1,463 717 3,996 2,891
EFP ..................... 784 1,239 2,070 2,922
MIC Group................ (325) 185 (587) 1,916
JBPCO (Corporate)........ (976) (764) (2,596) (2,085)
-------- ------- -------- --------
Operating Income......... $ 5,343 $ 2,327 $ 19,178 $ 9,132
======== ======== ======== ========
September 30, December 31,
Total Assets as of: 1999 1998
----------- -------------
Morgan ....................................... $ 69,917 $ 60,454
TAG .......................................... 42,665 37,569
EFP .......................................... 14,500 16,233
MIC Group .................................... 7,821 9,078
JBPCO (Corporate) ............................ 1,933 3,725
Net assets of discontinued
operations ............................... 488 9,773
-------- --------
Total Assets ................................. $137,324 $136,832
======== ========
5
<PAGE>
Net sales of TAG Manufacturing for the nine-month periods ended September
30, 1999 and 1998 included $3,222,000 and $9,409,000, respectively, from
intercompany sales to TAG Distribution, which has been classified as a
discontinued operation.
Morgan has two customers (truck leasing and rental companies) that together
accounted for approximately 54% and 53% of Morgan's net sales during the nine
months ended September 30, 1999 and 1998, respectively. EFP has four customers
in the electronics industry that accounted for approximately 33% and 29% of
EFP's net sales in the nine months ended September 30, 1999 and 1998,
respectively. MIC Group has an industry concentration, pertaining to
international oil field service companies, with one customer that accounted for
approximately 39% and 38% of MIC Group's net sales during the nine months ended
September 30, 1999 and 1998, respectively.
(3) Comprehensive Income (Loss). The components of comprehensive income (loss)
were as follows (in thousands):
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------- -------- -------- ---------
Net income (loss) ............... $ 2,058 $ 13,812 $ 8,728 $ (3,650)
Foreign currency translation
adjustments ................. (25) (64) 111 (136)
-------- -------- -------- --------
Comprehensive income ............ $ 2,033 $ 13,748 $ 8,839 $ (3,786)
======== ======== ======== ========
(4) Inventories. Consolidated net inventories consisted of the following (in
thousands):
September 30, December 31,
1999 1998
---------- -------------
FIFO Basis Inventory:
Raw Materials .............................. $ 21,667 $ 19,549
Work in Process.............................. 4,719 4,296
Finished Goods .............................. 7,361 8,306
---------- ---------
Total Inventory .............................. $ 33,747 $ 32,151
======== ========
(5) Discontinued Operations - Truck Accessories Group (TAG Distribution
Division). TAG Distribution's results of operations have been reported as
discontinued operations in the consolidated financial statements for all periods
presented. In addition, the remaining net assets and liabilities of TAG
Distribution, which are expected to be disposed of, have been segregated within
the accompanying consolidated balance sheets as "net assets (liabilities) of
discontinued operations."
The TAG Distribution plan of disposal is substantially complete. Based on
improved operating performance, the Company decided during the second quarter of
1999 to retain Midwest Truck Aftermarket (MTA) and three retail stores.
Accordingly, that portion of the estimated loss on disposal of TAG Distribution
related to MTA of $1,306,000 has been reversed in the accompanying consolidated
statement of operations for the nine months ended September 30, 1999.
Additionally the results of operations of MTA have been included in continuing
operations for all periods presented.
As of October 20, 1999, the Company had sold two wholesale locations and 28
retail locations, including eight stores, which were part of Radco. Two
wholesale locations and three retail locations were closed. The Company realized
total proceeds of approximately $4,726,000 from the disposition of these assets.
The proceeds were used to repay borrowings under the Revolving Loan Agreements.
6
<PAGE>
Condensed financial information of the discontinued operations related to
the TAG Distribution Division was as follows (in thousands):
September 30, December 31,
1999 1998
------------ --------------
Net assets (liabilities) of discontinued operations:
Current assets ........................... $ 167 $ 7,831
Property, net ............................ 32 2,124
Intangible assets ........................ 155 159
------- ------
Total assets ............................. 354 10,114
Less current liabilities ............ 1,366 5,890
------- -------
Net assets (liabilities) ................. $(1,012) $ 4,224
======= =======
TAG Distribution revenues were $7,934,000 and $38,268,000 for the nine
months ended September 30, 1999 and 1998, respectively. At September 30, 1999,
accrued expenses included $516,000 for operating expenses, severance costs and
lease obligations. Substantially, all of this accrual will be eliminated through
cash payments in 1999. The income (loss) from discontinued operations related to
TAG Distribution was as follows (in thousands):
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Loss from TAG Distribution's
operations, less applicable
income taxes of $0 ....................................... $ -- $ -- $ -- $ (1,280)
Reversal of loss on disposal of MTA
and TAG Manufacturing net of
applicable income taxes of $0 ............................. -- 9,070 1,306 9,070
Loss on disposal of TAG including provision
of $0, $123, $1,306 and $1,810
for estimated operating losses through
disposal date, less applicable income
taxes of $0 ............................................... -- (123) (1,306) (15,554)
-------- -------- -------- --------
$ -- $ 8,947 $ -- $ (7,764)
======== ======== ======== ========
</TABLE>
Losses from operations of TAG Distribution included interest expense of
$48,000 and $1,032,000 related to the borrowings of TAG Distribution under the
Revolving Loan Agreement for the nine months ended September 30, 1999 and 1998,
respectively. The proceeds from the sale of TAG Distribution were used to repay
borrowings under the Revolving Loan Agreement.
Based on improved operating performance, the Company decided during the
third quarter of 1998 to retain the operations of TAG Manufacturing, which
reversed an earlier decision to dispose of the division. Accordingly that
portion of the estimated loss on disposal of TAG related to TAG Manufacturing of
$9,070,000 was reversed in the accompanying consolidated statement of operations
for the three months ended September 30, 1998. The results of operations of TAG
Manufacturing have been included in continuing operations for all periods
presented.
7
<PAGE>
Discontinued Operations - Lowy. Effective June 7, 1999, the Company sold the
business and principally all of the assets excluding real estate of Lowy
Distribution, the Company's Floor Covering segment. The Company realized net
cash proceeds of $6,241,000, which approximated the carrying value of the
related assets and liabilities. Certain real estate is being held for sale by
Lowy. Lowy's results of operations have been reported as discontinued operations
in the consolidated financial statements for all periods presented. The net
assets and liabilities of Lowy are segregated within the consolidated balance
sheets as "net assets of discontinued operations."
Condensed financial information of the discontinued operations related to
Lowy was as follows (in thousands):
September 30, December 31,
1999 1998
-------------- -------------
Net assets of discontinued operations:
Current assets ............................. $ 196 $7,517
Deferred disposal costs ...................... 947 --
Property, net ................................ 266 473
Long-term assets ............................. 768 1,498
------ ------
Total assets ................................. 2,177 9,488
Less current liabilities ..................... 63 2,659
Less long-term liabilities ................... 614 1,280
------ ------
Net assets.................................... $1,500 $5,549
====== ======
Lowy revenues were $15,932,000 and $48,708,000 for the nine months ended
September 30, 1999 and 1998, respectively. Revenues for the nine months ended
September 30, 1998 included the operations of Blue Ridge, which was sold
effective August 31, 1998. The income from discontinued operations related to
Lowy was as follows (in thousands):
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Net income from operations of Lowy,
net of applicable income taxes of
$0, $430, $0 and
$494, respectively ................. $ -- $ 625 $ -- $1,838
Gain on disposal of assets of the
Blue Ridge/Courier division less
applicable taxes of $0 ............. -- 6,600 -- 6,600
------ ------ ------ ------
$ -- $7,225 $ -- $8,438
====== ====== ====== ======
Net income of Lowy is net of interest expense related to the borrowings of
Lowy under the Revolving Loan Agreement for the nine months ended September 30,
1999 and 1998 of $182,000 and $360,000, respectively. The proceeds from the sale
of Lowy and the remaining real estate have been and will be used to repay
borrowings under the Revolving Loan Agreement.
(6) Revolving Loan Agreements. Effective February 12, 1999, the Company's lender
waived an event of default arising from the Company purchasing $5,500,000 of its
Senior Notes. The lender also provided consent, subject to certain conditions,
for the Company to purchase an additional $4,500,000, at cost including accrued
interest, of the Senior Notes. Effective May 26, 1999 the Company's lender
provided an additional consent, subject to certain conditions, for the Company
to purchase an additional $10,000,000, in principal amount, of the Senior Notes.
8
<PAGE>
Effective March 29, 1999, the lender exercised its option to extend the
renewal date of the Revolving Loan Agreement to June 28, 2000. At September 30,
1999, the Company had total borrowing availability of approximately $41,429,000,
of which $2,562,000 was used to secure letters of credit and foreign currency
transactions. Additionally, $17,176,000 had been borrowed to fund the purchase
of the Company's Senior Notes and fund operations, resulting in unused
availability of $21,691,000.
(7) Long-term Debt. During the nine months ended September 30, 1999, the Company
purchased $15,000,000 of its Senior Notes. The Company realized a gain of
$186,000; net of income taxes of $6,000 and net of related deferred loan costs
of $332,000, which was recognized as an extraordinary gain in the consolidated
statements of operations for the period.
(8) Income Taxes. The income tax expense of $228,000 in 1999 differs from
amounts computed based on the federal statutory rates principally due to the
Company's ability to utilize the benefit of net operating losses against which
valuation allowances had been previously provided.
(9) Contingencies.
Claims and Lawsuits. The Company is involved in certain claims and lawsuits
arising in the normal course of business. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse effect on
the financial position or results of operations of the Company.
EFP is subject to a lawsuit concerning the supply of natural gas to one of
its manufacturing plants. The utility company has alleged that EFP was
under-billed by approximately $500,000 over a four-year period as a result of
errors made by the utility company. EFP was granted a motion for summary
judgment dismissing the suit effective April 20, 1999. The utility company has
appealed the motion for summary judgment and the Company will continue to
aggressively defend the suit. Management believes that the ultimate resolution
of this matter will not have a material adverse effect on the Company.
Environmental Matters. Morgan has been named as a potentially responsible
party ("PRP") with respect to its generation of hazardous materials alleged to
have been handled or disposed of at two Federal Superfund sites in Pennsylvania
and one in Kansas. Although a precise estimate of liability cannot currently be
made with respect to these sites, based upon information known to Morgan, the
Company currently believes that it's proportionate share, if any, of the
ultimate costs related to any necessary investigation and remedial work at those
sites will not have a material averse effect on the Company.
(10) Derivative Instruments and Hedging Activities. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities, which, as
amended, is required to be adopted in fiscal years beginning after June 15,
2000. Because of the Company's limited use of derivatives to manage its exposure
to fluctuations in foreign exchange rates, management does not anticipate that
the adoption of the new statement will have a significant effect on earnings or
the financial position of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
The Company operates in industries that are dependent on various factors
reflecting general economic conditions, including corporate profitability,
consumer spending patterns, sales of truck chassis and new pickup trucks and
levels of oil and gas exploration.
9
<PAGE>
During the quarter ended June 30, 1999, the Company substantially completed
the disposition of the distribution operations of the Truck Accessories Group.
Based on improved operating performance, the Company decided during the second
quarter of 1999 to retain Midwest Truck Aftermarket (MTA), a wholesale
operation, and three retail stores. Two of the three retail stores are an
integral part of the manufacturing facilities, to which they are attached, and
will provide factory outlet capabilities. The results of operations of MTA have
been included in continuing operations for all periods presented.
The results of operations of the retained stores have been included in
continuing operations for the year to date period ended September 30, 1999. The
Company's results of operations for the prior periods have not been restated.
During the nine months ended September 30, 1999 net sales of these stores
combined was $3.2 million, cost of sales was $2.3 million and the stores
recorded operating income of $191,000. Total assets of the retained stores at
September 30, 1999 were $551,000.
Effective June 7, 1999, the Company sold the business and substantially all
of the assets of Lowy Distribution. Upon the sale of certain real estate, the
disposition of the Company's floor covering operations will be complete. The
Company realized net cash proceeds of $6.2 million, which were used to reduce
revolver borrowings.
Results of Continuing Operations
Nine Months Ended September 30, 1999 Compared to
Nine Months Ended September 30, 1998
Net sales increased $50.5 million or 18% to $333.6 million for the nine
months ended September 30, 1999 compared to $283.1 million during 1998. The
increase was due primarily to Morgan whose sales increased 29% or $44.6 million.
Unit shipments at Morgan increased 25% to 26,473 units, which includes a 25%
increase in commercial product shipments. Morgan's backlog at September 30, 1999
was $54.9 million compared to $55.7 million at September 30, 1998. TAG sales
increased $17.3 million or 22% to $95.6 million due to improved product mix and
a 15% increase in unit shipments. EFP sales decreased $1.0 million or 4% mainly
due to a decrease in Styrocast and tooling products businesses of $2.1 million
offset by increased shipments of packaging products principally to the
electronics industry of $1.4 million. Backlog at EFP declined 18% to $3.7
million at September 30, 1999 compared to September 30, 1998. Sales at MIC Group
declined $10.3 million or 46% due to the continued depressed level of spending
by MIC's customers in the oilfield services business. MIC's backlog at September
30, 1999 increased 84% to $4.6 million compared to $2.5 million at June 30,
1999.
Cost of sales rose 15% to $274.4 million for the nine months ended
September 30, 1999 compared to $238.2 million, during the 1998 period. Gross
profit increased 32% to $59.3 million (18% of net sales) during 1999 compared to
$44.9 million (16% of net sales) for 1998. The gross profit at Morgan increased
$13.7 million or 85% to $29.9 million or 15% of sales compared to 10% of sales
during 1998. The increase at Morgan is due mainly to increased production volume
and the resulting improved overhead absorption. TAG gross profit for the nine
months ended September 30, 1999, increased $4.9 million or 28% primarily due to
higher sales volume. Although partially reduced by increased material costs, TAG
gross profit as a percent of sales increased to 24% during the 1999 period
compared to 22% during 1998 due to increased overhead absorption on higher sales
and slightly improved pricing of its products. Gross profit declined $1.1
million or 17% at EFP and $3.2 million or 67% at MIC during the nine months
ended September 30, 1999 compared to 1998 on lower sales at both subsidiaries.
Selling, general and administrative expenses increased $4.4 million or 12%
to $40.4 million (12% of net sales) for the nine months ended September 30, 1999
compared to $36.0 million (13% of net sales) during 1998. The improvement in
expenses as a percentage of sales was due to Morgan whose expenses increased
$0.9 million despite a $44.6 million increase in sales.
10
<PAGE>
Operating income increased 110% or $10.1 million to $19.2 million (6% of
net sales) for the nine months ended September 30, 1999 compared to $9.1 million
(3% of net sales) in 1998. Morgan's operating income increased $12.8 million for
the period. TAG's operating income increased $1.1 million while the operating
income at EFP and MIC decreased $0.9 million and $2.5 million, respectively.
Interest expense was $10.4 million for the nine months ended September 30,
1999, 13% less than the $12.0 million during the same period in 1998. Average
borrowings under the revolving credit facility decreased by approximately 46% or
$10.9 million during the nine months ended September 30, 1999 thereby reducing
interest by approximately $0.9 million compared to 1998. The Company purchased
$15.0 million of its Senior Notes during the nine months ended September 30,
1999, which, because of the difference between the interest rate on the Senior
Notes compared to that of the revolving credit facility, reduced interest
expense by approximately $380,000 during the 1999 period.
The income tax expense of $228,000 in 1999 differs from amounts computed
based on the federal statutory rates principally due to the Company's ability to
utilize the benefit of net operating losses against which valuation allowances
had been previously provided.
The Company purchased $15.0 million of its Senior Notes in the open market
during the nine months ended September 30, 1999. The Company recorded an
extraordinary gain on the purchases of $186,000, net of tax of $6,000 and net of
deferred loan costs of $332,000, related to the purchased Senior Notes. The
Company purchased the Senior Notes as a short-term investment and the decision
to hold or to sell them will depend upon future market conditions.
Third Quarter 1999 Compared to Third Quarter 1998
Net sales increased 13.4% to $103.9 million for the quarter ended September
30, 1999 compared to $91.6 million during the 1998 period, primarily due to a
24% or $11.7 million increase at Morgan and a 20% or $5.3 million increase at
TAG. Shipments at Morgan increased 10% during the 1999 quarter compared to 1998.
Morgan's third quarter unit shipments consisted mostly of commercial products
during the third quarter as the consumer rental business is traditionally
concentrated in the first and second quarters. Shipments at TAG increased 11%
during the quarter compared to 1998. EFP sales declined 13% or $1.3 million
during the 1999 third quarter compared to 1998 as increased sales of packaging
products to the electronics industry during the first six months of 1999 did not
continue into the third quarter. Sales decreased 50% or $3.4 million at MIC,
primarily because of the decline in activity related to oil and gas exploration
and production.
Cost of sales increased 10% to $84.9 million for the quarter ended
September 30, 1999 compared to $77.1 million during 1998. Gross profit was $18.9
million (18% of net sales) for the third quarter of 1999 compared to $14.5
million (16% of net sales) for 1998. Morgan's gross profit increased $4.4
million or 96%, while TAG's increased $1.5 million or 23%, however, EFP's gross
profit decreased $0.7 million or 27% and MIC's decreased $0.8 million or 66%.
Selling, general and administrative expenses increased $1.5 million to
$13.6 million (13% of net sales) for the quarter ended September 30, 1999
compared to $12.1 million (also 13% of net sales) during 1998.
Operating income from continuing operations was $5.3 million (5% of net
sales) for the quarter ended September 30, 1999 compared to $2.3 million (3% of
net sales) in 1998, an increase of 130%.
Interest expense decreased 14% to $3.2 million during the quarter ended
September 30, 1999 compared to $3.7 million during 1998.
11
<PAGE>
Liquidity and Capital Resources
Operating activities during the nine months ended September 30, 1999
generated cash of $11.1 million compared to $10.4 million during the same period
in 1998. The improved cash from operations, during the nine months ended
September 30, 1999 compared to 1998, was due to a $13.5 million improvement in
net income from continuing operations, excluding certain non-cash adjustments
related to the sale or closure of discontinued operations, reduced by a $12.8
million greater investment in working capital, principally accounts receivable
and accounts payable. Working capital at September 30, 1999 of $18.0 million
approximates that at September 30, 1998.
During the nine months ended September 30, 1999, the Company substantially
completed the disposition of its distribution businesses. During the period, the
Company received proceeds of approximately $4.7 million from the sale of TAG
Distribution stores and effective June 7, 1999, the Company realized net
proceeds of $6.2 million from the sale of Lowy Distribution. Proceeds of $10.9
million from the sale of discontinued operations and funds from operations were
used to reduce borrowings under the revolving credit facility.
The ability to borrow under the Revolving Loan Agreement depends on the
amount of eligible collateral, which, in turn, depends on certain advance rates
applied to the value of accounts receivables and inventory. At October 27, 1999,
the Company had unused available borrowing capacity of $25.3 million under the
terms of the Revolving Loan Agreement.
Capital expenditures for the nine months ended September 30, 1999 of $6.7
million compared to $4.9 million during the prior year, related primarily to the
maintenance of existing capacity at TAG Manufacturing and Morgan.
The Company believes that it has adequate resources to meet its working
capital and capital expenditure requirements consistent with past trends and
practices. Management believes that its cash balances and the borrowing
availability under the Revolving Loan Agreement will satisfy the Company's cash
requirements for the foreseeable future, given its anticipated additional
capital expenditures, working capital requirements and known obligations. The
Company is in compliance with the terms of the Revolving Loan Agreement.
Year 2000
The Year 2000 (Y2K) issue is the result of computer programs being written
using two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations resulting in disruptions to operations.
The Company's plan to resolve the Year 2000 issue involves the following
four phases: assessment, remediation, testing and implementation. Based on an
assessment of continuing operations, the Company determined that it would be
necessary to modify or replace significant portions of its software and certain
hardware so that those systems would properly utilize dates beyond December 31,
1999 at certain of the Company's subsidiaries. The Company has remediated and
tested principally all of its critical systems. The compliance process for
certain non-critical systems will be completed by December 31, 1999. The Company
believes that with modifications or replacements of existing software and
certain hardware, the Y2K issue can be mitigated.
The Company has queried its significant suppliers and subcontractors that
do not share information systems with the Company (external agents). To date,
the Company is not aware of any external agent with a Y2K issue that would
materially impact the Company's results of operations, liquidity, or capital
resources.
The Company has and will continue to utilize both internal and external
12
<PAGE>
resources to reprogram or replace, test, and implement the software and
operating equipment for Y2K modifications. The total cost of the Y2K project is
estimated at $1.7 million and is being funded through operating cash flows.
Approximately 20% of the cost is to replace equipment and the remainder is to
upgrade or reprogram software. The majority of these costs are being expensed as
incurred and are not expected to have a material adverse effect on the Company's
results of operations or financial position. To date, the Company has incurred
approximately $1.5 million related to all phases of the Y2K project.
The Company believes that the Y2K issue will not pose significant
operational problems for the Company. However, if all Y2K problems are not
identified and corrected in a timely manner, there can be no assurances that the
Y2K issue will not have a material adverse effect on the Company's results of
operations or adversely affect the Company's relationships with customers,
suppliers or other parties. In addition, there can be no assurances that outside
third parties, including customers, suppliers, utility and government entities
will be adequately prepared for all Y2K issues. Management surveyed the Y2K
readiness of its major suppliers and customers and determined they should be Y2K
compliant on or before December 31, 1999. The Company determined that none of
its major suppliers are sole suppliers of any one product, with the exception of
electrical power supplies at its various plants. Management is currently
researching alternative sources of electrical power or alternative hours of
operation should the lack of electrical power become an issue at a particular
location. The larger subsidiaries will have personnel on hand during the weekend
of January 1, 2000, to test systems before production resumes on January 3. The
failure of third party suppliers to provide on-going services could have a
material adverse effect on the Company's results of operations.
Management of the Company believes it has an effective program in place to
resolve the Y2K issue in a timely manner. However, the Company currently has no
contingency plans in place in the event it or any of its major suppliers or
major customers experience Y2K problems. The Company continues to evaluate the
status of its key suppliers and determine if such a plan is necessary.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (1) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (2) any sale of a business unit is
subject to many factors including terms considered satisfactory to the
management of the Company; and (3) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
PART II. OTHER INFORMATION
Item 3. Other Information
None
Item 4. Exhibits and Reports on Form 8-K
None
13
<PAGE>
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.
J.B. POINDEXTER & CO., INC.
(Registrant)
Date: October 27, 1999 By: S. Magee
----------------------------------------------
S. Magee, Chief Financial Officer and Director
By: R.S. Whatley
----------------------------------------------
R. S. Whatley, Principal Accounting Officer
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1999 3RD
QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 991
<SECURITIES> 0
<RECEIVABLES> 36,644
<ALLOWANCES> 839
<INVENTORY> 33,747
<CURRENT-ASSETS> 74,645
<PP&E> 91,777
<DEPRECIATION> 52,875
<TOTAL-ASSETS> 137,314
<CURRENT-LIABILITIES> 56,701
<BONDS> 85,792
0
0
<COMMON> 16,486
<OTHER-SE> (380)
<TOTAL-LIABILITY-AND-EQUITY> 137,324
<SALES> 333,636
<TOTAL-REVENUES> 333,636
<CGS> 274,365
<TOTAL-COSTS> 274,365
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,408
<INCOME-PRETAX> 8,770
<INCOME-TAX> 228
<INCOME-CONTINUING> 8,542
<DISCONTINUED> 0
<EXTRAORDINARY> 186
<CHANGES> 0
<NET-INCOME> 8,728
<EPS-BASIC> 2.853
<EPS-DILUTED> 2.853
<FN>
LOSS PROVISION IS INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE ON
THE FINANCIAL STATEMENTS.
</FN>
</TABLE>
