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 March 31, 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 May 1, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
March 31, December 31,
1999 1998
----------- ------------
Current assets
Restricted cash .................................... $ 2,224 $ 2,194
Accounts receivable, net of allowance
for doubtful accounts of $755 and
$710, respectively ............................. 35,592 26,289
Inventories, net ................................... 36,542 31,094
Deferred income taxes .............................. 3,084 3,071
Prepaid expenses and other ......................... 488 559
------- -------
Total current assets ............................... 77,930 63,207
Property, plant and equipment, net ................. 38,010 38,198
Net assets of discontinued operations .............. 5,802 8,844
Goodwill, net ...................................... 14,290 14,517
Deferred income taxes .............................. 4,558 4,465
Other assets ....................................... 4,276 4,744
------ ------
Total assets ....................................... $144,866 $133,975
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current portion of long-term debt ................... $ 957 $ 1,019
Borrowings under the revolving credit facility ...... 22,677 16,813
Accounts payable .................................... 24,282 17,771
Accrued compensation and benefits ................... 4,687 4,648
Accrued interest .................................... 4,002 1,527
Accrued income taxes ................................ 399 483
Other accrued liabilities ........................... 7,590 5,944
------- -------
Total current liabilities ....................... 64,594 48,205
------- -------
Noncurrent liabilities
Long-term debt, less current portion ................ 92,193 100,386
Employee benefit obligations and other .............. 3,198 2,583
------- -------
Total noncurrent liabilities .................... 95,391 102,969
------- -------
Commitments and contingencies
Stockholder's deficit
Common stock and paid-in-capital .................... 16,486 16,486
Cumulative other comprehensive income ............... (414) (491)
Accumulated deficit ................................. (31,191) (33,194)
--------- ---------
Total stockholder's deficit ..................... (15,119) (17,199)
--------- ---------
Total liabilities and stockholder's deficit ..... $ 144,866 $ 133,975
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited- in thousands except share and per share amounts)
For the Three Months
Ended March 31,
1999 1998
---------- ----------
Net sales ......................................... $105,850 $ 85,585
Cost of sales ..................................... 88,536 73,147
-------- --------
Gross profit ....................................... 17,314 12,438
Selling, general and administrative expense ........ 11,821 10,690
Other income ....................................... (49) (72)
------- -------
Operating income ................................... 5,542 1,820
Interest expense ................................... 3,713 4,186
----- -----
Income (loss) from continuing operations, before
income taxes .................................. 1,829 (2,366)
Income tax provision (benefit) ..................... 48 (98)
------ ------
Income (loss) from continuing operations ........... 1,781 (2,464)
Loss from discontinued operations,
less applicable taxes ......................... -- (15,462)
Extraordinary gain on purchase of Senior Notes,
net of applicable taxes ...................... 222 --
------- -------
Net income (loss) .................................. $ 2,003 $(17,926)
======== ========
Basic and diluted loss per share:
Income (loss) from continuing operations ...... $ 582 $ (805)
Loss from discontinued operations ............. -- (5,055)
Extraordinary gain on purchase of Senior Notes. 72 --
------- -------
Net income (loss) .................................. $ 654 $(5,860)
======= =======
Weighted average shares outstanding ................ 3,059 3,059
===== =====
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 Three Months
Ended March 31,
1999 1998
--------- ---------
Cash from operations .................................. $1,648 $1,361
------ ------
Cash flows provided by (used in) investing activities:
Proceeds from sales of businesses and equipment .. 3,687 --
Acquisition of property, plant and equipment ..... (1,808) (1,724)
Other ............................................ (15) (21)
------ ------
Net cash provided by (used in) investing activities. 1,864 (1,745)
------ ------
Cash flows provided by (used in) financing activities:
Net proceeds(payments)of revolving lines
of credit and short-term debt ...................... 4,834 (724)
Payments of long-term debt and capital leases .... (8,316) (356)
------ ------
Net cash used in financing activities.................. (3,482) (1,080)
------- ------
Increase (decrease)in restricted cash
and cash equivalents............................. 30 (1,424)
Restricted cash and cash equivalents,
beginning of period.............................. 2,194 3,191
------ ------
Restricted cash and cash equivalents, end of period .... $2,224 $1,767
====== ======
Supplemental information:
Cash paid for income taxes, net of refunds ........ $61 $39
====== ======
Cash paid for interest ................................. $ 467 $1,473
====== ======
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), Lowy Group, Inc., (Lowy),
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 Three Months
Ended March 31,
1999 1998
---- ----
Net Sales
Morgan ..................................... $ 65,607 $ 48,350
TAG Manufacturing .......................... 26,490 21,492
EFP ........................................ 8,687 8,135
MIC Group .................................. 5,066 7,608
-------- --------
Net Sales .................................. $105,850 $ 85,585
======== ========
Operating Income (Loss)
Morgan ..................................... $ 4,948 $ (75)
TAG Manufacturing .......................... 518 576
EFP ........................................ 600 915
MIC Group .................................. 262 1,143
JBPCO (Corporate) .......................... (786) (739)
------- -------
Operating Income ........................... $ 5,542 $ 1,820
======= =======
Total assets as of: March 31, December 31,
1999 1998
----------- -------------
Morgan ..................................... $ 74,868 $ 60,454
TAG Manufacturing .......................... 38,612 35,656
EFP ........................................ 14,097 16,233
MIC Group .................................. 8,533 9,078
JBPCO (Corporate) .......................... 2,954 3,710
Net assets of discontinued operations ...... 5,802 8,844
-------- --------
Total Assets ............................... $144,866 $133,975
======== ========
5
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Net sales include $2,122,000 and $2,969,000, respectively, from
intercompany sales to TAG Distribution, which has been classified as a
discontinued operation. Morgan's total assets increased by $14,414,000 since
December 31, 1998, primarily due to increased receivables and inventory in
response to a 36% increase in net sales during the quarter ended March 31, 1999
compared to the quarter ended December 31, 1998.
Morgan has two customers (truck leasing and rental companies) that
accounted for, on a combined basis, approximately 55% of Morgan's net sales
during both of the three-month periods ended March 31, 1999 and 1998. EFP has
three customers in the electronics industry that accounted for approximately 30%
of EFP's net sales in the three months ended March 31, 1999 and 1998. MIC Group
has an industry concentration, pertaining to international oil field service
companies, with one customer that accounted for approximately 48% and 32% of MIC
Group's net sales during the three months ended March 31, 1999 and 1998,
respectively.
(3) Comprehensive Income (Loss). The components of comprehensive income (loss)
were as follows (in thousands):
For the Three Months
Ended March 31,
1999 1998
---- ----
Net income (loss) ................................. $ 2,003 $(17,926)
Foreign currency translation adjustments .......... 77 42
-------- --------
Comprehensive income (loss) ....................... $ 2,080 $(17,884)
======== ========
The accumulated foreign currency translation adjustments at March 31, 1999
and December 31, 1998 were deficits of $414,000 and $491,000, respectively.
(4) Inventories. Consolidated net inventories consisted of the following (in
thousands):
March 31, December 31,
1999 1998
-------- -------------
FIFO Basis Inventory:
Raw Materials ................................. $25,405 $19,549
Work in Process................................. 4,703 4,296
Finished Goods ................................. 6,434 7,249
------- -------
Total Inventory ................................. $36,542 $31,094
======= =======
(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 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 of discontinued
operations." The plan of disposal is expected to be substantially complete by
the end of the second quarter of 1999.
As of May 1, 1999, the Company has sold two wholesale locations and 26
retail locations, including eight stores, which were part of Radco. One
wholesale location and two retail locations have been closed. The Company
realized proceeds of $2,422,000 from the sale of nine retail (excluding the
Radco stores) and two wholesale locations completed during the three months
ended March 31, 1999. The proceeds were used to repay borrowings under the
Revolving Loan Agreement. Effective January 29, 1999, the Company sold the
business assets of Radco and realized proceeds of approximately $1.2 million.
The proceeds were used to repay borrowings under a separate revolving credit
agreement entered into by Radco during 1997.
6
<PAGE>
Subsequent to March 31, 1999, the Company completed the sale of seven
retail stores and the proceeds of approximately $700,000 were used to repay
borrowings under the Revolving Loan Agreement.
Condensed financial information related to the TAG Distribution division
was as follows (in thousands):
March 31, December 31,
1999 1998
---------- ------------
Net assets of discontinued operations:
Current assets ............................... $4,310 $9,438
Property, net ................................ 1,387 2,137
Intangible assets ............................ 442 466
------ ------
Total assets ................................. 6,139 12,041
Less current liabilities ..................... 6,127 7,946
Less long-term liabilities ................... 749 800
------ ------
Net assets (liabilities) ..................... $ (737) $3,295
====== ======
TAG Distribution revenues were $10,163,000 and $12,991,000 for the three
months ended March 31, 1999 and 1998, respectively. At March 31, 1999, accrued
expenses included $2,239,000 with respect to operating expenses, severance costs
and lease obligations, which run through October 2005. Substantially, all of
this accrual will be paid in 1999. The income (loss) from discontinued
operations related to TAG Distribution was as follows (in thousands):
For the Three Months
Ended March 31,
1999 1998
---- ----
Net loss from TAG Distribution's operations less
applicable income taxes of $0................. $ - $ (1,180)
Net loss on disposal of TAG, including a
provision of $641, at March 31,1998, for
estimated operating losses through the
disposal the date, less applicable
income taxes of $0............................ - (14,385)
--------- --------
$ - $(15,565)
========= =========
Losses from operations of TAG Distribution include interest expense of
$24,000 and $609,000 related to the borrowings of TAG Distribution under the
Revolving Loan Agreement for the three months ended March 31, 1999 and 1998,
respectively. The proceeds from the sale of TAG Distribution will be used to
repay borrowings under the Revolving Loan Agreement.
The net loss on disposal of TAG of $14,385,000, recorded during the three
months ended March 31,1998, included a write down of the assets of TAG
Manufacturing of $8,184,000. The write down was reversed, effective September
1998, upon the Company's decision to retain TAG Manufacturing.
Discontinued Operations - Lowy. Lowy Distribution is the Company's Floor
Covering segment that markets commercial and residential floor covering. Such
results of operations have been reported as discontinued operations in the
consolidated financial statements for the periods presented. In addition, the
7
<PAGE>
net assets and liabilities, which are expected to be disposed of, have been
segregated within the consolidated balance sheets as "net assets of discontinued
operations."
Condensed financial information related to Lowy was as follows (in
thousands):
March 31, December 31,
1999 1998
---------- -------------
Net assets of discontinued operations:
Current assets ......................... $9,589 $7,517
Property, net ............................ 470 473
Long-term assets ......................... 1,475 1,498
------ ------
Total assets ............................. 11,534 9,488
Less current liabilities ................. 3,729 2,659
Less long-term liabilities ............... 1,266 1,280
------ ------
Net assets ............................... $6,539 $5,549
====== ======
Lowy revenues were $9,369,000 and $15,888,000 for the three months ended
March 31, 1999 and 1998, respectively. Revenues for the three months ended March
31, 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 Three Months
Ended
1999 1998
---- ----
Net income from operations of Lowy, net of
applicable income taxes of
$-0- and $50, respectively ....................... $-- $103
===== ====
Net income of Lowy includes interest expense related to the borrowings of
Lowy under the Revolving Loan Agreement for the three months ended March 31,
1999 and 1998 of $78,000 and $100,000, respectively.
(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 and provided consent, subject to certain conditions, for the
Company to purchase an additional $4,500,000, at cost, of the Senior Notes.
Effective March 29, 1999, the Company was notified by the lender, in
writing, that it is exercising its option to extend the renewal date of the
Revolving Loan Agreement to June 28, 2000. At March 31, 1999, the Company had
total borrowing availability of $53.2 million, of which $3.4 million was used to
secure letter of credit and finance trade transactions. Additionally, $27.1
million had been borrowed to fund operations and the purchase of $8.0 million of
the Company's Senior Notes resulting in unused availability of $26.1 million.
(7) Long-term Debt. During the three months ended March 31, 1999, the Company
purchased $8,011,000 of its Senior Notes. The Company realized a gain of
$222,000, net of income taxes of $6,000, which was recognized as an
extraordinary gain in the consolidated statements of operations for the period.
As of May 1, 1999, the Company had purchased $10,000,000 of its Senior Notes and
realized an extraordinary gain of $272,000, net of income tax.
(8) Income Taxes. The income tax expense of $48,000 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.
8
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(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
judgement dismissing the suit effective April 20, 1999. The Company will
continue to aggressively defend the suit in the event of an appeal and believes
that it 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 is
required to be adopted in fiscal years beginning after June 15, 1999. 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.
Results of Continuing Operations
First Quarter 1999 Compared to First Quarter 1998
Net sales increased 24% to $105.9 million for the three months ended March
31, 1999 compared to $85.6 million during the 1998 period. Sales at Morgan
increased 36% or $17.3 million. The Company recorded sales increases at TAG
Manufacturing of 23% or $5.0 million and at EFP of 7% or $0.6 million. MIC Group
sales declined 33% or $2.5 million.
Cost of sales increased 21% to $88.5 million for the three months ended
March 31, 1999 compared to $73.2 million during 1998. Gross profits increased
39% to $17.3 million (16% of net sales) for the first three months of 1999
compared to $12.4 million (15% of net sales) for 1998.
Selling, general and administrative expense increased 11% to $11.8 million
(11% of net sales) for the three months ended March 31, 1999 compared to $10.7
million (12% of net sales) during 1998.
9
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Operating income from continuing operations increased 206% to $5.5 million
(5% of net sales) for the three months ended March 31, 1999 compared to $1.8
million (2% of net sales) in 1998, due primarily to a $5.0 million improvement
in operating income at Morgan.
Interest expense decreased 11% to $3.7 million during the three months
ended March 31, 1999 compared to $4.2 million during 1998. Average total
borrowings during the quarter decreased $24.9 million or 18% during the 1999
period compared to the same period in 1998.
The Company's income before income taxes, discontinued operations and
extraordinary gains increased $4.3 million to $1.8 million for the three months
ended March 31, 1999 compared to a loss of $2.5 million during the same period
in 1998.
The provision for income tax of $48,000 for the first three months of 1999
is net of the benefit from utilizing net operating losses against which
valuation allowances had been previously provided.
The Company purchased $8.0 million of its Senior Notes, in the open market,
during the three months ended March 31, 1999 and recorded an extraordinary gain
on the purchases of $222,000, net of tax. 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.
Morgan
First Quarter 1999 Compared to First Quarter 1998
Net sales increased 36% to $65.6 million for the first three months of 1999
compared to sales of $48.0 million for the first three months of 1998 due to
strong demand for Morgan's van bodies and improved availability of chassis.
Shipments increased 40% during the 1999 period compared to 1998 including a 51%
increase in commercial product shipments. Backlog at March 31, 1999 was $83.6
million compared to $73.3 million at December 31, 1998 and $78.3 million at
March 31, 1998. Because contracts for Consumer Rental Sales are entered into in
the summer or fall but production does not begin until the following January,
Morgan generally has a significant backlog of Consumer Rental Sales orders at
the end of each year. Production and shipment of those orders take place,
usually, through May of the following year.
Cost of sales increased 28% to $56.6 million for the first three months of
1999 compared to $44.2 million for the same period in 1998. Gross profits
increased 114% to $9.0 million (14% of net sales) during 1999 compared to $4.2
million (9% of net sales) during 1998. Significant improvements in labor
efficiencies and overhead absorption improved gross profits approximately $2.5
million.
Selling, general and administrative expense decreased slightly to $4.1
million (6% of net sales) for the first three months of 1999 compared to $4.2
million (9% of net sales) for the same period of 1998.
Morgan's operating income increased $5.1 million to $5.0 million during the
first three months of 1999 compared to a loss of $0.1 million for the same
period of 1998.
TAG Manufacturing
First Quarter 1999 Compared to First Quarter 1998
Net sales increased $5.0 million or 23% to $26.5 million for the three
months ended March 31, 1999 compared to $21.5 million for the same period in
10
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1998. Net sales included sales to TAG Distribution, whose operations are
reported as discontinued, of $2.1 million in 1999 and $3.0 million in 1998. Unit
shipments increased 19% to 43,000 units during 1999 compared to 36,000 units
during 1998.
Cost of sales increased by $3.8 million or 22% to $20.9 million compared to
the same period in 1998. Gross profits increased by $1.2 million or 28% to $5.6
million (21% of net sales) compared to $4.4 million (21% of net sales) in the
same period of 1998. Gross margins remained 21% during both periods as a
reduction in warranty returns at Leer reduced overhead costs relative to sales
which was offset by material cost increases at Century and Raider as a result of
changes in product mix.
Selling, general and administrative costs increased by $1.1 million or 27%
to $5.2 million compared to $4.1 million for the same period in 1998. Costs
during 1998's third quarter were net of a benefit from favorable adjustments to
warranty, bad debt and worker's compensation reserves of $0.8 million.
Operating income increased $0.1 million to $0.5 million for the first three
months of 1999 compared to $0.4 million for the first three months of 1998.
EFP
First Quarter 1999 Compared to First Quarter 1998
Net sales increased 7% to $8.7 million for the first three months of 1999
compared to $8.1 million for the comparable period of 1998, primarily due to
increased sales of packaging products to the electronics industry.
Cost of sales increased 12% to $7.0 million during the 1999 period compared
to $6.3 million during 1998. Gross profits decreased to $1.7 million (19% of net
sales) for the first three months of 1999 compared to $1.9 million (23% of net
sales) for the first three months of 1998. The decline in gross margin was due
to increased material costs due to a change in product mix and increased
equipment lease costs primarily for equipment placed into service at the end of
1998 and not fully utilized during the first quarter of 1999.
Selling, general and administrative expenses increased 13% to $1.1 million
(13% of net sales) for the first three months of 1999 compared to $1.0 million
(12% of net sales) for the same period in 1998.
EFP's operating income decreased $0.3 million to $0.6 million for the first
three months of 1999 compared to $0.9 million for the first three months of
1998, primarily due to the increase in material and overhead costs.
MIC Group
First Quarter 1999 Compared to First Quarter 1998
Net sales decreased 33% to $5.1 million for the first three months of 1999
compared to $7.6 million during the comparable period in 1998 as a result of a
significant decline in the demand for MIC's services in the production of
components used in the exploration and production of oil and gas.
Cost of sales decreased 27% to $4.1 million for the first three months of
1999 compared to $5.6 million for the first three months of 1998. Gross profits
decreased to $1.0 million (19% of net sales) for the first three months of 1999
compared to $2.0 million (26% of net sales) for the first three months of 1998.
The decrease in gross profits as a percent of sales was due primarily to reduced
overhead absorption on lower sales and increased material costs relative to
sales.
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Selling, general and administrative expenses decreased 16% to $0.7 million
(14% of net sales) for the first three months of 1999 compared to $0.8 million
for the same period in 1998. Selling expense increase slightly due to greater
efforts to diversify from the energy industry.
Operating income decreased 67% to $0.3 million for the first three months
of 1999 compared to $1.1 million for the first three months of 1998.
Discontinued Operations - TAG Distribution
First Quarter 1999 Compared to First Quarter 1998
As of May 1, 1999, the Company had sold 26 retail locations and two
wholesale (NTA) locations. Also two retail locations and one wholesale location
had been closed and the remaining NTA location is expected to be closed by the
end of May 1999. The Company is continuing to pursue its plan to dispose of the
six remaining retail locations located in California (three stores), Texas (two
stores) and Delaware (one store).
The remaining operations of NTA consist of Midwest Truck Aftermarket (MTA),
located in Tulsa, Oklahoma and Tyler, Texas. MTA had net sales of $2.2 million
and operating income of $0.1 million for the three months ended March 31, 1999
compared to net sales of $1.7 million and operating income of $0.1 million
during the same period in 1998.
Discontinued Operations - Lowy
First Quarter 1999 Compared to First Quarter 1998
Net sales decreased 1.0% to $9.4 million for the first three months of 1999
compared to $9.5 million for the first three months of 1998, due to slight
decreases in carpet sales.
Cost of sales increased 0.5% to $7.5 million for the first three months of
1999. Gross profits decreased 6% to $1.9 million (20% of net sales) for the
first three months of 1999 compared to $2.0 million (21% of net sales) for the
1998 period.
Selling, general and administrative expense remained at $2.0 million for
the first three months of 1999 compared to the first three months of 1998.
Lowy Group's operating income decreased $0.2 million to a loss of $0.2
million for the first three months of 1999 compared to break even for the first
three months of 1998.
Liquidity and Capital Resources
Operating activities during the three months ended March 31, 1999 generated
cash of $1.6 million compared to $1.4 million during the same period in 1998.
Working capital decreased $1.7 million or 11% as increases in accounts
receivable and inventory were offset by increases in revolver borrowings and
accounts payable. Receivables increased $10.5 million during the three months
ended March 31, 1999, primarily due to increases at Morgan, in response to a 24%
or $20.3 million increase in consolidated sales.
During the three months ended March 31, 1999, the Company continued its
plan to dispose of its distribution businesses. Proceeds from the sales of TAG
Distribution stores and other assets realized proceeds of $3.7 million, which
were used to pay down borrowings under the Revolving Loan Agreement.
12
<PAGE>
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 March 31, 1999,
the Company had total borrowing availability of $53.2 million, of which $3.4
million was used to secure letter of credit and finance trade transactions.
Additionally, $27.1 million had been borrowed to fund operations and the
purchase of $8.0 million of the Company's Senior Notes resulting in unused
availability of $26.1 million. At May 1, 1999, the Company had unused available
borrowing capacity of $26.5 million under the terms of the Revolving Loan
Agreement.
Capital expenditures for the period of $1.8 million related primarily to
the maintenance of existing capacity primarily 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 its 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 the
recent completed assessment of continuing operations, the Company determined
that it will be required to modify or replace significant portions of its
software and certain hardware so that those systems will properly utilize dates
beyond December 31, 1999 at certain of the companies subsidiaries. The Company
expects to have all remediated systems fully tested and implemented by September
30, 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
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 $1.5 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 $1.0 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 in compliance with all Y2K issues. The Company believes that the most
likely worse case Y2K scenario, if one were to occur, would be the temporary
13
<PAGE>
inability of third party suppliers, such as utility providers, telecommunication
companies and other critical suppliers, to continue providing their products and
services. The failure of these 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 plans to evaluate the
status of the completion of its Y2K project and those of key suppliers in the
second quarter of 1999 and determine whether 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
14
<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: May 3, 1999 By: S. Magee
----------------------------------------------
S. Magee, Chief Financial Officer and Director
By: R.S. Whatley
----------------------------------------------
R. S. Whatley, Principal Accounting Officer
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1999 1ST
QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,224
<SECURITIES> 0
<RECEIVABLES> 36,347
<ALLOWANCES> 755
<INVENTORY> 36,542
<CURRENT-ASSETS> 77,930
<PP&E> 94,652
<DEPRECIATION> 56,642
<TOTAL-ASSETS> 144,866
<CURRENT-LIABILITIES> 64,594
<BONDS> 95,391
0
0
<COMMON> 16,486
<OTHER-SE> (414)
<TOTAL-LIABILITY-AND-EQUITY> 144,866
<SALES> 105,850
<TOTAL-REVENUES> 105,850
<CGS> 88,536
<TOTAL-COSTS> 88,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,713
<INCOME-PRETAX> 1,829
<INCOME-TAX> 48
<INCOME-CONTINUING> 1,781
<DISCONTINUED> 0
<EXTRAORDINARY> 222
<CHANGES> 0
<NET-INCOME> 2,003
<EPS-PRIMARY> 0.655
<EPS-DILUTED> 0.655
<FN>
LOSS PROVISION IS INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE ON
THE FINANCIAL STATEMENTS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1999 1ST
QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 85,585
<TOTAL-REVENUES> 85,585
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<TOTAL-COSTS> 73,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,186
<INCOME-PRETAX> (2,366)
<INCOME-TAX> (98)
<INCOME-CONTINUING> (2,464)
<DISCONTINUED> (15,462)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,926)
<EPS-PRIMARY> (5.860)
<EPS-DILUTED> (5.860)
<FN>
LOSS PROVISION IS INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE ON
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</FN>
</TABLE>
