UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from
_______________ to ______________.
Commission File Number 0-23880
-------
Monroc, Inc.
Delaware 87-0436697
------------------------ ----------------
(State of incorporation) (I.R.S. Employer
Identification Number)
P.O. Box 537, 1730 Beck Street, Salt Lake City, Utah 84110
------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number 801-359-3701
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 and 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 requirement for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
- ----------------------------- -------------------------------
Common Stock, $0.01 par value 4,467,000 shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MONROC, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
------------------- -------------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $1,770,640 $6,506,751
Accounts receivable, net of allowance
for discounts and doubtful accounts
of $314,282 at September 30, 1996
and $296,647 at December 31, 1995 13,904,098 6,639,878
Costs and estimated earnings in excess
of billings on uncompleted contracts 496,656 152,943
Inventories 3,231,411 2,815,780
Prepaid expenses 1,889,053 1,274,892
----------- ------------
Total current assets 21,291,858 17,390,244
PROPERTY, PLANT AND EQUIPMENT, AT COST 26,524,812 24,625,327
Less accumulated depreciation and
amortization 11,688,933 11,525,532
------------ ------------
14,835,879 13,099,795
AGGREGATE DEPOSITS 2,477,154 2,454,654
Less accumulated depletion 310,238 230,385
------------ ------------
2,166,916 2,224,269
LAND 2,071,660 1,510,072
OTHER ASSETS, at cost, less accumulated
amortization of $446,765 at
September 30, 1996 and $284,526 at
December 31, 1995 1,368,978 1,383,376
------------ ------------
TOTAL ASSETS $41,735,291 $35,607,756
============ ============
(Continued)
The accompanying notes are an integral part of these statements
-1-
<PAGE>
MONROC, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Notes payable $4,907,569 $86,519
Current maturities of long-term obligations 1,341,597 802,765
Trade accounts payable 6,739,362 5,307,303
Accrued liabilities 2,583,829 1,522,788
Billings in excess of costs and estimated
earnings on uncompleted contracts 233,023 242,530
------------ ----------
Total current liabilities 15,805,380 7,961,905
LONG-TERM OBLIGATIONS, less current
maturities 5,013,951 6,591,329
DEFERRED COMPENSATION 814,396 626,710
DEFERRED INCOME TAXES 1,189,550 1,189,550
COMMITMENTS AND CONTINGENCIES 0 0
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value;
1,000,000 shares authorized; none issued 0 0
Common stock, $0.01 par value; 20,000,000
shares authorized; issued and outstanding
4,467,000 shares at September 30, 1996,
and December 31, 1995 44,670 44,670
Capital in excess of par value 24,481,864 24,481,864
Accumulated deficit (2,890,474) (1,964,226)
------------ ----------
21,636,060 22,562,308
Less unpaid principal of Employee Stock
Ownership Plan note receivable (2,724,046) (3,324,046)
------------ ----------
TOTAL STOCKHOLDERS' EQUITY 18,912,014 19,238,262
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $41,735,291 $35,607,756
============ ============
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
MONROC, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------- ----------- ----------- -----------
Sales $22,245,881 $14,876,696 $50,866,298 $34,508,767
Costs and expenses
Cost of sales 19,563,374 12,091,087 44,900,857 28,140,270
General and administrative expense 1,441,218 1,091,957 4,352,555 3,336,163
Contribution to ESOP 200,000 200,000 600,000 600,000
Restructuring expense 1,500,000 0 1,500,000 0
------------ --------- --------- ----------
22,704,592 13,383,044 51,353,412 32,076,433
------------ --------- --------- ----------
Operating income (loss) (458,711) 1,493,652 (487,114) 2,432,334
Other income (expense)
Gain (loss) on sale of property, plant,
equipment and land 2,335 53,050 47,913 47,913
Interest income 8,984 4,157 62,071 12,973
Interest expense (209,453) (350,960) (549,064) (1,047,505)
------------ --------- --------- ----------
(198,134) (293,753) (439,080) (986,619)
------------ --------- --------- ----------
Earnings (loss) before income taxes (656,845) 1,199,899 (926,194) 1,445,715
Income taxes 0 0 0 0
------------ --------- --------- ----------
NET EARNINGS (LOSS) ($656,845) 1,199,899 ($926,194) $1,445,715
============ ========= ========= ==========
Earnings (loss) per common share ($0.15) $0.43 ($0.21) $0.51
============ ========= ========= ==========
Weighted average common shares 4,467,000 2,817,000 4,467,000 2,817,000
outstanding
The accompanying notes are an integral part of these statements
</TABLE>
-3-
<PAGE>
MONROC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Nine Months Ended
September 30,
1996 1995
------------ ------------
Increase (decrease) in cash and
cash equivalents
Cash flows from operating activities
Net earnings (loss) ($926,194) $1,445,715
Adjustments to reconcile net earnings
(loss) to net cash provided by
(used in) operating activities
Depreciation and amortization of
property, plant & equipment 1,805,538 1,799,659
Restructuring expenses 1,500,000 0
Provision for contribution to ESOP
and repayment of ESOP note receivable 600,000 600,000
Amortization of other assets 60,625 65,208
Provision for discounts and doubtful
accounts 85,472 40,431
Depletion of aggregate deposits 57,353 43,611
Earnings on sale of property, plant,
equipment and land (53,394) (47,913)
Changes in assets and liabilities
Accounts receivable (7,349,692) (3,893,148)
Costs and estimated earnings in excess
of billings on uncompleted contracts (343,713) (14,446)
Inventories (415,631) (248,084)
Prepaid expenses (799,161) (73,438)
Land (561,588) (1,736)
Other assets (46,227) (159,764)
Trade accounts payable 1,432,059 1,565,718
Accrued liabilities 1,061,042 1,037,362
Billings in excess of costs and estimated
earnings on uncompleted contracts (9,507) 159,194
Deferred compensation 55,832 67,928
---------- ----------
Net cash provided by (used in)
operating activities (3,847,186) 2,386,297
Cash flows from investing activities
Additions to property, plant and equipment (4,327,661) (1,659,852)
Proceeds from sale of property, plant,
equipment, and land (10,139) 202,798
---------- ----------
Net cash used in investing activities (4,337,800) (1,457,054)
(Continued)
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
MONROC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited) Nine Months Ended
September 30,
1996 1995
------------ ------------
Cash flows from financing activities
Net increase in notes payable 4,821,050 1,258,297
Principal payments on long-term
obligations (2,707,304) (1,821,860)
Issuance of long-term obligations 1,335,129 369,124
------------ ------------
Net cash provided by financing
activities 3,448,875 (194,439)
------------ -----------
Net increase (decrease) in cash
and cash equivalents (4,736,111) 734,804
Cash and cash equivalents at beginning
of period 6,506,751 483,081
------------ -----------
Cash and cash equivalents at end of period $1,770,640 $1,217,885
============ ===========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $647,240 $681,283
Income taxes 26,410 7,262
Noncash investing and financing activities
The Company acquired equipment under capital lease obligations totaling
$1,335,182 in the first nine months of 1996 and $244,160 in the first nine
months of 1995.
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
MONROC, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements of Monroc, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles. In the opinion of management, all normally recurring adjustments
necessary for a fair presentation of the financial information have been
reflected therein. Because of the seasonality and cyclicality of the
Company's businesses, the operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. The revenues and net earnings
for any interim period are not necessarily indicative of results that may be
expected for the entire year.
These statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
Note 2. Stock Options
As of October 31, 1996, the Company had granted stock options under the
Company's 1994 Stock Option Plan to various officers, directors and employees
of the Company covering the aggregate amount of 174,300 shares of Common
Stock. On May 22, 1996, the shareholders approved the Company's 1996 Stock
Option Plan which includes 300,000 shares of Common Stock. As of October 31,
1996, the Company had granted stock options under the 1996 Option Plan
covering 200,000 shares of Common Stock.
-6-
<PAGE>
Note 3. Environmental Matters
The Company is currently the owner of property located in Murray, Utah,
formerly known as the ASARCO Smelter site, which contains mining slag
previously deposited by ASARCO. The slag contains certain heavy metals
including lead and arsenic which may have leached from the slag into the
environment. This and adjoining properties previously owned by ASARCO have
been proposed by the Environmental Protection Agency (EPA) for listing on the
National Priorities List for cleanup of the slag and potential groundwater
contamination. Although the Company did not generate the slag material, under
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the current owner of a property may be liable for cleanup costs.
In such case, the Company would have a claim against the former owner for its
respective share of these costs. Although to date the Company has not been
designated a Potentially Responsible Party by the EPA with respect to cleanup
of any waste at this site, it has received a CERCLA 104(e) information
request. The outcome of this matter is uncertain and it is not possible at
this time to estimate the possible financial impact on the Company, if any.
Prior to learning of the potential presence of lead in the slag from
this site, the Company sold some of the slag for use in road base and railroad
fill. The Company may be liable for cleanup costs if it is determined that
the lead from this slag poses an environmental hazard. The Company has not
received any notice of government or private action on this matter. The
potential cost to the Company, if any, is not ascertainable at the present
time. The Company's management believes that there are economically
reasonable methods of containing the slag should this become necessary.
Note 4. Restructuring Plan
Results of operations for the three months ended September 30, 1996,
included charges of $1,500,000 (or $0.34 per share) for costs associated with
restructuring the management and certain operations of the Company. Due to
these changes, the Company incurred certain restructuring charges totaling
$1.500,000 ($0.34 per share) during the third quarter of 1996. These one time
restructuring charges included: (i) the write-off of certain facilities and
equipment obsoleted by new operating strategies ($715,000); (ii) the closure
of undersized and unprofitable operations in Utah and Wyoming ($351,000);.
(iii) the payout remaining on the Company's two-year employment agreement with
its former President and Chief Executive Officer ($333,000); and (iv)
costs associated with restructuring management ($101,000). See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations".
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited Consolidated Financial Statements and related Notes included
elsewhere in this report. Also, the discussion should be read in conjunction
with the audited Financial Statements and related Notes contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Restructuring Charges
A change in control of the Company occurred in December 1995 as a result
of certain transactions between the Company and an affiliate of Richard C. Blum
& Associates in which the affiliate became the largest stockholder in the
Company. Subsequent to these transactions, the Board of Directors of the
Company appointed a new Chairman of the Board and a new President of the
Company. Over the past several months, the Company's management has evaluated
the Company's operations. As a result of this evaluation, the Company's
management decided to restructure the operations so that the Company can be
more responsive to the needs of the marketplace and improve operating
efficiencies. Due to these changes, the Company incurred certain
restructuring charges totaling $1.500,000 ($0.34 per share) during the third
quarter of 1996. These one time restructuring charges included: (i) the
write-off of certain facilities and equipment obsoleted by new operating
strategies ($715,000); (ii) the closure of undersized and unprofitable
operations in Utah and Wyoming ($351,000);. (iii) the payout remaining on the
Company's two-year employment agreement with the its former President and
Chief Executive Officer ($333,000); and (iv) costs associated with
restructuring management ($101,000). See Note 4 to the Company's
Consolidated Financial Statements.
Results of Operations - Nine Months Ended September 30
Sales increased 47% from $34,508,767 for the nine month period ended
September 30, 1995 ("1995 period") to $50,866,298 for the nine months ended
September 30, 1996 ("1996 period"). Sales for the Prestress Division were
129% higher in the 1996 period compared to the 1995 period because of the
higher volume related to production on the $20 million Snake River
Correctional Facility contract in Ontario, Oregon. Ready mix concrete sales
were up 18% due to increased volume. Sand and gravel sales were also 127%
higher in the 1996 period versus the prior year. The sand and gravel plant
and ready mix concrete plant at the Point of the Mountain in the Salt Lake
Valley began operations in the third quarter contributing to the increase in
sales.
General and administrative costs were $4,352,555 in the 1996 period
compared to $3,336,163 in the 1995 period. Part of this increase was due to
an increase in staff to meet the demands of the Snake River Correctional
Facility contract. Also included in general and administrative costs in the
1996 period were consulting fees to Building and Construction Capital
Partners, L.P. ("BCCP") and other costs related to improvements underway
within the Company, such as upgrading the Company's data processing and sales
invoicing system.
-8-
<PAGE>
For the nine month period, operating income decreased from an income of
$2,432,334 in the 1995 period to a loss of $487,114 in the 1996 period. The
$1,500,000 restructuring plan (or $0.34 per share) described earlier resulted
from a reassessment of the Company by new management. On average, ready mix
prices have been 2% lower than last year due to a shift in the market to more
commercial work and competitive pressure in some markets. The price decreases
combined with direct labor and material price increases more than offset the
effect of higher sales volumes. The Prestress Division has experienced
significantly lower operating margins in the 1996 period because of lower
profit margins (and labor inefficiencies) on the Snake River Correctional
Facility. Also, sand and gravel profits were flat on the increased sales
because of start-up costs at the new Point of the Mountain, Utah pit and a
higher proportion of sales of lower margin products.
Interest expense decreased to $549,064 in the 1996 period compared to
$1,047,505 in the 1995 period due to the use of some of the proceeds from the
private sale of common stock in December, 1995 to BCCP to a pay down of debt
owed the CIT Group. Also, investment of some of the proceeds resulted in
increased interest income. (See "Liquidity and Capital Resources" below)
A net loss of $926,194 or 21 cents per share was incurred in the 1996
period compared to a net earnings of $1,445,715 or 51 cents a share in the
comparable 1995 period due to the restructuring plan and operating problems
discussed earlier. There were 1,650,000 more shares outstanding in the 1996
period versus the 1995 period.
Results of Operations - Three Months Ended September 30
Sales increased 50% from $14,876,696 for the three month period ended
September 30, 1995 ("1995 period") to $22,245,881 for the three months ended
September 30, 1996 ("1996 period"). $5,111,000 of the increased sales were
from revenues on the Company's Snake River Correctional Facility contract.
Sand and gravel sales in Salt Lake City increased 167% due to the commencement
of production at the Point of the Mountain pit.
General and Administrative expenses increased from $1,091,957 for the
1995 period to $1,441,218 for the 1996 period due to the addition of support
personnel in the Prestress Division for the Snake River Correctional Facility
contract. In addition, general and administrative expenses were higher in 1996
due to the payment of the consulting fee to BCCP and other outside
professional services.
Operating income was $1,493,652 for the 1995 period compared to an
operating loss of $458,711 for the 1996 period. The restructuring charge of
$1,500,000 and the increase in General and Administrative costs account for
most of the difference in operating profit between the two periods. However,
operating margins were affected by lower margins on the Snake River
Correctional Facility contract and lower ready mix concrete prices during the
1996 period compared to the 1995 period.
Interest expense was $209,453 in the 1996 period compared to $350,960 in
the 1995 period, due to the application of a portion of the net proceeds from
the private placement of Common Stock
-9-
<PAGE>
in December, 1995, to a pay down of outstanding loans with the CIT Group and
short term investment of the remaining balances (See "Liquidity and Capital
Resources" below).
The net loss for the 1996 period was $656,845 or 15 cents a share versus
net earnings of $1,199,899 or 43 cents a share for the 1995 period due to the
restructuring plan charges and operating problems discussed above. There
were 1,650,000 more shares outstanding in the 1996 period compared to the 1995
period.
Liquidity and Capital Resources
The Company has the use of a credit facility provided by the CIT Group
that includes a line of credit for working capital and term loans. The
Company's liabilities to the CIT Group are secured by liens on substantially
all of the Company's real and personal property. In February 1996, the
Company signed a new six year loan agreement with the CIT Group which
increased the total credit available from $11,000,000 to $15,000,000 and
reduced the interest rate from prime plus 2.5% to prime plus 0.75%.
On December 28, 1995, $3,350,576 from the proceeds of the sale of Common
Stock to BCCP I were used to pay down the CIT Group term notes to $4,000,000.
Additional proceeds were used to reduce the notes to $2,000,000 in March,
1996. Total borrowings under the line of credit totaled $4,907,569 on
September 30, 1996. Total availability under the line of credit was
$8,092,431 as of that date.
As of September 30, 1996, the Company had positive working capital of
$5,486,478 compared to a positive working capital balance of $9,428,339 at
December 31, 1995. $2,000,000 of cash was used to reduce the CIT notes in
March, 1996. Cash used in operations was $3,847,186 for the 1996 period
versus cash generated of $2,386,297 in the 1995 period. In addition to the
decrease in profitability in the 1996 period, cash flow was affected by higher
accounts receivable due to the increased revenues discussed above. Cash used
in investing activities increased to $4,337,800 in the 1996 period from
$1,457,054 in the 1995 period primarily due to increased capital spending for
the installation of plants at the Point of the Mountain and the purchase of
equipment to service the Snake River Correctional Facility contract discussed
above. Also, cash provided from financing activities was $3,448,875 for the
1996 period compared to cash used in financing activities of $194,439 in the
1995 period due to the higher levels of financing related to the higher
capital investment and higher working capital requirements. Cash generated
from operations combined with available credit should be sufficient to meet
the Company's operating needs for the remainder of the year.
In 1996, the Company significantly upgraded its ready mix concrete
delivery fleet through the acquisition of forty six new Mack front discharge
ready mix trucks through operating leases totaling $6,471,824. In addition,
the Company installed a sand and gravel facility and central ready mix batch
plant at its Point of the Mountain, Utah site at a cost of over $2,000,000 to
service customers in the south end of the Salt Lake Valley. The Company has
also acquired several long haul tractors, flatbed trailers, front end loaders,
hydro cranes and other equipment to upgrade its equipment efficiency and
capability.
-10-
<PAGE>
Seasonality
The Company services the construction industry principally in areas
where construction activity is restricted during the winter. As a result, the
Company experiences reduced revenues from December through March and realizes
the substantial part of its revenues during the other months of the year. The
Company generally incurs losses during the winter months and must have
sufficient working capital to fund operations at a reduced level.
Financial performance of the Company in any one quarter of the year
should not be considered a reliable indicator of the anticipated current year
results. The seasonality and variability of weather conditions as well as the
cyclicality of demand in response to factors such as interest rate changes can
cause significant fluctuations in financial results from quarter to quarter
and from year to year.
-11-
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Calculation of Earnings (Loss) Per Share
Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended
September 30, 1996.
-12-
<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.
Monroc, Inc.
-------------------------
Registrant
Date: 11/14/96 /s/ L. William Rands
-------------------- -------------------------
L. William Rands
Vice President and Chief
Financial and Accounting
Officer
<PAGE>
INDEX OF EXHIBITS
Exhibit 11 - Calculation of Earnings (Loss) Per Share
Exhibit 27 - Financial Data Schedule
<PAGE>
Exhibit 11
Calculation of Earnings (Loss) Per Share
(in thousands except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
------ ------ ------ ------
Weighted average common 4,467 2,817 4,467 2,817
and common equivalent
shares outstanding
Net Earnings (Loss) $ (657) $1,200 $(926) $1,446
Earnings (Loss) Per $ (0.15) $0.43 $(0.21) $0.51
Common Share ------ ------ ------ ------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,674,227
<SECURITIES> 96,413
<RECEIVABLES> 13,904,098
<ALLOWANCES> 314,282
<INVENTORY> 3,231,411
<CURRENT-ASSETS> 21,291,858
<PP&E> 26,524,812
<DEPRECIATION> 11,688,933
<TOTAL-ASSETS> 41,735,291
<CURRENT-LIABILITIES> 15,795,380
<BONDS> 5,013,951
44,670
0
<COMMON> 0
<OTHER-SE> 18,867,344
<TOTAL-LIABILITY-AND-EQUITY> 41,725,291
<SALES> 50,866,298
<TOTAL-REVENUES> 50,866,298
<CGS> 44,900,857
<TOTAL-COSTS> 51,353,412
<OTHER-EXPENSES> 47,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 486,064
<INCOME-PRETAX> (926,194)
<INCOME-TAX> 0
<INCOME-CONTINUING> (926,194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (926,194)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
