<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period
Ended September 25, 1997 Commission File Number 34-24802
------------------ --------
EDELBROCK CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0627520
- ------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2700 California Street, Torrance, California 90503
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310)781-2222
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Registrant's telephone number, including area code
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 [ ]
As of November 6, 1997, the Company had 5,250,412 shares of Common Stock
outstanding.
1
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EDELBROCK CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 25, 1997
INDEX
Part I FINANCIAL STATEMENTS Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as
of September 25, 1997 and June 30, 1997................ 3
Consolidated Statements of Income for the Three Months
Ended September 25, 1997 and 1996...................... 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended September 25, 1997
and 1996 ............................................... 5
Notes to Consolidated Interim Financial Statements ....... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................7-11
Part II OTHER INFORMATION.................................................. 12
2
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EDELBROCK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 25, June 30,
1997 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ............ $ 5,513,000 $ 9,744,000
Accounts receivable, net ............. 19,982,000 19,876,000
Inventories .......................... 14,276,000 13,048,000
Prepaid expenses and other ........... 1,230,000 1,203,000
----------- -----------
Total current assets ..................... 41,001,000 43,871,000
Property, plant and equipment, net ....... 32,830,000 31,918,000
Other .................................... 2,119,000 2,079,000
----------- -----------
Total assets ............................. $75,950,000 $77,868,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ..................... $10,884,000 $13,444,000
Accrued expenses ..................... 2,530,000 3,023,000
Current portion of long-term debt .... 976,000 976,000
----------- -----------
Total current liabilities ................ 14,390,000 17,443,000
Long-term debt ........................... 2,164,000 2,178,000
Deferred income taxes .................... 2,579,000 2,597,000
Shareholders' equity ..................... 56,817,000 55,650,000
----------- -----------
Total liabilities and shareholders' equity $75,950,000 $77,868,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the interim financial statements.
3
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EDELBROCK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 25,
------------- --- -------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues ............................................ $20,438,000 $18,950,000
Cost of sales ....................................... 12,427,000 11,506,000
----------- -----------
Gross profit .................................... 8,011,000 7,444,000
----------- -----------
Operating expenses
Selling, general and administrative ............. 5,669,000 4,874,000
Research and development ........................ 567,000 548,000
----------- -----------
Total operating expenses ........................ 6,236,000 5,422,000
----------- -----------
Operating income .................................... 1,775,000 2,022,000
Interest expense .................................... 69,000 87,000
Interest income ..................................... 109,000 116,000
----------- -----------
Income before taxes on income ....................... 1,815,000 2,051,000
Taxes on income ..................................... 673,000 759,000
----------- -----------
Net income .......................................... $ 1,142,000 $ 1,292,000
=========== ===========
Primary net income per share ........................ $ 0.22 $ 0.25
=========== ===========
Fully diluted net income per share .................. $ 0.21 $ 0.25
=========== ===========
Primary weighted average number of shares outstanding 5,250,000 5,242,000
=========== ===========
Fully diluted weighted average number of shares
outstanding ................................... 5,396,000 5,242,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the interim financial statements.
4
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EDELBROCK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
Increase (Decrease) in Cash and Cash Equivalents September 25,
------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Operating activities
Net income .................................... $ 1,142,000 $ 1,292,000
Depreciation and amortization ................. 901,000 963,000
Gain on sale of equipment ..................... (1,000) -
Net change in operating assets and liabilities (4,455,000) (840,000)
----------- -----------
Net cash provided by (used in) operating activities (2,413,000) 1,415,000
----------- -----------
Investing activities
Capital expenditures .......................... (1,808,000) (1,748,000)
Other ......................................... (21,000) (59,000)
----------- -----------
Net cash used in investing activities ............. (1,829,000) (1,807,000)
----------- -----------
Financing activities
Proceeds from issuance of common stock
under stock option plan.................... 25,000 -
Debt repayments ............................... (14,000) (13,000)
----------- -----------
Net cash provided by (used in) financing actities.. 11,000 (13,000)
----------- -----------
Net decrease in cash and cash equivalents ......... (4,231,000) (405,000)
Cash and Cash Equivalents at beginning of period .. 9,744,000 8,771,000
----------- -----------
Cash and Cash Equivalents at end of period ........ $ 5,513,000 $ 8,366,000
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest ...................................... $ 69,000 $ 87,000
=========== ===========
Income taxes .................................. $ 525,000 $ 130,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the interim financial statements.
<PAGE> 6
EDELBROCK CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated interim financial statements of Edelbrock Corporation (the
"Company") at September 25, 1997 and for the three month period ended September
25, 1997, are unaudited, but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation. The June 30, 1997 balance sheet was derived from the balance sheet
included in the Company's audited consolidated financial statements as included
in the Company's Form 10-K for its fiscal year ended June 30, 1997 (File No.
0-24802). Certain amounts have been reclassified to conform to the September 25,
1997 presentation.
These unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes, and
should be read in conjunction with the Company's audited consolidated financial
statements included in the Form 10-K indicated above. Operating results for the
three-month period ended September 25, 1997 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 1998.
NOTE 2 - INVENTORIES
Inventories at September 25, 1997 and June 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
September 25, June 30,
------------- -----------
(Unaudited)
<S> <C> <C>
Raw materials.............. $ 8,628,000 $ 8,005,000
Work in process ........... 948,000 948,000
Finished goods ............ 4,700,000 4,095,000
----------- -----------
$14,276,000 $13,048,000
=========== ===========
</TABLE>
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion and analysis of the consolidated financial
condition and results of operations of the Company for the quarter ended
September 25, 1997. The following should be read in conjunction with the
Consolidated Interim Financial Statements and related notes appearing elsewhere
herein.
Overview
The Company was founded in 1938, and is one of America's leading manufacturers
and marketers of specialty performance automotive and motorcycle aftermarket
parts. The Company designs, manufactures, packages and markets performance
automotive and motorcycle aftermarket parts, including intake manifolds,
carburetors, camshafts, cylinder heads, exhaust systems, shock absorbers and
other performance components for most domestic V8 and selected V6 engines. In
addition, the Company offers performance aftermarket manifolds, camshafts,
cylinder heads, air cleaners, and carburetors for Harley-Davidson and other
selected brand motorcycles. The Company currently offers over 1,800 performance
automotive and motorcycle aftermarket parts for street, off-road, recreational
and competition vehicle use.
In early May 1997, the company entered the performance shock absorber
aftermarket utilizing RICOR Racing and Development, L.P.'s patented "inertia
sensitive system." The Company is currently producing shock absorbers for a
variety of two-and four-wheel drive applications for Ford, Chevrolet and
Chrysler manufactured vehicles.
Product Mix
The Company manufactures its own products and purchases other products designed
to the Company's specifications from third-party manufacturers for subsequent
packaging and distribution to the Company's customers. Generally, the Company
can achieve a higher margin on those products which it manufactures as compared
to those purchased from third-party manufacturers. Accordingly, the Company's
results of operations in any given period are affected by the product mix of the
Company's sales during the period. For example, in recent years, the Company has
experienced significant growth in the sale of carburetors which it has purchased
pursuant to a long-term contract with a third-party manufacturer, which has
negatively affected the Company's gross margins.
Manufacturing Capacity
In December 1996, the Company completed construction of a new 45,000 square-foot
facility on Company owned property contiguous to its current Exhaust facility in
Torrance, California. This facility is being utilized for the manufacture of
performance aftermarket shock absorbers, to expand exhaust system manufacturing
and to house additional corporate expansion including warehouse overflow.
In July 1997, the Company completed construction of 12,000 and 15,000 square
foot facilities on Company owned property at its foundry location in San
Jacinto, California. The 12,000 square foot facility is being utilized for
additional Foundry warehouse space and the 15,000 square foot facility houses
the Company's "QwikSilver" motorcycle parts division, which was relocated from
Apple Valley, California.
7
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On July 31, 1997, the Company purchased 3.29 acres of improved land on two lots
for approximately $1.6 million. These properties will be utilized for future
corporate expansion and are located adjacent to the Company-owned Exhaust and
Shock Absorber facilities.
Seasonality
The Company's sales are subject to seasonal variations. Customer orders and
sales are greatest in the second, third and fourth quarters of the Company's
fiscal year in anticipation of and during the spring and summer months.
Accordingly, revenues and operating income tend to be relatively higher in the
third and fourth fiscal quarters.
8
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THREE MONTHS ENDED SEPTEMBER 25, 1997, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 25, 1996:
Revenues
Revenues increased 7.9% to $20.4 million for the three months ended September
25, 1997 from $19.0 million for the same period of 1996. This increase was
primarily the result of an increase of approximately $521,000, or 42.3%, in the
sale of aluminum cylinder heads, an increase of approximately $387,000, or 6.8%,
in the sale of intake manifolds and sales of approximately $272,000 of the
Company's new line of Performer IASTM shock absorbers.
Cost of Sales
Cost of sales increased 8.0% to $12.4 million for the three months ended
September 25, 1997 from $11.5 million for the same period of 1996. As a percent
of revenues, cost of sales increased slightly to 60.8% for the three months
ended September 25, 1997 from 60.7% for the same period of 1996.
Selling, General and Administrative Expense
Selling, general and administrative expense increased 16.3% to $5.7 million for
the three months ended September 25, 1997 from $4.9 million for the same period
of 1996. As a percent of sales, selling, general and administrative expense
increased to 27.7% for the three months ended September 25, 1997 from 25.7% for
the same period of 1996. This increase was due primarily to increased sales
commissions and freight costs associated with increased sales, increases in
advertising expenditures, expenditures relating to the Company's new line of
Performer IASTM shock absorbers, costs associated with the Company's continuing
efforts toward the implementation of the QS9000 quality standard, and expenses
relating to the relocation of the QwikSilver division.
Research and Development Expense
Research and development expense increased 3.5% to $567,000 for the three months
ended September 25, 1997 from $548,000 for the same period of 1996. As a
percent of sales, research and development expense decreased to 2.8% for the
three months ended September 25, 1997 from 2.9% for the same period of 1996.
Interest Expense
Interest expense decreased 20.7% to $69,000 for the three months ended September
25, 1997 from $87,000 for the same period of 1996. The decrease was primarily
due to a decrease in the principal amount of average debt outstanding.
Interest Income
Interest income decreased 6.0% to $109,000 for the three months ended September
25, 1997 from $116,000 for the same period in 1996. The decrease was primarily
due to a decrease in the balance of invested funds.
9
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Taxes on Income
The provision for income taxes decreased to $673,000 for the three months ended
September 25, 1997 from $759,000 for the 1996 period. The effective tax rate for
both the 1997 and 1996 periods was approximately 37%.
Net Income
The Company's net income for the three months ended September 25, 1997 decreased
11.6% to $1.1 million from $1.3 million for the same period of 1996. This
decrease was the result of the items mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from the funding of its
seasonal working capital needs and capital expenditures. Historically, the
Company has met these liquidity requirements through cash flow generated from
operating activities and with borrowed funds under the Company's $2.0 million
revolving credit facility ("Revolving Credit Facility") which expires on
February 1, 1998. Due to seasonal demand for the Company's products, the Company
builds inventory during the first and second fiscal quarters in advance of the
typically stronger selling periods during the third and fourth fiscal quarters.
The Company believes that funds generated from operations and funds available
under the Revolving Credit Facility together with cash balances will be adequate
to meet its working capital, debt service and capital expenditure requirements
through the next twelve months. The Company anticipates making capital
expenditures of approximately $6.5 million in fiscal year 1998 primarily for the
purchase of additional machinery and equipment for the Company's newly
constructed shock absorber facility, additional capital equipment to increase
the Company's production capacity and costs associated with converting the
Company's hardware and software systems to an Oracle "on-line" client-server
windows database operating on a Hewlett-Packard HP9000 server which is due to be
implemented in the second quarter of fiscal 1998.
On September 19, 1997, the Company's second largest customer for fiscal year
1997, Super Shops, Inc. filed voluntary petitions for reorganization under
Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court.
As of September 19, 1997 Super Shops owed the Company approximately $3,182,000
for products purchased from the Company in which it retained a security interest
with respect to approximately $1.1 million of inventory. The Company has filed a
proposed form of Stipulation and Agreement regarding adequate cash collateral
with the U.S. Bankruptcy Court and as of November 6 has received approximately
$533,000 of the amount owed to the Company. The Company's ability to recover the
remaining owed amounts cannot be determined at this time. No assurance can be
made as to the amount and timing of the Company's ultimate loss resulting from
the settlement of Super Shops bankruptcy proceedings and it is reasonably
possible that a further material loss could ultimately result from the outcome
of this matter.
10
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RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the FASB issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in accordance
with APB 15, "Earnings per Share." SFAS 128 provides for the calculation of
Basic and Diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
This pronouncement is effective for fiscal years and interim periods ending
after December 15, 1997. Early adoption is not permitted. The Company has not
determined the effect, if any, of adoption on its EPS computations.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, statements of this report
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecast results. Those risks and uncertainties include, among
others, the financial strength and competitive pricing environment of the
automotive and motorcycle aftermarket industry, product demand,
market-acceptance, manufacturing efficiencies and new product development.
11
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the three months ended
September 25, 1997.
12
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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.
EDELBROCK CORPORATION
--------------------------------
Registrant
Date: November 6, 1997 JEFFREY L. THOMPSON
--------------------------------
Jeffrey L. Thompson
Executive Vice President,
Chief Operating Officer and
Director
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-25-1997
<CASH> 5,513,000
<SECURITIES> 0
<RECEIVABLES> 20,282,000
<ALLOWANCES> 300,000
<INVENTORY> 14,276,000
<CURRENT-ASSETS> 41,001,000
<PP&E> 52,956,000
<DEPRECIATION> 20,126,000
<TOTAL-ASSETS> 75,950,000
<CURRENT-LIABILITIES> 14,390,000
<BONDS> 2,164,000
0
0
<COMMON> 52,400
<OTHER-SE> 56,764,600
<TOTAL-LIABILITY-AND-EQUITY> 75,950,000
<SALES> 20,438,000
<TOTAL-REVENUES> 20,438,000
<CGS> 12,427,000
<TOTAL-COSTS> 12,427,000
<OTHER-EXPENSES> 6,236,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,000
<INCOME-PRETAX> 1,815,000
<INCOME-TAX> 673,000
<INCOME-CONTINUING> 1,142,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,142,000
<EPS-PRIMARY> $0.22
<EPS-DILUTED> $0.21
</TABLE>
