<PAGE> 1
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 No. 0-25140
-------------------
UNITED AIR SPECIALISTS, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1008092
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4440 Creek Road
Cincinnati, Ohio 45242
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 891-0400
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
--- ---
The number of shares outstanding as of October 30, 1996 was 2,908,828 shares of
common stock, no par value.
<PAGE> 2
UNITED AIR SPECIALISTS, INC. AND SUBSIDIARIES
INDEX
-----
PAGE NUMBER
-----------
PART I FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30,
1996 and June 30, 1996. . . . . . . . . . . . . . 3-4
Consolidated Statements of Income for the quarter
ended September 30, 1996 and 1995 . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
quarter ended September 30, 1996 and 1995 . . . . . 6
Notes to Consolidated Financial Statements . . . . . . 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . 9-11
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . .12
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . .12-13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2
<PAGE> 3
UNITED AIR SPECIALISTS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
-----------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
------
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,193,438 $ 1,441,294
Accounts receivable, less allowance for doubtful
accounts of $225,000 at September 30, 1996
and $250,000 at June 30, 1996 6,162,919 5,940,014
Inventories 7,015,293 6,781,477
Prepaid expenses and other 522,847 610,378
Future tax benefit 633,015 633,015
---------- ----------
Total current assets 15,527,512 15,406,178
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 693,783 686,512
Buildings and leasehold improvements 4,737,643 4,616,252
Machinery, equipment and furniture 6,904,250 6,819,794
Autos and trucks 892,640 881,625
Construction in progress 169,895 96,264
---------- ----------
13,398,211 13,100,447
Less: accumulated depreciation and amortization (7,510,566) (7,291,150)
---------- ----------
5,887,645 5,809,297
---------- ----------
OTHER ASSETS:
Intangibles, net of accumulated amortization of $371,200
at September 30, 1996 and $360,415 at June 30, 1996 391,876 402,661
Other, net 183,930 433,413
---------- ----------
$ 21,990,963 $ 22,051,549
========== ==========
</TABLE>
The accompanying notes are an intergral part of these consolidated balance
sheets.
3
<PAGE> 4
UNITED AIR SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term obligations $ 690,817 $ 697,477
Accounts payable 1,997,628 2,078,852
Accrued expenses 1,638,427 2,418,636
Accrued payroll 283,201 585,342
Accrued commissions 285,075 323,754
Income taxes payable 642,732 519,963
---------- ----------
Total current liabilities 5,537,880 6,624,024
---------- ----------
LONG-TERM OBLIGATIONS, less current portion shown above:
Industrial Revenue Bonds 2,547,500 2,606,250
Borrowings under lines of credit 4,727,500 3,875,000
Other 582,017 651,927
---------- ----------
7,857,017 7,133,177
---------- ----------
DEFERRED INCOME TAXES 270,169 270,169
---------- ----------
SHAREHOLDERS' INVESTMENT:
Common stock, no par value, authorized 4,000,000 shares; 2,908,828 and
2,912,265 shares outstanding at September 30, 1996 and June 30, 1996,
respectively; stated at 963,266 963,266
Retained earnings 7,424,249 7,148,249
Cumulative translation adjustment (61,618) (87,336)
---------- ----------
8,325,897 8,024,179
---------- ----------
$ 21,990,963 $ 22,051,549
========== ==========
</TABLE>
The accompanying notes are an intergral part of these consolidated balance
sheets.
4
<PAGE> 5
UNITED AIR SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
--------- ---------
<S> <C> <C>
NET SALES $ 9,734,991 $ 9,893,348
COST OF SALES 6,400,550 6,602,971
--------- ---------
Gross Profit 3,334,441 3,290,377
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,771,998 2,641,952
--------- ---------
Income from operations 562,443 648,425
OTHER INCOME(EXPENSE):
Interest expense (146,361) (179,689)
Interest income 2,328 1,626
Other 34,075 (45,409)
--------- ---------
Income before provision
for income taxes 452,485 424,953
PROVISION FOR INCOME TAXES 176,485 170,953
--------- ---------
Net income $ 276,000 $ 254,000
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,191,689 3,090,465
========= =========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ .09 $ .08
========= =========
</TABLE>
The accompanying notes are an intergral part of these consolidated balance
sheets.
5
<PAGE> 6
UNITED AIR SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $276,000 $ 254,000
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization 274,736 219,793
Net increase in receivables (191,434) (834,574)
Net increase(decrease) in allowance for doubtful accounts (25,000) 117,850
Net increase in inventories (222,295) (50,878)
Net decrease in accounts payable (82,371) (401,793)
Net increase(decrease) in accrued expenses (1,000,763) 102,305
Other 224,892 33,991
--------- --------
Net cash used in operations (746,235) (559,306)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (277,741) (306,701)
Fixed assets retired 62,463 58,334
--------- --------
Net cash used in investing activities (215,278) (248,367)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Industrial Revenue Bonds (52,500) (47,500)
Increase in lines of credit borrowings 852,500 855,000
Repayment of foreign notes payable (86,061) (91,941)
Decrease in long-term obligations (5,056) (39,868)
Common stock issued -- 82,572
--------- --------
Net cash provided by financing activities 708,883 758,263
--------- --------
Net decrease in cash (252,630) (49,410)
Effect of foreign currency translation adjustment on cash 4,774 (7,917)
CASH, beginning of period 1,441,294 816,599
--------- --------
CASH, end of period $ 1,193,438 $ 759,272
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 114,800 $ 182,600
========= ========
Cash paid for taxes $ 16,800 $ 21,100
========= ========
</TABLE>
The accompanying notes are an intergral part of these consolidated balance
sheets.
6
<PAGE> 7
UNITED AIR SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
---------------------
The consolidated financial statements included herein have not been
examined by independent public accountants, but include all adjustments
(consisting of normal recurring entries) which are, in the opinion of
management, necessary for a fair statement of the results for such periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the requirements of the Securities
and Exchange Commission, although the Company believes that the disclosures
included in these financial statements are adequate to make the information
not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest Form 10-K.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
(2) Inventories
-----------
Inventories are comprised of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
--------- ---------
<S> <C> <C>
Raw materials $3,954,645 $3,806,271
Work-in-process 2,280,649 2,186,387
Finished goods 779,999 788,819
--------- ---------
$7,015,293 $6,781,477
========== ==========
</TABLE>
7
<PAGE> 8
(3) Income Taxes
------------
The provisions for income taxes were computed at the estimated annualized
effective tax rates utilizing current tax law in effect.
(4) Earnings Per Common and Common Equivalent Share
-----------------------------------------------
Earnings per common and common equivalent share are based on the weighted
average number of common and common equivalent shares outstanding during
each period, increased by the effect of dilutive stock options as computed
applying the treasury stock method. All data with respect to earnings per
common and common equivalent share and weighted average number of shares
outstanding have been retroactively adjusted to reflect a five-for-four
stock split which became effective on February 2, 1996.
(5) Pending Merger
--------------
On September 24, 1996, the Company announced that it had signed a
definitive agreement to merge with CLARCOR Inc., a manufacturer of
filtration and packaging products. The Company's Board of Directors has
approved the transaction which will involve an exchange of stock. Each
share of the Company's stock will be exchanged for .36986 shares of CLARCOR
common stock. The exchange rate is subject to adjustment based upon the
actual number of the Company's common stock outstanding at the closing. The
completion of this transaction is subject to shareholder and regulatory
approval.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
Net sales decreased $158,000, or about 2%, during the three-month period ended
September 30, 1996 from the $9,893,000 reported during the three-month period
ended September 30, 1995. This decrease is the net effect of a 1% increase in
Air Quality Division (AQD) sales and a 12% decrease in Applied Electrostatics
Division (AED) sales.
The increase in AQD sales is due primarily to a 39% increase in net sales
through the seven company-owned sales and service centers. The Houston center
alone saw an increase in business of over 290% due to a large turn-key job and
increased service business over the same quarter last year as a result of
acquiring a small service business in the Houston area. This increase was
partially offset by the German branch which reported a decrease in net sales,
expressed in U.S. dollars, of 16%. This decrease is attributable to a 10%
decline in volume with the remainder due to the unfavorable foreign exchange
impact of a stronger U.S. dollar.
The decrease in AED sales is due primarily to a 21% decrease in the sales of
TotalStat(R) high precision electrostatic spraying systems from the same quarter
last year. Shipments of TotalStat(R) systems during the first quarter of fiscal
1996 were higher due to working through a significant backlog caused by
production delays occurring in fiscal 1995. In fiscal 1997, both a lower backlog
and lower levels of new business have caused lower shipments of this product.
The Company's gross profit, as a percentage of net sales, increased during the
three-month period ending September 30, 1996 to 34.3% from 33.3% during the
three-month period ending Spetember 30, 1995. This increase is due to a
favorable shift in sales mix towards the domestic company-owned sales and
service centers. The margins at these locations are higher, on average, due to
both service revenue and selling directly to the end user. Additionally, both
the personal property tax and real estate tax accruals were adjusted downward by
a total of $57,000 to better reflect the actual level of these assessments as of
September 30, 1996.
Selling, general and administrative expenses increased during the three-month
period ended September 30, 1996 by $130,000, or about 5%. This increase is due
primarily to selling expenses increasing by $150,000, or about 9%, while general
and administrative expenses decreased by $20,000, or about 2%. The increase in
selling expenses is due primarily to increases in operating expenses to improve
the domestic distribution of our core products. These expenses to date have been
primarily spent to recruit and hire new staff in order to manage the various
segments of our distribution network.
9
<PAGE> 10
Lower interest costs are due primarily to the repayment of the UK mortgage
during May, 1996.
The Company's effective tax rate of 39.0% for the three-month period ended
September 30, 1996 is slightly lower than the effective tax rate of 40.2% for
the three-month period ended September 30, 1995. This decrease is due to the
effects of tax credits and annual carry-forwards offset by the effects of
foreign, state and local income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash of $1,193,000 and working capital of
$9,990,000. Trade accounts receivable increased by $223,000, or 4%, while
inventories also increased by $234,000, or 3%, as compared to June 30, 1996. The
increase in trade accounts receivable is due primarily to delays in the
collection of $295,000 from two significant customers associated with the same
project. These delays are simply procedural and the cash is expected to be paid
early in the second quarter of fiscal 1997. The increase in inventories is
primarily due to increasing stocking levels of various sub-components to
eliminate "bottlenecks" between various departments in the Cincinnati production
facility. These "buffer" stocks are designed to improve the flow of goods
through assembly areas in a more orderly fashion. Accounts payable decreased by
$81,000, or 4%, relating primarily to the normal cycle of payments. Accrued
expenses decreased by $780,000, or 32%, due primarily to the cash payment
associated with the settlement of the Quaker/Haas lawsuit in August, 1996.
The Company entered into an agreement with Symix, Inc. in May, 1996 to provide a
management information systems software package and related hardware for a total
of $890,000. In September, 1996, the Company entered into a sales leaseback
agreement with KeyCorp Leasing, Ltd. for approximately $519,000. This lease has
been structured as an operating lease. It is expected that the remaining
$371,000 of the management information system project will also be financed
through an operating lease agreement with KeyCorp Leasing, Ltd. This portion of
the financing should be finalized during the second quarter of fiscal 1997.
The Company is still negotiating with Key Bank for a $1 million five-year term
loan. The proceeds from this loan will be used to reduce the amount outstanding
under the revolving lines of credit in an attempt to better match investment
cash inflows and outflows. This facility will increase the Company's borrowing
capacity to $7 million. This note is expected to be in place by November 30,
1996.
Cash flows from operations, as well as the Company's existing credit lines, are
expected to fund working capital needs over the next 12 months. Currently, the
Company's revolving domestic lines of credit are $6,050,000 with $1,268,000
unused as of September 30, 1996.
10
<PAGE> 11
EFFECTS OF INFLATION
The Company's results of operations have not been significantly affected by
inflation during the past three fiscal years. Selling prices for the Company's
products have risen slightly while moderate increases in the cost of direct
labor and purchased materials generally have been offset by production
efficiencies.
MANAGEMENT'S OUTLOOK
Management of the Company is generally optimistic about the prospects for fiscal
year 1997. The Company's fiscal 1997 plan currently calls for significant
investments to improve the distribution of its core products and to capitalize
on various product and market opportunities. In the short term, incremental
operating expenses will be recognized to accomplish these objectives.
The Company expects that the effects of such increased expenses will be offset
by increased net sales such that operating results for fiscal 1997 will be
substantially similar to the results obtained in fiscal 1996. The Company
further anticipates that the investments contemplated to be made in fiscal 1997
will improve the Company's operating income in fiscal 1998, although there can
be no assurances in this regard.
These statements are forward-looking and involve a number of risks and
uncertainties. The factors that could cause actual results to differ materially
include the following: the timing of costs relating to stepped-up marketing
efforts; the effects of those efforts; the ability to achieve targeted cost
savings; a general softening of the economy; competitive factors and pricing
pressures; and risk factors listed from time to time in the Company's reports
filed with the Securities and Exchange Commission.
11
<PAGE> 12
UNITED AIR SPECIALISTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
In August, 1996, the Company settled the lawsuit entitled THE QUAKER
OATS COMPANY V. FRANZ HAAS MACHINERY OF AMERICA, INCORPORATED V.
UNITED AIR SPECIALISTS, INC. This lawsuit arose out of the sale by
Franz Haas Machinery of America, Incorporated ("Haas") to The Quaker
Oats Company of waffle-making equipment incorporating TotalStat(R)
oil-spraying equipment sold by the Company to Haas. The settlement did
not have a material adverse effect on the Company's financial position
or results of operations.
Item 2. Changes in Securities - None
---------------------
Item 3. Defaults Upon 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 Financial Data Schedule
(b) Reports on Form 8-K -
12
<PAGE> 13
On October 3, 1996, the Company filed a Form 8-K announcing the
signing of a definitive merger agreement with CUAC, Inc., a
wholly-owned subsidiary of CLARCOR Inc., pursuant to which CUAC
will merge with and into the Company, with the Company as the
surviving corporation. The transaction will be structured as a
merger under which CLARCOR Inc. will issue common stock in
exchange for each fully diluted share of the Company's stock. It
is expected that the transaction will be accounted for as a
pooling of interests. After consummation of the merger, the
Company will become a subsidiary of CLARCOR Inc. CLARCOR Inc. is
a manufacturer and distributor of mobile, industrial and
environmental filtration products and consumer packaging products
for domestic and international markets.
13
<PAGE> 14
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.
UNITED AIR SPECIALISTS, INC.
Date: November 7, 1996 By: /s/ Durwood G. Rorie
-------------------------- ------------------------------------
Durwood G. Rorie, Jr., President and
Chief Executive Officer
Date: November 7, 1996 By: /s/ William M. Rehl, III
-------------------------- ------------------------------------
William M. Rehl, III, V.P.-Finance/
Chief Financial & Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,193
<SECURITIES> 0
<RECEIVABLES> 6,388
<ALLOWANCES> 225
<INVENTORY> 7,015
<CURRENT-ASSETS> 15,528
<PP&E> 13,398
<DEPRECIATION> 7,511
<TOTAL-ASSETS> 21,991
<CURRENT-LIABILITIES> 5,538
<BONDS> 2,770
<COMMON> 963
0
0
<OTHER-SE> 7,363
<TOTAL-LIABILITY-AND-EQUITY> 21,991
<SALES> 9,735
<TOTAL-REVENUES> 9,735
<CGS> 6,401
<TOTAL-COSTS> 6,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 452
<INCOME-TAX> 176
<INCOME-CONTINUING> 276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>