<PAGE>
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 PERIOD ENDED OCTOBER 29, 1995
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 1-4505
STANDARD BRANDS PAINT COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-6029682
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
880 APOLLO STREET, SUITE 200, EL, SEGUNDO, CALIFORNIA 90245
-----------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (310) 726-9600
--------------
FORMER ADDRESS (CHANGED SINCE LAST REPORT): 4300 WEST
190TH STREET, TORRANCE, CALIFORNIA 90509-2956
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
------ ------
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE (5) YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
On February 11, 1992, the registrant and four (4) of its subsidiaries
filed separate voluntary petitions for reorganization under Chapter 11 of
Title 11 of the United States Code in the United States Bankruptcy Court for
the Central District of California (the "Bankruptcy Court"). On May 13,
1993, the Bankruptcy Court confirmed the Fourth Amended Joint Plan of
Reorganization, (the "Plan"), of the Registrant and its subsidiaries. On
June 14, 1993, all conditions to the effectiveness of the Plan were met, and
the Plan became effective. Pursuant to the Plan, holders of the Registrant's
common stock retained their shares and additional shares of common stock were
issued in partial satisfaction of the allowed claims of the creditors of the
Registrant and its subsidiaries and preferred shareholders of the Registrant.
On October 29, 1995, the number of shares outstanding of the Registrant's
common stock, $.01 par value, was 31,770,553.
<PAGE>
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C>
Consolidated Balance Sheets At
October 29, 1995 and January 29, 1995 1-2
Consolidated Statements of Operations for
Nine Months and Three Months Ended October 29, 1995
and October 30, 1994 3
Consolidated Statements of Cash Flows For
Nine Months Ended October 29, 1995 and October 30, 1994 4-5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II. OTHER INFORMATION AND SIGNATURES 12-13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
ASSETS (Unaudited) January 29,
October 29, 1995 1995
---------------- -----------
<S> <C> <C>
Current assets:
Cash $ 420 $ 1,489
Accounts and notes receivable, net 2,514 1,506
Inventories 14,609 14,750
Prepaid expenses 2,376 961
Deferred income taxes 2,297 3,053
------- --------
Total current assets 22,216 21,759
------- --------
Property, Plant and equipment 19,243 91,002
Less: accumulated depreciation and amortization 581 3,293
------- --------
Net property, plant and equipment 18,662 87,709
------- --------
Other assets 444 442
------- --------
$41,322 $109,910
------- --------
------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) January 29,
October 29, 1995 1995
---------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 5,154 $ 3,821
Accounts payable 11,190 10,974
Accrued expenses 10,595 16,607
Income taxes payable 345 -
-------- --------
Total current liabilities 27,284 31,402
-------- --------
Senior notes, secured, payable to related parties 15,982 30,470
Liquidating Property Trust notes - 52,803
Note payable to related parties - 10,000
Grantor Trust note payable - 6,000
Notes payable FCI 5,000
Deferred income taxes 4,685 5,984
Other long-term liabilities 6,331 6,637
Mandatorily redeemable preferred stock
8% Cumulative dividends;
$.01 par value per share, authorized 5,000,000
shares, issued and outstanding 183,990 shares 1,641 -
Common stock, $.01 par value per share,
authorized 100,000,000 shares; issued and
outstanding 31,771,000 shares at October 29,
1995 and 2,240,000 at January 29, 1995 318 224
Additional paid-in capital 63,508 35,593
Deficit (82,612) (68,388)
Less: treasury stock, at cost, 2,800 shares at
October 29, 1995 and 2,800 at January 29, 1995 (815) (815)
-------- --------
(19,601) (33,386)
-------- --------
$ 41,322 $109,910
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
October October October October
29,1995 30,1994 29, 1995 30, 1994
<S> <C> <C> <C> <C>
Net sales $68,865 $91,869 $23,162 $ 29,639
Cost of sales 42,990 55,268 13,458 18,464
------- ------- ------- --------
Gross margin 25,875 36,601 9,704 11,175
Other costs and expenses:
Operating, and general and
administrative expenses 36,707 37,883 12,354 12,553
Depreciation and amortization 212 2,521 83 826
Interest (income) (230) (113) (127) (42)
Interest expense 3,322 8,578 719 2,723
Other expense (income), net 88 (421) 20 (258)
-------- -------- ------- -------
40,099 48,448 13,049 15,802
Loss from operations before (14,224) (11,847) (3,345) (4,627)
reorganization items
Reorganization items:
Loss on transfer of business
units and real properties
to a grantor trust (65) (65)
-------- -------- --------- ---------
Net loss $(14,224) $(11,912) $( 3,345) $( 4,692)
-------- -------- --------- ---------
-------- -------- --------- ---------
Weighted average shares
outstanding 17,665,000 2,235,000 31,771,000 2,236,000
Net loss per common share $ (.80) $ (5.33) $ (.11) $ (2.10)
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
----------------------------------
October 29, 1995 July 31, 1994
---------------- -------------
<S> <C> <C>
Cash flows from investing activities:
Increase in other assets $ - $ 319
Purchases of property, plant and equipment (761) (189)
Proceeds from sale of property, plant and
equipment 67,508 17,477
------- -------
Net cash provided by investing activities 66,747 17,607
------- -------
Cash flows from financing activities:
Proceeds from (costs of) stock issuance 13,650 7
Proceeds from sale of interest in Liquidating
Property Trust 2,000 -
Proceeds from notes payable FCI 5,000 -
Repayment of Liquidating Property Trust notes (6,537)
Repayment of long-term debt (67,291) (6,258)
Refinancing of note payable - Grantor Trust - (6,000)
Proceeds from note payable to related party - 10,000
(Repayment of) proceeds from short-term
borrowings, net 1,333 (2,158)
Refinancing of note payable - Grantor Trust - 6,000
------- -------
Net cash used for financing activities (45,308) (4,946)
Net (decrease)increase in cash (1,069) 804
Cash, beginning of period 1,489 911
------- -------
Cash, end of period $ 420 $ 1,715
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash paid(received) for:
Interest $ 4,028 $ 4,585
Income taxes $ 198 $ (120)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
-----------------
<TABLE>
<CAPTION>
October 29, 1995 October 30, 1994
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,224) $(11,912)
Adjustments to reconcile net loss
to net cash used for operating activities:
Loss on transfer of business units and
real properties to a grantor trust 65
Depreciation and amortization 212 2,521
Interest paid-in-kind 2,527
Provision for losses on accounts receivable 150 299
Loss (gain) on sale of property 88 (420)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,158) (412)
(Increase)Decrease in inventory, prepaid
expenses and other assets (1,276) 910
(Decrease) in accounts payable, accrued
expenses and other liabilities (6,300) (5,435)
------ ------
Net cash used for operating activities (22,508) (11,857)
------ ------
------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying consolidated financial statements of Standard Brands
Paint Company and Subsidiaries (the "Company") have been prepared by the
Company without audit. The consolidated balance sheet at January 29, 1995
has been derived from the audited consolidated financial statements at that
date. Certain information and footnote disclosures, including significant
accounting policies, normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted. The Company believes that the accompanying consolidated financial
statements include all necessary adjustments (which are of a normal and
recurring nature) considered necessary for a fair presentation. The
consolidated results for any interim period may not be indicative of the
results for the entire year.
It is suggested that the accompanying unaudited consolidated financial
statements be read in conjunction with the financial statements and notes in
the Company's most recent Annual Report on Form 10-K.
NOTE 2 - FINANCIAL RESTRUCTURING:
On May 16, 1995, the Company completed a financial restructuring (the
"Restructuring") pursuant to which Corimon, S.A.C.A. ("CRM"), a Venezuelan
multinational company, acquired approximately 77% of the outstanding common
shares of the Company for total consideration of $18 million. As a result of
the conversion by certain other holders of preferred stock issued in
connection with the Restructuring, CRM's ownership percentage has decreased
to 55% at October 29, 1995.
The principal elements of the Restructuring were a 1 for 10 reverse stock
split, the acquisition by CRM of shares of newly issued common stock and
preferred stock, the exchange of $16 million of the Company's outstanding debt
for newly issued shares of common stock and preferred stock, the transfer of 15
of the Company's real estate properties to the real estate liquidating trust
established in 1994 and the sale of the Company's residual interest in such
trust to CRM and the Company's prior debt holders. Share and per share amounts
for all periods presented have been adjusted to give retroactive effect to the
reverse stock split undertaken in conjunction with the Restructuring.
As a result of the Restructuring, the Company's financial position was
improved by an infusion of $16 million of new capital, $5 million under a
working capital facility with a leading U.S. institution which is a major
shareholder of the Company and a reduction in the Company's consolidated
indebtedness by an aggregate of approximately $78.3 million.
Under the terms of the Restructuring, the terms of the Liquidating Property
Trust were modified. Sixteen of the Company's operating stores and one of its
warehouse properties which were part of the assets of the Liquidating Property
Trust prior to the Restructuring are currently leased to the Company ("Leased
Properties"). Eight of the Leased Properties and the warehouse property have 10
year leases with two renewal options of two years each. The other eight Leased
Properties have 18 month leases with no renewal option. The 15 new properties
transferred to the Liquidating Property Trust as part of the Restructuring are
leased back to the Company for an aggregate rent of approximately $2.8 million
per year (on a triple net basis), adjusted every 30 months. The properties are
leased for 10 years subject to two renewal options of 5 years each. Renewal
rent on all of such leased properties will be 95% of market but not less than
the prior rent. As of October 29, 1995, the Company operated 51 retail paint
stores.
NOTE 3 - INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
October 29, 1995 January 29, 1995
---------------- ----------------
<S> <C> <C>
Retail inventories 12,997 $12,576
Manufacturing inventories 1,425 1,792
Wholesale inventories 187 382
------- -------
$14,609 $14,750
------- -------
------- -------
</TABLE>
<PAGE>
NOTE 4 - SHORT TERM BORROWINGS:
Subsequent to the filing of the Company's Chapter 11 petitions, the Company
entered into a credit agreement with Foothill Capital Corp. ("Foothill"),
pursuant to which Foothill made available to the Company a senior secured credit
facility in the aggregate principal amount of $12 million. Pursuant to the
Plan, the Company entered into a new credit agreement with Foothill on June 14,
1993, which provided the Company with a secured line of credit in the amount of
$12.5 million. Interest under the new credit agreement is equal to the prime
rate of interest plus 2% per annum. On April 14, 1994 the Company amended its
agreement with Foothill to extend the credit agreement for three additional
years. The interest rate under the amended agreement is equal to the prime rate
of interest plus 3% per annum. At October 29, 1995, the prevailing interest
rate per annum was 11.75%.
At October 29, 1995 and January 29, 1995, short-term borrowing consisted of
amounts outstanding to Foothill of approximately $5.2 million and $3.8 million,
respectively. On November 29, 1995, Foothill notified the Company that the
following Events of Default have occurred and continue to exist:
1. The Company has failed to immediately pay Foothill, in cash, the
$498,517 Overadvance in existence since November 27, 1995 and
continuing through the date of notice.
2. There has occurred a material impairment of the prospect of repayment
of the obligations owing to Foothill.
As of November 30, 1995, the Company made payments to Foothill of
$200,000 as a partial reduction of the Overadvance. The balance of the
Overadvance was repaid on December 6, 1995. The Company and Foothill are
continuing to discuss the situation in an effort to resolve the Events of
Default on a mutually agreeable basis.
In addition, at October 29, 1995 the Company had outstanding letters of
credit of $2.8 million for the State of California's Workers Compensation
program, import purchases and security deposits.
NOTE 5 - LONG TERM DEBT:
On May 16, 1995, under the terms of the Restructuring, the terms of the
Liquidating Property Trust were modified. As a result the Company's
consolidated indebtedness was reduced by an aggregate of approximately $78.3
million (See Note 2).
The remaining Insurance Companies' senior notes of approximately $16
million were modified with a maturity of ten years from the Effective Date and
interest payable at 10% per annum, compounded monthly. Interest only will be
due in years one and two with principal and interest due in years three through
ten based on a fifteen year amortization schedule. At the end of ten years the
unpaid principal of approximately $8.1 million will be due in full. The
indebtedness is secured by the existing first trust deeds on 8 of the retained
properties and a security interest on all of the Company's personal property and
equipment (excluding cash, inventory, trademarks, accounts receivable and
rolling stock).
Notes payable FCI represent amounts due to Fidelity Capital and Income
Fund. On May 16, 1995, FCI purchased $5 Million of the Company's Working
capital notes with a maturity of two years, extendable at the Company's
option for two additional six month periods. The notes are secured by second
liens on the Company's inventory and accounts receivable. The interest rate
on the notes is equal to the prime rate plus 5 and 1/2% per annum. At October
29, 1995, the interest rate per annum was 14.25%.
Because of various cross-default provisions contained in the Company's
loan agreements, as well as in certain of its leases, Foothill's notice of
default (see Note 4 above), places the Company in default under its other
loan agreements and certain of its leases.
<PAGE>
Item 2.
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Dollar Amounts in Thousands)
INTRODUCTION
This discussion should be read in conjunction with the consolidated
financial statements, related notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-K for the year ended January 29, 1995.
The Company emerged from its reorganization proceedings ("Reorganization
Plan") in June, 1993. Management believed it would be able to concentrate on
operational activities and pursue the Company's long-term growth and strategic
objectives. The Company believed that its ability to meet growth and strategic
objectives was contingent upon several factors. Accordingly the Company reduced
the size of its retail paint store chain to a core group of stores concentrating
on selling paint and related merchandise in an effort to increase operating
profits from these remaining core stores The Company also focused on its
competitive strengths in paint market share, retail locations, and paint
manufacturing capabilities. In a multifaceted approach, the Company hoped to
add incremental revenue and profits by: (i) remerchandising its retail paint
stores, (ii) launching new paint products, (iii) increasing sales to outside
retailers (i.e., private labeling), and (iv) reducing general corporate overhead
costs associated with such areas as distribution, warehousing, and management
information systems.
On March 16, 1994, the Company entered into an agreement ("New Loan
Agreement") with the Insurance Company Lenders and FCI (defined below) and KRI
(defined below) for $10 million of new financing and a plan to restructure the
Company's then existing $103 million Amended Insurance Company Loan and existing
$6 million indebtedness with the grantor trust established pursuant to the
Reorganization Plan ("Grantor Trust").
Under the terms of the New Loan Agreement, the Company on August 1, 1994
established a Liquidating Property Trust and transferred 78 of its 103 operating
and non-operating real properties with a net book value of approximately $82.7
million in exchange for the assumption by the Liquidating Property Trust of
approximately $68.7 million of existing indebtedness ("Assumed Indebtedness")
owed to the Insurance Companies' (defined below) under the Amended Insurance
Company Loan. The Company estimated that the book value of the properties to be
sold by the Liquidating Property Trust would exceed the sale proceeds, less
applicable fees, expenses and other costs, by approximately $14.6 million and
reported this loss for the fiscal year ended January 30, 1994.
Notwithstanding the additional borrowing and trust transactions described
above, the Company was not successful in implementing its growth and strategic
objectives and continued to experience cash flow difficulties. To successfully
implement its strategic objectives, increase sales and reduce debt, the Company
required significant new sources of capital.
As of February 15, 1995, the Company entered into a Investment Agreement
and certain other agreements for the financial restructuring of the Company
("Restructuring") with Corimon, S.A.C.A. and its wholly-owned subsidiary Corimon
Corporation (collectively, "CRM"), Fidelity Capital & Income Fund ("FCI"), Kodak
Retirement Income Plan Trust Fund ("KRI"), Transamerica Life Insurance and
Annuity Company, Transamerica Occidental Life Insurance Company, Sun Life
Insurance Company of America, Anchor National Life Insurance Co. (collectively
"Insurance Companies"), and the Grantor Trust.
On May 16, 1995, the stockholders of the Company approved the financial
restructuring of the Company at a special meeting. See the Company's Form
10-K Annual Report and Proxy Statement related to the special meeting held on
May 16, 1995 for a detailed review of the Restructuring and Note 2 to the
Consolidated Financial Statement.
<PAGE>
RESULTS OF OPERATIONS
Consolidated sales for the nine months and three months ended October 29,
1995 reflect a decrease of $23,004 and $6,477 from the comparative nine and
three month periods in the prior fiscal year, respectively. The decrease in
sales was principally caused by inadequate inventory levels prior to the
Restructuring, intense competition and overall weak economic conditions in
California, the Company's core market.
Comparable store sales for the nine months and three months ended October
29, 1995 of $59,990 and $20,010, respectively, decreased $18,357 or 23.4% and
$5,873 or 22.6%, respectively, compared to 1994.
The following is an analysis of comparative year-to-date sales by component:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
October 29, 1995 October 30, 1994 Variance
---------------- ---------------- --------
<S> <C> <C> <C>
Continuing Paint Stores $59,990 $78,347 $(18,357)
Closed Paint Stores* 2,667 6,057 (3,390)
------- ------- -------
62,657 84,404 (21,747)
Major Paint Company and Export Sales 6,208 7,465 (1,257)
------- ------- -------
$68,865 $91,869 $(23,004)
------- ------- --------
------- ------- --------
</TABLE>
* Updated to reflect additional store closures through October 29, 1995.
In connection with the adoption of Fresh-Start Reporting, the Company
adopted the first-in, first-out ("FIFO") method for determining the cost of its
inventories. The Company's consolidated FIFO gross profit was 37.6% and 41.9%
versus 39.8% and 37.7% for the comparative nine and three month periods in the
prior fiscal year, respectively. The decreased year to date margin resulted in
part from strategic marketing decisions and competitive factors pursuant to
which the Company reduced prices in certain product categories and utilized
promotional markdowns in an attempt to improve customer traffic and to reduce
discontinued merchandise.
Operating and general and administrative expenses decreased $1,176 and
decreased $199 for the nine and three months ended October 29, 1995,
respectively. The decrease resulted primarily from the implementation of
stringent cost controls offset by increased advertising activity. Operating and
general and administrative expenses were 53.3% and 53.3% of sales, versus 41.2%
and 42.4% for the comparative nine and three month periods in the prior year,
respectively. The increase in the percentage of sales for the nine months and
three months ended October 29, 1995 versus 1994 is due to the reduction in sales
as previously discussed, the increased advertising activity and the fixed nature
of certain expenses.
Depreciation and amortization was $212 and $83 for the nine and three
months ended October 29, 1995 versus $2,521 and $826 for the comparable periods
in 1994, respectively. This decrease was principally due to the transfer of
certain real estate properties to the Liquidating Property Trust in August 1994
and May 1995.
Interest income reflects amounts earned on cash deposits. Interest expense
includes accrued amounts on the senior notes, short-term borrowings, as well as
the other debt. Interest expense for the nine months and three months ended
October 29, 1995 was $3,322 and $719, versus $8,578 and $2,723 for the
comparable periods in 1994, respectively. The decrease resulted from the
reduction in consolidated indebtedness under the terms of the Restructuring.
Other (income) expense, net for the nine months and three months ended
October 29, 1995 and October 30, 1994 primarily represents the Company's
gain(loss) on the sale of real property during the periods.
<PAGE>
FINANCIAL CONDITION AS OF OCTOBER 29, 1995
The Company's working capital deficit decreased by $4,575 to ($5,068)
from ($9,643) at January 29, 1995. This decrease was caused by the infusion
of $21,000 in new capital which was partially offset by operating losses
incurred during the period. See Note 2 to the Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital structure remains highly leveraged despite its
recapitalization and restructuring.
As of October 29, 1995, the Company had no borrowing availability under
it's $12.5 million working capital facility with Foothill. On November 29,
1995, Foothill notified the Company that the following Events of Default have
occurred and continue to exist:
1. The Company has failed to immediately pay Foothill, in cash, the
$498,517 Overadvance in existence since November 27, 1995 and
continuing through the date of notice.
2. There has occurred a material impairment of the prospect of repayment
of the obligation owing to Foothill.
As of November 30, 1995, the Company made payments to Foothill of
$200,000 as a partial reduction of the Overadvance. The balance of the
Overadvance was repaid on December 6, 1995. However the Company expects
that further Overadvances will be incurred from time to time, which the
Company will then need to repay.
Because of various cross-default provisions contained in the Company's
other loan agreements and certain leases, Foothill's notice of default places
the Company in default under its other loan agreements and certain leases as
well.
Although the Restructuring earlier in 1995 improved the Company's
liquidity and reduced the Company's indebtedness, there can be no assurance
that the Company will be successful in implementing any strategic changes to
the operations or that it will be able to improve its sales or reduce its
operating expenses in order to return to profitability. To date, the Company
has not achieved meaningful improvement. Although operating expenses have
been reduced, sales have also continued to decline substantially. The Company
needs additional capital to be able to repay its expected Overadvances to
Foothill and meet its December obligations for rent, interest, property
taxes, and other operating requirements. For these purposes, through December
10, 1995, CRM advanced the Company $1 million in cash. Based on management's
estimates, the Company will need additional capital of about $4 million
during the fourth quarter to sustain its operations through the end of the
1995 fiscal year.
CRM has confirmed to the Company that it will make funds available to
the Company, as necessary, to meet its operating requirements and discharge
its obligations through the end of the 1995 fiscal year. Since the
Restructuring, CRM arranged for and guaranteed a $2.5 million credit facility
with Union Bank of Switzerland and has guaranteed the Company's workers'
compensation claims to the State of California for approximately $2.5
million. In addition, CRM has advised the Company that it has arranged a
$1.6 million letter of credit as collateral for a lease of computer hardware
and software. However, CRM has advised the Company that its ability to make
funds available to the Company, at least in the near term, has been
significantly constrained by adverse business and financial conditions in
CRM's home country of Venezuela, as well as in other countries in which CRM
operates through subsidiaries. In recent months, CRM has not been able to
make funds available to the Company in the amounts and with the timeliness
that the Company has requested. These cash shortfalls have impaired the
Company's operations. The Company therefore considers that, while CRM has
committed itself to supporting the Company, CRM may, for the reasons referred
to, be unable to do so to the extent required. CRM is a public company whose
American depository shares are listed on the New York Stock Exchange. CRM is
a reporting company under the Securities Exchange Act of 1934 and files
annual reports on Form 20-F (as a foreign private issuer) and other reports
with the Securities and Exchange Commission.
If CRM is unable to provide or arrange financial support, the Company's
ability to continue as a going concern would be uncertain. The unaudited
financial statements as of October 29, 1995, do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities
that may result from the possible inability of the Company to continue as a
going concern.
The Company has advised CRM that, because of the current liquidity
situation and lack of capital resources, if CRM is unable to provide or
arrange financial support, the Company may have no other alternative than to
file a voluntary petition under the United States Bankruptcy Code, or
creditors of the Company may force the Company into an involuntary
bankruptcy. This would be the Company's second bankruptcy in three years and
it is considered unlikely that the Company would be able to present a plan of
reorganization acceptable to its creditors and to successfully emerge from
bankruptcy. The Company would most likely go through a liquidation process
which, based on the value of assets available to satisfy claims, would not be
sufficient to fully discharge the claims of unsecured creditors and would
leave no proceeds available for the Company's shareholders. CRM and the
Company are working actively to avoid this possibility. However, there can be
no assurance that they will be successful in their efforts either to make
sufficient funds available to the Company in the near term or to improve the
Company's operations in the new fiscal year.
Management also estimates that the Company will need additional capital
for the foreseeable future. The Company intends to pursue other potential
financing activities which may include the sale of certain assets such as the
Major Paint Company. However, substantially all of the Company's assets are
already pledged or mortgaged to secure existing obligations, and the Company
can give no assurances that it will be successful in obtaining alternate
financing or that such asset sales can be accompanied.
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND
REQUIREMENTS
The Company's consolidated ratios of earnings to combined fixed charges and
preferred stock dividend requirements are shown in the table below. For
purposes of the following ratios: (i) "earnings" consist of loss before income
taxes plus fixed charges; and (ii) "fixed charges" consist of interest
(including debt amortization) and the estimated interest portion of lease
payments.
In calculating the ratio of earnings to combined fixed charges and
preferred stock dividend requirements, the preferred stock dividend requirements
were assumed to be equal to the pretax earnings required to cover such stock
dividend requirements. The amount of such pretax earnings required to cover
preferred stock dividend requirements was computed using tax rates for the
applicable year.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
----------------- -----------------
October 29, 1995 October 30, 1994 October 29, 1995 October 30, 1994
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements (2.27x) (0.33x) (2.17x) (0.64X)
</TABLE>
The earnings coverage deficiencies (in thousands) were $14,224 and $3,345 for
the nine and three months ended October 29, 1995 versus $11,912 and $4,692 for
the comparable periods in 1994, respectively.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------- ------------------
October 29, 1995 October 30, 1994 October 29, 1995 October 30, 1994
---------------- ---------------- ---------------- ----------------
CALCULATION:
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Earnings:
Loss before income taxes (14,224) (11,912) (3,345) (4,692)
Interest expense (including
debt amortization) 3,092 8,465 592 2,681
Estimated interest portion of
lease payments 1,252 516 463 174
------- ------- ------- -------
Total $(9,880) $(2,931) $(2,290) $(1,837)
------- ------- ------- -------
------- ------- ------- -------
Combined Fixed Charges
and Preferred Stock
Divided Requirements:
Interest expense (including
debt amortization) $3,092 $8,465 $ 592 $2,681
Estimated interest portion of
lease payments 1,252 516 463 174
Preferred stock dividend
requirements - - - -
------ ------ ------ ------
Total $4,344 $8,981 $1,055 $2,855
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
STANDARD BRANDS PAINT COMPANY AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of October 29, 1995, the Registrant was not in default in the payment of
principal or interest with respect to any of its indebtedness.
On November 29, 1995, Foothill notified the Company that the following
Events of Default have occurred and continue to exist:
1. The Company has failed to immediately pay Foothill, in cash, the
$498,517 Overadvance in existence since November 27, 1995 and
continuing through the date of notice.
2. There has occurred a material impairment of the prospect of repayment
of the obligation owing to Foothill.
As of November 30, 1995, the Company made payments to Foothill of
$200,000 as a partial reduction of the Overadvance. The balance of the
Overadvance was repaid on December 6, 1995. The Company and Foothill are
continuing to discuss the situation in an effort to resolve the Events of
Default on a mutually agreeable basis.
Because of various cross-default provisions contained in the Company's
loan agreements, as well as in certain of its leases, Foothill's notice of
default places the Company in default under its other loan agreements and
certain of its leases.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of stockholders' meetings held on May 16, 1995 and August 16,
1995 were previously reported in the Company's quarterly report on Form 10-Q
for the quarter ended July 30, 1995.
<PAGE>
ITEM 5. OTHER INFORMATION
Following the August 16, 1995 annual meeting of shareholders of the
Company, the Board of Directors of the Company consisted of eight members,
four representing CRM and four independent directors. The Company's chairman
of the board and chief executive officer was Arthur W. Broslat, representing
CRM, and its vice chair is Deborah Hicks Midanek, an independent director.
Effective on December 11, 1995, Mr. Broslat resigned from his positions as a
director and officer of the Company.
At a special meeting of the Company's Board of Directors held on
December 12, 1995, the Board of Directors elected Mr. Philippe Erard, who is
Chairman and Chief Executive Officer of CRM, to be a Director and the
Chairman of the Board of the Company. The Board also elected Mr. Gilberto
Minionis, who is Vice President-International Operations of CRM, to be a
Director and the Chief Executive Officer of the Company. After these changes,
the Company's Board of Directors consists of nine members, of whom five
represent CRM and four are independent directors.
ITEM 6(a) EXHIBITS
Exhibit 27 - Financial Data Schedule
ITEM 6(b) REPORTS ON FORM 8-K
The company filed a Form 8-K dated 8/25/95, to disclose the election of
the board of directors at the annual meeting of stockholders, the resignation of
two directors and the election of a new director.
<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.
Standard Brands Paint Company
-------------------------------------------------
(Registrant)
Date December 12, 1995 /s/ Howard Schwartz
---------------------- --------------------------------------------------
Howard Schwartz, Senior Vice President/
Authorized Officer and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-30-1995
<PERIOD-END> OCT-29-1995
<CASH> 420
<SECURITIES> 0
<RECEIVABLES> 2,801
<ALLOWANCES> (287)
<INVENTORY> 14,609
<CURRENT-ASSETS> 22,216
<PP&E> 19,243
<DEPRECIATION> 581
<TOTAL-ASSETS> 41,322
<CURRENT-LIABILITIES> 27,284
<BONDS> 20,982
<COMMON> 318
1,641
0
<OTHER-SE> (19,919)
<TOTAL-LIABILITY-AND-EQUITY> 41,322
<SALES> 68,865
<TOTAL-REVENUES> 68,865
<CGS> 42,990
<TOTAL-COSTS> 36,689
<OTHER-EXPENSES> 88
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,322
<INCOME-PRETAX> (14,224)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,224)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
</TABLE>
