<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 quarterly period ended September 30, 1996
[ ] 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. 0-3132
SUNBASE ASIA, INC.
(Exact name of registrant as specified in its charter)
Nevada 94-1612110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
19/F, First Pacific Bank Centre
51-57 Gloucester Road
Wanchai, Hong Kong
(Address of principal executive offices)
Registrant's telephone number, including area code: (852) 2865-1511
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
--- ---
As of September 30, 1996, the Company had 12,700,109 shares of common stock
issued and outstanding.
Total sequentially numbered pages in this document: 25.
1
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
-----------------------------------
INDEX
PART I: FINANCIAL INFORMATION
Item 1 -- Financial statements
Consolidated Condensed Balance Sheets
(unaudited) - December 31, 1995 and
September 30, 1996
Consolidated Condensed Statements of Income
(unaudited) - Three months and nine months
ended September 30, 1995 and 1996
Consolidated Condensed Statements of Cash
Flows (unaudited) - Nine months ended
September 30, 1995 and 1996
Notes to Consolidated Condensed Financial
Statements (unaudited) - Three months and nine
months ended September 30, 1995 and 1996
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II: OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 11 Computation of Earnings Per Common Share
2
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(Amounts in thousands, except number
of shares and per share data)
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
--------------------- --------------------
Notes RMB US$ RMB US$
--------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and bank balances 30,944 3,728 104,249 12,560
Accounts receivable, net 264,186 31,830 507,583 61,155
Notes receivable 25,756 3,103 16,008 1,929
Inventories, net 4 476,997 57,470 403,361 48,598
Prepaid VAT 40,429 4,871 - -
Other receivables 57,209 6,893 67,376 8,118
Due from related companies 137,079 16,515 126,250 15,211
--------- --------- --------- -------
Total current assets 1,032,600 124,410 1,224,827 147,571
Fixed assets 554,086 66,757 572,486 68,974
Deferred asset 18,134 2,185 15,989 1,926
Long term investments 1,438 173 1,012 122
Goodwill 12,144 1,463 11,792 1,421
--------- --------- --------- -------
Total assets 1,618,402 194,988 1,826,106 220,014
========= ========= ========= =======
</TABLE>
(continued)
3
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (continued)
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(Amounts in thousands, except number
of shares and per share data)
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
--------------------- --------------------
Notes RMB US$ RMB US$
--------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short term bank loans 276,813 33,351 387,910 46,736
Accounts payable 116,205 14,001 146,404 17,639
Notes payable 15,627 1,883 21,855 2,633
Accrued liabilities and other payables 90,108 10,856 70,010 8,435
Short term obligations under capital leases 17,269 2,081 18,396 2,217
Other loans 33,810 4,073 - -
Short term portion of secured promissory note 5 41,600 5,012 12,450 1,500
Income tax payable 5,874 708 34,938 4,210
Taxes other than income - - 28,664 3,454
Due to related companies 111,654 13,452 14,823 1,786
Due to shareholders 17,352 2,091 706 85
--------- --------- ---------- -------
Total current liabilities 726,312 87,508 736,156 88,695
Long term bank loans 110,670 13,334 60,331 7,269
Long term obligations under capital leases 107,713 12,977 93,771 11,298
Long term portion of secured promissory note 5 - - 12,450 1,500
Convertible debentures 6 - - 95,450 11,500
Minority interests 343,142 41,342 408,068 49,165
--------- --------- --------- -------
1,287,837 155,161 1,406,226 169,427
--------- --------- ---------- -------
Shareholders' equity:
Common Stock, par value US$0.001 each,
50,000,000 shares authorized;
12,700,109 shares (1995 - 11,700,063 shares)
issued, and fully paid up 7 99 12 107 13
Preferred Stock, par value US$0.001 each,
25,000,000 shares authorized;
Convertible Preferred Stock - Series A;
36 shares issued and outstanding 44,533 5,365 44,533 5,365
Convertible Preferred Stock - Series B;
6,800 shares issued and outstanding 28,288 3,408 28,288 3,408
Contributed surplus 151,942 18,306 187,333 22,570
Reserves 25,266 3,044 25,266 3,044
Retained earnings 80,437 9,692 134,353 16,187
--------- --------- --------- -------
Total shareholders' equity 330,565 39,827 419,880 50,587
--------- --------- --------- -------
Total liabilities and shareholders' equity 1,618,402 194,988 1,826,106 220,014
========= ========= ========= =======
</TABLE>
The accompanying notes form an integral part of these consolidated condensed
financial statements.
4
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------- ---------------------------------------
1995 1996 1996 1995 1996 1996
Notes RMB RMB US$ RMB RMB US$
----- --------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales
- Third parties 560,473 588,084 70,854 188,552 152,011 18,315
- Related parties 90,597 136,876 16,491 27,685 107,260 12,923
--------- ---------- ---------- ----------- ---------- ----------
651,070 724,960 87,345 216,237 259,271 31,238
Cost of sales (397,584) (444,750) (53,584) (131,901) (158,833) (19,136)
--------- ---------- ---------- ----------- ---------- ----------
Gross profit 253,486 280,210 33,761 84,336 100,438 12,102
--------- ---------- ---------- ----------- ---------- ----------
Selling, general and
administrative expenses
- Third parties (47,037) (58,397) (7,036) (15,813) (18,109) (2,182)
- Related parties (30,767) (33,334) (4,016) (10,946) (11,263) (1,357)
--------- ---------- ---------- ----------- ---------- ----------
(77,804) (91,731) (11,052) (26,759) (29,372) (3,539)
--------- ---------- ---------- ----------- ---------- ----------
Interest expense
- Third parties (27,451) (38,474) (4,636) (9,684) (13,192) (1,590)
- Related parties (8,609) (7,573) (912) (2,787) (2,434) (293)
--------- ---------- ---------- ----------- ---------- ----------
(36,060) (46,047) (5,548) (12,471) (15,626) (1,883)
--------- ---------- ---------- ----------- ---------- ----------
Income before income taxes 139,622 142,432 17,161 45,106 55,440 6,680
Provision for income taxes
- Current (21,497) (23,590) (2,842) (6,999) (9,170) (1,105)
--------- ---------- ---------- ----------- ---------- ----------
Income before minority
interests 118,125 118,842 14,319 38,107 46,270 5,575
Minority interests (59,168) (64,926) (7,823) (19,261) (25,236) (3,041)
--------- ---------- ---------- ----------- ---------- ----------
Net income 58,957 53,916 6,496 18,846 21,034 2,534
========= ========== ========== =========== ========== ==========
Earnings per common share 2
- Primary 3.85 3.26 0.39 1.23 1.23 0.15
========== ========== =========== ========== ========== ==========
- Fully diluted 3.85 3.25 0.39 1.23 1.22 0.15
========== ========== =========== ========== ========== ==========
Number of shares outstanding 2
- Primary 15,300,063 16,561,644 16,561,644 15,300,063 17,107,412 17,107,412
========== ========== =========== ========== ========== ==========
- Fully diluted 15,300,063 16,963,420 16,963,420 15,300,063 18,199,593 18,199,593
========== ========== =========== ========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these consolidated condensed
financial statements.
5
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1995 1996 1996
Notes RMB RMB US$
----- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income 58,957 53,916 6,496
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Minority interests 59,168 64,926 7,823
Depreciation 33,376 47,232 5,691
Loss (gain) on disposal of fixed assets 969 (1,111) (134)
Amortization of goodwill - 352 42
Others 400 2,145 258
Changes in operating assets and liabilities-
(Increase) decrease in assets:
Accounts receivable (253,394) (243,397) (29,325)
Notes receivable (35,133) 9,748 1,174
Inventories 93,988 73,636 8,872
Prepaid VAT - 40,429 4,871
Other receivables (36,543) (10,167) (1,225)
Due from related companies 32,129 10,829 1,305
Increase (decrease) in liabilities:
Accounts payable (38,848) 30,199 3,638
Notes payable 14,620 6,228 750
Accrued liabilities and other payables 34,608 (20,098) (2,422)
Income tax payable 14,360 29,064 3,502
Taxes other than income 40,593 28,664 3,454
Due to related companies (11,636) (109,646) (13,210)
Due to shareholders 464 (16,646) (2,006)
-------- -------- -------
Net cash provided by (used in) operating activities 8,078 (3,697) (446)
-------- -------- -------
Cash flows from investing activities:
Disposal of long term investments 2,630 426 51
Proceeds from disposal of fixed assets 274 1,798 217
Additions to fixed assets (57,705) (66,319) (7,990)
-------- -------- -------
Net cash used in investing activities (54,801) (64,095) (7,722)
-------- -------- -------
Cash flows from financing activities:
Net increase in bank loans 42,844 60,758 7,320
Repayment of other loans - (33,810) (4,073)
Repayment of secured promissory note 5 - (16,700) (2,012)
Proceeds from issuance of convertible
debentures 6 - 95,450 11,500
Proceeds from sale of common stock, net of costs 7 - 35,399 4,265
-------- -------- -------
Net cash provided by financing activities 42,844 141,097 17,000
-------- -------- -------
Net increase (decrease) in cash and cash equivalents (3,879) 73,305 8,832
Cash and cash equivalents, at beginning of period 65,646 30,944 3,728
-------- -------- -------
Cash and cash equivalents, at end of period 61,767 104,249 12,560
======== ======== =======
Non-cash transaction:
Financing of lease arrangements 11,779 12,815 1,544
======== ======== =======
</TABLE>
The accompanying notes form an integral part of these consolidated condensed
financial statements.
6
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
1. GENERAL
Sunbase Asia, Inc. ("the Company") acquired 100% of the issued share capital
of China Bearing Holdings Limited ("China Bearing") on December 2, 1994 pursuant
to a Share Exchange Agreement with Asean Capital Limited in exchange for
10,261,000 shares of common stock. The transaction has been treated as a
recapitalization of China Bearing with China Bearing as the acquirer (reverse
acquisition). The historical financial statements prior to December 2, 1994 are
those of China Bearing.
The Company is a Nevada Corporation which owns, through various subsidiaries
and joint venture interests, a 51.4% indirect ownership in Harbin Bearing
Company Limited, a joint stock limited company organized under the law of the
People's Republic of China ("Harbin Bearing"). Harbin Bearing manufactures a
wide variety of bearings in China for use in commercial, industrial and
aerospace applications that are sold primarily in China and certain western
countries, including the United States.
On January 16, 1996 (effective December 29, 1995), the Company acquired
Smith Acquisition Company, Inc. dba Southwest Products Company ("Southwest") in
exchange for 6,800 shares of Series B convertible preferred stock with a stated
value of US$500 per share. The Series B convertible preferred stock is
convertible into 680,000 shares of common stock. The acquisition of Southwest
has been accounted for under the purchase method of accounting, and was recorded
as of December 31, 1995. The results of operations of Southwest have been
consolidated into the Company's consolidated results of operations commencing
January 1, 1996, Southwest manufactures precision spherical bearings that are
sold primarily to the aerospace and commercial aviation industries. Its major
customers are located in the United States.
The following unaudited pro forma financial information for the three months
and nine months ended September 30, 1995 is prepared on the basis as if the
acquisition of Southwest had occurred on January 1, 1995, and includes pro forma
depreciation and amortization resulting from the increase to reflect the fair
value of assets and the goodwill arising from the acquisition of Southwest. The
unaudited pro forma financial information has been prepared for comparative
purposes only and
7
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED) (continued)
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
1. GENERAL (continued)
does not purport to represent the results of operations which would actually
have occurred had the acquisition of Southwest been in effect on January 1,
1995, or which may occur in the future.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
RMB RMB
--- ---
<S> <C> <C>
Net sales 225,344 679,886
Net income 16,937 53,006
Earnings per common share 1.06 3.32
</TABLE>
2. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America. All material intercompany accounts and transactions
were eliminated on consolidation.
The accompanying consolidated condensed financial statements are unaudited
but, in the opinion of the management of the Company, contain all adjustments
necessary to present fairly the financial position at September 30, 1996, the
results of operations for the three months and nine months ended September 30,
1995 and 1996, and the changes in cash flows for the nine months ended September
30, 1995 and 1996. These adjustments are of a normal recurring nature. The
consolidated balance sheet as of December 31, 1995 is derived from the Company's
audited financial statements. Certain information and footnote disclosures
normally included in financial statements that have been prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission,
although management of the Company believes that the disclosures contained in
these financial statements are adequate to make the information presented
therein not misleading. For further
8
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED) (continued)
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
2. BASIS OF PRESENTATION (continued)
information, refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as filed with the Securities and Exchange Commission.
For the three months and nine months ended September 30, 1995 and 1996,
primary earnings per common share have been calculated using the weighted
average number of shares of common stock and common stock equivalents
outstanding during the respective periods. Common stock equivalents consist of
convertible preferred stock and outstanding stock options. The computation of
fully diluted earnings per share, where appropriate, assumes the full conversion
of the Convertible Debentures and the elimination of the related after tax
interest expense effective August 23, 1996.
The results of operations for the three months and nine months ended
September 30, 1996 are not necessarily indicative of the results of operations
to be expected for the full fiscal year ending December 31, 1996.
3. FOREIGN CURRENCY TRANSLATION AND EXCHANGE
In preparing the consolidated financial statements, the financial statements
of the Company are measured using Renminbi ("RMB") as the functional currency.
All foreign currency transactions are translated into RMB using the applicable
floating rates of exchange as quoted by the People's Bank of China prevailing at
the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies have been translated into RMB using the unified exchange rate
prevailing at the balance sheet dates. The resulting exchange gains or losses
have been credited or charged to the statements of income for the periods in
which they occur.
The Company's share capital is denominated in United States dollars (US$)
and the reporting currency is the RMB. For financial reporting purposes, the
US$ share capital amounts have been translated into RMB at the applicable rates
prevailing on the transaction dates.
9
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED) (continued)
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
3. FOREIGN CURRENCY TRANSLATION AND EXCHANGE (continued)
For financial reporting purposes, translation of amounts from RMB into US$
for the convenience of the reader has been made at the exchange rate quoted by
the People's Bank of China on September 30, 1996 of US$ 1.00 = RMB 8.3. No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at that rate on September 30, 1996 or at any other certain
rate on September 30, 1996.
4. INVENTORIES
Inventories consisted of the following at December 31, 1995 and September
30, 1996:
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
------------------- --------------------
RMB US$ RMB US$
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Raw materials 105,132 12,667 107,419 12,942
Work-in-progress 104,697 12,614 121,346 14,620
Finished goods 271,477 32,708 178,671 21,527
------- ------ -------- ------
481,306 57,989 407,436 49,089
Less: Allowance for obsolescence ( 4,309) ( 519) (4,075) ( 491)
------- ------ -------- ------
Inventories, net 476,997 57,470 403,361 48,598
======= ====== ======== ======
</TABLE>
5. SECURED PROMISSORY NOTE
A promissory note for US$5,012 (RMB 41,600) (the "Note") was issued to Asean
Capital Limited ("Asean") in connection with the Share Exchange Agreement and is
secured by a continuing security interest in all of the Company's title and
interest in the outstanding capital stock of its wholly-owned subsidiary China
Bearing. The Note is denominated in and is repayable in full in United States
dollars, and bears interest at 8% per annum.
In connection with the issuance of the Convertible Debentures described at
Note 6, Asean has undertaken that for so long as any of the debentures are
10
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED) (continued)
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
5. SECURED PROMISSORY NOTE (continued)
outstanding, no amounts are to be repaid on the Note unless there is sufficient
working capital and the repayment is made in accordance with the following
schedule:
<TABLE>
<CAPTION>
Payment Period Amount
- -------------- ------
<S> <C>
August 1, 1996 to July 31, 1997 up to US$2,000 plus accrued interest
August 1, 1997 to July 31, 1998 up to US$1,500 plus accrued interest
August 1, 1998 to July 31, 1999 up to US$1,500 plus accrued interest
</TABLE>
Pursuant to the above described repayment schedule, a principal payment of
US$2,012 (RMB 16,700) plus accrued interest was made on the Note on September
10, 1996.
6. CONVERTIBLE DEBENTURES
Pursuant to a Subscription Agreement dated August 2, 1996 (the "Subscription
Agreement"), among China Bearing, Asean Capital Limited, China International
Bearing Holdings Limited, the Company and Southwest Products (collectively, the
"Sunbase Group"); Glory Mansion Limited, Wardley China Investment Trust, MC
Private Equity Partners Asia Limited, and Chine Investissement 2000
(collectively, the "Investors"), on August 23, 1996, China Bearing issued an
aggregate of US$11,500 principal amount of Convertible Debentures (the
"Convertible Debentures") to the Investors. Unless the Convertible Debentures
have been converted, the Convertible Debentures are due and payable in August
1999 (the "Maturity Date"). The Convertible Debentures bear interest at the rate
of the higher of (i) 5% per annum (net of withholding tax, if applicable) and
(ii) such percentage of the dividend yield calculated by reference to dividing
the annual dividend declared per share of Common Stock of the Company by the
Conversion Price (as hereinafter defined). Interest is payable quarterly.
The Investors have the right to convert at any time, in whole or in part,
the principal amount of the Convertible Debentures into shares of the Common
Stock of the Company. The Conversion Price (the "Conversion Price") is
initially US$5.00 per share, subject to adjustment for (a) change in par value
of the Common Stock, (b) issuance of shares by way of capitalization of profits
or reserves, (c) capital distributions, (d) rights offering at a price which is
less than the lower of the then
11
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (UNAUDITED) (continued)
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
6. CONVERTIBLE DEBENTURES (continued)
market price or Conversion Price, (e) issuance of derivative securities where
the total consideration per share initially received is less than the lower of
the then market price or Conversion Price, (f) issuance of shares at a price per
share which is less than the lower of the then market price or Conversion Price,
and (g) if the cumulative audited earnings per common share for any two
consecutive fiscal years commencing with the fiscal year ending December 31,
1996 and ending with the fiscal year ending December 31, 1998 are less than the
specified projection of cumulative earnings per common share for such periods.
The Convertible Debentures are required to be redeemed on the Maturity Date
at its principal amount outstanding together with any accrued but unpaid
interest together with an amount that would enable the Investors to yield an
aggregate internal rate of return of 12% per annum on the cost of their
investment. In addition, if any of the events of default specified in the
Convertible Debentures occur, the Convertible Debentures are automatically due
and payable at the principal amount outstanding together with accrued interest
and an amount that would enable the Investors to yield an aggregate internal
rate of return on their investment of 19.75% per annum. Events of default
include the delisting of the shares from NASDAQ or its suspension thereof;
default in performance after failure to cure after notice; failure to pay
principal or interest; failure to pay indebtedness for borrowed money;
bankruptcy, insolvency or unsatisfied judgments; failure to achieve earnings per
common share of at least US$.55 for fiscal years commencing January 1, 1996; and
accounts receivable reaching a certain level in relationship to net sales.
As a result of the foregoing, although the Convertible Debentures bear
interest at the rate of 5% per annum, interest is accrued at the rate of 12% per
annum.
The obligations of China Bearing under the Convertible Debentures are
guaranteed by the other members of the Sunbase Group.
7. SALE OF COMMON STOCK
On June 10, 1996, the Company sold 1,000,000 shares of common stock (the
"Private Placement Shares") at US$5.00 per share, which generated net proceeds
of US$ 4,265 (RMB 35,399). On October 23, 1996, the Company filed a registration
statement with the Securities and Exchange Commission to register the resale of
the Private Placement Shares.
12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
OVERVIEW
The Company owns, through various subsidiaries and joint venture interests,
a 51.4% indirect ownership in Harbin Bearing. Harbin Bearing manufactures a
wide variety of bearings in China for use in commercial, industrial and
aerospace applications that are sold primarily in China and certain western
countries, including the United States. On January 16, 1996 (effective December
29, 1995), the Company acquired Southwest, which manufactures precision
spherical bearings that are sold primarily to the aerospace and commercial
aviation industries. The acquisition of Southwest has been accounted for under
the purchase method of accounting. The results of Southwest have been
consolidated into the Company's consolidated results of operations commencing
January 1, 1996,
Unless specifically stated, all amounts are in thousands (RMB '000).
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996:
The following table sets forth certain unaudited operating data (in RMB and
as a percentage of the Company's sales) for the three months ended September 30,
1995 and 1996.
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------
1995 1996
---- ----
RMB % RMB %
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Sales 216,237 100.0 259,271 100.0
Cost of sales (131,901) (61.0) (158,833) (61.3)
-------- ----- -------- -----
Gross profit 84,336 39.0 100,438 38.7
Selling expenses (4,723) (2.2) (7,692) (3.0)
General and administrative expenses (22,036) (10.2) (21,680) (8.4)
Interest expense (12,471) (5.8) (15,626) (6.0)
-------- ----- -------- -----
Income before income taxes 45,106 20.8 55,440 21.3
Provision for income taxes (6,999) (3.2) (9,170) (3.5)
-------- ----- -------- -----
Income before minority interests 38,107 17.6 46,270 17.8
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Minority interests (19,261) (8.9) (25,236) (9.7)
-------- ----- -------- -----
Net income 18,846 8.7 21,034 8.1
======== ===== ======== =====
</TABLE>
Sales
- -----
Sales (including RMB 9,487 from Southwest) for the three months ended
September 30, 1996 increased by RMB 43,034 or 19.9% to RMB 259,271, as compared
to 216,237 for the three months ended September 30, 1995. Excluding Southwest's
operations, sales increased by RMB 33,547 or 15.5% for the three months ended
September 30, 1996 as compared to 9.0% for the three months ended September 30,
1995.
Cost of Sales/Gross Profit
- --------------------------
Cost of sales (including RMB 6,964 from Southwest) for the three months
ended September 30, 1996 increased to RMB 158,833 as compared to RMB 131,901 for
the three months ended September 30, 1995. The cost of sales for Harbin Bearing
for the three months ended September 30, 1996 and 1995 was calculated using the
gross profit method by reference to average annual gross profit ratios. The
cost of sales for Southwest for the three months ended September 30, 1996 was
calculated on an actual cost basis.
Gross profit increased by RMB 16,102 or 19.1% for the three months ended
September 30, 1996 as compared to the three months ended September 30, 1995.
The increase in gross profit was attributable to the increase in sales. Gross
profit as a percentage of sales decreased to 38.7% in 1996 from 39.0% in 1995
due to Southwest's lower gross margin of 26.6%.
Selling Expenses
- ----------------
Selling expenses (including RMB 1,280 from Southwest) for the three months
ended September 30, 1996 increased by RMB 2,969 or 62.9% to RMB 7,692 as
compared to RMB 4,723 for the three months ended September 30, 1995. The
increase in selling expenses was primarily attributable to the consolidation of
Southwest's selling expenses in 1996 and the increase in royalty expense and
government taxes in China as a result of the increase in sales. Selling
expenses as a percentage of sales increased from 2.2% in 1995 to 3.0% in 1996.
14
<PAGE>
General and Administrative Expenses
- -----------------------------------
General and administrative expenses (including RMB 2,350 from Southwest) for
the three months ended September 30, 1996 decreased by RMB 356 or 1.6% to RMB
21,680 as compared to RMB 22,036 for the three months ended September 30, 1995.
General and administrative expenses as a percentage of sales decreased to 8.4%
in 1996 from 10.2% in 1995. Significant factors affecting the change in general
and administrative expenses between 1995 and 1996 are as follows:
a. The consolidation of Southwest's general and administrative expenses
of RMB 2,350 in 1996.
b. An aggregate cash discount of RMB 479 was granted during 1996 as
incentives to customers for early settlement of debt in order to accelerate cash
collections. No such cash discount was granted during 1995.
c. The reduction in the number of supervisory level staff which caused
a decrease in administrative staff costs by RMB 2,329 in 1996.
d. There was a gain on disposal of fixed assets of RMB 1,111 in 1996
whereas no gain or loss on disposal of fixed assets was recorded during 1995.
Interest Expense
- ----------------
Interest expense (including RMB 425 from Southwest) for the three months
ended September 30, 1996 increased by RMB 3,155 or 25.3% to RMB 15,626 as
compared to RMB 12,471 for the three months ended September 30, 1995. The
increase in interest expense was attributable to the consolidation of
Southwest's interest expense in 1996, the increase in principal amount of bank
loans during the three months ended September 30, 1996 as compared to the three
months ended September 30, 1995, and the inclusion of RMB 1,224 of Convertible
Debenture interest calculated at the rate of 12% per annum since August 23,
1996.
Net Income
- ----------
As a result of the aforementioned factors, including the consolidation of
Southwest's operations effective January 1, 1996, net income increased by RMB
2,188 or 11.6% to RMB 21,034 for the three months ended September 30, 1996 as
compared to RMB 18,846 for the three months ended September 30, 1995.
15
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996:
The following table sets forth certain unaudited operating data (in RMB and
as a percentage of the Company's sales) for the nine months ended September 30,
1995 and 1996.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------
1995 1996
---- ----
RMB % RMB %
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Sales 651,070 100.0 724,960 100.0
Cost of sales (397,584) (61.1) (444,750) (61.3)
-------- ----- -------- -----
Gross profit 253,486 38.9 280,210 38.7
Selling expenses (14,476) (2.2) (20,064) (2.8)
General and administrative expenses (63,328) (9.7) (71,667) (9.9)
Interest expense (36,060) (5.6) (46,047) (6.4)
-------- ----- -------- -----
Income before income taxes 139,622 21.4 142,432 19.6
Provision for income taxes (21,497) (3.3) (23,590) (3.2)
-------- ----- -------- -----
Income before minority interests 118,125 18.1 118,842 16.4
Minority interests (59,168) (9.1) (64,926) (9.0)
-------- ----- -------- -----
Net income 58,957 9.0 53,916 7.4
======== ===== ======== =====
</TABLE>
Sales
- -----
Sales (including RMB 25,560 from Southwest) for the nine months ended
September 30, 1996 increased by RMB 73,890 or 11.3% as compared to the nine
months ended September 30, 1995. Excluding Southwest's operations, sales
increased by RMB 48,330 or 7.4% for the nine months ended September 30, 1996 as
compared to 10.5% for the nine months ended September 30, 1995. The rate of
sales growth has slowed in 1996 as compared to 1995 as a result of the Company's
efforts beginning in the latter part of 1995 to consolidate the distribution of
its products in China by shifting smaller OEM accounts to certain larger
distributors (see "LIQUIDITY AND CAPITAL RESOURCES - Operating Activities").
Cost of Sales/Gross Profit
- --------------------------
16
<PAGE>
Cost of sales (including RMB 19,515 from Southwest) for the nine months
ended September 30, 1996 increased to RMB 444,750 as compared to RMB 397,584 for
the nine months ended September 30, 1995. The cost of sales for Harbin Bearing
for the nine months ended September 30, 1996 and 1995 was calculated using the
gross profit method by reference to average annual gross profit ratios. The
cost of sales for Southwest for the nine months ended September 30, 1996 was
calculated on an actual cost basis.
Gross profit increased by RMB 26,724 or 10.5% for the nine months ended
September 30, 1996 as compared to the nine months ended September 30, 1995. The
increase in gross profit was attributable to the increase in sales. Gross
profit as a percentage of sales decreased to 38.7% in 1996 from 38.9% in 1995
due to Southwest's lower gross margin of 23.7%.
Selling Expenses
- ----------------
Selling expenses (including RMB 3,780 from Southwest) for the nine months
ended September 30,1996 increased by RMB 5,588 or 38.6% to RMB 20,064 as
compared to RMB 14,476 for the nine months ended September 30, 1995. The
increase in selling expenses was primarily attributable to the consolidation of
Southwest's selling expenses in 1996 and the increase in royalty costs and
government taxes in China as a result of the increase in sales. Selling
expenses as a percentage of sales increased from 2.2% in 1995 to 2.8% in 1996.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses (including RMB 6,720 from Southwest) for
the nine months ended September 30, 1996 increased by RMB 8,339 or 13.2% to RMB
71,667 as compared to RMB 63,328 for the nine months ended September 30, 1995.
General and administrative expenses as a percentage of sales increased to 9.9%
in 1996 from 9.7% in 1995. Significant factors affecting the change in general
and administrative expenses between 1995 and 1996 are as follows:
a. The consolidation of Southwest's general and administrative expenses
of RMB 6,720 in 1996.
b. An aggregate cash discount of RMB 6,986 which was granted during 1996
as incentives to customers for early settlement of debt in order to accelerate
cash collections. No such cash discount was granted during 1995.
17
<PAGE>
c. A decrease in compensation expense in 1996 of RMB 3,954 related to the
voluntary early retirement program at Harbin Bearing.
d. There was a gain on disposal of fixed assets of RMB 1,111 during 1996
while there was a loss on disposal of fixed assets of RMB 969 during 1995.
Interest Expense
- ----------------
Interest expense (including RMB 1,805 from Southwest) for the nine months
ended September 30, 1996 increased by RMB 9,987 or 27.7% to RMB 46,047 as
compared to RMB 36,060 for the nine months ended September 30, 1995. The
increase in interest expense was attributable to the consolidation of
Southwest's interest expense in 1996, the increase in principal amount of bank
loans during the nine months ended September 30, 1996 as compared to the nine
months ended September 30, 1995, the 1.3% increase in the interest rate on new
short-term bank loans effective July 1, 1995 and the inclusion of RMB 1,224 of
Convertible Debenture interest calculated at the rate of 12% per annum since
August 23, 1996.
Net Income
- ----------
As a result of the aforementioned factors, including the consolidation of
Southwest's operations effective January 1, 1996, net income decreased by RMB
5,041 or 8.6% to RMB 53,916 for the nine months ended September 30, 1996 as
compared to RMB 58,957 for the nine months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities:
For the nine months ended September 30, 1996, the Company's operations
utilized cash resources of RMB 3,697, as compared to RMB 8,078 generated for the
nine months ended September 30, 1995. The Company's net working capital
increased by RMB 182,383 at September 30,1996, to RMB 488,671, as compared to
RMB 306,288 at December 31, 1995, and the Company's current ratio at September
30, 1996 was 1.66:1 as compared to 1.42:1 at December 31, 1995 and 1.53:1 at
September 30, 1995.
During the latter part of 1995, the Company began to consolidate the
distribution of its products in China by shifting smaller OEM accounts to
designated large distributors. The Company has granted extended credit terms to
such
18
<PAGE>
distributors to facilitate this transition, which the Company expects to
continue at least through the remainder of 1996. This new marketing strategy is
expected to reduce marketing costs and credit risk.
Accounts receivable increased by RMB 243,397 or 92.1% to RMB 507,583 at
September 30, 1996, as compared to RMB 264,186 at December 31, 1995. The
increase in accounts receivable for the nine months ended September 30, 1996 is
consistent with the increase in accounts receivable of RMB 253,394 or 85.0% for
the nine months ended September 30, 1995. Also contributing to the increase in
accounts receivable during the nine months ended September 30, 1996 was the
granting of extended credit terms to designated large distributors and the
resulting slowdown in accounts receivable collections from the Company's
previous smaller OEM accounts.
Due to related companies decreased by RMB 109,646 during the nine months
ended September 30, 1996 as a result of sales to a related company during 1996.
Investing activities:
Capital expenditures for the nine months ended September 30, 1996 of RMB
66,319 consisted of costs relating to the construction of new plant and
buildings, and the renovation of existing facilities and equipment, and were
financed by bank loans and the sale of common stock.
Financing activities:
The Company has historically relied on both long and short term bank loans
from Chinese banks to support its operating and capital requirements. Short
term bank loans have terms ranging from three months to six months, are utilized
to finance both operating and capital requirements, and are renewed on a
revolving basis. Long term bank loans are utilized to fund capital expansion
projects. During the nine months ended September 30, 1996, the net increase in
bank loans (after deducting repayments) was RMB 60,758, which was utilized to
fund the repayment of other loans of RMB 33,810, operations and a portion of
capital expenditures. The Company believes that it will be able to continue to
maintain and expand its bank borrowings under existing terms and conditions.
19
<PAGE>
In order to finance the Company's continuing operating and capital
requirements, the Company has been evaluating both debt and equity financing
opportunities. During June 1996, the Company sold 1,000,000 shares of common
stock at US $5.00 per share generating net proceeds of US$ 4,265 (RMB 35,399).
Pursuant to a Subscription Agreement dated August 2, 1996 (the "Subscription
Agreement"), among China Bearing, Asean Capital Limited, China International
Bearing Holdings Limited, the Company and Southwest Products (collectively, the
"Sunbase Group"); Glory Mansion Limited, Wardley China Investment Trust, MC
Private Equity Partners Asia Limited, and Chine Investissement 2000
(collectively, the "Investors"), on August 23, 1996, China Bearing issued an
aggregate of US$11,500 principal amount of Convertible Debentures (the
"Convertible Debentures") to the Investors. Unless the Convertible Debentures
have been converted, the Convertible Debentures are due and payable in August
1999 (the "Maturity Date"). The Convertible Debentures bear interest at the
rate of the higher of (i) 5% per annum (net of withholding tax, if applicable)
and (ii) such percentage of the dividend yield calculated by reference to
dividing the annual dividend declared per share of Common Stock of the Company
by the Conversion Price (as hereinafter defined). Interest is payable
quarterly.
The Investors have the right to convert at any time, in whole or in part,
the principal amount of the Convertible Debentures into shares of the Common
Stock of the Company. The Conversion Price (the "Conversion Price") is initially
US$5.00 per share, subject to adjustment for (a) change in par value of the
Common Stock, (b) issuance of shares by way of capitalization of profits or
reserves, (c) capital distributions, (d) rights offering at a price which is
less than the lower of the then market price or Conversion Price, (e) issuance
of derivative securities where the total consideration per share initially
received is less than the lower of the then market price or Conversion Price,
(f) issuance of shares at a price per share which is less than the lower of the
then market price or Conversion Price, and (g) if the cumulative audited
earnings per common share for any two consecutive fiscal years commencing with
the fiscal year ending December 31, 1996 and ending with the fiscal year ending
December 31, 1998 are less than the specified projection of cumulative earnings
per common share for such periods.
The Convertible Debentures are required to be redeemed on the Maturity Date
at its principal amount outstanding together with any accrued but unpaid
interest together with an amount that would enable the Investors to yield an
aggregate internal rate of return of 12% per annum on the cost of their
investment. In addition, if any of the events of default specified in the
Convertible Debentures occur, the Convertible Debentures are automatically due
and payable at the principal amount outstanding together with accrued interest
and an amount that would enable the Investors to yield an aggregate internal
rate of return on their investment of 19.75% per annum. Events of default
include the delisting of the shares from NASDAQ or its suspension thereof;
20
<PAGE>
default in performance after failure to cure after notice; failure to pay
principal or interest; failure to pay indebtedness for borrowed money;
bankruptcy, insolvency or unsatisfied judgments; failure to achieve earnings per
common share of at least US$.55 for fiscal years commencing January 1, 1996;
and accounts receivable reaching a certain level in relationship to net sales.
As a result of the foregoing, although the Convertible Debentures bear
interest at the rate of 5% per annum, interest is accrued at the rate of 12% per
annum.
The obligations of China Bearing under the Convertible Debentures are
guaranteed by the other members of the Sunbase Group.
A promissory note for US$5,012 (RMB 41,600) (the "Note") was issued to
Asean Capital Limited ("Asean") in connection with the Share Exchange Agreement
and is secured by a continuing security interest in all of the Company's title
and interest in the outstanding capital stock of its wholly-owned subsidiary
China Bearing. The Note is denominated in and is repayable in full in United
States dollars, and bears interest at 8% per annum.
In connection with the issuance of the Convertible Debentures described
above, Asean has undertaken that for so long as any of the debentures are
outstanding, no amounts are to be repaid on the Note unless there is sufficient
working capital and the repayment is made in accordance with the following
schedule:
<TABLE>
<CAPTION>
Payment Period Amount
- -------------- ------
<S> <C>
August 1, 1996 to July 31, 1997 up to US$2,000 plus accrued interest
August 1, 1997 to July 31, 1998 up to US$1,500 plus accrued interest
August 1, 1998 to July 31, 1999 up to US$1,500 plus accrued interest
</TABLE>
Pursuant to the above described repayment schedule, a principal payment of
US$2,012 (RMB 16,700) plus accrued interest was made on the Note on September
10, 1996.
The Company anticipates that its cash flows from operations, combined with
cash and cash equivalents, bank lines of credit and other external sources of
debt and equity financing, and the proceeds from the June 1996 sale of the
1,000,000 shares of common stock and the August 1996 issuance of the Convertible
Debentures, are adequate to finance the Company's operating and debt service
requirements for the foreseeable future.
INFLATION AND CURRENCY MATTERS
In recent years, the Chinese economy has experienced periods of rapid
economic growth as well as high rates of inflation, which in turn has resulted
in the periodic adoption by the Chinese government of various corrective
measures designed to regulate growth and contain inflation. During the nine
months ended September 30, 1996, the general inflation rate in China was in
excess of 10% on an annualized basis. Since 1993, the Chinese government has
implemented and maintained an economic program designed to control inflation,
which has resulted in the tightening of working capital available to Chinese
business enterprises. The success of the Company depends in substantial part on
the continued growth and development of the Chinese economy.
The Company continually monitors the effects of inflation. The Company is
generally able to raise its prices to shift a portion of the inflated costs to
the customers. The price of bearing steel, the major raw material used by the
Company, remained fairly stable during 1995 and 1996. The major impact of
inflation was on labor costs due to increases in employees wages. However, the
Company has generally managed to offset the effects of inflation through
improved operational efficiency.
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, and
fluctuations in the relative value of currencies. Changes in the relative value
of currencies occur periodically and may, in certain instances, materially
affect the Company's results of operations.
21
<PAGE>
The Company conducts most of its business in China and, accordingly, the
sale of its products is settled primarily in RMB. As a result, devaluation of
the RMB against the USD, could have a material adverse effect upon the results
of operations and financial position of the Company. Although prior to 1994 the
RMB experienced significant devaluation against the USD, the RMB has remained
fairly stable from 1994 to present. The unified exchange rate was US$ 1.00 to
RMB 8.65 at December 31, 1993, RMB 8.45 at December 31, 1994, RMB 8.32 at
December 31, 1995, and RMB 8.3 at September 30, 1996,
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
11 Computation of Earnings per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
Three months ended September 30, 1996: None
22
<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.
Sunbase Asia, Inc.
------------------
(Registrant)
Date: November 18, 1996 By:/s/ William McKay
------------------------------------
William McKay
Chief Executive Officer and President
(Duly Authorized Officer)
Date: November 18, 1996 By:/s/ (Roger) Li Yuen Fai
------------------------------------
(Roger) Li Yuen Fai
Vice President and Chief Financial Officer
(Chief Financial Officer)
23
<PAGE>
EXHIBIT 11
----------
SUNBASE ASIA, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------------ ------------------------------------
1995 1996 1996 1995 1996 1996
RMB RMB US$ RMB RMB US$
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY
- -------
Net income, as reported 58,957 53,916 6,496 18,846 21,034 2,534
========== ========== ========== =========== ========== ==========
Weighted average number of shares
of common stock outstanding:
Shares of common stock
outstanding on January 1, 1996 11,700,063 11,700,063 11,700,063 11,700,063 11,700,063 11,700,063
Shares issued as a result
of rounding from reverse
stock split - 46 46 - 46 46
1,000,000 shares of common
stock issued on June 10, 1996 - 410,256 410,256 - 1,000,000 1,000,000
---------- ---------- ---------- ----------- ---------- ----------
Total weighted average number of
shares of common stock
outstanding 11,700,063 12,110,365 12,110,365 11,700,063 12,700,109 12,700,109
Shares of common stock
issuable assuming conversion of
the Convertible Preferred Stock
- - Series A 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000
- - Series B - 680,000 680,000 - 680,000 680,000
Shares of common stock
issuable assuming exercise of
stock options, reduced by the
number of shares which could have
been purchased with the proceeds
from the exercise of such stock
options - 171,279 171,279 - 127,303 127,303
---------- ---------- ---------- ----------- ---------- ----------
Total weighted average number of
shares of common stock and
common stock equivalents
outstanding 15,300,063 16,561,644 16,561,644 15,300,063 17,107,412 17,107,412
========== ========== ========== =========== ========== ==========
Earnings per common share -
Primary 3.85 3.26 0.39 1.23 1.23 0.15
========== ========== ========== =========== ========== ==========
</TABLE>
24
<PAGE>
SUNBASE ASIA, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------------ ------------------------------------
1995 1996 1996 1995 1996 1996
RMB RMB US$ RMB RMB US$
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FULLY DILUTED
- -------------
Net income, as reported 58,957 53,916 6,496 18,846 21,034 2,534
Add after tax interest
expense applicable to Convertible
Debentures - 1,224 147 - 1,224 147
---------- ---------- ---------- ----------- ---------- ----------
Net income, as adjusted 58,957 55,140 6,643 18,846 22,258 2,681
========== ========== ========== =========== ========== ==========
Weighted average number of shares
of common stock outstanding:
Shares of common stock
outstanding on January 1, 1996 11,700,063 11,700,063 11,700,063 11,700,063 11,700,063 11,700,063
Shares issued as a result of
rounding from reverse stock
split - 46 46 - 46 46
1,000,000 shares of common
stock issued on June 10, 1996 - 410,256 410,256 - 1,000,000 1,000,000
---------- ---------- ---------- ----------- ---------- ----------
Total weighted average number of
shares of common stock
outstanding 11,700,063 12,110,365 12,110,365 11,700,063 12,700,109 12,700,109
Shares of common stock
issuable assuming conversion of
the Convertible Preferred Stock
- - Series A 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000
- - Series B - 680,000 680,000 - 680,000 680,000
Shares of common stock issuable
assuming conversion of the
Convertible Debentures on
August 23, 1996 - 328,571 328,571 - 975,000 975,000
Shares of common stock
issuable assuming exercise of
stock options, reduced by the
number of shares which could have
been purchased with the proceeds
from the exercise of such stock
options - 244,484 244,484 - 244,484 244,484
---------- ---------- ---------- ----------- ---------- ----------
Total weighted average number of
shares of common stock and
common stock equivalents
outstanding 15,300,063 16,963,420 16,963,420 15,300,063 18,199,593 18,199,593
========== ========== ========== =========== ========== ==========
Earnings per common share -
Fully Diluted 3.85 3.25 0.39 1.23 1.22 0.15
========== ========== ========== =========== ========== ==========
</TABLE>
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 12,560
<SECURITIES> 0
<RECEIVABLES> 63,084
<ALLOWANCES> 0
<INVENTORY> 48,598
<CURRENT-ASSETS> 147,571
<PP&E> 68,974
<DEPRECIATION> 0
<TOTAL-ASSETS> 220,014
<CURRENT-LIABILITIES> 88,695
<BONDS> 30,067
0
8,773
<COMMON> 13
<OTHER-SE> 41,801
<TOTAL-LIABILITY-AND-EQUITY> 220,014
<SALES> 87,345
<TOTAL-REVENUES> 87,345
<CGS> 53,584
<TOTAL-COSTS> 53,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,548
<INCOME-PRETAX> 17,161
<INCOME-TAX> 2,842
<INCOME-CONTINUING> 6,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,496
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
