-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QR30QfhccGdhfPq+qFWN+wIWCuIYUTEvKoRyetr5+QOZQZR8hC5/xSLiTffQmlIz l0+CNMx4ENL0pCkSNu4eHw== 0000028345-95-000001.txt : 19950222 0000028345-95-000001.hdr.sgml : 19950222 ACCESSION NUMBER: 0000028345-95-000001 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19950221 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DESOTO INC CENTRAL INDEX KEY: 0000028345 STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851] IRS NUMBER: 361899490 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-01915 FILM NUMBER: 95513919 BUSINESS ADDRESS: STREET 1: 16750 SOUTH VINCENNES ROAD STREET 2: BOX 5030 CITY: SOUTH HOLLAND STATE: IL ZIP: 60473 BUSINESS PHONE: 708-331-88 MAIL ADDRESS: STREET 1: 16750 SOUTH VINCENNES ROAD CITY: SOUTH HOLLAND STATE: IL ZIP: 60473 FORMER COMPANY: FORMER CONFORMED NAME: UNITED WALLPAPER INC DATE OF NAME CHANGE: 19731202 FORMER COMPANY: FORMER CONFORMED NAME: DESOTO CHEMICAL COATINGS INC DATE OF NAME CHANGE: 19670613 10-Q/A 1 PAGE 1 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, 1994 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 1-1915 DeSoto,Inc. (Exact name of registrant as specified in its charter) Delaware 36-1899490 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 16750 South Vincennes Road, South Holland, Illinois 60473 (Address of principal executive offices) 708 - 331 - 8800 (Registrant's telephone number, including area code) 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No At October 31, 1994 the registrant had 4,656,707 shares of common stock outstanding. PAGE 2 DeSOTO, INC. AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION Consolidated Condensed Statements of Operations for the Three Months and Nine Months ended September 30, 1994 and September 30, 1993 3 Consolidated Condensed Balance Sheets as of September 30, 1994 and December 31, 1993 4 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 1994 and September 30, 1993 5 Notes to Consolidated Condensed Financial Statements 6-7 Management's Analysis of Financial Statements 8-10 PART II. OTHER INFORMATION Item 1. Legal proceedings 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 DeSOTO, INC. AND SUBSIDIARIES PAGE 3 PART I. FINANCIAL INFORMATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (in thousands except per share amounts) NET REVENUES........................... $ 21,394 $ 28,019 $ 67,320 $ 74,102 COSTS AND EXPENSES: Cost of sales....................... 20,851 26,164 65,161 68,723 Selling, administrative and general. 2,845 4,307 8,944 14,873 Retirement security program......... (1,183) (1,185) (3,566) (3,572) -------- -------- -------- -------- TOTAL OPERATING COSTS AND EXPENSES..... 22,513 29,286 70,539 80,024 -------- -------- -------- -------- EARNINGS (LOSS) FROM OPERATIONS........ (1,119) (1,267) (3,219) (5,922) OTHER CHARGES AND CREDITS: Interest expense.................... 128 158 436 502 Nonoperating expense (income)....... - (134) (1,303) (6,121) -------- -------- -------- -------- Earnings (Loss) before Income Taxes.... (1,247) (1,291) (2,352) (303) Provision (Benefit) for Income Taxes... (465) (485) (877) (120) -------- -------- -------- -------- NET EARNINGS (LOSS).................... (782) (806) (1,475) (183) Dividends on Preferred Stock........... (81) (75) (236) (225) -------- -------- -------- -------- Net Earnings (Loss) Available for Common Shares.................... $ (863) $ (881) $ (1,711) $ (408) ======== ======== ======== ======== NET EARNINGS (LOSS) PER COMMON SHARE... $ (0.19) $ (0.18) $ (0.37) $ (0.08) ======== ======== ======== ======== Average Common Shares Outstanding...... 4,657 4,821 4,656 4,862 ======== ======== ======== ======== See accompanying notes to consolidated condensed financial statements.
PAGE 4 DeSOTO, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS September 30, December 31, 1994 1993 (Unaudited) (in thousands of dollars) ASSETS Current Assets: Cash............................................... $ 43 $ 45 Restricted cash.................................... 133 183 Restricted short-term investments.................. 246 374 Trade accounts and notes receivable - Net.......... 12,831 11,442 Inventories Finished goods.................................. 4,412 4,861 Raw materials and work-in-process............... 3,813 5,585 -------- -------- 8,225 10,446 Prepaid expenses and other current assets.......... 4,819 12,153 -------- -------- Total Current Assets............................... 26,297 34,643 Restricted Investments............................... 4,927 4,963 Property, Plant and Equipment ....................... 27,671 33,897 Less Accumulated Depreciation ..................... 14,948 18,307 12,723 15,590 Prepaid Pension...................................... 35,968 32,218 Other Non-Current Assets............................. 4,071 4,543 -------- -------- $ 83,986 $ 91,957 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................................... $ 18,882 $ 19,001 Current portion of long-term debt.................. 5,000 2,700 Reserves and liabilities related to discontinued operations and restructuring programs.......................... 2,482 4,788 Other.............................................. 7,365 8,571 -------- -------- Total Current Liabilities.......................... 33,729 35,060 Long-Term Debt, less current portion................. - 5,000 Other Long-Term Liabilities.......................... 8,364 8,589 Deferred Income Taxes................................ 14,053 13,922 Long-Term Deferred Gain.............................. 2,931 3,193 Redeemable Preferred Stock........................... 3,437 3,052 Stockholders' Equity................................. 21,472 23,141 -------- -------- $ 83,986 $ 91,957 ======== ======== See accompanying notes to consolidated condensed financial statements.
PAGE 5 DeSOTO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1994 1993 (in thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss).......................................... $(1,475) $ (183) Non-cash items: Depreciation and amortization............................ 2,285 3,955 Deferred income taxes.................................... 1,013 1,076 Pension income........................................... (3,750) (3,750) Amortization of deferred gain ........................... (262) (402) Net gain on disposal of property, plant and equipment.... - (4,933) Other non-cash items..................................... 120 - ------- ------- Net non-cash items.................................... (594) (4,054) Changes in assets and liabilities resulting from operating activities: Net (increase) decrease in other current assets...... 6,630 (170) Net (increase) decrease in inventories............... 2,221 (4,257) Net (increase) decrease in other non-current assets.. 442 859 Net increase (decrease) in other liabilities......... (2,458) (2,148) Net (increase) decrease in trade accounts and notes receivable............................. (1,389) 3,800 Net increase (decrease) in accounts payable.......... (119) 1,580 Other................................................ 1 18 ------- ------- Net cash flows from operating activities..................... 3,259 (4,555) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment............... (631) (648) Proceeds form sale of property, plant and equipment...... - 5,503 Net cash received from waste site escrow................. - 917 ------- ------- Net cash flows from investing activities..................... (631) 5,772 ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options................................ 70 - Payment of long-term debt................................ (2,700) - Additions to long-term debt.............................. - 1,500 Payment of mortgage loan................................. - (2,122) ------- ------- Net cash flows from financing activities..................... (2,630) (622) ------- ------- Net increase (decrease) in cash and cash equivalents......... (2) 595 Cash and cash equivalents at beginning of year............... 45 247 ------- ------- Cash and cash equivalents at end of period................... $ 43 $ 842 ======= ======= See accompanying notes to consolidated condensed financial statements.
PAGE 6 DeSOTO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods indicated. The results of operations for the three months and nine months ended September 30, 1994 are not necessarily indicative of the results to be expected for the full year. A. ACCOUNTING POLICIES The reader is directed to the Company's 1993 Annual Report on Form 10-K previously filed with the Securities and Exchange Commission for details of the accounting policies followed by the Company. B. INCOME TAXES The provision (benefit) for income taxes is computed at the current estimated effective income tax rate for the year. C. INVENTORY VALUATION Inventory at September 30, 1994 is valued at the last-in, first-out (LIFO) method of inventory accounting. If the first-in, first-out (FIFO) method of inventory accounting had been used for all of the Company's inventories, inventories would have been $1,880,000 and $1,742,000 higher than reported at September 30, 1994 and December 31, 1993, respectively. D. LONG-TERM DEBT On March 29, 1994, The Company amended its credit facility. The termination date of the facility is now January 1, 1995. Effective with the March 1994 amendment, the Company was required to pay $2,700,000 of the outstanding debt upon the receipt of its income tax refund for fiscal 1993 or July 15, 1994, whichever was earlier. The income tax refund was received on July 8, 1994 and the required payment of $2,700,00 was made on July 11, 1994. The interest rate on the revolver was amended to be Harris Prime Rate plus 2%. The Company is required to meet certain balance sheet and operating result ratios. At September 30, 1994, the Company was not in compliance with the required current ratio. The Company was also not in compliance with the required minimum operating income. The Company has requested a waiver of noncompliance from the bank. On September 26, 1994 the CIT Group (CIT) and DeSoto signed a commitment letter which, subject to certain preconditions which have not yet been completed, provided for both parties to enter into a $14 million, three year revolving credit facility. PAGE 7 E. NONOPERATING INCOME Nonoperating income during the first two quarters of 1994 resulted from settlements related to insurance and legal issues, as well as the settlement of an arbitration related to a portion of the business sold by the Company in 1990 and to royalty income related to technology sold by the Company in 1990. Nonoperating income in the first two quarters of 1993 resulted primarily from the sale of a portion of the real estate at the Company's former headquarters in Des Plaines, Illinois as well as the settlement of an arbitration related to pension obligations of a business sold by the Company in 1987 and a favorable insurance settlement. There was no nonoperating income in the third quarter of 1994 and the nonoperating income in the third quarter of 1993 was immaterial. PAGE 8 MANAGEMENT'S ANALYSIS OF FINANCIAL STATEMENTS Results of Operations for the Three Months Ended September 30, 1994 Net revenues for the three month period ended September 30, 1994 declined $6.6 million dollars or 23.6% versus the three month period ended September 30, 1993. This decline can be primarily attributed to the decline in sales to certain customers. The largest decline related to lower sales to Lever Brothers. This decline of approximately $2.7 million versus the 1993 third quarter can be attributed to Lever's transfer of autodish gel business to one of Lever's own facilities and transfer of certain other products to another Company. Sales of these products represented $312,000 of DeSoto's third quarter 1994 sales and $3.5 million of the Company's 1994 year to date sales. Net revenues for the third quarter of 1993 included $1.0 million in sales related to the Jean Sorelle business which was sold in December of 1993. Sales to Sears increased approximately 17% versus the same period in 1993. The 1994 third quarter included the favorable impact from promotional activity at Sears during the quarter. This increase was offset by lower sales to other customers, resulting from the continued pricing pressures in the marketplace and the negative impact on the private label industry of continued promotional activity on the part of the national brands. In addition to the reasons discussed above, product and customer mix also contributed to the lower net revenues and gross profit for the 1994 third quarter. Selling, administrative and general expenses were lower than the same period in 1993. Certain expenses incurred during the third quarter of 1993 have been eliminated or reduced during 1994. The reduction in expenses from the 1993 third quarter consists primarily of the reduction in or elimination of the following costs: expenses related to Jean Sorelle, expenses related to the two production facilities (Columbus, Georgia and Stone Mountain, Georgia) shut down during 1994, expenses related to the Company's former headquarters, legal fees, costs associated with the New York Office and outside professional fees. The Company continues to focus on cost control and production efficiency. Results of Operations for the Nine Months Ended September 30, 1994 Net revenues for the nine months ended September 30, 1994 were down approximately $6.8 million versus the same period in 1993. This decrease relates almost entirely to the results of the three month period ended September 30, 1994. PAGE 9 The fluctuation in sales to various customers versus 1993 as well as product mix impacted the nine month sales and gross profit results for the 1994 nine month period. While sales to the Company's largest customers, Sears and K-Mart, were up for the 1994 nine month period, gross profit contribution related to both customers declined due to promotional activity and pricing pressures. The nine month period in 1994 was also negatively impacted by the loss of Lever business at Stone Mountain effective June 1994, the lower level of Lever business during the first six months of 1994 due to the phaseout period at Stone Mountain and lower volumes than 1993, the phaseout and ultimate transfer, effective September 1994 of certain other Lever business. Selling, administrative and general expenses for the nine month period were significantly lower than the comparable 1993 period due to the reasons provided in the discussion of the third quarter results. The nonoperating income during the 1994 nine month period resulted from settlements related to insurance and legal issues, as well as the settlement of an arbitration related to a portion of the business sold by the Company in 1990. Nonoperating income during the 1993 nine month period resulted primarily from the sale of a portion of the real estate at the Company's former headquarters in Des Plaines, Illinois as well as the settlement of an arbitration related to pension obligations of a business sold by the Company in 1987 and a favorable insurance settlement. As announced previously, the Company closed its Columbus, Georgia plant March 31, 1994 and its Stone Mountain, Georgia plant on June 15, 1994. Operating results for Columbus are included in the first three months of 1994 and the entire nine month period for 1993. Operating results for the Stone Mountain facility are included in the first six months of 1994 and the entire nine month period in 1993. Liquidity and Capital Resources The Accounts Receivable balance has increased over December 31, 1993 due to the impact of payment terms and customer mix represented in the sales of August and September 1994 versus the mix represented in the sales of November and December 1993. The implementation of a product rationalization program initiated during the first quarter of 1994 resulted in a lower inventory level versus December of 1993. The lower sales level in the third quarter also contributed to the lower inventory. Prepaid expenses and other current assets at September 30, 1994 declined from the December 1993 level as a result of the receipt PAGE 10 of $6.9 million in refundable income taxes during the 1994 third quarter. The proceeds from the refund were utilized to pay down bank debt as required and to pay down trade payables and other liabilities. The reduction in net property plant and equipment resulted from current year depreciation and the net write-off of assets related to the two production facilities in Georgia which were shut down during 1994. On March 29, 1994, the Company amended its credit facility. The termination date of the facility is now January 1, 1995. Effective with the March 1994 amendment, the Company was required to pay down $2.7 million upon receipt of an income tax refund. This payment was made July 11, 1994. The interest rate on the revolver was amended to be Harris Prime Rate plus 2%. The Company is required to meet certain balance sheet and operating result ratios. At September 30, 1994, the Company was not in compliance with the required current ratio. The Company was also not in compliance with the required minimum operating income. The Company has requested a waiver of noncompliance from the bank. At July 15, 1994, per the requirements of the credit facility, as amended March 29, 1994, the amount which may be outstanding in the form of loans was reduced to $5 million. At September 30, 1994 the Company had $5.0 million outstanding in the form of loans and $505,000 outstanding in the form of letters of credit. These represent the maximum amounts which may be outstanding under the amended agreement. The Company continues to believe it has adequate sources of liquidity and expects to continue to have adequate sources of liquidity to fund operations and capital expenditure requirements in 1994. These sources include current borrowing and proceeds from the sale of assets, including the potential for the sale/leaseback of the Company's South Holland facility. On September 26, 1994 the CIT Group (CIT) and DeSoto signed a commitment letter which, subject to certain preconditions which have not yet been completed, provided for both parties to enter into a $14 million, three year revolving credit facility. During the third quarter and early fourth quarter, the Company received price increases from several suppliers of packaging materials and chemicals. Supplier operating capacity and the high demand of export markets have been the major reasons for increases in packaging components particularly as relates to corrugated and resins. The Company intends to partially offset these increases by initiating price increases to several of its customers during the fourth quarter. The Company also expects operating improvements and cost reduction programs to contribute to the offset of the packaging and chemical increases. PAGE 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings During the third quarter, the Company was served with a Summons and Complaint styled Lundman Development Corporation v. DeSoto, Inc. 94-CV-1007, pending in the United States District Court for the Eastern District of Wisconsin. The Complaint alleges, inter alia, that DeSoto violated the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. with respect to property the Company once owned in Fredonia, Wisconsin. The Company has denied the allegations in the Complaint and continues to investigate if it is liable, or the extent of its liability, regarding the matter alleged in the Complaint. During the third quarter, the Company was served with an Amended Complaint styled West County Landfill v. Raychem International et al, 93-CV-3170, pending in the United States District Court for the Northern District of California. The Amended Complaint alleges, inter alia, that DeSoto violated the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. with respect to the West County Landfill in California. The Company has denied the allegations in the Amended Complaint and continues to investigate if it is liable, or the extent of its liability, regarding the matter alleged in the Amended Complaint. During the third quarter, the Company also received demand letters with respect to a number of environmental sites relating to former operations of the Company. The Company continues to investigate these demands. Item 6. Exhibits and Reports on Form 8-K a) The exhibits to this report are listed in the Index to Exhibits on page 13 hereof. b) Reports on Form 8-K. There were no reports on Form 8-K filed during the three months ended September 30, 1994. PAGE 12 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. DeSOTO, INC. (Registrant) /s/ Anne E. Eisele ---------------------------- Anne E. Eisele Senior Vice President - Finance (Principal Financial Officer) /s/ John R. Phillips ---------------------------- John R. Phillips President and Chief Executive Officer November 14, 1994 - --------------------------------- Date PAGE 13 DeSOTO, INC. AND SUBSIDIARIES INDEX TO EXHIBITS 11 - Computation of Fully Diluted Earnings Per Share 27 - Financial Data Schedule PAGE 14 Exhibit 11 DeSOTO, INC. AND SUBSIDIARIES COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (in thousands except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Net Earnings (Loss) $ (782) $ (806) $(1,475) $ (183) Preferred Dividends (81) (75) (236) (225) -------- -------- ------- -------- Net Earnings (Loss) Applicable to Common Stock $ (863) $ (881) $(1,711) $ (408) ======== ======== ======= ======== Net Earnings (Loss) Per Common Share: $ (0.19) $ (0.18) $ (0.37) $ (0.08) ======== ======== ======= ======== Average Common Shares Outstanding (A) 4,657 4,821 4,656 4,862 ======== ======== ======= ======== Net Fully Diluted Earnings (Loss) Per Common Share (B) $ (0.19) $ (0.18) $ (0.37) $ (0.08) ======== ======== ======= ======== Average Common Shares Outstanding 4,657 4,821 4,656 4,862 Additional Shares Outstanding After Application of the Treasury Stock Method - 109 1 68 -------- -------- ------- -------- Total (B) 4,657 4,930 4,657 4,930 ======== ======== ======= ======== (A) Outstanding common stock options and common stock warrants have been omitted because the effect reduces the net loss per share. (B) Reflecting the dilutive effect of outstanding common stock options and common stock warrants under the treasury stock method. EX-27 2
5 9-MOS DEC-31-1994 SEP-30-1994 176 246 12,831 0 8,225 26,297 27,671 14,948 83,986 33,729 0 5,619 3,437 0 15,853 83,986 67,320 67,320 65,161 65,161 5,378 0 436 (2,352) (877) (1,475) 0 0 0 (1,475) (0.37) (0.37)
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