-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMy5HGbJKQw7OUWdtHTf1/JtN7dTBE5Qb42gw5zK5KIu8E2SlV/HvvPLO5p5fqgd w3AS2sCiW/5E33f7sOPwrw== 0000892569-99-000933.txt : 19990406 0000892569-99-000933.hdr.sgml : 19990406 ACCESSION NUMBER: 0000892569-99-000933 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMA INDUSTRIES CENTRAL INDEX KEY: 0000062262 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 951240978 STATE OF INCORPORATION: CA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07755 FILM NUMBER: 99587261 BUSINESS ADDRESS: STREET 1: 21250 HAWTHORNE BLVD., SUITE 500 CITY: TORRANCE STATE: CA ZIP: 90503 BUSINESS PHONE: 3107927024 MAIL ADDRESS: STREET 1: 1101 CALIFORNIA AVE STE 200 CITY: CORONA STATE: CA ZIP: 91719 FORMER COMPANY: FORMER CONFORMED NAME: SUMMA INDUSTRIES INC DATE OF NAME CHANGE: 19951212 FORMER COMPANY: FORMER CONFORMED NAME: MOREHOUSE INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MAXAD INC DATE OF NAME CHANGE: 19740304 10-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 2/28/1999 1 U.S. 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 FEBRUARY 28, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from N/A to N/A Commission File No. 1-7755 SUMMA INDUSTRIES (Name of registrant as specified in its charter) DELAWARE 95-1240978 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 21250 HAWTHORNE BOULEVARD, SUITE 500, TORRANCE, CALIFORNIA 90503 (Address of principal executive offices, including zip code) Registrant's Telephone Number: (310) 792-7024 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ The number of shares of common stock outstanding as of February 28, 1999 was 4,265,683. 2 SUMMA INDUSTRIES INDEX
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets - August 31, 1998 and February 28, 1999 (unaudited) .................................3 Condensed Consolidated Statements of Income (unaudited) - three months and six months ended February 28, 1998 and 1999.......................4 Consolidated Statements of Cash Flows (unaudited) - six months ended February 28, 1998 and 1999........................................5 Notes to Condensed Consolidated Financial Statements (unaudited).................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................8 PART II - OTHER INFORMATION................................................................12 Item 1. Legal Proceedings.................................................................12 Item 4. Submission of Matters to a Vote of Security Holders...............................12 Item 5. Other Information.................................................................13 Item 6. Exhibits and Reports on Form 8-K..................................................17 Signature Page.............................................................................17
2 3 SUMMA INDUSTRIES CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------------- August 31, 1998 February 28, 1999 ASSETS (unaudited) ------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 293,000 $ 324,000 Accounts receivable 12,975,000 13,745,000 Inventories 9,392,000 9,964,000 Prepaid expenses and other 1,439,000 1,376,000 ------------------------------------------------------------------------------------------------------- Total current assets 24,099,000 25,409,000 ------------------------------------------------------------------------------------------------------- Property, plant and equipment 27,796,000 28,959,000 Less accumulated depreciation 7,132,000 8,923,000 ------------------------------------------------------------------------------------------------------- Net property, plant and equipment 20,664,000 20,036,000 ------------------------------------------------------------------------------------------------------- Other assets 1,006,000 1,016,000 Goodwill and other intangibles, net 18,214,000 17,942,000 ------------------------------------------------------------------------------------------------------- Total assets $63,983,000 $64,403,000 ======================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 5,299,000 $ 5,083,000 Accrued liabilities 5,279,000 4,765,000 Current maturities of long-term debt 2,667,000 3,030,000 ------------------------------------------------------------------------------------------------------- Total current liabilities 13,245,000 12,878,000 ------------------------------------------------------------------------------------------------------- Long-term debt, net of current maturities 18,675,000 16,755,000 Other long-term liabilities 3,945,000 3,857,000 ------------------------------------------------------------------------------------------------------- Total liabilities 35,865,000 33,490,000 ------------------------------------------------------------------------------------------------------- Stockholders' equity: Common stock, par value $.001; 10,000,000 shares authorized; issued and outstanding: 4,257,307 at August 31, 1998 and 4,265,683 at February 28, 1999 18,505,000 18,541,000 Retained earnings 9,613,000 12,372,000 ------------------------------------------------------------------------------------------------------- Total stockholders' equity 28,118,000 30,913,000 ------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $63,983,000 $64,403,000 =======================================================================================================
See accompanying notes to consolidated financial statements. 3 4 SUMMA INDUSTRIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three months ended February 28 Six months ended February 28 - ------------------------------------------------------------------------------------------------------- 1998 1999 1998 1999 - ------------------------------------------------------------------------------------------------------- Net sales $20,410,000 $22,987,000 $36,844,000 $46,258,000 Cost of sales 14,445,000 15,727,000 25,794,000 31,732,000 - ------------------------------------------------------------------------------------------------------- Gross profit 5,965,000 7,260,000 11,050,000 14,526,000 Selling, general, administrative and other expenses 4,033,000 4,692,000 7,432,000 9,264,000 - ------------------------------------------------------------------------------------------------------- Operating income from continuing operations 1,932,000 2,568,000 3,618,000 5,262,000 Interest expense 452,000 368,000 653,000 748,000 - ------------------------------------------------------------------------------------------------------- Income from continuing operations before provision for taxes 1,480,000 2,200,000 2,965,000 4,514,000 Provision for income taxes 600,000 847,000 1,219,000 1,755,000 - ------------------------------------------------------------------------------------------------------- Income from continuing operations 880,000 1,353,000 1,746,000 2,759,000 Income from discontinued operations, net of the effect of income tax 79,000 -- 233,000 -- - ------------------------------------------------------------------------------------------------------- Net income $ 959,000 $ 1,353,000 $ 1,979,000 $ 2,759,000 ======================================================================================================= Earnings per common share - ------------------------------------------------------------------------------------------------------- Basic Continuing operations $.21 $.32 $.42 $.65 Discontinued operations $.02 $ -- $.06 $ -- Net income $.23 $.32 $.48 $.65 ======================================================================================================= Diluted Continuing operations $.20 $.30 $.40 $.62 Discontinued operations $.02 $ -- $.05 $ -- Net income $.22 $.30 $.45 $.62 ======================================================================================================= Weighted average common shares outstanding Basic 4,192,000 4,264,000 4,149,000 4,259,000 Diluted 4,446,000 4,445,000 4,357,000 4,439,000 ------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 4 5 SUMMA INDUSTRIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended February 28 - ------------------------------------------------------------------------------------------------------- 1998 1999 - ------------------------------------------------------------------------------------------------------- Operating activities: Net income $ 1,979,000 $ 2,759,000 - ------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,528,000 1,840,000 Amortization 211,000 272,000 Loss (gain) on disposition of property, plant and equipment 122,000 (12,000) Net change in assets and liabilities, net of effects from purchase of Calnetics in fiscal 1998: Accounts receivable (868,000) (770,000) Inventories (236,000) (572,000) Prepaid expenses and other assets 88,000 53,000 Accounts payable 669,000 (216,000) Accrued liabilities (732,000) (602,000) - ------------------------------------------------------------------------------------------------------- Total adjustments 782,000 (7,000) - ------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 2,761,000 2,752,000 - ------------------------------------------------------------------------------------------------------- Investing activities: Acquisition of business (Note 5) (20,326,000) -- Purchases of property and equipment (1,461,000) (1,200,000) Net decrease in unexpended revenue bond proceeds 371,000 -- - ------------------------------------------------------------------------------------------------------- Net cash (used in) investing activities (21,416,000) (1,200,000) - ------------------------------------------------------------------------------------------------------- Financing activities: Net proceeds from line of credit 5,985,000 1,966,000 Proceeds from issuance of long-term debt 13,500,000 727,000 Payments on long-term debt (4,194,000) (4,250,000) Proceeds from the exercise of stock options 804,000 189,000 Purchases of common stock -- (153,000) - ------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 16,095,000 (1,521,000) - ------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (2,560,000) 31,000 Cash and cash equivalents, beginning of period 2,883,000 293,000 - ------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 323,000 $ 324,000 =======================================================================================================
See accompanying notes to consolidated financial statements. 5 6 SUMMA INDUSTRIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Summa Industries (the "Company"), some of which are unaudited, have been condensed in certain respects and should, therefor, be read in conjunction with the audited financial statements and notes related thereto contained in the Company's Annual Report on Form 10-K for the year ended August 31, 1998. In the opinion of the Company, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary for a fair presentation for the interim period, all of which were normal recurring adjustments. The results of operations for the six months ended February 28, 1999 are not necessarily indicative of the results to be expected for the full year ending August 31, 1999. 2. INVENTORIES Inventories were as follows:
August 31, 1998 February 28, 1999 (unaudited) ------------------------------------------------------------------ Finished goods $3,611,000 $3,696,000 Work in process 111,000 160,000 Materials and parts 5,670,000 6,108,000 ------------------------------------------------------------------ $9,392,000 $9,964,000 ==================================================================
3. DILUTED EARNINGS PER SHARE Diluted earnings per share were calculated using the "treasury stock" method as if dilutive stock options had been exercised and the funds were used to purchase common shares at the average market price during the period.
Three months ended Six months ended February 28 February 28 ------------------------------------------------------------------------------------------------- 1998 1999 1998 1999 ------------------------------------------------------------------------------------------------- Weighted average shares outstanding - basic 4,192,000 4,264,000 4,149,000 4,259,000 Effect of dilutive securities Impact of common shares to be issued under stock option plans 254,000 181,000 208,000 180,000 ------------------------------------------------------------------------------------------------- Weighted average shares outstanding-diluted 4,446,000 4,445,000 4,357,000 4,439,000 =================================================================================================
6 7 4. SUPPLEMENTAL CASH FLOW INFORMATION
Six months ended February 28 ------------------------------------------------------------------------------------- 1998 1999 ------------------------------------------------------------------------------------- Cash paid during the period: Interest $ 752,000 $ 771,000 Income taxes $ 1,745,000 $2,380,000 ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Non-cash investing and financing activities: ------------------------------------------------------------------------------------- Details of acquisition Fair value of assets acquired $ 31,792,000 Liabilities assumed or incurred (8,821,000) Value of options issued (1,345,000) ------------------------------------------------------------------------------------- Cash paid 21,626,000 Less cash acquired 1,300,000 ===================================================================================== Net cash used in acquisition $ 20,326,000 =====================================================================================
The liabilities assumed or incurred ($8,821,000) in the preceeding table includes a $709,000 obligation to acquire Calnetics shares outstanding as of February 28, 1998. At February 28, 1999, the remaining obligation to acquire Calnetics shares was $223,000. 5. ACQUISITION On October 28, 1997, the Company completed the acquisition of Calnetics Corporation ("Calnetics"). The total acquisition cost was $31,792,000, consisting of cash due to former Calnetics shareholders of $22,335,000, acquisition costs of $50,000, liabilities assumed or incurred of $8,062,000 and an estimated fair value of $1,345,000 for options issued in conjunction with the transaction, primarily replacement options issued to Calnetics employees who continued with the Company. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets purchased and liabilities assumed or incurred based upon their fair value at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired amounted to $13,974,000 and has been recorded as goodwill which is being amortized on a straight-line basis over 40 years. The results of operations of Calnetics have been included in the consolidated results of operations and the consolidated statements of cash flows of the Company since October 28, 1997, the date of the acquisition. The following pro forma financial information presents the results of operations of the continuing businesses of the Company with Calnetics as though the acquisition of Calnetics had been made as of September 1, 1997. Pro forma adjustments have been made to give the effect to the amortization of goodwill, adjustments in depreciation and inventory value, a reduction in redundant operating expense, interest expense related to acquisition debt, the related tax effects and the effect upon basic and diluted earnings per share of the stock options issued in conjunction with the acquisition. 7 8 \
Three months ended February 28 Six months ended February 28 - --------------------------------------------------------------------------------------------------- 1998 1999 1998 1999 - --------------------------------------------------------------------------------------------------- Net sales $20,410,000 $22,987,000 $42,562,000 $46,258,000 Income from continuing operations $ 880,000 $ 1,353,000 $ 1,854,000 $ 2,759,000 =================================================================================================== Income from continuing operations per common share basic $.21 $.32 $.45 $.65 diluted $.20 $.30 $.43 $.62 ===================================================================================================
The pro forma results in the preceding table are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at September 1, 1997 or the results which may be achieved in the future. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements contained in this Quarterly Report on Form 10-Q, which are not purely historical, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to statements regarding Summa's expectations, hopes, beliefs, intentions or strategies regarding the future, such as those set forth in Part II, Item 1 "Legal Proceedings" below. Actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, including those detailed in this "Management's Discussion and Analysis" section (including, without limitation, the potential material adverse consequences to the Company of the Year 2000 issue) and elsewhere herein and in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998. The forward-looking statements are made as of the date hereof, and the Company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ materially from those projected in the forward-looking statements. The Company designs and manufactures injection-molded plastic optical components for OEM customers in the lighting industry; molded plastic modular conveyor belt and chain for the food processing industry; engineered plastic fittings, valves, filters and tubing for the agricultural irrigation industry; and other molded and extruded plastic components for diverse industries. Growth has been achieved by acquisition, development of new products and expansion of the Company's sales organization. There can be no assurance that the Company will be able to continue to consummate acquisitions, develop new products or expand sales to sustain rates of revenue growth and profitability in future periods comparable to those experienced in the past several years. Any future success that the Company may achieve will depend upon many factors including factors which may be beyond the control of the Company or which cannot be predicted at this time. These factors may include changes in the markets for the products offered by the Company through its operating subsidiaries, increased levels of competition including the entry of additional competitors and increased success by existing competitors, reduced margins caused by competitive pressures and other factors, increases in operating costs including costs of production, supplies, personnel, equipment, import duties and transportation, increases in governmental regulation imposed under federal, state or local laws, including regulations applicable to environmental, labor and trade matters, changing customer profiles and general economic and industry conditions that affect customer demand and sales volume, both domestically and in international markets, the introduction of new products by the Company or its competitors, the need to make material capital expenditures, the timing of the Company's advertising and promotional campaigns, and other factors. 8 9 RECENT EVENT - ------------ As previously reported by the Company in its current report on Form 8-K filed March 17, 1999 (the "Form 8-K"), on March 5, 1999 the Company, through a newly formed wholly-owned subsidiary, consummated its purchase of substantially all of the assets of Plastron Industries L.P., a Delaware limited partnership ("Plastron"). Plastron, located in Bensenville, Illinois, is a leading manufacturer of precision thermoplastic parts for wound electronic components such as transformers, relays and coils, known in the industry as coil forms or "bobbins." For the year ended December 31, 1998, Plastron reported sales of $18.2 million. The aggregate purchase price paid for Plastron consisted of (i) $20.0 million in cash, (ii) a four-year warrant exercisable to purchase up to 200,000 shares of the Company's common stock at $11.75 per share valued at $278,000, (iii) investment banking fees consisting of a $125,000 cash payment and 12,000 options to purchase the Company's stock at an average of the high and low trading price of the Company's stock for the 20 days preceding the grant valued at $33,000, and (iv) the assumption of certain liabilities, principally trade payables and accrued obligations of approximately $1.0 million. The purchase price is subject to a one time purchase price adjustment to be calculated comparing Plastron working capital at closing to $1.85 million. The transaction will be accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets purchased and liabilities assumed or incurred based upon their fair value at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired amounted to $13,803,000 and will be recorded as goodwill which will be amortized on a straight line basis over 35 years. The funds used for the cash portion of the purchase price were borrowed from the Company's primary lender pursuant to a revised credit facility. See "--Liquidity and Capital Resources--Financing Arrangements" below. Plastron's audited financial statements were previously filed in the Form 8-K. For pro forma financial information relating to this acquisition, see Part II, Item 5 "Other Information--Acquisition" below. Following consummation of the acquisition, the Company sold to certain management employees of Plastron 24,267 restricted shares of the Company's common stock at a recent market price, and granted to certain employees of Plastron non-statutory stock options to acquire 43,250 shares of the Company's common stock at the same recent market price, which will vest based on the percentage obtained by dividing the cumulative net income of Plastron after closing by $3.0 million, or fully in nine years. RESULTS OF OPERATIONS - --------------------- The following table sets forth certain income information for the Company's continuing operations as a percent of sales for the three-month and six-month periods ended February 28, 1998 and 1999, and the Company's effective income tax rate during those periods.
Three months ended February 28 Six months ended February 28 - ------------------------------------------------------------------------------------------------------------ 1998 1999 1998 1999 - ------------------------------------------------------------------------------------------------------------ Net sales....................................... 100.0% 100.0% 100.0% 100.0% Cost of sales................................... 70.8% 68.4% 70.0% 68.6% ----- ----- ----- ----- Gross profit.................................... 29.2% 31.6% 30.0% 31.4% S,G & A and other expenses...................... 19.7% 20.4% 20.2% 20.0% ----- ----- ----- ----- Operating income from continuing operations..... 9.5% 11.2% 9.8% 11.4% Interest expense, net........................... 2.2% 1.6% 1.8% 1.6% ----- ----- ----- ----- Income from continuing operations before tax.... 7.3% 9.6% 8.0% 9.8% Provision for income taxes...................... 3.0% 3.7% 3.3% 3.8% ----- ----- ----- ----- Income from continuing operations............... 4.3% 5.9% 4.7% 6.0% ===== ===== ===== ===== Effective tax rate.............................. 40.5% 38.5% 41.1% 38.9%
9 10 Sales for the second quarter, ended February 28, 1999, increased $2,577,000, or 13%, compared to the same period in the prior year due to acquisitions and growth in the same business sales of 6%. Sales for the six months ended February 28, 1999 increased $9,414,000, or 26%, primarily due to acquisitions and due to growth in the same business sales of 3%. Gross profit for the second quarter increased $1,295,000, or 22%, primarily due to growth and the effects of acquisitions. The gross profit percentage increased from 29.2% to 31.6% as a result of the benefit of increased volumes, the effect of blending recently acquired operations at typically higher margins and cost reduction initiatives. Gross margins for the six months ended February 28, 1999 increased $3,476,000, or 31%, from the comparable prior year period primarily due to the effects of acquisitions. The gross profit percentage increased from 30.0% to 31.4% as a result of the one-time acquisition accounting effects in the prior year first quarter, the benefit of increased volumes, cost reduction initiatives and the benefit of blending recently acquired operations at typically higher margins. Operating expenses for the second quarter increased $659,000, or 16%, from the comparable prior year quarter primarily due to the inclusion of the operating expenses of the recently required operations. As a percentage of sales, operating expenses increased from 19.8% to 20.4%, primarily because recently acquired operations typically operated with higher percentage operating expenses. Operating margin increased from 9.5% to 11.2% as a result of the changes in gross margin and operating expenses discussed above. Operating expenses for the six months ended February 28, 1999 increased $1,832,000, or 25%, from the comparable prior year period primarily due to the inclusion of the operating expenses of recently acquired operations, but as a percentage of sales, decreased from 20.2% to 20.0%. Operating margin for the six month period increased from 9.8% to 11.4% as a result of the changes in gross margin and operating expenses discussed above. Net interest expense for the quarter ended February 28, 1999 decreased $84,000 from the prior year second quarter due to decreased debt levels, a decrease in the Company's weighted average interest rate and interest income on the note received as partial consideration for the sale of GST Industries in June 1998. For the six month period ended February 28, 1999, interest expense increased $95,000 from the comparable prior year period due primarily to increased debt levels related to acquisitions. The decrease in the effective tax rate in the current three month and six month periods is primarily due to a lower effective combined state income tax rate. The Company's backlog of unfilled orders, believed to be firm, decreased slightly from $7,198,000 at August 31, 1998 to $7,055,000 at February 28, 1999. Because the length of time between entering an order and shipping the product is typically shorter than one month, backlog levels are not a reliable indicator of future sales volume. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working Capital. The Company's working capital at February 28, 1999 was $12,531,000 compared to $10,854,000 at August 31, 1998. The change was primarily attributable to seasonal inventory growth and increased receivables related to seasonal and other sales increases in the latter half of the second quarter. Financing Arrangements. The Company has several debt relationships in place as described below. Substantially all of the Company's assets are pledged to secure debt. The term debt and revolving line of credit require compliance with various bank covenants. 10 11 Summary of the Company's debt at February 28, 1999:
Weighted Average Additional Description of Debt Balance Interest Rate Availability ---------------------------------------------------------------------------------- Bank term loan........................ $ 9,157,000 7.1% $ -- Bank line of credit................... 4,700,000 6.7% 9,338,000 Bank acquisition line................. -- --% 5,000,000 Industrial revenue bonds and other.... 5,928,000 6.3% 780,000 ----------- --- ----------- Total debt............................ $19,785,000 6.7% $15,118,000 =========== === ===========
In connection with the Company's acquisition of Plastron on March 5, 1999, (see "Recent Event" preceding), the Company entered into revised credit facilities consisting of a new $12,000,000 term loan, an existing term loan with a balance of $9,157,000 as of February 28, 1999 and a revolving line of credit of up to $17,000,000 depending upon the amount of eligible collateral. The revolving line of credit expires in December 2001 and the term loans mature in 2004. Summary of Company's debt at March 5, 1999:
Estimated Balance at Third Quarter Additional Description of Debt March 5, 1999 Interest Rate Availability ---------------------------------------------------------------------------------- Bank term loans..................... $21,030,000 7.9% $ -- Bank line of credit................. 12,200,000 7.5% 1,800,000 Industrial revenue bonds and other.. 5,928,000 6.3% 780,000 ----------- ---- ---------- Total debt.......................... $39,158,000 7.5% $2,580,000 =========== ==== ==========
In connection with the revised credit facilities, the margin over the base rate charged to the Company by its primary lender was increased by approximately 0.75%. Interest rates are subject to reduction as the Company reduces its debt and achieves certain financial milestones. The Company announced a stock buy-back program September 28, 1998 which authorized the Company to purchase its common stock in an aggregate amount of up to $2,000,000. During the first quarter, the Company repurchased and retired 18,000 shares of its common stock in block trades, at an average price of $8.48 per share. There were no repurchases during the second quarter. Summa believes that cash flows from operations and existing credit facilities will be sufficient to fund working capital requirements, planned capital expenditures and debt service for the next twelve months. The Company has a strategy of growth by acquisition. In the event an acquisition plan is adopted which requires funds exceeding the availability described above, an alternate source of funds to accomplish the acquisition would have to be developed. The Company has 10,000,000 shares of common stock authorized, of which 4,265,683 shares were outstanding at February 28, 1999 and 5,000,000 shares of "blank check" preferred stock authorized of which none is outstanding. The Company could issue additional shares of common or preferred stock to raise funds. 11 12 YEAR 2000 COMPLIANCE - -------------------- The Company is continuing to analyze operations to determine and implement the procedures necessary to ensure timely Year 2000 compliance. The Company is also in the process of identifying and contacting key customers, vendors and suppliers to request confirmation of timely external Year 2000 compliance. Each of the Company's facilities utilizes and is dependent upon data processing systems and software to conduct business. The Company has received confirmation from vendors of most of the business software used by the Company that such software is designed to be Year 2000 compliant. Further, for reasons generally unrelated to the Year 2000 issue, the Company is in the process of purchasing and installing new systems for certain operations at a cost of several hundred thousand dollars. The Company currently anticipates that all internally used software will be Year 2000 compliant in a timely manner. Additionally, various machines and other types of personal property at each facility have computer controls and/or contain integrated circuits that may be affected, and the Company is in the process of identifying and analyzing such property to determine Year 2000 compliance. Although, the Company currently believes that it will be internally Year 2000 compliant in all material respects prior to January 1, 2000 and that the effort to achieve Year 2000 compliance has not and will not have a significant impact on the financial condition or results of future operations of the Company, the Company remains concerned that the failure to comply by a relatively small number of large customers and/or vendors, including banking institutions, utilities, telecommunications and transportation companies, could significantly disrupt operations at one or more of the Company's facilities. The Company does not have a formalized Company-wide contingency plan covering worst case scenarios in the event of Year 2000 non-compliance, but any such plan, if and when formalized, would likely include technical contacts, access to backup systems and alternative vendor sources, among other things. See the introductory paragraph above in this "Management's Discussion and Analysis" section for forward looking statements disclaimer. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - -------------------------- The Company encounters lawsuits from time to time in the ordinary course of business and, at February 28, 1999, the Company or its affiliates were parties to several civil lawsuits. Any losses that the Company may suffer from current or future lawsuits, and the effect such litigation may have upon the reputation and marketability of the Company's products, could have a material adverse impact on the results of future operations, the financial condition and prospects of the Company. ITEM 2. CHANGES IN SECURITIES - ------------------------------ None. ITEM 3. DEFAULT UPON SENIOR SECURITIES - --------------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ At the Company's Annual Meeting of Stockholders held on December 10, 1998, the stockholders approved a proposal to adopt the Company's 1999 Stock Option Plan under which options to purchase up to 500,000 shares of the Company's Common Stock may be granted over a period of up to ten years. 12 13 In addition, incumbent directors Coalson C. Morris, James R. Swartwout and Byron C. Roth were reelected to the Board of Directors of the Company to serve as one Class of the Board of Directors for a three year term and until their successors are elected and qualified. ITEM 5. OTHER INFORMATION - --------------------------- ACQUISITION SUMMA AND PLASTRON PRO FORMA FINANCIAL INFORMATION SUMMA INDUSTRIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited pro forma condensed consolidated financial statements reflect the acquisition by a wholly-owned subsidiary of the Company of the assets and operations of Plastron Industries L.P. The transaction will be accounted as a purchase by the Company of the net assets of Plastron Industries L.P. The unaudited pro forma condensed consolidated balance sheet is based upon the Company's unaudited consolidated balance sheet at February 28, 1999 and Plastron Industries L.P's historical audited balance sheet as of December 31, 1998, and is presented as if the transaction had been consummated on February 28, 1999. The unaudited pro forma condensed consolidated statement of income for the year ended August 31, 1998 gives effect to the purchase of the net assets and operations of Plastron Industries L.P. as if the transaction had occurred at September 1, 1997, the beginning of the Company's fiscal year ended August 31, 1998. The unaudited pro forma condensed consolidated statement of income combines the audited income statement of the Company for the year ended August 31, 1998 and the audited income statement of Plastron Industries L.P. for the year ended December 31, 1998, adjusted to conform to the Company's fiscal year end. The unaudited pro forma condensed consolidated statement of income for the six month period ended February 28, 1999 gives effect to the purchase of the net assets and operations of Plastron Industries L.P. as if the transaction had occurred at September 1, 1998, the beginning of the six month period. The unaudited pro forma condensed consolidated statement of income combines the unaudited income statement of the Company for the six months ended February 28, 1999 and the unaudited income statement of Plastron Industries L.P., adjusted to conform to the six month period ended February 28, 1999. The pro forma adjustments are based upon available information and upon certain assumptions which the management of the Company believes are reasonable. However, the unaudited pro forma condensed consolidated financial statements do not purport to be indicative of the results which would have been achieved if the transaction had been completed on the respective dates above or of results which may be achieved in the future. 13 14 SUMMA INDUSTRIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) February 28, 1999
Pro forma Summa Plastron Adjustments Combined ----------- ----------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 324,000 $ 270,000 $ (270,000)(1) $ 324,000 Accounts receivable 13,745,000 1,887,000 (15,000)(2) 15,617,000 Inventories 9,964,000 947,000 146,000 (3) 11,057,000 Prepaid expenses and other 1,376,000 26,000 37,000 (4) 1,439,000 ----------- ----------- ----------- ----------- Total current assets 25,409,000 3,130,000 (102,000) 28,437,000 ----------- ----------- ----------- ----------- Property, plant and equipment 28,959,000 7,249,000 (2,350,000)(5) 33,858,000 Less accumulated depreciation 8,923,000 (414,000) 414,000 (6) 8,923,000 Net property, plant and equipment 20,036,000 6,835,000 (1,936,000) 24,935,000 ----------- ----------- ----------- ----------- Other assets 1,016,000 1,025,000 (1,025,000)(7) 1,016,000 Goodwill and other intangibles 17,942,000 -- 13,803,000 (8) 31,745,000 ----------- ----------- ----------- ----------- Total assets $64,403,000 $10,990,000 $10,740,000 $86,133,000 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,083,000 $ 905,000 $ 410,000 (9) $ 5,988,000 Accrued liabilities 4,765,000 517,000 (412,000)(10) 5,280,000 Current maturities of 3,030,000 550,000 (550,000)(11) 6,030,000 long-term debt 3,000,000 (12) Due to seller -- 446,000 (446,000)(10) -- ----------- ----------- ----------- ----------- Total current liabilities 12,878,000 2,418,000 2,002,000 17,298,000 Long-term debt, net of current 16,755,000 4,400,000 (4,400,000)(11) 33,755,000 maturities 3,857,000 250,000 17,000,000 (12) 3,857,000 Other long term liabilities (250,000)(10) ----------- ----------- ----------- ----------- Total liabilities 33,490,000 7,068,000 14,352,000 54,910,000 ----------- ----------- ----------- ----------- Stockholders' equity Common stock 18,541,000 -- 310,000 (13) 18,851,000 Retained earnings 12,372,000 -- -- 12,372,000 Partners' equity -- 3,922,000 (3,922,000)(14) -- ----------- ----------- ----------- ----------- Total stockholders' equity 30,913,000 3,922,000 (3,612,000) 31,223,000 ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity $64,403,000 $10,990,000 $10,740,000 $86,133,000 =========== =========== =========== ===========
14 15 SUMMA INDUSTRIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) For the Year Ended August 31, 1998
Historical Historical Pro forma Pro forma Summa Plastron Adjustments Combined ----------- ----------- ----------- ------------ Net sales $85,704,000 $18,131,000 $ -- $103,835,000 ----------- ----------- ---------- ------------ Cost and expenses: Cost of sales 59,197,000 13,865,000 267,000 (15) 73,329,000 Selling and administrative and other operating expense 17,127,000 2,190,000 394,000 (16) 18,777,000 (934,000)(17) Interest expense 1,607,000 552,000 851,000 (18) 3,010,000 ----------- ----------- ---------- ------------ Total cost and expenses 77,931,000 16,607,000 578,000 95,116,000 ----------- ----------- ---------- ------------ Income from continuing operations before provision for taxes 7,773,000 1,524,000 (578,000) 8,719,000 Provision for income taxes 3,215,000 2,000 367,000 (19) 3,584,000 ----------- ----------- ---------- ------------ Income from continuing operations $ 4,558,000 $ 1,522,000 $ (945,000) $ 5,135,000 =========== =========== ========== ============ Income per common and equivalent share from continuing operations $1.03 $1.16 =========== ============ Weighted average shares outstanding - diluted 4,420,000 4,420,000 =========== ============
The pro forma condensed consolidated financial statements are adjusted as follows: (1) To eliminate cash retained by seller. (2) Adjustment to allowance for doubtful accounts receivable. (3) Fair market value adjustment of work in process and finished goods inventories to eliminate manufacturing profit and selling costs. (4) To record deferred taxes. (5) Adjustment of property, plant and equipment to estimated fair value. (6) To reset accumulated depreciation of acquired assets to zero. (7) To delete other assets not acquired. (8) To record goodwill for the excess of purchase price over the fair value of net assets acquired. (9) To accrue transaction fees and other costs. (10) To delete liabilities not acquired and to reflect adjustment to agreed working capital level. (11) To delete debt not acquired. (12) To reflect debt incurred in acquisition of Plastron. (13) To record value assigned to warrants and stock options issued. (14) To delete former owner equity. (15) To charge cost of sales with write-up of inventory to fair value and increase in depreciation expense due to change to fair value and remaining lines. (16) To reflect amortization of goodwill created in purchase accounting, assuming useful life of 35 years. (17) To delete non-recurring and former owner expenses. (18) To reflect increase in interest expense on net debt incurred. (19) To reflect tax at statutory rates on Plastron pre-tax income and tax effect on adjustments. 15 16 SUMMA INDUSTRIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) For the Six Months Ended February 28, 1999
Historical Historical Pro forma Pro forma Summa Plastron Adjustments Combined ---------- ---------- ----------- ----------- Net sales $46,258,000 $8,574,000 $ -- $54,832,000 ----------- ---------- ----------- ----------- Cost and expenses: Cost of sales 31,732,000 6,305,000 227,000 (15) 38,264,000 Selling and administrative and other operating expense 9,264,000 1,151,000 197,000 (16) 10,041,000 (571,000)(17) Interest expense 748,000 205,000 435,000 (18) 1,388,000 ----------- ---------- ---------- ----------- Total cost and expenses 41,744,000 7,661,000 288,000 49,693,000 ----------- ---------- ---------- ----------- Income from continuing operations before provision for taxes 4,514,000 913,000 (288,000) 5,139,000 Provision for income taxes 1,755,000 8,000 236,000 (19) 1,999,000 ----------- ---------- ---------- ----------- Income from continuing operations $ 2,759,000 $ 905,000 $ (524,000) $ 3,140,000 =========== ========== ========== =========== Income per common and equivalent share from continuing operations $.62 $.71 =========== =========== Weighted average shares outstanding - diluted 4,439,000 4,439,000 =========== ===========
The pro forma condensed consolidated statement of income or the six month period ended February 28, 1999 is adjusted as follows: (15) To charge cost of sales will write-up of inventory of fair value and increase in depreciation expense due to change to fair value and remaining lives. (16) To reflect amortization of goodwill created in purchase accounting, assuming useful life of 35 years. (17) To delete non-recurring and former owner expenses. (18) To reflect increase in interest expense on net debt incurred. (19) To reflect tax at statutory rates on Plastron pre-tax income and tax effect on adjustments. 16 17 ENVIRONMENTAL - ------------- Prior to October 1986, a previously owned business unit of one of the Company's subsidiaries operated a facility on property within an area subsequently designated as a federal Superfund site. The Company learned that hazardous substances have been detected in the subsurface of the property and that the current owner has been requested by a state agency to undertake additional investigation at the property. The Company is also aware that the property has been subject to a general notice letter issued by the United States Environmental Protection Agency under the federal Superfund law. The Company, as the successor to one of several prior tenants of the property, may be held responsible for the contamination at the site regardless of whether its subsidiary caused the contamination. The Company does not believe it is responsible for any contamination at the property, and has not been notified or contacted by any governmental authority in that regard, nor named in any proceeding relating to the property. However, if the Company were held liable under federal Superfund law, or other environmental law, or had to defend itself against such a claim, the consequences could be material to the Company's financial statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (A) EXHIBITS. 27.1 Financial Data Schedule (B) CURRENT REPORTS ON FORM 8-K. Subsequent to the end of the fiscal quarter, the Company filed a current report on Form 8-K on March 17, 1999. 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 on April 2, 1999. SUMMA INDUSTRIES /s/ James R. Swartwout /s/ Trygve M. Thoresen - ------------------------------------- ----------------------------- James R. Swartwout Trygve M. Thoresen President and Chief Financial Officer Vice President and Secretary 17 18 EXHIBIT INDEX Exhibit Number Description ------- ----------- 27.1 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS 6-MOS AUG-31-1999 AUG-31-1999 DEC-01-1998 SEP-01-1998 FEB-28-1999 FEB-28-1999 0 324,000 0 0 0 13,745,000 0 0 0 9,964,000 0 25,409,000 0 28,959,000 0 8,923,000 0 64,403,000 0 12,878,000 0 0 0 0 0 0 0 18,541,000 0 12,372,000 0 64,403,000 22,987,000 46,258,000 22,987,000 46,258,000 15,727,000 31,732,000 15,727,000 31,732,000 4,692,000 9,264,000 0 0 368,000 748,000 2,200,000 4,514,000 847,000 1,755,000 1,353,000 2,759,000 0 0 0 0 0 0 1,353,000 2,759,000 .32 .65 .30 .62
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