-----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, TODizL13TRwjo2TDy5I0Jq7+COIhNOgBDn4FE0OpmPDrElVhFI0eNe3MBTI1l6Qy 9URMt4ZtvrtwAezgb36ceg== 0000950116-96-000961.txt : 19960913 0000950116-96-000961.hdr.sgml : 19960913 ACCESSION NUMBER: 0000950116-96-000961 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960912 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL SPRINKLER CORP CENTRAL INDEX KEY: 0000766041 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 232328106 STATE OF INCORPORATION: PA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13940 FILM NUMBER: 96629064 BUSINESS ADDRESS: STREET 1: 451 N CANNON AVE CITY: LANSDALE STATE: PA ZIP: 19446 BUSINESS PHONE: 2153620700 MAIL ADDRESS: STREET 1: 451 N CANNON AVE CITY: LANDSDALE STATE: PA ZIP: 19446 10-Q 1 FORM 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 July 31, 1996 ---------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) - ------ OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission file number 0-13940 --------------- CENTRAL SPRINKLER CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 23-2328106 - -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 451 North Cannon Avenue, Lansdale, PA 19446 --------------------------------------------- (Address of principal executive offices) (Zip Code) (215) 362-0700 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 -------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at Sept. 9, 1996 ----- ---------------------------- Common Stock, $.01 Par Value 3,793,197 1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CENTRAL SPRINKLER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) July 31, October 31, 1996 1995 (Amounts in thousands) ASSETS Current Assets: Cash and cash equivalents $ 3,152 $ 2,025 Short-term investments 11,712 10,079 Accounts receivable, less allowance for doubtful receivables of $4,474 in 1996 and $3,813 in 1995, respectively 36,435 31,686 Inventories 41,218 35,955 Deferred income taxes 5,594 5,038 Prepaid expenses and other assets 571 650 --------- --------- Total current assets 98,682 85,433 --------- --------- Property, Plant and Equipment 55,976 43,593 Less - Accumulated depreciation (18,362) (15,567) --------- --------- 37,614 28,026 --------- --------- Goodwill, less accumulated amortization of $3,200 in 1996 and $3,012 in 1995, respectively .. 2,822 3,010 --------- --------- Other Assets 1,710 891 --------- --------- $ 140,828 $ 117,360 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term borrowings $ 32,406 $ 14,062 Current portion of long-term debt 3,810 3,813 Accounts payable 14,182 12,724 Accrued expenses 7,715 6,896 Accrued income taxes 696 646 --------- --------- Total current liabilities 58,809 38,141 --------- --------- Long-Term Debt 25,882 27,516 --------- --------- Other Noncurrent Liabilities 479 577 --------- --------- Deferred Income Taxes 1,644 1,576 --------- --------- Shareholders' Equity: Common stock, $.01 par value; shares authorized - 15,000; issued - 5,474 in 1996 and 5,472 in 1995 55 55 Additional paid-in capital 29,684 29,118 Retained earnings 46,549 42,939 Cumulative translation adjustments (65) (109) Deferred cost - Employee Stock Ownership Plan ("ESOP") (6,106) (6,360) Unrealized investment holding gains, net -- 10 --------- --------- 70,117 65,653 Less - Common stock in treasury, at cost - 1,680 shares in 1996 and 1995 (16,103) (16,103) --------- --------- 54,014 49,550 --------- --------- $ 140,828 $ 117,360 ========= ========= See accompanying notes to financial statements. 2 CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended July 31, July 31, 1996 1995 1996 1995 --------- --------- --------- --------- (Amounts in thousands, except per share) Net Sales $ 49,491 $ 42,758 $ 135,042 $ 114,462 Cost of Sales 35,240 28,752 95,229 77,586 --------- --------- --------- --------- Gross profit 14,251 14,006 39,813 36,876 --------- --------- --------- --------- Operating Expenses: Selling, general and administrative 9,885 8,587 28,287 22,751 Research and development 1,597 1,234 4,133 3,712 Other income, net (180) (113) (436) (240) --------- --------- --------- --------- 11,302 9,708 31,984 26,223 --------- --------- --------- --------- Operating income 2,949 4,298 7,829 10,653 --------- --------- --------- --------- Interest Expense (Income): Interest expense 979 596 2,377 1,756 Interest income (103) (96) (330) (344) --------- --------- --------- --------- 876 500 2,047 1,412 --------- --------- --------- --------- Income before income taxes 2,073 3,798 5,782 9,241 Income Taxes 769 1,409 2,172 3,481 --------- --------- --------- --------- Net Income $ 1,304 $ 2,389 $ 3,610 $ 5,760 ========= ========= ========= ========= Earnings Per Common Share $ .39 $ .73 $ 1.08 $ 1.68 ========= ========= ========= =========
See accompanying notes to financial statements. 3 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended July 31, 1996 1995 -------- -------- (Amounts in thousands) Cash flows from operating activities: Net income $ 3,610 $ 5,760 Noncash items included in net income: Depreciation and amortization 2,983 2,541 Deferred income taxes (488) (797) Deferred costs 686 305 Decrease (increase) in - Accounts receivable, net (4,749) (5,122) Inventories (5,263) (3,295) Prepaid expenses and other assets 79 479 Increase (decrease) in - Accounts payable 1,458 5,078 Accrued expenses 819 954 Accrued income taxes 50 (392) -------- -------- Net cash (used for) provided by operating activities (815) 5,511 -------- -------- Cash flows from investing activities: Acquisition of property, plant and equipment (12,383) (11,992) Sale of short-term investments 5,716 19,500 Purchase of short-term investments (7,349) (10,381) Other - net (819) (27) -------- -------- Net cash used for investing activities (14,835) (2,900) -------- -------- Cash flows from financing activities: Short-term borrowings, net 8,442 13,193 Proceeds from long-term debt 11,000 -- Proceeds from exercised stock options 27 251 Tax benefits from exercised stock options 9 119 Repayments of long-term debt (2,735) (2,559) Purchase of treasury stock -- (11,750) Other - net 34 80 -------- -------- Net cash provided by (used for) financing activities 16,777 (666) -------- -------- Net increase in cash and cash equivalents 1,127 1,945 Cash and cash equivalents at beginning of period 2,025 2,188 -------- -------- Cash and cash equivalents at end of period $ 3,152 $ 4,133 ======== ======== See accompanying notes to financial statements. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) Nine Months Ended July 31, 1996 1995 ------ ------ (Amounts in thousands) Supplemental disclosures of cash flow information:- Cash paid (received) during the period for: Interest expense $2,500 $1,914 ====== ====== Income taxes $1,634 $4,670 ====== ====== Interest income $ (374) $ (677) ====== ====== See accompanying notes to financial statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share) (1) Basis of Presentation: The condensed financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These statements include all adjustments that, in the opinion of management, are necessary to provide a fair statement of the results for the periods covered. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Form 10-K for the year ended October 31, 1995. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year. (2) Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market, and consist of the following: July 31, October 31, 1996 1995 -------- ----------- Raw Materials and Work in Process $11,392 $11,237 Finished Goods 29,826 24,718 ------- ------- $41,218 $35,955 ======= ======= (3) Effect of Accounting Change to AICPA Statement of Position No. 93-6, Employers' Accounting for Employee Stock Ownership Plans: The Company has an Employee Stock Ownership Plan ("ESOP") which covers certain employees not covered by collective bargaining agreements. The ESOP owns 780 common shares of the Company, 750 of which were acquired in a leveraged transaction at $9.70 per share in April 1993. The 750 common shares are being allocated to the employees and the related cost is being amortized over a 15 year period that started in fiscal 1993, in accordance with the ESOP plan provisions. In the first quarter of fiscal 1995, the Company adopted AICPA Statement of Position No. 93-6, "Employers' Accounting for 6 Employee Stock Ownership Plans" ("SOP"). The SOP requires recognition of compensation expense for shares allocated to employees based on the fair market value of those shares in the period in which they are allocated. The difference between cost and fair market value of such allocated common shares is recorded in additional paid-in capital. The ESOP shares are summarized as follows: July 31, October 31, 1996 1995 ------- ----------- Allocated shares 123 123 Committed to be released shares 27 - Unreleased shares 630 657 ------- ------- Total ESOP shares 780 780 ======= ======= Fair value of unreleased shares $13,073 $21,681 ======= ======= The ESOP expense for the nine-month periods ended July 31, 1996 and 1995 was $788 and $406, respectively. Such expense for the three-month periods ended July 31, 1996 and 1995 was $208 and $193, respectively. (4) Earnings Per Common Share: Earnings per common share are computed using the weighted average number of shares of common stock, common stock equivalents outstanding (dilutive stock options), less unallocated ESOP shares during the periods (3,323 and 3,288 for the three-month periods ended July 31, 1996 and 1995, respectively); (3,345 and 3,422 for the nine-month periods ended July 31, 1996 and 1995, respectively). In the first quarter of 1995, the Company adopted SOP No. 93-6, "Employers' Accounting for Employee Stock Ownership Plans" as discussed in Note 3. Under the provisions of this new accounting rule, unallocated shares of the Company's stock in the ESOP are excluded from the average number of common shares outstanding when computing earnings per share. In accordance with this new rule, 645 and 672 unallocated ESOP shares were excluded from the average number of common shares outstanding for the nine months ended July 31, 1996 and 1995, respectively. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Amounts in thousands, except per share) RESULTS OF OPERATIONS Net Sales. Net sales for the third quarter of fiscal 1996 increased 15.7% to $49,491. Such sales were $6,733 greater than the $42,758 recorded in the third quarter of fiscal 1995. Net sales for the first nine months of fiscal 1996 were $135,042 or 18.0% greater than the sales for the comparable nine-month period of fiscal 1995. The sales increases for both the three-month and nine-month periods of fiscal 1996 reflect growth in the fire sprinkler market along with a continued strong market share held by the Company in such market. The new construction market and the retrofit of existing buildings drive the market demand for the Company's fire sprinklers and related products. The glass bulb fire sprinkler models continue to lead the Company's sprinkler sales gains. The Company experienced particularly strong sales of its CPVC plastic pipe and fittings products during the periods. Sales were unfavorably impacted in the early portion of the nine-month period ended July 31, 1996 by construction and expansion delays at the Company's new fittings facility in Alabama. In the third quarter of fiscal 1996, improved sales were achieved at this new facility. The Company's programs to develop and expand production and marketing of products continued to increase sales. Sales increases were realized throughout the U.S. and in foreign markets. The Company has, however, experienced more competitive conditions in the sprinkler market through increased price competition which has depressed sales prices. The Company recently announced sales price increases on its sprinkler and valve products in an effort to improve the Company's gross profit in future periods. Cost of Sales and Gross Profit. Cost of sales, in terms of dollars of expense, increased 22.6% and 22.7% for the three-month and nine-month periods ended July 31, 1996, respectively, over the same periods for fiscal 1995. The Company's cost of sales for the third quarter of fiscal 1996 was 71.2% of net sales and 67.2% for the third quarter of fiscal 1995. This resulted in a gross margin percentage of 28.8% in the third quarter of fiscal 1996 compared to 32.8% in the third fiscal quarter of 1995. For the first nine months of fiscal 1996, the gross margin percentage was 29.5% of net sales compared to 32.2% for the same period of fiscal 1995. The gross profit margin percentages for the third quarter and the first nine months of fiscal 1996 were lower than expected due to several situations. The most significant factors reducing the gross profit margin percentages for these periods were increases in the cost of manufacturing sprinklers. The 8 sprinkler manufacturing costs have been impacted by higher material costs, an increased number of manufacturing personnel and increased manufacturing wages, fringe benefits, higher machinery and equipment costs and lower than anticipated manufacturing efficiencies. In addition, more competitive conditions in the fire sprinkler market has reduced sales prices. The Company's new fittings facility in Alabama continued to incur losses throughout the three-month and nine-month periods ended July 31, 1996. Improved production levels and lower costs per unit were achieved at this new facility in the third quarter of fiscal 1996 as compared to the first six-months of fiscal 1996 and the third quarter of fiscal 1995. Delays in the construction of this facility along with delays in the installation and operation of the related equipment are the primary reason for such losses. The facility was virtually shut down from mid-December 1995 through early March 1996 due to dismantlement, relocation, and installation of equipment. Delays in completion and full operations continued through the third quarter of fiscal 1996. The facility will operate at less than full capacity until it is completed which is expected in late fiscal 1996. Operating Expenses. Operating expenses for the third quarter of fiscal 1996 increased 16.4% from the third quarter of fiscal 1995. The overall increase in operating expenses was primarily comprised of an increase in Selling, General and Administrative expenses of 15.1% or $1,298 and an increase in Research and Development expenses of 29.4% or $363. For the first nine months of fiscal 1996, operating expenses increased 22.0% or $5,761 from the amount for the first nine months of fiscal 1995. The overall increase for the first nine months of fiscal 1996 was primarily comprised of an increase in Selling, General and Administrative expenses of 24.3% or $5,536 and an increase in Research and Development expenses of 11.3% or $421. For both periods, the majority of the increase in the Selling, General and Administrative expenses is due to the increased levels of expense associated with the increased sales volume. The major expense increases for the three-and nine-month periods ended July 31, 1996, respectively, from the comparable period in fiscal 1995 included higher distribution facility costs of $600 and $1,700, respectively, higher freight expense of $200 and $700, respectively, higher sales personnel including travel and entertainment of $500 and $1,300, respectively, and higher ESOP expense of $10 and $350, respectively. Distribution facility costs increased due to the expansion of warehouses in Dallas, Boston, Seattle, and Los Angeles to better serve those markets with more space, personnel and expanded product lines. Personnel and related costs increased in distribution to support the higher sales volume. New sales and distribution facilities were 9 opened in leased space late in fiscal 1995 and early 1996 in Singapore and Cleveland, Ohio. Sales personnel were increased to more effectively market the Company's existing and expanding product offerings to current and prospective customers domestically and internationally. During the third quarter, the Company opened a marketing office in Beijing, China. Expense related to the Employee Stock Ownership Plan was higher due to a higher average Company stock price as compared to the same periods of fiscal 1995. The Company also had increased administrative and other support personnel to provide necessary support for the increased level of business activity. The Company continues its emphasis on research and development in efforts to develop new and improved products. The research and development expense for the three-and nine-month periods of fiscal 1996 were $1,597 and $4,133, respectively, which are 29.4% and 11.3% increases from the comparable periods of fiscal 1995. Increases in the number of personnel and an expanded research and development facility for the development and testing of new and improved products was partially offset by lower outside research charges. Interest Expense (Income). Interest expense of $979 and $2,377 was incurred in the three-month and nine-month periods ending July 31, 1996, respectively, compared to interest expense of $596 and $1,756 for the same periods of fiscal 1995. For the nine-month periods ended July 31, 1996 and 1995, the Company capitalized $290 and $200, respectively, of interest costs relating to the fittings manufacturing facility expansion and construction. No interest was capitalized in the third quarter of fiscal 1996 as compared to $115 of interest capitalized in the third quarter of fiscal 1995. The higher interest expense was due to the overall increase in debt. Short and long-term debt totalled $62,098 at July 31, 1996 as compared to $41,589 at July 31, 1995. The additional debt was required to fund the Company's capital expenditure programs in manufacturing and distribution and for increased working capital needs. Interest income for the three-and nine-month periods ended July 31, 1996 was $103 and $330, respectively, compared to $96 and $344 for the same periods ended July 31, 1995. The third quarter of fiscal 1996 was favorably impacted by a higher average investment balance. However, interest income was earned at lower interest rates as compared to the third fiscal quarter of 1995. The nine-month period ended July 31, 1996 compared to the same period in fiscal 1995 was impacted by lower interest income rates on a slightly higher average investment balance held. Late in the first quarter of fiscal 1995, the Company used short-term 10 investments of $11,750 for the repurchase of 1,237 shares of the Company's common stock for the treasury. Income Taxes. The Company's effective income tax rate for the third quarter of fiscal 1996 and fiscal 1995 was 37.1%. For the nine-month period of fiscal 1996, the effective income tax rate was 37.6% compared to 37.7% in the comparable period in 1995. The decrease in the overall effective income tax rate for the nine months ended July 31, 1996 is the result of a decrease in the effective state income tax rate due to a decrease in certain statutory state tax rates. This decrease was partially offset by an increase in the effective federal income tax rate due to lower nontaxable investment income and a lower favorable effect of anticipated tax credits in fiscal 1996. Seasonal Aspects of Business. The Company's sales are affected by seasonal factors as well as the level of new construction activity, remodeling and retrofitting of older properties in the industrial, commercial, residential and institutional real estate markets. The Company's sales tend to increase the most when there is a high level of new construction activity in all such real estate markets. In addition, as a result of relatively higher levels of new construction during the warmer spring and summer months, the demand for sprinkler system components tends to be greater during the summer and fall than during other seasons. FINANCIAL CONDITION July 31, 1996 Compared to October 31, 1995 Cash, Cash Equivalents and Short-Term Investments. Cash, cash equivalents and short-term investments totaled $14,864 as of July 31, 1996 as compared to $12,104 at October 31, 1995. The $2,760 increase was a result of normal fluctuations in operations. Inventories. Inventories totaled $41,218 at July 31, 1996 as compared to $35,955 at October 31, 1995. The $5,263 increase in inventories was comprised of an increase of $155 in raw materials and work in process and an increase of $5,108 in finished goods. Relative to the increased production levels, the increase in raw materials and work in process was only slightly higher due to improved raw material management. The increase in finished goods was due in part to an anticipation of a continued strong demand. In particular, the Company is producing its new line of fittings products to stock its distribution network. The Company also stocked inventory at two new distribution centers which opened in late 1995 and early 1996. Inventory levels also increased due to the expansion of four distribution centers and the introduction of new products into virtually all of the Company's distribution centers. 11 Property, Plant and Equipment. The Company's property, plant and equipment rose by a net amount of $9,588 to $37,614 at July 31, 1996. Approximately $5,933 of this increase is due to the reconstruction and expansion of the manufacturing facility for fittings products. Funds have also been used to purchase machinery and equipment to increase production capabilities for fire sprinklers and CPVC plastic pipe and fittings and to expand research and development facilities. During the third quarter of fiscal 1996, the Company broke ground in Alabama for the construction of a new facility to produce CPVC plastic pipe and fittings. Such manufacturing operations are currently under an outside contract and cannot accommodate needed production levels to meet anticipated customer demand. Total Debt. The Company's total debt increased to $62,098 at July 31, 1996 as compared to $45,391 at October 31, 1995. The additional net borrowings of $16,707 were used to fund capital expenditures and finance increased working capital needs as a result of the Company's growth. The funds were principally borrowed under the Company's lines of credit from banks. On November 21, 1995, the Company issued a principal amount of $11,000 of Industrial Revenue Bonds ("IRB's"). The IRB's have a 20 year term. At October 31, 1995, $11,000 of short-term borrowings were classified as long-term debt based upon the Company's issuance of these bonds. At July 31, 1996, $863 of short-term borrowings were classified as long-term debt based upon the Company's intent to issue Industrial Revenue Bonds for the CPVC plastic pipe and fittings facility. Liquidity and Capital Resources. The Company's primary sources of long-term and short-term liquidity are its current financial resources, projected cash from operations and its borrowing capacity. Cash used for operating activities for the nine months ended July 31, 1996 totalled $815. This was a decrease from the nine-month period of fiscal 1995 when $5,511 was provided by operating activities. The decrease is due primarily to increased use of cash for inventories, a smaller increase in accounts payable, and lower net income for the period. Cash was used for the purchase of $12,383 of property, plant and equipment during the nine months ended July 31, 1996. On November 21, 1995, the Company refinanced short-term borrowings with long-term debt amounting to $11,000 with the issuance of the IRB's. The Company's net short-term borrowings for the nine months ended July 31, 1996 amounted to an increase of $8,442 and long-term debt repayments of $2,735 were required on long-term debt in the period. In January 1996, the Company 12 entered into an interest rate swap agreement which fixes the interest rate on the IRB's. The interest rate is fixed at 6.125% for the remainder of the 20 year term. Interest expense is recorded monthly at the fixed rate plus related fees. The difference between the variable rate paid to IRB bondholders and the fixed rate costs are settled monthly between the Company and a bank which is party to the swap agreement. In January 1996, the Company also converted certain long-term term loans, term notes and other loans from variable rates of interest to fixed rates. The fixed interest rates range from 5.98% to 6.67% over the remaining terms of the loans. The Company has lines of credit with banks at variable interest rates which are generally less than the prime lending rate. As of July 31, 1996, approximately $4,100 of these lines of credit were unused and available for use. The Company purchases property, plant and equipment from time to time as required to maintain and expand its offices, manufacturing and research facilities and distribution centers. The Company has expanded and improved its operations over the years and intends to continue this policy in the future. The Company's reconstruction and expansion of a manufacturing facility for fittings it purchased in fiscal 1994 is nearing completion and full operation of such facility is expected late in fiscal 1996 at an additional cost of about $1,000. The Company has also committed to build a new CPVC plastic pipe and fittings plant in Alabama. It is expected that the capital expenditures for this facility and equipment will aggregate $7.5 million and will be financed by a long-term IRB. The Company makes other commitments in the ordinary course of business for such expansions of facilities and equipment and for research and other contracts. The Company's cash, cash equivalents and short-term investments, along with the Company's borrowing capacity, provide adequate liquidity to meet the Company's obligations and to fund programs necessary for future growth and expansion. The Company has become aware of installation problems in certain steel pipe systems utilizing Omega TM sprinklers. The addition of stop-leak products or the presence of excessive hydrocarbons has been found in certain circumstances to impair the operation of such sprinklers. In order to assess the extent of the problems, the Company has strongly recommended that a sampling of Omega TM sprinklers from each such installed system be returned to the Company for testing. Based on the results of the tests, the Company will review each situation with the building owner and develop an appropriate action plan, as needed. The Company did not install such sprinklers and installation of the sprinklers is the responsibility of the building owner. However, the Company's primary concern is to offer the finest possible fire protection to building owners while working within its sales and warranty policy to maintain customer goodwill. The Company will continue to monitor the results of testing and will determine the impact on the Company, if any, should the Company assist the building owners. 13 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following document is filed as an Exhibit and attached as follows: Exhibit 11 -- Computation of Earnings Per Common Share (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended July 31, 1996. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTRAL SPRINKLER CORPORATION ----------------------------- (Registrant) /s/ William J. Meyer ----------------------------- William J. Meyer President DATE: September 12, 1996 /s/ Albert T. Sabol ----------------------------- Albert T. Sabol Vice President-Finance (Principal Financial and Accounting Officer) 15 Exhibit 11 CENTRAL SPRINKLER CORPORATION EARNINGS PER COMMON SHARE Three Nine Months Ended Months Ended July 31, July 31, 1996 1995 1996 1995 ------ ------ ------ ------ (Amounts in Thousands, except per share) Net income $1,304 $2,389 $3,610 $5,760 ====== ====== ====== ====== Average number of common shares outstanding 3,793 3,730 3,793 3,948 Adjustment to exclude average unallocated common shares in ESOP (636) (670) (645) (672) Adjustment for assumed conversion of stock options 166 228 197 146 ------ ------ ------ ------ Average number of common shares 3,323 3,288 3,345 3,422 ====== ====== ====== ====== Earnings per common share $ .39 $ .73 $ 1.08 $ 1.68 ====== ====== ====== ====== 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000766041 CENTRAL SPRINKLER CORPORATION 1,000 3-MOS 9-MOS OCT-31-1996 OCT-31-1996 MAY-01-1996 NOV-01-1995 JUL-31-1996 JUL-31-1996 3,152 3,152 11,712 11,712 40,909 40,909 4,474 4,474 41,218 41,218 98,682 98,682 55,976 55,976 18,362 18,362 140,828 140,828 58,809 58,809 25,882 25,882 0 0 0 0 55 55 53,959 53,959 140,828 140,828 49,491 135,042 49,491 135,042 35,240 95,229 35,240 95,229 11,302 31,984 0 0 876 2,047 2,073 5,782 769 2,172 1,304 3,610 0 0 0 0 0 0 1,304 3,610 .39 1.08 .39 1.08
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