-----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, TGiYkaQhlPhDoMnBGySDpDhBqUX5qyaOntQdJkRxRDhbs4mD41XLLuuZacgNaHHc 03ELoZyshqjIVInmEBmT+g== 0000884319-96-000009.txt : 19961210 0000884319-96-000009.hdr.sgml : 19961210 ACCESSION NUMBER: 0000884319-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ERO INC CENTRAL INDEX KEY: 0000884319 STANDARD INDUSTRIAL CLASSIFICATION: 2390 IRS NUMBER: 363573286 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19942 FILM NUMBER: 96662758 BUSINESS ADDRESS: STREET 1: 585 SLAWIN COURT CITY: MOUNT PROSPECT STATE: IL ZIP: 60056 BUSINESS PHONE: 8478039200 MAIL ADDRESS: STREET 1: 585 SLAWIN CT CITY: MT PROSPECT STATE: IL ZIP: 60056-2183 10-Q 1 Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For The Quarter Ended September 30, 1996 Commission File Number 0-19942 ERO, INC. (Exact name of registrant as specified in its charter) Delaware 36-3573286 (State or other jurisdiction of incorporation (IRS Employer Identification or organization) Number) 585 Slawin Court, Mount Prospect, Illinois 60056 (Address of principal executive offices, including zip code) (847) 803-9200 (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 _____ At November 13, 1996, there were 10,241,300 shares outstanding of the Company's Common Stock ($0.01 par value). PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ERO, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) September 30, December 31, 1996 1995 _____________ ____________ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,939 $ 154 Trade accounts receivable, net of allowance for doubtful accounts 45,339 38,679 Inventories 30,006 17,001 Prepaid expenses and other current assets 4,057 2,662 Prepaid income taxes 637 --- _________ _________ TOTAL CURRENT ASSETS 81,978 58,496 _________ _________ PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation 21,336 20,348 _________ _________ OTHER ASSETS: Deferred charges, net of accumulated amortization 3,015 3,283 Intangible assets, net of accumulated amortization 57,558 61,212 Deferred tax benefit 268 799 _________ _________ TOTAL OTHER ASSETS 60,841 65,294 _________ _________ TOTAL ASSETS $ 164,155 $ 144,138 ========= ========= The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) September 30, December 31, 1996 1995 _____________ ____________ (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 8,207 $ 6,728 Accounts payable 11,014 6,398 Accrued expenses: Compensation 1,350 1,207 Commissions and royalties 1,951 2,861 Advertising, freight and other allowances 4,996 4,777 Purchase price --- 2,960 Other 1,557 1,991 Income taxes payable --- 2,882 _________ _________ TOTAL CURRENT LIABILITIES 29,075 29,804 _________ _________ LONG-TERM DEBT: Revolving loan 42,150 15,225 Term loan 48,000 54,000 Other loans 8,535 9,045 _________ _________ TOTAL LONG-TERM DEBT 98,685 78,270 _________ _________ STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 9,947,700 shares authorized, no shares issued and outstanding --- --- Common stock, $0.01 par value, 50,000,000 shares authorized, 10,361,300 shares and 10,346,300 shares issued, respectively 104 103 Capital in excess of par value 39,089 38,990 Foreign currency translation adjustment (96) 324 Accumulated deficit (1,929) (3,251) Common stock held in treasury, 120,000 shares and 15,000 shares, respectively, at cost (773) (102) _________ _________ TOTAL STOCKHOLDERS' EQUITY 36,395 36,064 _________ _________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 164,155 $ 144,138 ========= ========= The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) (unaudited) For the three months ended September 30, ________________________________________ 1996 1995 ____ ____ Net sales $49,633 $28,238 Cost of sales 31,322 18,255 _______ _______ Gross profit 18,311 9,983 Selling, general and administrative expense 10,540 7,957 _______ _______ Operating income 7,771 2,026 Interest expense 2,575 308 _______ _______ Income before income taxes 5,196 1,718 Income tax provision 2,129 704 _______ _______ Net income $ 3,067 $ 1,014 ======= ======= Net income per share $0.30 $0.10 Weighted average number of shares outstanding (in thousands) 10,278 10,529 The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) (unaudited) For the nine months ended September 30, _______________________________________ 1996 1995 ____ ____ Net sales $98,125 $80,523 Cost of sales 63,081 51,837 _______ _______ Gross profit 35,044 28,686 Selling, general and administrative expense 26,395 22,709 _______ _______ Operating income 8,649 5,977 Interest expense 6,410 913 _______ _______ Income before income taxes 2,239 5,064 Income tax provision 917 2,079 _______ _______ Net income $ 1,322 $ 2,985 ======= ======= Net income per share $0.13 $0.28 Weighted average number of shares outstanding (in thousands) 10,305 10,522 The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) For the nine months ended September 30, _______________________________________ 1996 1995 ____ ____ Cash flows from operating activities: Net income $1,322 $2,985 Adjustments to reconcile net income to net cash used for operating activities: Depreciation of property, plant and equipment 1,998 835 Amortization of other assets 2,415 1,473 Deferred income taxes 531 (528) (Gain) loss on the disposition of property, plant and equipment 1 (3) Provision for losses on accounts receivable 524 95 Tax benefit of stock options exercised 3 --- Changes in current assets and current liabilities, net of acquisitions: Accounts receivable (7,339) 2,284 Inventories (13,195) (5,478) Prepaid expenses and other current assets (1,420) (207) Accounts payable 4,666 (321) Accrued expenses (2,002) (2,657) Income taxes (3,519) (1,065) _______ ______ Net cash used for operating activities (16,015) (2,587) _______ ______ Cash flows from investing activities: Acquisitions of property, plant and equipment (3,216) (523) Proceeds from the sale of property, plant and equipment 6 --- _______ ______ Net cash used for investing activities (3,210) (523) _______ ______ Cash flows from financing activities: Net borrowings under revolving loan facility 26,925 3,200 Net repayments under term loan facility (4,500) --- Net repayments under other loans (531) --- Financing fees paid (310) --- Purchase of common stock for treasury (671) --- Net proceeds from the exercise of stock options 97 --- _______ ______ Net cash provided by financing activities 21,010 3,200 _______ ______ Net increase in cash and cash equivalents 1,785 90 Cash and cash equivalents: Beginning of period 154 200 _______ ______ End of period $ 1,939 $ 290 ======= ====== The accompanying notes to consolidated financial statements are an integral part of these statements.
ERO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION: The accompanying interim consolidated financial statements include the accounts of ERO, Inc. (the "Company") and its wholly-owned subsidiaries, ERO Industries, Inc., Impact, Inc., Priss Prints, Inc., Amav Industries, Inc., ERO Canada, Inc. and ERO Marketing, Inc. These financial statements are unaudited but, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial condition, results of operations and cash flows of the Company. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and in conjunction with the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, each as filed with the Securities and Exchange Commission. The results of operations for the three months and nine months ended September 30, 1996 are not necessarily indicative of the results to be expected for the entire fiscal year. NOTE 2 - INVENTORIES: Inventories at September 30, 1996 and December 31, 1995 consist of the following: September 30, December 31, 1996 1995 _____________ ____________ Raw materials $ 8,227,000 $ 6,333,000 Work-in-process 3,993,000 3,090,000 Finished goods 17,786,000 7,578,000 ___________ ___________ $30,006,000 $17,001,000 =========== =========== NOTE 3 - COMMON STOCK REPURCHASE PROGRAM: During 1995, the Company's Board of Directors authorized the purchase of up to 500,000 shares of the Company's Common Stock. Such purchases may be made from time to time in the open market, in privately negotiated transactions or otherwise. During the nine months ended September 30, 1996, the Company repurchased 105,000 shares of stock for total consideration of approximately $671,000. NOTE 4 - STOCK OPTION PLANS: During the nine months ended September 30, 1996, 15,000 vested options were exercised under the 1988 Key Employee Stock Option Plan providing total proceeds to the Company of approximately $97,000 and approximately $3,000 of related income tax benefits. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION: The following discussion of the Company's results of operations and financial condition should be read in conjunction with the consolidated financial statements of the Company and the notes thereto contained herein, as well as included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, and in the Company's Quarterly Report on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, each as filed with the Securities and Exchange Commission. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward-looking statements. Results of Operations _____________________ Summary of Consolidated Financial Results (Dollars in millions) Three months ended September 30, __________________ Increase 1996 1995 (Decrease) ________________________________ Net sales $49.6 $28.2 75.9% Gross profit margin 36.9% 35.4% 4.2% Selling, general & administrative expense (as a percentage of sales) 21.2% 28.2% (24.8%) Interest expense $2.6 $0.3 $2.3 Summary of Consolidated Financial Results (Dollars in millions) Nine months ended September 30, _________________ Increase 1996 1995 (Decrease) ______________________________ Net sales $98.1 $80.5 21.9% Gross profit margin 35.7% 35.6% 0.3% Selling, general & administrative expense (as a percentage of sales) 26.9% 28.2% (4.6%) Interest expense $6.4 $0.9 $5.5 Net sales for the third quarter of 1996 increased to $49.6 million, or 75.9%, as compared to $28.2 million in the third quarter of last year. For the nine months to date, sales increased to $98.1 million, or 21.9%, compared to $80.5 million last year. The increase in sales is primarily attributable to sales in the Amav business, acquired during the fourth quarter of 1995. With the acquisition of Amav, less than half of the Company's 1996 revenues are expected to be from licensed products. However, a greater share of the Company's revenues will now occur during the last four months of the year. These changes will be particularly noticeable in 1996 due to an overall weakness in the Company's license portfolio during the first half of this year followed by what appears to be strong fourth quarter licenses such as Warner Brothers' Space Jam, Disney's live-action 101 Dalmatians, Disney's Toy Story and R.L. Stine's Goosebumps(R). The gross profit margin for the three and nine months ended September 30, 1996 increased to 36.9% of net sales and 35.7% of net sales, or an increase of 4.2% and 0.3%, respectively, compared to the prior year. The increase was due primarily to the relatively higher margins generated by the Amav business. Selling, general and administrative expense as a percentage of sales for the three and nine months ended September 30, 1996 decreased to 21.2% of net sales and 26.9% of net sales, or a decrease of 24.8% and 4.6%, respectively, compared to the prior year. This decrease is due primarily to a shift in the sales mix to the Amav business whose branded products do not generate royalty expense. Interest expense for the three and nine month periods ended September 30, 1996 increased by $2.3 million and $5.5 million, respectively, due primarily to the Amav acquisition debt and additional working capital requirements related to Amav. Liquidity and Capital Resources _______________________________ The nine months ended September 30, 1996 was a period of operational cash outflows for the Company. During the period, cash was used to fund capital expenditures of $3.2 million, repay $4.5 million under the Company's term loan facility, repurchase common stock for $0.7 million, repay $0.5 million under the Company's other loan facilities, fund financing fees of $0.3 million related to amending the Company's Credit Facility and provide for certain normal operating fluctuations in the non-cash components of working capital. These outflows were offset, in part, by borrowings under the Company's revolving loan facility of $26.9 million and $0.1 million from the proceeds of the exercise of stock options. Management anticipates that cash generated from operations together with current working capital and the Company's credit facility will provide sufficient liquidity and capital resources to pursue the Company's current business strategy, including the funding of working capital, capital expenditures, acquisitions and other needs. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is currently involved in several lawsuits arising in the ordinary course of business. The Company maintains insurance covering such liability, and does not believe that the outcome of any such lawsuits will have a material adverse effect on the Company's financial condition or consolidated results of operations. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information On October 17, 1996, William T. Alldredge resigned from the Board of Directors to pursue other interests. On October 17, 1996, the Board of Directors elected Lee M. Mitchell to serve on the Board as a Director to fill the vacancy created by the resgination of William T. Alldredge. Item 6. Exhibits and Reports on Form 8-K None SIGNATURES __________ Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 13, 1996 ERO, Inc. /s/ D. Richard Ryan, Jr. ___________________________ D. Richard Ryan, Jr. Chairman, President and Chief Executive Officer /s/ Christopher A. Brown ____________________________ Christopher A. Brown Principal Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets and Consolidated Income Statements and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1996 SEP-30-1996 1,939 0 45,339 0 30,006 81,978 21,336 0 164,155 29,075 0 0 0 104 36,291 164,155 98,125 98,125 63,081 0 26,395 0 6,410 2,239 917 1,322 0 0 0 1,322 0.13 0.13
-----END PRIVACY-ENHANCED MESSAGE-----