-----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, KLwx85Vrxv0uTdE/s/oW5S28JwBqxEhDqjZogOwPECJJvsGGyYWH5OYerF7XLA7M KTuogxLv4vjyRgDMUfrz+Q== 0000950131-96-002323.txt : 19960627 0000950131-96-002323.hdr.sgml : 19960627 ACCESSION NUMBER: 0000950131-96-002323 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ERO INC CENTRAL INDEX KEY: 0000884319 STANDARD INDUSTRIAL CLASSIFICATION: 2300 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: 96567899 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 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 March 31, 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 May 10, 1996, there were 10,241,300 shares outstanding of the Company's Common Stock ($0.01 par value). TOTAL OF SEQUENTIALLY NUMBERED PAGES: 8 1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ERO, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
March 31, December 31, 1996 1995 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 871 $ 154 Trade accounts receivable, net of allowance for doubtful accounts 21,888 38,679 Inventories 19,982 17,001 Prepaid expenses and other current assets 3,248 2,662 Prepaid income taxes 1,516 -- -------- -------- TOTAL CURRENT ASSETS 47,505 58,496 -------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation 19,993 20,348 -------- -------- OTHER ASSETS: Deferred charges, net of accumulated amortization 3,049 3,283 Intangible assets, net of accumulated amortization 60,599 61,212 Deferred tax benefit 207 799 -------- -------- TOTAL OTHER ASSETS 63,855 65,294 -------- -------- TOTAL ASSETS $131,353 $144,138 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 7,228 $ 6,728 Accounts payable 6,450 6,398 Accrued expenses: Compensation 652 1,207 Commissions and royalties 1,186 2,861 Advertising, freight and other allowances 4,031 4,777 Purchase price 1,671 2,960 Other 2,533 1,991 Income taxes payable -- 2,882 -------- -------- TOTAL CURRENT LIABILITIES 23,751 29,804 -------- -------- LONG-TERM DEBT: Revolving loan 13,950 15,225 Term loan 52,000 54,000 Other loans 8,863 9,045 -------- -------- TOTAL LONG-TERM DEBT 74,813 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, 10,346,300 shares issued 103 103 Capital in excess of par value 38,990 38,990 Foreign currency translation adjustment (52) 324 Accumulated deficit (5,479) (3,251) Common stock held in treasury, 120,000 shares and 15,000 shares, respectively, at cost (773) (102) -------- -------- TOTAL STOCKHOLDERS' EQUITY 32,789 36,064 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $131,353 $144,138 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 2 ERO, INC. CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) (unaudited)
For the three months ended March 31, ------------------- 1996 1995 ------- ------- Net sales $18,884 $14,807 Cost of sales 13,265 9,185 ------- ------- Gross profit 5,619 5,622 Selling, general and administrative expense 7,553 5,247 ------- ------- Operating income (loss) (1,934) 375 Interest expense 1,846 261 ------- ------- Income (loss) before income taxes (3,780) 114 Income tax provision (benefit) (1,552) 49 ------- ------- Net income (loss) $(2,228) $ 65 ======= ======= Net income (loss) per share ($0.21) $0.01 Weighted average number of shares outstanding (in thousands) 10,364 10,495
The accompanying notes to consolidated financial statements are an integral part of these statements. 3 ERO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
For the three months ended March 31, ------------------ 1996 1995 -------- ------- Cash flows from operating activities: Net income (loss) $ (2,228) $ 65 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of property, plant and equipment 631 276 Amortization of other assets 847 512 Deferred income taxes 592 (50) Gain on the disposition of property, plant and equipment -- (3) Provision for (recoveries from) losses on accounts receivable 164 (156) Changes in current assets and current liabilities, net of acquisitions: Accounts receivable 16,523 10,916 Inventories (3,181) (262) Prepaid expenses and other current assets (611) 134 Accounts payable 102 (3,202) Accrued expenses (3,648) (5,828) Income taxes payable (4,398) (1,064) -------- ------- Net cash provided by operating activities 4,793 1,338 -------- ------- Cash flows from investing activities: Acquisitions of property, plant and equipment (448) (132) -------- ------- Proceeds from the sale of property, plant and equipment -- 3 -------- ------- Net cash used for investing activities (448) (129) -------- ------- Cash flows from financing activities: Net repayments under revolving loan facility (1,275) (1,275) Net repayments under term loan facility (1,500) -- Net repayments under other loans (182) -- Purchase of common stock for treasury (671) -- -------- ------- Net cash used for financing activities (3,628) (1,275) -------- ------- Net increase (decrease) in cash and cash equivalents 717 (66) Cash and cash equivalents: Beginning of period 154 200 -------- ------- End of period $ 871 $ 134 ======== =======
The accompanying notes to consolidated financial statements are an integral part of these statements. 4 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, as filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the entire fiscal year. NOTE 2 - INVENTORIES: - - -------------------- Inventories at March 31, 1996 and December 31, 1995 consist of the following:
March 31, December 31, 1996 1995 ----------- ------------ Raw materials $ 6,032,000 $ 6,333,000 Work-in-process 4,071,000 3,090,000 Finished goods 9,879,000 7,578,000 ----------- ----------- $19,982,000 $17,001,000 =========== ===========
NOTE 3 - COMMON STOCK REPURCHASE PROGRAM - - ---------------------------------------- During 1995, the Company's Board of Directors authorized the repurchase 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 three months ended March 31, 1996, the Company repurchased 105,000 shares of stock for total consideration of approximately $671,000. 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, as filed with the Securities and Exchange Commission. 5 Results of Operations - - ---------------------
Summary of Consolidated Financial Results (Dollars in millions) Three months ended March 31, --------------------- Increase 1996 1995 (Decrease) --------------------------------- Net sales $18.9 $14.8 27.7% Gross profit margin 29.8% 38.0% (21.6%) Selling, general & administrative expense (as a percentage of sales) 40.0% 35.4% 13.0% Interest expense $ 1.8 $ 0.3 500.0%
Net sales for the first quarter of 1996 increased 27.7% to $18.9 million as compared to the first quarter of last year. The first quarter sales growth was due to the newly acquired Amav business. This increase was partially offset by a decrease in ERO's licensed product businesses compared to the prior year. The gross profit margin for the quarter ended March 31, 1996 decreased 21.6% compared to the prior year. With the addition of Amav's manufacturing facility, the percentage of ERO's products which are manufactured in-house is expected to increase from 50% to 75%. This results in an increase in fixed manufacturing overhead costs reflected in an increase in cost of goods sold, which caused a decrease in gross profit margins during the first quarter. Selling, general and administrative expense as a percentage of sales increased 13.0%. This increase resulted primarily from the amortization of goodwill and higher fixed costs related to the Amav acquisition. Interest expense for the three months ended March 31, 1996 increased significantly over 1995 due to the acquisition debt. Liquidity and Capital Resources - - ------------------------------- Net cash generated from operating activities during the three months ended March 31, 1996 totaled approximately $4.8 million. These cash flows were principally used to repay $3.0 million under the Company's loan facilities repurchase common stock for $0.7 million and fund capital expenditures of $0.4 million. 6 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. 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 ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- A Current Report on Form 8-K regarding the acquisition of Amav Industries Ltd. was initially filed with the Securities and Exchange Commission on December 18, 1995 and was amended under Form 8/K-A (Amendment No. 1) on February 12, 1996. 7 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: May 15, 1996 ERO, Inc. /s/ Ted J. Lueken --------------------------- Ted J. Lueken Senior Vice President of Finance and Chief Financial Officer 8 EX-27 2 FINANCIAL DATA SCHEDULE
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 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 871 0 22,362 474 19,982 47,505 26,968 6,975 131,353 23,751 74,813 103 0 0 32,686 131,353 18,884 18,884 13,265 7,553 0 0 1,846 (3,780) (1,552) (2,228) 0 0 0 (2,228) (0.21) (0.21)
-----END PRIVACY-ENHANCED MESSAGE-----