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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2002
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 33-75154
J.B. POINDEXTER & CO., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0312814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 LOUISIANA
SUITE 5400
HOUSTON, TEXAS
77002
(Address of principal executive offices)
(Zip code)
713-655-9800
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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[ ]
The registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10Q and is therefore filing this form with reduced disclosure
format.
There were 3,059 shares of Common Stock, $.01 par value, of the registrant
outstanding as of August 7, 2002.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
JUNE 30, DECEMBER 31,
2002 2001
--------- ---------
(Unaudited)
Current assets
Restricted cash .................................. $ 1,442 $ 98
Accounts receivable, net of allowance for doubtful
accounts of $1,146 and $1,054, respectively ... 27,100 25,161
Inventories, net ................................. 26,844 26,761
Deferred income taxes ............................ 2,182 2,175
Prepaid expenses and other ....................... 1,123 1,702
--------- ---------
Total current assets .......................... 58,691 55,897
Property, plant and equipment, net .................. 45,201 47,624
Goodwill, net ....................................... 17,976 17,976
Deferred income taxes ............................... 4,697 3,714
Other assets ........................................ 4,106 3,619
--------- ---------
Total assets ..................................... $ 130,671 $ 128,830
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current portion of long-term debt ................ $ 2,236 $ 3,005
Borrowings under the revolving credit facilities . 15,006 9,183
Accounts payable ................................. 17,306 15,856
Accrued compensation and benefits ................ 4,959 5,037
Accrued income taxes ............................. 102 106
Other accrued liabilities ........................ 7,222 9,028
--------- ---------
Total current liabilities ..................... 46,831 42,215
--------- ---------
Noncurrent liabilities
Long-term debt, less current portion ............. 87,944 88,756
Employee benefit obligations and other ........... 3,827 3,793
--------- ---------
Total noncurrent liabilities .................. 91,771 92,549
--------- ---------
Commitments and contingencies
Stockholder's deficit
Common stock and paid-in-capital ................. 16,486 16,486
Cumulative other elements of comprehensive income (503) (613)
Accumulated deficit .............................. (23,914) (21,807)
--------- ---------
Total stockholder's deficit ................... (7,931) (5,934)
--------- ---------
Total liabilities and stockholder's deficit ... $ 130,671 $ 128,830
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ------------------------------
(UNAUDITED) (UNAUDITED)
2002 2001 2002 2001
-------- -------- --------- --------
Net sales ................................. $102,464 $109,838 $ 186,991 $210,766
Cost of sales ............................. 86,773 92,801 160,589 179,310
-------- -------- --------- --------
Gross profit .............................. 15,691 17,037 26,402 31,456
Selling, general and administrative expense 11,199 11,110 22,308 21,429
-------- -------- --------- --------
Operating income .......................... 4,492 5,927 4,094 10,027
Interest expense .......................... 3,094 3,442 6,408 7,044
-------- -------- --------- --------
Income (Loss) from continuing operations
before income taxes .................... 1,398 2,485 (2,314) 2,983
Income tax provision (benefit) ............ 952 870 (383) 1,044
-------- -------- --------- --------
Income (Loss) from continuing
operations, net of applicable taxes .... 446 1,615 (1,931) 1,939
Loss from discontinued operations ......... 176 -- 176 --
-------- -------- --------- --------
Net Income (Loss) ......................... $ 270 $ 1,615 $ (2,107) $ 1,939
======== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------------
(Unaudited)
2002 2001
---------- -------
Net income (loss) ..................................... (2,107) 1,939
Adjustments to reconcile net income (loss) to net cash
Provided by operating activities:
Depreciation and amortization ...................... 5,582 5,969
Non-cash provision for excess and obsolete inventory 76 --
Non-cash provision for doubtful accounts receivable 92 194
Deferred federal income tax benefit ................ (990) (8)
Decrease in currency translation adjustment ........ (110) (12)
Other .............................................. (34) 29
Change in assets and liabilities:
Accounts receivable ................................ (2,031) (5,119)
Inventories ........................................ (159) 1,657
Prepaid expenses and other ......................... (92) 65
Accounts payable ................................... 1,450 3,692
Accrued income taxes ............................... (4) 534
Other accrued liabilities .......................... (1,621) (1,214)
------- -------
Net cash provided by operating activities ....... 52 7,726
------- -------
Cash flows used in investing activities:
Proceeds from sales of business and equipment ...... 30 41
Acquisition of property, plant and equipment ....... (2,980) (4,704)
------- -------
Net cash used in investing activities ........... (2,950) (4,663)
------- -------
Cash flows provided by (used in) financing activities:
Net (payments) proceeds from revolving lines
of credit and short-term debt ................... 5,823 (3,814)
Proceeds from long-term debt ....................... -- 536
Payments of long-term debt and capital leases ...... (1,581) (1,674)
------- -------
Net cash (used in) provided by
financing activities .......................... 4,242 (4,952)
------- -------
Increase (decrease) in restricted cash ................ 1,344 (1,889)
Restricted cash beginning of period ................... 98 2,345
------- -------
Restricted cash end of period ......................... $ 1,442 $ 456
======= =======
Supplemental information:
Cash paid for income taxes, net of refunds ......... $ 349 $ 63
======= =======
Cash paid for interest ............................. $ 6,070 $ 6,818
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION AND BUSINESS. J.B. Poindexter & Co., Inc. ("JBPCO") and
its subsidiaries (the "Subsidiaries", and, together with JBPCO, the "Company"),
operate primarily manufacturing businesses. Subsidiaries consist of Morgan
Trailer Mfg. Co., ("Morgan"), Truck Accessories Group, Inc., ("TAG"), and
Magnetic Instruments Corp., ("MIC Group"). MIC Group has two subsidiaries; KWS
Manufacturing Inc. ("KWS") and Universal Brixius Inc., ("Universal") which
together with MIC Group and EFP Corporation ("EFP") comprise the Specialty
Manufacturing Group (SMG).
The consolidated financial statements included herein have been prepared
by the Company, without audit, following the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
information furnished reflects all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair presentation of the
results of the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted following such rules and regulations. However, the Company believes that
the disclosures are adequate to make the information presented understandable.
Operating results for the six-month period ended June 30, 2002 are not
necessarily indications of the results that may be expected for the year ended
December 31, 2002. These financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 2001 filed with the Securities and Exchange Commission on
Form 10-K.
(2) SEGMENT DATA. The following is a summary of the business segment data (in
thousands):
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------- -------------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
NET SALES:
Morgan ........................ $ 49,607 $ 52,975 $ 82,912 $ 102,543
TAG ........................... 36,343 36,598 70,665 67,928
Specialty Manufacturing Group . 16,602 20,366 33,625 40,516
Inter Segment Eliminations .... (88) (101) (211) (221)
--------- --------- --------- ---------
Net Sales ..................... $ 102,464 $ 109,838 $ 186,991 $ 210,766
========= ========= ========= =========
OPERATING INCOME (LOSS):
Morgan ........................ $ 3,840 $ 3,245 $ 3,038 $ 4,319
TAG ........................... 1,441 1,776 2,872 3,216
Specialty Manufacturing Group . 809 1,722 1,203 3,978
JBPCO (Parent) ................ (1,598) (816) (3,019) (1,486)
--------- --------- --------- ---------
Operating Income .............. $ 4,492 $ 5,927 $ 4,094 $ 10,027
========= ========= ========= =========
JUNE 30, DECEMBER 31,
2002 2001
-------- --------
TOTAL ASSETS AS OF:
Morgan ........................ $ 49,974 $ 46,651
TAG ........................... 45,614 45,171
Specialty Manufacturing Group . 32,497 35,167
JBPCO (Corporate) ............. 2,586 1,841
-------- --------
Total Assets .................. $130,671 $128,830
======== ========
5
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Morgan has one customer (a truck leasing and rental company) that
accounted for approximately 29% and 22% of Morgan's net sales during each of the
six months ended June 30, 2002 and 2001, respectively. SMG has an industry
concentration, in international oil field service companies; sales to these
customers accounted for 26% and 39% of net sales, with one customer that
accounted for approximately 10% and 20% of SMG's net sales during each of the
six months ended June 30, 2002 and 2001, respectively.
(3) COMPREHENSIVE INCOME. The components of comprehensive income (loss) were as
follows (in thousands):
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ---------------------------
2002 2001 2002 2001
---- ------ ------- -------
Net income ................. $270 $1,615 $(2,107) $ 1,939
Foreign currency translation
adjustments ............ 290 173 110 (14)
---- ------ ------- -------
Comprehensive income ....... $560 $1,788 $(1,997) $ 1,925
==== ====== ======= =======
(4) INVENTORIES. Consolidated net inventories consisted of the following (in
thousands):
JUNE 30, DECEMBER 31,
2002 2001
------- -------
FIFO Basis Inventory:
Raw Materials .... $16,255 $15,022
Work in Process .. 5,092 5,428
Finished Goods ... 5,497 6,311
------- -------
Total Inventory ..... $26,844 $26,761
======= =======
(5) REVOLVING LOAN AGREEMENTS. At June 30, 2002, the Company had total borrowing
availability of approximately $33,660,000 of which $3,830,000 was used to secure
letters of credit. Additionally, $15,006,000 had been borrowed to fund
operations, resulting in unused availability of $14,824,000.
(6) DISCONTINUED OPERATIONS. The disposal of TAG's distribution division was
completed during the year ended December 31, 1999. During the six months ended
June 30, 2002 employment taxes in the amount of $220,000 that had been
incorrectly refunded to the Company during 1999, were repaid and consequently an
expense of $176,000, net of tax, was recognized as a Loss from discontinued
operations.
(7) INCOME TAXES. The income tax benefit for the six months ended June 30, 2002
approximates amounts computed based on the federal statutory rate. The income
tax expense of $1,044,000 for the six months ended June 30, 2001 approximates
amounts computed based on the federal statutory rate.
6
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(8) CONTINGENCIES.
CLAIMS AND LAWSUITS. The Company is involved in certain claims and
lawsuits arising in the normal course of business. In the opinion of management,
the ultimate resolution of these matters will not have a material adverse effect
on the financial position or results of operations of the Company.
EFP was subject to a lawsuit concerning the supply by a utility company of
natural gas to one of its manufacturing plants. The utility company alleged that
EFP was under-billed over a four-year period, as a result of errors made by the
utility company. A settlement was agreed to by both parties on March 26, 2002
and did not have a material adverse impact on the results of operations of the
Company.
WARRANTY. Morgan provides product warranties for periods of up to seven
years. TAG provides a warranty period, exclusive to the original pickup truck
owner, which is, in general but with exclusions, one year for parts, five years
for paint and lifetime for structure. A provision for warranty costs is included
in cost of sales when goods are sold based on historical experience.
LETTERS OF CREDIT AND OTHER COMMITMENTS. The Company had $3,830,000 and
$4,425,000 in standby letters of credit outstanding at June 30, 2002 and
December 31, 2001, respectively, primarily securing the Company's insurance
programs.
ENVIRONMENTAL MATTERS. Since 1989, Morgan has been named as a Potentially
Responsible Party ("PRP") with respect to the generation of hazardous materials
alleged to have been handled or disposed of at two Federal Superfund sites in
Pennsylvania and one in Kansas. Although a precise estimate of liability cannot
currently be made with respect to these sites, based upon information known to
Morgan, the Company currently believes that it's proportionate share, if any, of
the ultimate costs related to any necessary investigation and remedial work at
those sites will not have a material adverse effect on the Company. To date, the
Company's expenditures related to those sites have not been significant.
In a memorandum dated January 10, 2002 from the Georgia Environmental
Projection Division ("EPD"), The Truck Accessories Group ("TAG") was notified
that it may be a PRP in a Georgia state superfund site. Although a precise
estimate of liability cannot currently be made with respect to this site, the
Company believes that it's proportionate share, if any, of the ultimate costs
related to any investigation and remedial work at this site will not have a
material adverse effect on the Company.
On October 4, 2001, the United States Environmental Protection Agency
("EPA") filed an administrative complaint against the Truck Accessories Group,
Inc., d/b/a Leer Midwest, Elkhart, Indiana. The EPA claimed that the Company
failed to timely file certain forms required pursuant to Section 313 of the
Emergency Planning and Community Right-to-Know Act and regulations promulgated
thereunder. The EPA sought a penalty of $59,000. The Company is engaged in
settlement discussions to resolve these and other potential claims. Although a
precise estimate of liability cannot currently be made with respect to the
alleged violation, the Company believes that the ultimate cost of this matter
will not have a material adverse effect on the Company.
The Company's operations utilize resins, paints, solvents, oils and
water-based lubricants in their businesses. Also, raw materials used by EFP
contain pentane, which is a volatile organic compound subject to regulation
under the Clean Air Act. Although the Company believes that it has made
sufficient capital expenditures to maintain compliance with existing laws and
regulations, future expenditures may be necessary if and when compliance
standards and technology change.
7
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SELF-INSURED RISKS. The Subsidiaries utilize a combination of insurance
coverage and self-insurance programs for property, casualty, including workers'
compensation, and health care insurance. The Company has reserves recorded to
cover the self-insured portion of these risks based on known facts and
historical trends and management believes that such reserves are adequate and
the ultimate resolution of these matters will not have a material adverse effect
on the financial position or results of operations of the Company.
(9) RECENTLY ISSUED ACCOUNTING STANDARDS.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets which becomes effective for fiscal years beginning after December 15,
2001. SFAS No. 142 prohibits amortization of goodwill and requires that goodwill
be tested for impairment annually. The statement includes specific guidance for
testing goodwill impairment. The Company adopted SFAS No. 142 as of January 1,
2002. The Company's consolidated statement of operations for the year ended
December 31, 2001 included approximately $1,167,000 of goodwill amortization.
Pro forma results for the six and three months ended June 30, 2001, assuming the
discontinuation of amortization of goodwill as of January 1, 2001, are shown
below:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2001 2001
---- ----
Reported Net Income..................... $1,615,000 $1,939,000
Amortization of goodwill, net of taxes.. 187,000 377,000
------------ ------------
Adjusted net income..................... $1,802,000 $2,316,000
========== ==========
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment
or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, and the accounting reporting provisions of Accounting Principles
Board Opinion ("APB") No. 30, Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for recognition and measurement of
long-lived asset impairment and for the measurement of long-lived assets to be
disposed of by sale and the basic requirements of APB No. 30. In addition to
these fundamental provisions, SFAS No. 144 provides guidance for determining
whether long-lived assets should be tested for impairment and specific criteria
for classifying assets to be disposed of as held for sale. The statement is
effective for fiscal years beginning after December 15, 2001, and the Company
adopted the new standard as of January 1, 2002. Management does not expect the
adoption of this new standard to have a material effect on the Company's
consolidated financial position or results of operations. In June 1998, the
Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which, as amended by SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement 133, is required to be adopted in fiscal
years beginning after June 15, 2000. Because of the Company's limited use of
derivatives, the adoption of the new statement had no significant effect on
earnings or the financial position of the Company.
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections.
This statement eliminates the requirement under SFAS 4 to aggregate and classify
all gains and losses from extinguishment of debt as an extraordinary item, net
of the related income tax effect. This statement also amends SFAS 13 to require
certain lease modifications with economic effects similar to sale-leaseback
transactions to be accounted for in the same manner as sale-leaseback
transactions. In addition, SFAS 145 requires reclassification of gains and
losses in all prior periods presented in comparative financial
8
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
statements related to debt extinguishment that do not meet the criteria for
extraordinary items in APB 30. The statement is effective for fiscal years
beginning after May 15, 2002 with early adoption encouraged. The Company will
adopt SFAS 145 effective January 1, 2003. Management does not expect adoption of
this statement to have a material effect on the Company's consolidated financial
position or results of operations.
In July 2002, the FASB issued SFAS 146, Obligations Associated with Disposal
Activities, which is effective for disposal activities initiated after December
15, 2002, with early adoption encouraged. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in Restructuring)." Under this statement the liability for a cost
associated with an exit or disposal activity would be recognized and measured at
its fair value when it is incurred rather at the date of commitment to an exit
plan. Under SFAS 14, severance pay would be recognized over time rather than up
front provided the benefit arrangement requires employees to render future
service beyond a "minimum retention period", which would be based on the legal
notification period, or if there is no such requirement, 60 days, thereby
allowing a liability to be recorded over the employees' future service period.
The Company will adopt SFAS 146 effective with disposal activities initiated
after December 15, 2002. Management does not expect adoption of this statement
to have a material effect on the Company's consolidated financial position or
results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company operates in industries that are dependent on various factors
reflecting general economic conditions, including corporate profitability,
consumer spending patterns, sales of truck chassis and new pickup trucks and
levels of oil and gas exploration.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
While TAG benefited from continued demand for its fiberglass caps and
tonneau covers, the continuing recession in demand for capital goods and
consumer durables has adversely affected Morgan and SMG. In response, the
Company continued to reduce both fixed and variable costs in line with sales
expectations which are currently 8% to 10% below 2001 levels for the 2002 year.
Further action is anticipated to improve operating efficiencies and reduce
overhead costs in all the business units and at the parent company.
Net sales decreased $23.8 million, or 11% to $187.0 million for the six
months ended June 30, 2002 compared to $210.8 million during the 2001 period.
TAG's net sales increased $2.7 million or 4% to $70.7 million on a 2% increase
in units shipped. Excluding shipments of polymer based products of approximately
500 units during 2002 and 2,600 units during 2001, sales increased 6% to $70.4
million and units shipped increased 5%. TAG will discontinue production of
polymer based products in September of this year. Morgan's net sales decreased
19% or $19.6 million to $49.6 million; however, unit shipments decreased only 8%
to 12,325 units. Shipments of products to consumer rental companies, usually
large production runs completed by the end of the second quarter, increased 48%
while sales of all other products, principally commercial units, decreased 32%.
SMG's net sales decreased $6.9 million or 17% to $33.6 million due to a $6.9
million or 44% decrease in sales to customers in the energy services business.
At June 30, 2002 the United States rig count, a leading indicator for the energy
services industry was 40% below levels of a year ago.
9
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
Morgan's backlog at June 30, 2002 was $24.7 million which was 11% above
the level at the same time last year; Morgan's backlog increased compared to
June 30, 2001 as a result of increased commercial orders. TAG maintained its
backlog at historical levels of approximately two weeks of production or $4.0
million. SMG's backlog at June 30, 2002 was $15.8 million compared to $20.8
million in 2001, due primarily to decreased activity in the energy services
business.
Cost of sales decreased 10% to $160.6 million for the six months ended
June 30, 2002 compared to $179.3 million during the 2001 period. Gross profit
decreased 16% to $26.4 million for 2002 compared to $31.5 million for 2001. In
spite of the 11 percent reduction in net sales, consolidated gross profit of
$26.4 million represented a gross margin of 14% compared to 15% for the first
six months of 2001. Gross profit at Morgan decreased $2.0 million or 18%, on
lower production volume, to $9.4 million (11% of net sales) compared to $11.4
million (11% of net sales) during 2001. Morgan reduced its manufacturing
overhead for the period by approximately $4.6 million and cut manufacturing
labor costs by 20 percent through a 17 percent reduction in headcount. TAG's
gross profit increased $0.5 million to $10.5 million (15% of net sales) compared
to $10.1 million (also 15% of net sales) for the same period last year. Gross
profit at SMG for the period was $6.5 million, a decrease of $3.5 million
compared to the first half of 2001. The reduction in gross margin at SMG from
25% to 19% was primarily a result of higher labor and overhead costs relative to
sales as highly skilled labor was retained during the downturn in business.
Selling, general and administrative expenses increased $0.9 million or 4%
to $22.3 million (12% of net sales) for the six months ended June 30, 2002
compared to $21.4 million (10% of net sales) during 2001. Selling, general and
administrative expenses decreased $0.8 million or 11% at Morgan and $0.7 million
or 12% at SMG as a result of reduced administrative personnel and related costs.
General and administrative headcount was reduced 27% at Morgan and 29% at SMG.
Expenses increased at TAG $0.8 million or 12% due primarily to additional
infrastructure costs of $0.5 million, and additional product mold engineering
costs of approximately $0.3 million. Current period parent selling, general and
administrative expenses were $3.0 million compared to $1.5 million for the prior
year. On a comparable basis, the prior year expense was $2.0 million after
excluding the reduction to expense as a result of refunds of prior period
insurance premiums and employee benefit plan costs. The $1.0 million increase
over the adjusted prior year parent company expense was due to an increase of
$0.6 million in executive compensation and severance costs and a $0.4 million
increase in insurance reserves.
Operating income decreased 59% or $5.9 million to $4.1 million (2% of net
sales) for the six months ended June 30, 2002 compared to $10.0 million (5% of
net sales) in 2001. Morgan maintained its operating income at 4% of sales or
$3.0 million compared to $4.3 million despite a $19.6 million or 19% decrease in
sales. TAG's operating income decreased $0.3 million to $2.9 million for the
period primarily as a result of increased general and administrative costs.
SMG's operating income decreased $2.8 million or 70% to $1.2 million, primarily
as a result of lower sales.
Operating income for the six months ended June 30, 2002 was reduced by
operating losses of $0.4 million at the polymer products division of TAG and
additional insurance accruals of $0.4 million for prior year premium
adjustments.
Interest expense was $6.4 million for the six months ended June 30, 2002,
9% less than the $7.0 million during the same period in 2001 due to lower
revolver borrowings. Average revolver borrowing during the 2002 period was 33%
less than the prior period.
The income tax expense for the six months ended June 30, 2002 differs from
amounts computed based on the federal statutory rate due to foreign and state
income taxes payable. The income tax expense for the six months ended June 30,
2001 approximates amounts computed based on the federal statutory rate.
10
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
SECOND QUARTER 2002 COMPARED TO SECOND QUARTER 2001
Net sales decreased $7.3 million or 7% to $102.5 million for the quarter
ended June 30, 2002 compared to $109.8 million during the 2001 period. Morgan's
sales decreased 6% or $3.4 million as shipments of Morgan's consumer rental
products increased 87% offset by a 27% decrease in shipments of commercial
products. TAG's sales decreased slightly to $36.3 million. Excluding polymer
products, production of which will be discontinued in the third quarter of 2002,
TAG's sales increased $0.8 million or 2% on a 1% increase in units shipped.
SMG's sales decreased $3.8 million or 18% to $16.6 million primarily due to a
$3.7 million or 45% decrease in sales to customers in the energy services
business.
Cost of sales declined 6% to $86.8 million for the quarter ended June 30,
2002 compared to $92.8 million during the 2001 period. Gross profit decreased 8%
to $15.7 million (15% of net sales) during the 2002 quarter compared to $17.0
million (16% of net sales) for 2001. Gross profit at Morgan decreased $0.2
million (3%) to $6.9 million or 14% of sales compared to 13% of sales during
2001 as the high volume of consumer rental production and reduced fixed overhead
costs improved overhead absorption rates and therefore the gross profit margin.
TAG's gross profit as a percent of sales remained 15% during the 2002 and 2001
periods. SMG's gross profit decreased $1.4 million to $3.4 million (20% of net
sales) during 2002 compared to $4.8 million (24% of net sales) during 2001 as
lower production volumes reduced overhead absorption rates.
Selling, general and administrative expenses were $11.2 million (11% of
net sales) for the quarter ended June 30, 2002 compared to $11.1 million (10% of
net sales) during 2001. Morgan and SMG reduced expenses $0.4 million or 12% and
$0.4 million or 14%, respectively, offset by a $0.2 million increase at TAG and
a $0.7 million increase in parent company expenses. The increase in parent
company expenses included increased insurance cost accruals of $0.4 million,
additional executive compensation costs of $0.3 million.
Operating income was $4.5 million (4% of net sales) for the quarter ended
June 30, 2002 compared to $5.9 million (5% of net sales) in 2001. In spite of a
6% decline in net sales, Morgan's operating income increased $0.6 million for
the period on improved gross profit margin and a 12% reduction in selling,
general and administrative costs. TAG's operating income decreased $0.3 million
to $1.4 million due to lower sales and increased general and administrative
expense. SMG's operating income decreased $0.9 million or 53% as a result of
lower sales to customers in the energy services business.
Operating income for the quarter ended June 30, 2002 was reduced by costs
of $0.2 million at TAG associated with the production of polymer products and
insurance accruals for prior period premium costs of $0.4 million.
Interest expense was $3.1 million for the quarter ended June 30, 2002, 10%
less than the $3.4 million during the same period in 2001. The decrease was due
to lower revolver borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations during the six months ended June 30, 2002 was
$0.1 million compared with $7.7 million during the same period in 2001. The
decrease was primarily due to the decrease in net income of $4.0 million for the
period. Working capital at June 30, 2002 was $11.9 million compared to $17.8
million at June 30, 2001 or $26.9 million and $37.9 million, respectively,
excluding revolver borrowings. The decrease in working capital was due to lower
sales volume and improved accounts receivable and inventory performance. Days
sales open at June 30, 2002 were 26 compared to 33 at June 30, 2001, inventory
turns for the six months ended June 30, 2002 improved to 12.2 compared to 11.6
for the prior period and days payable open declined at June 30, 2002 to 21 days
from 23 days for the prior period.
11
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
The ability to borrow under the Revolving Loan Agreement depends on the
amount of eligible collateral, which, in turn, depends on certain advance rates
applied to the value of accounts receivables and inventory. At July 26, 2002,
the Company had unused available borrowing capacity of approximately $14.0
million under the terms of the Revolving Loan Agreement. Borrowings under the
Revolving Loan Agreement at June 30, 2002 decreased $5.1 million to $15.0
million compared to $20.1 million at June 30, 2001, and increased $5.8 million
compared to $9.2 million at December 31, 2001. Net of restricted cash, revolver
borrowings increased $4.4 million compared to December 31, 2001.
Capital expenditures for the six months ended June 30, 2002 were $3.0
million compared to $4.7 million during the same period in 2001. Capital
expenditures during 2002 included replacement expenditures at TAG of $2.4
million for product molds.
Earnings before interest, tax and depreciation and amortization (EBITDA)
were $9.5 million and $15.8 million for the six months ended June 30, 2002 and
2001, respectively. EBITDA was $7.2 million and $9.0 million for the three
months ended June 30, 2002 and 2001, respectively. EBITDA for the four quarters
ended June 30, 2002 was $17.3 million and $20.7 million on a pro forma basis
after adjusting for the results of operations of the polymer products division
of TAG. At June 30, 2002, the Consolidated EBITDA Coverage Ratio, as defined in
the 2004 12 -1/2% Senior Notes Bond Indenture and excluding unrestricted
subsidiaries, calculated on a rolling four quarter basis was 1.4 or 1.7 on a pro
forma basis, which is less than the 2:1 ratio required by the Indenture. As a
result, the Company is limited in its ability to incur additional borrowings,
excluding borrowings under the Revolving Loan Agreement, enter into capital
leases, provide certain guarantees or incur liens on its assets.
The Company believes that it has adequate resources to meet its working
capital and capital expenditure requirements consistent with past trends and
practices. Operating cash flows are a principal source of liquidity to the
Company and the diverse nature of the operations of the Company, in management's
opinion, potentially reduces exposure to economic factors such as a
manufacturing recession. Additionally, the Company believes that it's borrowing
availability under the Revolving Credit Agreement and potentially available
sources of long-term financing will satisfy the Company's cash requirements for
the foreseeable future, given its anticipated additional capital expenditures,
working capital requirements and its known obligations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (1) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (2) other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission.
PART II. OTHER INFORMATION
ITEM 3. OTHER INFORMATION
The registrant meets the conditions set forth in General Instructions H
(1)(a) and (b) of Form 10Q and is therefore filing this form with reduced
disclosure format.
12
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
10.1.20 Amendment No. 13 to the Loan and Security Agreement by and among
Congress Financial Corporation and J.B. Poindexter & Co., Inc.,
dated March 1, 2002.
10.1.21 Amendment No. 14 to the Loan and Security Agreement by and among
Congress Financial Corporation and J.B. Poindexter & Co., Inc.,
dated April 22, 2002.
13
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.
J.B. POINDEXTER & CO., INC.
(Registrant)
Date: August 13, 2001 By: R.S.Whatley
-----------------------------------
R. S. Whatley, Principal Financial
and Accounting Officer
14
Exhibit Index
10.1.20 Amendment No. 13 to the Loan and Security Agreement by and among
Congress Financial Corporation and J.B. Poindexter & Co., Inc.,
dated March 1, 2002.
10.1.21 Amendment No. 14 to the Loan and Security Agreement by and among
Congress Financial Corporation and J.B. Poindexter & Co., Inc.,
dated April 22, 2002.