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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 SEPTEMBER 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 November 1, 2002.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------- ------------
(Unaudited)
Current assets
Restricted cash ........................................... $ 348 $ 98
Accounts receivable, net of allowance for doubtful accounts
of $1,170 and $1,054, respectively .................... 27,866 25,161
Inventories, net .......................................... 25,233 26,761
Deferred income taxes ..................................... 2,151 2,175
Prepaid expenses and other ................................ 1,644 1,702
--------- ---------
Total current assets .................................. 57,242 55,897
Property, plant and equipment, net ............................ 44,285 47,624
Goodwill, net ................................................. 17,976 17,976
Deferred income taxes ......................................... 6,697 3,714
Other assets .................................................. 3,678 3,619
--------- ---------
Total assets .............................................. $ 129,878 $ 128,830
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current portion of long-term debt ......................... $ 1,752 $ 3,005
Borrowings under the revolving credit facilities .......... 15,014 9,183
Accounts payable .......................................... 15,607 15,856
Accrued compensation and benefits ......................... 5,309 5,037
Accrued interest .......................................... 4,117 1,276
Other accrued liabilities ................................. 7,018 7,858
--------- ---------
Total current liabilities ............................. 48,817 42,215
--------- ---------
Noncurrent liabilities
Long-term debt, less current portion ...................... 87,710 88,756
Employee benefit obligations and other .................... 3,706 3,793
--------- ---------
Total noncurrent liabilities .......................... 91,416 92,549
--------- ---------
Commitments and contingencies
Stockholder's deficit
Common stock and paid-in-capital .......................... 16,486 16,486
Cumulative other elements of comprehensive income ......... (632) (613)
Accumulated deficit ....................................... (26,209) (21,807)
--------- ---------
Total stockholder's deficit ........................... (10,355) (5,934)
--------- ---------
Total liabilities and stockholder's deficit ........... $ 129,878 $ 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
(UNAUDITED) (UNAUDITED)
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales ...................................... $ 82,161 $ 92,511 $ 269,152 $ 303,277
Cost of sales .................................. 72,538 79,818 233,127 259,128
--------- --------- --------- ---------
Gross profit ................................... 9,623 12,693 36,025 44,149
Selling, general and administrative expense .... 9,925 10,170 32,233 31,599
--------- --------- --------- ---------
Operating (loss) income ........................ (302) 2,523 3,792 12,550
Interest expense ............................... 3,132 3,318 9,540 10,362
--------- --------- --------- ---------
Income (Loss) from continuing operations before
income taxes ................................ (3,434) (795) (5,748) 2,188
Income tax provision (benefit) ................. (1,139) (278) (1,522) 766
--------- --------- --------- ---------
Income (Loss) from continuing operations, net of
applicable taxes ............................ (2,295) (517) (4,226) 1,422
Loss from discontinued operations .............. -- -- 176 --
--------- --------- --------- ---------
Net income (loss) .............................. $ (2,295) $ (517) $ (4,402) $ 1,422
========= ========= ========= =========
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 NINE MONTHS
ENDED SEPTEMBER 30,
(Unaudited)
2002 2001
-------- --------
Net income (loss) ......................................................... $ (4,402) $ 1,422
Adjustments to reconcile net income (loss) to net cash
Provided by operating activities:
Depreciation and amortization ......................................... 8,085 9,135
Non-cash provision for excess and obsolete inventory .................. 187 679
Non-cash provision for doubtful accounts receivable ................... 116 254
Deferred federal income tax benefit ................................... (2,959) (26)
Decrease in currency translation adjustment ........................... (19) (196)
Other ................................................................. 447 (51)
Change in assets and liabilities:
Accounts receivable ................................................... (2,821) (2,945)
Inventories ........................................................... 1,341 2,746
Prepaid expenses and other ............................................ 58 (634)
Accounts payable ...................................................... (249) 2,581
Accrued income taxes .................................................. (332) 82
Other accrued liabilities ............................................. 1,540 2,265
-------- --------
Net cash provided by operating activities ......................... 992 15,312
-------- --------
Cash flows used in investing activities:
Proceeds from sales of business and equipment ......................... 83 46
Acquisition of property, plant and equipment .......................... (4,347) (7,047)
-------- --------
Net cash used in investing activities ............................. (4,264) (7,001)
-------- --------
Cash flows provided by (used in) financing activities:
Net (payments) proceeds from revolving lines of credit and
short-term debt ................................................... 5,831 (7,717)
Proceeds from long-term debt .......................................... -- 967
Payments of long-term debt and capital leases ......................... (2,309) (3,049)
-------- --------
Net cash (used in) provided by financing activities ............... 3,522 (9,799)
-------- --------
Increase (decrease) in restricted cash .................................... 250 (1,488)
Restricted cash beginning of period ....................................... 98 2,345
-------- --------
Restricted cash end of period ............................................. $ 348 $ 857
======== ========
Supplemental information:
Cash paid for income taxes, net of refunds ............................ $ 943 $ 653
======== ========
Cash paid for interest ................................................ $ 6,699 $ 7,474
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
4
J.B. POINDEXTER & 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 nine-month period ended September 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- -----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
NET SALES:
Morgan ...................... $ 33,170 $ 39,163 $ 116,082 $ 141,706
TAG ......................... 32,796 34,849 103,461 102,777
Specialty Manufacturing Group 16,250 18,588 49,875 59,104
Inter Segment Eliminations .. (55) (89) (266) (310)
--------- --------- --------- ---------
Net Sales ................... $ 82,161 $ 92,511 $ 269,152 $ 303,277
========= ========= ========= =========
OPERATING INCOME (LOSS):
Morgan ...................... $ 847 $ 1,242 $ 3,885 $ 5,561
TAG ......................... (600) 994 2,272 4,210
Specialty Manufacturing Group 271 1,461 1,474 5,439
JBPCO (Parent) .............. (820) (1,174) (3,839) (2,660)
--------- --------- --------- ---------
Operating Income ............ $ 302 $ 2,523 $ 3,792 $ 12,550
========= ========= ========= =========
SEPTEMBER 30, DECEMBER 31,
2002 2001
TOTAL ASSETS AS OF: ------------ -------------
Morgan ...................... $ 48,238 $ 46,651
TAG ......................... 44,124 45,171
Specialty Manufacturing Group 33,157 35,167
JBPCO (Corporate) ........... 4,359 1,841
-------- --------
Total Assets ................ $129,878 $128,830
======== ========
5
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Morgan has one customer (a truck leasing and rental company) that accounted
for approximately 27% and 23% of Morgan's net sales during each of the nine
months ended September 30, 2002 and 2001, respectively. SMG has an industry
concentration, in international oil field service companies; sales to these
customers accounted for 18% and 29% of net sales, with one customer that
accounted for approximately 10% and 18% of SMG's net sales during each of the
nine months ended September 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ -------------------
2002 2001 2002 2001
------- ------- ------- -------
Net income (loss) .......... $(2,295) $ (517) $(4,402) $ 1,422
Foreign currency translation
adjustments ............ (129) (184) (19) (198)
------- ------- ------- -------
Comprehensive income (loss) $(2,424) $ (701) $(4,421) $ 1,224
======= ======= ======= =======
(4) INVENTORIES. Consolidated net inventories consisted of the following (in
thousands):
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ ------------
FIFO Basis Inventory:
Raw Materials $14,520 $15,022
Work in Process 4,813 5,428
Finished Goods 5,900 6,311
------- -------
Total Inventory $25,233 $26,761
======= =======
(5) REVOLVING LOAN AGREEMENTS. At September 30, 2002, the Company had total
borrowing availability of approximately $33,783,000 of which $4,080,000 was used
to secure letters of credit. Additionally, $15,014,000 had been borrowed to fund
operations, resulting in unused availability of $14,689,000.
(6) DISCONTINUED OPERATIONS. The disposal of principally all of TAG's
distribution division was completed during the year ended December 31, 1999.
During the nine months ended September 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 of $1,522,000 for the nine months ended
September 30, 2002 approximates amounts computed based on the federal statutory
rate less foreign and state taxes. The income tax expense of $766,000 for the
nine months ended September 30, 2001 approximates amounts computed based on the
federal statutory rate.
6
J.B. POINDEXTER & 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 that 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 based on
historical experience is included in cost of sales when goods are sold.
LETTERS OF CREDIT AND OTHER COMMITMENTS. The Company had $4,080,000 and
$4,425,000 in standby letters of credit outstanding at September 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
Protection Division ("EPD"), 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 TAG. EPA claimed that the
company failed to timely file certain forms allegedly required pursuant to
Section 313 of the Emergency Planning and Community Right-to-Know Act, and
regulations promulgated thereunder. EPA originally sought a penalty of $59,000
for issues related to 1996. TAG self-disclosed issues in other years and has now
resolved these claims and the Consent Order and Final Agreement (CAFO) with EPA
Region V was signed October 24, 2002. The settlement proposed an initial penalty
of $161,769, which was reduced to $35,910 by implementing two Supplemental
Environmental Projects which were undertaken in connection with the settlement
of this enforcement action.
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 & 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 became effective for fiscal years beginning after
December 15, 2001. SFAS No. 142 prohibits amortization of goodwill and requires
that goodwill be tested annually for impairment. 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 September 30,
2001, assuming the discontinuation of amortization of goodwill as of January 1,
2001, are shown below:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
2001 2001
---------- ----------
Reported net income (loss) ........... $ (516,000) $1,422,000
Amortization of goodwill, net of taxes 190,000 567,000
---------- ----------
Adjusted net income .................. $ (326,000) $1,989,000
========== ==========
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 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 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.
8
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 146, severance pay would be recognized over time rather than in
advance 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
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 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 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.
In October 2002, the Company decided to dispose of certain non-strategic assets
in the bulk material handling and the truck accessory distribution businesses.
Further action is anticipated to improve operating efficiencies and reduce
overhead costs in all the business units and at the parent company.
The Company's net sales decreased $34.1 million or 11% during the nine
months ended September 30, 2002 compared to the 2001 period. TAG's net sales
increased approximately 1% with sales of fiberglass caps and tonneaus increasing
10% or $7.1 million on a 2% increase in shipments. Sales of steel and polymer
based products at TAG decreased $6.9 million as the production of polymer based
products was discontinued during the current period and a large sale of steel
tonneaus during 2001 was not repeated in 2002. Morgan's net sales decreased 18%
or $25.6 million on a 9% decrease in unit shipments. Shipments of products to
consumer rental companies, usually large production runs completed by the end of
the second quarter, increased 42% while sales of all other products, principally
commercial units, sold to truck dealers, distributors and companies with fleets
of delivery trucks, decreased 25%. SMG's net sales decreased 16% or $9.2 million
due primarily to a $9.3 million or 42% decrease in sales to customers in the
energy services business. At September 30, 2002 the United States rig count, a
leading indicator for the energy services industry was 28% below levels of a
year ago.
Morgan's backlog at September 30, 2002 was $23.4 million compared to $24.7
million at June 30, 2002 and $19.9 million at the same time last year. TAG
maintained its backlog at historical levels of approximately two weeks
9
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
of production or $4.4 million. SMG's backlog at September 30, 2002 was $17.6
million compared to $15.8 million at June 30, 2002 and $21.0 million in 2001.
Cost of sales decreased 10% this year and gross profit decreased 18% to
$36.0 million. In spite of the 11 percent reduction in net sales, the
consolidated gross profit margin was 13% compared to 15% for the first nine
months of 2001. Gross profit at Morgan decreased 16% or $2.5 million, on lower
production volume, to $13.2 million (11% of net sales) compared to $15.7 million
(11% of net sales) during 2001. Morgan reduced its manufacturing overhead for
the period by approximately $6.2 million and cut manufacturing labor costs by
17% through a 17% reduction in headcount. TAG's gross profit decreased $1.0
million to $13.7 million (13% of net sales) compared to $14.6 million (14% of
net sales) for the same period last year. Increased material and labor costs
relative to sales at its Leer division were partly offset by improved sales and
higher gross profits at the other TAG divisions. Gross profit at SMG for the
period was $9.2 million, a decrease of 33% or $4.7 million, primarily as a
result of lower production volumes on the 42% decrease in sales to customers in
the energy services business.
Selling, general and administrative expenses increased 2% or $0.6 million,
increasing to 12% of net sales for the nine months ended September 30, 2002
compared to 10% of net sales during 2001. Selling, general and administrative
expenses decreased $0.8 million or 8% at Morgan and $0.7 million or 8% at SMG as
a result of reduced administrative personnel and related costs. General and
administrative headcount was reduced approximately 11% at Morgan and 17% at SMG.
Expenses increased at TAG $1.0 million or 9% due primarily to additional
personnel and related costs of $0.5 million. Parent company expenses increased
$1.2 million compared to the prior year due primarily to an increase of $0.6
million in executive compensation and severance costs and due to insurance
premium and benefit plan cost refunds received in the prior year. Parent company
expenses have been reduced by approximately $0.7 million a year with reductions
in staffing levels and rent costs.
Operating income decreased 70% to 1% of net sales compared to 4% of net
sales in 2001. Morgan's operating income was 3% of sales compared to 4% last
year in the face of a $25.6 million or 18% decrease in sales. TAG's operating
income decreased to 2% of net sales for the period from 4% last year, primarily
as a result of the decline in gross profits resulting from higher manufacturing
costs at the Leer division. SMG's operating income decreased to 3% of net sales
from 9%, as a result of lower sales to the energy services business.
Non-strategic operations that the Company has decided to dispose of,
including the polymer product manufacturing operations of TAG, had combined
operating losses of $1.7 million and $2.7 million during the nine months ended
September 30, 2002 and 2001, respectively.
Interest expense was $9.5 million for the nine months ended September 30,
2002, 8% less than the $10.4 million during the same period in 2001. Average
revolver borrowing during the 2002 period was 29% less than the prior period.
The income tax expense for the nine months ended September 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 nine months ended
September 30, 2001 approximates amounts computed based on the federal statutory
rate.
THIRD QUARTER 2002 COMPARED TO THIRD QUARTER 2001
Net sales decreased 11% or $10.4 million this quarter compared to the 2001
period. Morgan's sales decreased 15% or $6.0 million primarily due to a $5.0
million decrease in commercial product sales. Shipments of Morgan's commercial
products, sold to truck dealers, distributors and companies with fleets of
delivery trucks, decreased 6% during the third quarter compared to the prior
year, however; shipments have improved 10% over the second quarter of 2002.
TAG's sales decreased 6% or $2.0 million with sales of fiberglass based products
up 4% or $0.9 million
10
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
on a 4% increase in shipments, offset by a $2.7 million decrease in polymer and
steel based product sales. SMG's sales decreased 13% or $2.3 million primarily
due to a $2.7 million or 35% decrease in sales to customers in the energy
services business.
Cost of sales declined 9% for the quarter compared to the 2001 period. Gross
profit decreased 24% to $9.6 million (12% of net sales) compared to $12.7
million (14% of net sales) for 2001. The gross profit margin at Morgan was 12%
of sales which is an improvement compared to 11% of sales last year. Morgan has
reduced fixed overhead costs by 16% and product mix changes lowered material
costs by 17%. TAG's gross profit decreased 32% to $3.1 million or 10% of sales
due to higher costs at its Leer division. TAG has reduced its manufacturing
headcount by 20% subsequent to the end of the quarter which is expected to
reduce costs by approximately $1.5 million a quarter including the labor costs
associated with the production of polymer based product which has been
discontinued. SMG's gross profit decreased 31% to $2.6 million or 16% of net
sales during 2002 compared to 21% of net sales during 2001 as lower production
volumes reduced overhead absorption rates.
Selling, general and administrative expenses were 12% of net sales for the
quarter ended September 30, 2002 compared to 11% of net sales during 2001.
Expenditures were flat at the operating companies and decreased $0.4 million or
30% at the parent company.
The Company incurred an operating loss of $0.3 million for the quarter due
primarily to a $0.6 million operating loss at TAG, higher manufacturing costs at
its Leer division and a $1.2 million decrease in operating profits at SMG as a
consequence of lower sales to the energy services industry.
Non-strategic operations that the Company has decided to dispose of,
including the polymer product manufacturing operations of TAG, had combined
operating losses of $0.7 million and $1.1 million during the three months ended
September 30, 2002 and 2001 respectively.
Interest expense decreased 6% this quarter on an 18% decrease in average
revolver borrowings compared to the same quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations during the nine months ended September 30, 2002
was $1.0 million. Working capital at September 30, 2002 was $8.4 million
compared to $16.8 million at September 30, 2001 or $23.4 million and $32.9
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 September 30, 2002 were 28 compared to
32 at September 30, 2001, inventory turns for the nine months ended September
30, 2002 improved to 12.3 from 11.3 for the prior period and days payable open
at September 30, 2002 were 22 days which is consistent with prior periods.
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 November 6 ,
2002, the Company had unused available borrowing capacity of $13.9 million under
the terms of the Revolving Loan Agreement. Borrowings under the Revolving Loan
Agreement at September 30, 2002 increased $5.8 million to $15.0 million compared
to $9.2 million at December 31, 2001. Revolver borrowings of $5.8 million and
cash from operations of $1.0 million, during the nine months ended September 30,
2002, were used to fund capital expenditures of $4.3 million and the repayment
of long term debt and capital leases of $2.3 million. Net cash proceeds from the
disposal of non-strategic operations will be used to repay revolver borrowings.
11
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Capital expenditures for the nine months ended September 30, 2002 were $4.4
million compared to $7.0 million during the same period in 2001. Capital
expenditures during 2002 included replacement expenditures at TAG of $3.0
million for product molds.
Earnings before interest, tax, depreciation, and amortization (EBITDA) were
$11.6 million and $21.4 million for the nine months ended September 30, 2002 and
2001, respectively. EBITDA was $2.1 million and $5.6 million for the three
months ended September 30, 2002 and 2001, respectively. EBITDA for the four
quarters ended September 30, 2002 was $13.9 million. At September 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 1.1:1 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's Revolving Loan Agreement, as amended, expires on March 31,
2003 and continues from year to year thereafter unless terminated by either
party to the agreement. The Company expects to renew the agreement prior to the
expiration date.
Depending on market conditions, the Company continually evaluates the most
efficient use of its capital, including purchasing, refinancing or otherwise
retiring certain of the Company's outstanding debt, debt exchanges,
restructuring of obligations, financings, capital expenditures, and issuance of
securities in the open market or by other means to the extent permitted by its
existing financing arrangements.
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.
MANAGEMENT CHANGES
Effective November 6, 2002 Keith Moore, President and Chief Operating
Officer left the employment of the Company and John B. Poindexter assumed the
additional role of President.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and the Vice President,
Controller who performs the function of Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation,
the Chief Executive Officer and the Vice President, Controller who performs the
function of Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in alerting them timely to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic SEC filings. Subsequent to the
date of their evaluation, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect the
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
12
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
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.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K, dated August 15, 2002 reporting the certification of the Chief
Executive officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 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: November 14, 2002 By: R.S.Whatley
------------------------------------------
R. S. Whatley, Principal Financial and
Accounting Officer
14
CERTIFICATIONS
I, John B. Poindexter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of J.B. Poindexter &
Co., Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/John B. Poindexter
---------------------
Chief Executive Officer
15
I, Robert S. Whatley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of J.B. Poindexter &
Co., Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002 /s/Robert S. Whatley
--------------------
Principal Financial Officer
16