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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 MARCH 31, 2003
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 10-Q 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 May 1, 2003.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
(Unaudited)
Current assets
Restricted cash ........................................... $ 996 $ 112
Accounts receivable, net of allowance for doubtful accounts
of $903 and $828, respectively ........................ 30,397 23,175
Inventories, net .......................................... 26,204 23,103
Deferred income taxes ..................................... 1,547 1,540
Prepaid expenses and other ................................ 1,340 1,130
--------- ---------
Total current assets .................................. 60,484 49,060
Property, plant and equipment, net ............................. 37,290 39,189
Net assets of discontinued operations .......................... -- 321
Goodwill, net .................................................. 16,816 16,816
Deferred income taxes .......................................... 6,353 6,548
Other assets ................................................... 3,346 3,405
--------- ---------
Total assets .............................................. $ 124,289 $ 115,339
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current portion of long-term debt ......................... $ 626 $ 982
Borrowings under the revolving credit facilities .......... 16,485 15,866
Accounts payable .......................................... 16,972 13,310
Accrued compensation and benefits ......................... 5,291 4,850
Accrued income taxes ...................................... 156 165
Accrued interest .......................................... 4,208 1,528
Other accrued liabilities ................................. 7,702 6,440
--------- ---------
Total current liabilities ............................. 51,440 43,141
--------- ---------
Noncurrent liabilities
Long-term debt, less current portion ...................... 86,732 86,891
Other Long-Term Liabilities ............................... 3,393 3,356
Net liabilities of discontinued operations ................ 312 --
--------- ---------
Total noncurrent liabilities .......................... 90,437 90,247
--------- ---------
Stockholder's deficit
Common stock and paid-in-capital .......................... 16,486 16,486
Cumulative other comprehensive income ..................... (470) (618)
Accumulated deficit ....................................... (33,604) (33,917)
--------- ---------
Total stockholder's deficit ........................... (17,588) (18,049)
--------- ---------
Total liabilities and stockholder's deficit ........... $ 124,289 $ 115,339
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
2
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
2003 2002
-------- --------
(Unaudited)
Net sales .......................................... $ 89,898 $ 79,678
Cost of sales ...................................... 77,167 68,924
-------- --------
Gross profit ....................................... 12,731 10,754
Selling, general and administrative expense ........ 8,657 10,226
Other income ....................................... (125) (16)
-------- --------
Operating income ................................... 4,199 544
Interest expense ................................... 3,345 3,257
-------- --------
Income (loss) before income taxes .................. 854 (2,713)
Income tax provision (benefit) ..................... 390 (940)
-------- --------
Income (loss) before discontinued operations ....... 464 (1,773)
Loss from discontinued operations .................. 151 604
-------- --------
Net income (loss) .................................. $ 313 $ (2,377)
======== ========
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
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
(Unaudited)
2003 2002
------- -------
Net income (loss) ........................................... $ 313 $(2,377)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 2,199 2,456
Debt issuance costs .................................... 102 100
Non-cash provision for excess and obsolete inventory ... 158 183
Non-cash provision for doubtful accounts receivable .... 88 291
Gain on sale of property, plant and equipment .......... 2 --
Deferred federal income tax benefit .................... 195 (1,355)
Decrease accrued pension liability ..................... -- (23)
Operating cash flows from discontinued operations ...... 240 1,014
Other .................................................. 47 (7)
Change in assets and liabilities, net of the effect of
discontinued operations:
Accounts receivable .................................... (7,236) (6,500)
Inventories ............................................ (3,197) (2,945)
Prepaid expenses and other ............................. (302) 483
Accounts payable ....................................... 4,280 1,348
Accrued compensation and benefits ...................... 208 (693)
Accrued income taxes ................................... (32) (8)
Other accrued liabilities .............................. 3,948 2,894
------- -------
Net cash provided by (used in) operating activities 1,013 (5,139)
------- -------
Cash flows provided by (used in) investing activities:
Acquisition of property, plant and equipment ........... (835) (1,555)
Discontinued operations ................................ 935 (44)
------- -------
Net cash provided by (used in) investing activities: 100 (1,599)
------- -------
Cash flows (used in) provided by financing activities:
Net proceeds from revolving lines of credit and
short-term debt .................................... 718 7,584
Payments of long-term debt and capital leases .......... (514) (608)
Discontinued operations ................................ (331) 40
Change in restricted cash .............................. (884) (98)
------- -------
Net cash (used in) provided by financing activities (1,011) 6,918
------- -------
Effect of exchange rate changes on cash ..................... (102) (180)
------- -------
Change in cash ..................................... -- --
Cash beginning of period .................................... -- --
------- -------
Cash end of period .......................................... $ -- $ --
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
(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. Operating subsidiaries consist of
Morgan Trailer Mfg. Co., ("Morgan"), Truck Accessories Group, Inc., ("TAG"), and
Magnetic Instruments Corp., ("MIC Group"). MIC Group has one subsidiary;
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 three-month period ended March 31, 2003 are not
necessarily indications of the results that may be expected for the year ended
December 31, 2003. These financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 2002 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
ENDED MARCH 31,
--------------------------
2003 2002
--------- ---------
NET SALES:
Morgan ........................................................... $ 47,235 $ 33,305
TAG .............................................................. 29,514 32,562
Specialty Manufacturing Group .................................... 13,149 13,811
--------- ---------
Net Sales ........................................................ $ 89,898 $ 79,678
========= =========
OPERATING INCOME (LOSS):
Morgan ........................................................... $ 2,737 $ (802)
TAG .............................................................. 1,625 1,760
Specialty Manufacturing Group .................................... 593 1,007
JBPCO (Corporate) ................................................ (756) (1,421)
--------- ---------
Operating Income ................................................. $ 4,199 $ 544
========= =========
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
TOTAL ASSETS AS OF:
Morgan ........................................................... $ 52,379 $ 45,490
TAG .............................................................. 43,637 42,346
Specialty Manufacturing Group .................................... 28,828 28,018
JBPCO (Corporate) ................................................ (555) (515)
--------- ---------
Total Assets ..................................................... $ 124,289 $ 115,339
========= =========
Morgan has two customers (truck leasing and rental companies) that together
accounted for approximately 47% and 45% of Morgan's net sales during each of the
three months ended March 31, 2003 and 2002, respectively. Sales related to SMG
are concentrated with international oil field service companies, with one
customer that accounted for approximately 16% and 12% of SMG's net sales during
each of the three months ended March 31, 2003 and 2002, respectively.
5
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
(3) COMPREHENSIVE INCOME (LOSS). The components of comprehensive income (loss)
were as follows (in thousands):
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2003 2002
---- -------
Net income (loss)...................................... $313 $ (2,377)
Foreign currency translation
gain (loss)........................................ 148 (180)
----- ---------
Comprehensive income (loss) .......................... $461 $(2,557)
==== =======
(4) INVENTORIES. Consolidated inventories, net, consisted of the following (in
thousands):
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
FIFO Basis Inventory
Raw Materials ........................................ $ 15,740 $13,506
Work in Process........................................ 5,470 4,606
Finished Goods ........................................ 4,994 4,991
--------- -------
Total Inventory ........................................ $ 26,204 $23,103
======== =======
(5) REVOLVING LOAN AGREEMENTS. At March 31, 2003 and December 31, 2002, the
Company had total borrowing availability of approximately $36,704,000 and
$30,312,000 respectively, of which $4,080,000 was used to secure letters of
credit. Additionally as of March 31, 2003 and December 31, 2002, $16,485,000 and
$15,866,000 respectively, had been borrowed to fund operations, resulting in
unused availability of $16,139,000 and $10,366,000 respectively.
(6) DISCONTINUED OPERATIONS. The Gem Top division of TAG was sold effective
February 28, 2003 and treated as a discontinued operation during the year ended
December 31, 2002. During the three months ended March 31, 2003 and 2002, net
sales of the Gem Top division were $918,000 and $1,996,000, respectively and
operating losses were $228,000 and $93,000, respectively.
(7) INCOME TAXES. The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109,
deferred tax assets and liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted tax rates. The income tax provision (benefit) for the three months ended
March 31, 2003 and 2002 differ from amounts computed based on the federal
statutory rate as a result of state and foreign taxes.
The Company records a valuation allowance to reduce deferred tax
assets to the amount that is more likely than not to be realized. While the
Company has considered future taxable income and on-going prudent and feasible
tax planning strategies in assessing the need for the valuation allowance,
should the Company determine that it is more likely than not to be able to
realize the deferred tax assets in the future in excess of the net recorded
amount, an adjustment to the valuation allowance would increase income in the
period such determination was made. Likewise, should the Company determine that
it is more likely than not to be unable to realize all or part of the net
deferred tax asset in the future, an adjustment to the valuation allowance would
reduce income in the period such determination was made.
6
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
(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.
WARRANTY. Morgan provides product warranties for periods of up to five
years. TAG provides a warranty period, exclusive to the original 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 and estimated
future claims. The Company had accrued warranty costs of $2,552,000 and
$2,519,000 at March 31, 2003 and December 31, 2002, respectively. During the
three months ended March 31, 2003 and 2002, the Company charged to expense
$582,000 and $594,000 and made warranty payments of $549,000 and $667,000,
respectively.
ENVIRONMENTAL MATTERS. The Company's operations are subject to numerous
environmental statutes and regulations, including laws and regulations affecting
its products and the materials used in and wastes generated by manufacturing the
Company's products. In addition, certain of the Company's operations are subject
to federal, state and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the air and water of the United
States. The Company also generates non-hazardous wastes. The Company has
received notices of noncompliance, from time to time, with respect to its
operations, which are typically resolved by correcting the conditions and the
payment of minor fines, none of which individually or in the aggregate has had a
material adverse effect on the Company. However, the Company expects that the
nature of its operations will continue to make it subject to increasingly
stringent environmental regulatory standards. Although the Company believes it
has made sufficient capital expenditures to maintain compliance with existing
laws and regulations, future expenditures may be necessary, as compliance
standards and technology change. Unforeseen significant expenditures required to
maintain such future compliance, including unforeseen liabilities, could limit
expansion or otherwise have a material adverse effect on the Company's business
and financial condition.
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, the Company currently believes that its
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, Morgan's expenditures related to those sites
have not been significant. The Company has not recorded a liability related to
this matter.
In a memorandum dated January 10, 2002 and written by 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 currently
believes that its proportionate share, if any, of the ultimate costs related to
any necessary investigation and remedial work at this site will not have a
material adverse effect on the Company. The Company has not recorded a liability
related to this matter.
On October 4, 2001, the United States Environmental Protection Agency
("USEPA") filed an administrative complaint against TAG. The USEPA 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. The USEPA originally sought a penalty of
$59,000 for issues that arose in 1996. TAG self disclosed issues in other years
and has now resolved these claims and the Consent Order and Final Agreement
(CAFO) with USEPA Region V was signed October 24, 2002. The settlement proposed
an initial penalty of $161,769, which was reduced to $35,910 that was paid and
TAG has implemented two Supplemental Environmental Projects, undertaken in
7
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
connection with the settlement of this enforcement action, that require
approximately $100,000 of capital expenditures.
On January 29, 2003, USEPA notified Century that it had reviewed a
self-disclosure regarding failure to file certain forms allegedly required
pursuant to Section 313 of the Emergency Planning and Community Right-to-Know
Act, and regulations promulgated thereunder. USEPA is proposing a penalty of
$139,786. 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 has accrued
expenses of $16,000 related to this matter.
During a Phase II Environmental Assessment in November 2002 at KWS
Manufacturing, in preparation for its sale, two areas of potential contamination
were identified. As a part of the sale agreement, a Phase III project was
undertaken to determine the exact level of contamination and potential
remediation, if necessary. The Company has entered into a "Voluntary Clean Up
Project" with the Texas Commission on Environmental Quality that is expected to
be completed by August 2003. Although a precise estimate of liability cannot
currently be made with respect to the contamination levels or potential
remediation, the Company has reserved approximately $50,000 that it currently
believes is adequate to cover the ultimate costs of this matter.
SELF-INSURED RISKS. The Subsidiaries utilize a combination of insurance
coverage and self-insurance programs for property, casualty, workers'
compensation, and employee health care. 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) SUBSEQUENT EVENTS. Effective May 12, 2003, the Company sold the Morgan
facility located in Monterrey, Mexico. The Company received cash proceeds of
approximately $910,000 that were used to pay down borrowings under the Revolving
Loan Agreement. There was no gain or loss on the transaction.
Effective May 5, 2003 Beltrami, an un-restricted, non-guarantor subsidiary
of Morgan, purchased certain assets, primarily inventory, of a truck body
manufacturer, located in California, for the purposes of serving new customers
in the region. Beltrami paid approximately $400,000, in cash, for the assets and
assumed certain liabilities of approximately $240,000. Concurrently with the
acquisition, Beltrami entered into a 2 year non-compete agreement with the
former owner and a former officer of the company pursuant to which they will be
paid for not competing with Morgan. Beltrami will pay an aggregate of
approximately $380,000 each year under the terms of the non-compete.
(10) RECENTLY ISSUED ACCOUNTING STANDARDS.
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. The Company adopted SFAS 145 effective January 1, 2003. Since the
Company has not extinguished any debt since the adoption of this statement, it
has had no impact 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. SFAS 146 addresses financial accounting and reporting for
costs
8
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
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 adopted SFAS 146
effective with disposal activities initiated after December 15, 2002. The
Company has not engaged in any applicable disposal activities since adopting
this statement and consequently this statement had no impact on the consolidated
results of operations or consolidated balance sheet of the Company.
In December 2002, the FASB issued Interpretation ("FIN") 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires that at the time a company
issues a guarantee, the company must recognize an initial liability for the fair
value, or market value, of the obligations it assumes under that guarantee. This
interpretation is applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. Since the Company did not issue a guarantee or
modify an existing guarantee during the three months ended March 31, 2003, the
adoption of this statement did not have a significant impact on its consolidated
financial position and results of operations.
In January 2003 the FASB issued FIN 46, Consolidation of Variable Interest
Entities. FIN 46 requires that companies that control another entity through
interests other than voting interest should consolidate the controlled entity.
Interpretation 46 currently applies to variable interest entities created after
January 31, 2003 and to variable interest entities in which a company obtains an
interest after that date. Since the Company had no such interests arising
subsequent to or before January 31, 2003, this interpretation has had no impact
on our consolidated results of operations or consolidated balance sheet to date.
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
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2002
Net sales increased $10.2 million, or 13% to $89.9 million for the three
months ended March 31, 2003 compared to $79.7 million during the three months
ended March 31, 2002. Morgan's net sales increased 42% or $13.9 million on a 38%
increase in unit shipments to approximately 6,400 units. Shipment of product to
consumer rental companies that historically are completed in the first and
second quarters of the year changed little compared to the same period in 2002.
However, shipments of commercial units increased 49% as Morgan's major fleet
customers and dealers increased new truck purchases from Morgan. TAG's net sales
decreased $3.0 million or 9% to $29.5 million on an 8% decrease in units
shipped. SMG's net sales decreased $0.7 million or 5% to $13.1 million as a $0.5
million increase in sales to customers in the energy industry was offset by
decreased sales to customers in the consumer products related businesses.
Morgan's backlog at March 31, 2003 was $51.7 million compared to $46.3
million at December 31, 2002 and $37.4 million at March 31, 2002. The increase
was due to additional commercial unit orders during the first quarter of
9
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
2003 compared to both the last quarter of 2002 and the first quarter of 2002.
SMG's backlog at March 31, 2003 was $17.7 million compared to $18.1 million at
December 31, 2002 and $15.8 million at March 31, 2002 as higher activity from
customers in the energy industry was offset by lower non-energy orders as of
December 31, 2002. TAG's backlog of approximately 2 weeks production was $4.6
million at March 31, 2003 compared to $3.4 million as of December 31, 2002 and
$2.8 million as of March 31, 2002.
Cost of sales increased 12% to $77.2 million for the three months ended
March 31, 2003 compared to $68.9 million during the three months ended March 31,
2002. Gross profit increased 18% to $12.7 million (14% of net sales) during the
three months ended March 31, 2003 compared to $10.8 million (14% of net sales)
for the three months ended March 31, 2002. Gross profit at Morgan increased $3.6
million or 149% to $6.0 million or 13% of sales compared to 7% of sales during
2002, primarily due to higher volume of sales and the associated improved
absorption of overhead. TAG's gross profit decreased $0.9 million to $4.3
million (15% of net sales) compared to $5.2 million (16% of net sales) during
the three months ended March 31, 2002 period as a result of the reduced
absorption of overhead on lower volume. SMG's gross profit decreased $0.8
million to $2.4 million (18% of net sales) compared to $3.2 million (23% of net
sales) during the three months ended March 31, 2002 primarily due to increased
raw material costs on non-oil related business.
Selling, general and administrative expenses decreased $1.5 million or 16%
to $8.7 million (10% of net sales) for the three months ended March 31, 2003
compared to $10.2 million (13% of net sales) during the three months ended March
31, 2002. Selling, general and administrative expenses decreased to 7% of sales
at Morgan compared to 10% for the three months ended March 31, 2002. Selling,
general and administrative expense decreased $0.7 million or 21% at TAG, due to
reductions in administrative personnel and associated costs. Corporate expenses
for the 2003 period declined $0.7 million or 47% primarily as a result of
headcount reductions and their associated costs.
Operating income increased $3.7 million to $4.2 million (5% of net sales)
for the three months ended March 31, 2003 compared to $0.5 million (1% of net
sales) during the three months ended March 31, 2002. Morgan's operating income
increased $3.5 million to $2.7 million for the period due to higher sales. TAG's
operating income decreased to $1.6 million (6% of net sales) compared to $1.8
million (5% of net sales) during 2002. SMG's operating income decreased $0.4
million, as increased profits from sales to customers in the energy business
were offset by reductions in non-oil related profits. During the three months
ended March 31, 2003, SMG recorded income of approximately $125,000, included in
Other Income, from benefits paid under a life insurance policy held on a former
employee.
Interest expense was $3.3 million for the three months ended March 31,
2003 and 2002 despite a $2.2 million or 2% increase in average borrowings as a
result of a lower overall effective interest rate.
During the year ended December 31, 2002 the Company treated certain
operations as discontinued and sold or terminated those operations during the
year with the exception of the Gem Top division of TAG that was sold effective
February 28, 2003. Operating losses related to Gem Top were $0.2 million for the
three months ended March 31, 2003.
The income tax provision (benefit) for the three months ended March 31,
2003 and 2002 differ from amounts computed based on the federal statutory rate
due to state and foreign taxes.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during the three months ended March 31, 2003
generated cash of $1.0 million compared to using cash of $5.1 million during the
same period in 2002. Working capital at March 31, 2003 was $9.0 million compared
to $5.9 million at December 31, 2002. The increase was primarily due to
increased receivables at Morgan in response to the increase in sales.
10
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 May 1, 2003, the
Company had unused available borrowing capacity of approximately $19.7 million
under the terms of the Revolving Loan Agreement. Borrowings under the Revolving
Loan Agreement at March 31, 2003 were $16.5 million compared to $15.9 million at
December 31, 2002 and $15.6 million at March 31, 2002. Borrowings at March 31,
2002 included borrowings of $1.5 million related to discontinued operations.
Capital expenditures for the three months ended March 31, 2003 were $0.8
million compared to $1.6 million during the same period in 2002.
At March 31, 2003 and December 31, 2002, the Consolidated EBITDA coverage
Ratio, as defined in the 2004 12.5% Senior Notes Bond Indenture, was less than
2:1. 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 and Senior Notes Indenture restrict the
ability of the Company to dispose of assets, incur debt, pay dividends, and
undertake certain corporate activities. The Company is in compliance with the
terms of the Revolving Loan Agreement and the Indenture.
The Company continually evaluates the most efficient use of its capital
and contemplates various strategic options, which may include, without
limitation, restructuring its business, indebtedness or capital structure.
Accordingly, the Company or its subsidiaries may from time to time consider,
among other things, purchasing, refinancing or otherwise retiring certain
outstanding indebtedness (whether in the open market or by other means), public
or private issuances of debt or equity securities, joint venture transactions,
new borrowings, tender offers, exchange offers or any combination thereof,
although there can be no assurances that such financing sources will be
available on commercially reasonable terms. There can be no assurances that
these strategic options, if pursued, will be consummated.
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, reduces exposure to economic factors such as the current manufacturing
recession. Additionally, the Company believes that its borrowing availability
under the Revolving Credit Agreement and potentially available sources of
long-term financing will satisfy the Company's cash requirements for the coming
year, given its anticipated additional capital expenditures, working capital
requirements and its known obligations. On April 17, 2003 the Company submitted
an offer to its bondholders of record to exchange the $85 million, 12.5% Senior
Notes, due May 2004 for $85 million, 12.5% Senior Notes due May 2007 (New
Notes). The expiration date for the exchange offer is May 28, 2003. The offer
contemplates a consent fee of 3% payable upon exchange, provides the New Note
holders a security interest in principally all the fixed assets of the Company
and further restricts the Company from incurring debt and from making certain
restricted payments. The Company believes that the completion of the exchange
offer is critical to its plan to refinance the existing Notes and failure to
complete the exchange offer would materially and adversely affect the Company's
ability to refinance the existing Notes. There can be no assurances that any
refinancing will be successfully completed.
CRITICAL ACCOUNTING POLICIES
A discussion of critical accounting policies is included in the Company
2002 Annual Report on Form 10-K. There have been no material changes in critical
accounting policies since the date of that filing, or during the quarter ended
March 31, 2003
11
J.B. POINDEXTER AND 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.
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. CONTROLS AND PROCEDURES
On February 21, 2003, our Chief Executive Officer and Chief Financial
Officer performed an evaluation of the Company's disclosure controls and
procedures, which have been designed to permit the Company to effectively
identify and timely disclose important information. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequently to the last time such
controls were evaluated, including no corrective actions with respect to
significant deficiencies and material weaknesses in such controls.
PART II. OTHER INFORMATION
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
4.2.6 Sixth Supplemental Indenture dated as of February 28, 2003
10.1.21 Amendment No. 16 to the Loan and Security Agreement by and among
Congress Financial Corporation and J.B. Poindexter & Co., Inc dated March 26,
2003.
12
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: May 15, 2003 By: R.S. Whatley
--------------------------------------
R. S. Whatley, Principal Financial and
Accounting Officer
13
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
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: May 15, 2003 /s/ John B. Poindexter
-----------------------------
Chief Executive Officer
14
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
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: May 15, 2003 /s/ Robert S. Whatley
-----------------------------
Principal Financial Officer
15
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
4.2.6 Sixth Supplemental Indenture dated as of February 28, 2003
10.1.21 Amendment No. 16 to the Loan and Security Agreement by and
among Congress Financial Corporation and J.B. Poindexter &
Co., Inc dated March 26, 2003.