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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, 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 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 October 1, 2003.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
SEPTEMBER 30, DECEMBER 31,
2003 2002
--------- ---------
(Unaudited)
Current assets
Restricted cash ............................................... $ 1,984 $ 112
Accounts receivable, net of allowance for doubtful accounts
of $936 and $828, respectively ............................ 34,444 23,175
Inventories, net of allowance for excess and obsolete inventory
of $1,914 and $2,123, respectively ........................ 25,695 23,103
Deferred income taxes ......................................... 1,648 1,540
Prepaid expenses and other .................................... 1,734 1,130
--------- ---------
Total current assets ...................................... 65,505 49,060
Property, plant and equipment, net ................................. 34,166 39,189
Net assets discontinued operations ................................. -- 321
Goodwill ........................................................... 16,816 16,816
Deferred income taxes .............................................. 2,504 6,548
Other assets ....................................................... 5,981 3,405
--------- ---------
Total assets .................................................. $ 124,972 $ 115,339
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current portion of long-term debt ............................. $ 983 $ 982
Borrowings under the revolving credit facilities .............. 20,006 15,866
Accounts payable .............................................. 16,336 13,310
Accrued compensation and benefits ............................. 6,272 4,850
Accrued income taxes .......................................... 318 165
Accrued interest .............................................. 3,547 1,528
Other accrued liabilities ..................................... 7,377 6,440
--------- ---------
Total current liabilities ................................. 54,839 43,141
--------- ---------
Noncurrent liabilities
Long-term debt, less current portion .......................... 77,471 86,891
Employee benefit obligations and other ........................ 3,436 3,356
Net liabilities of discontinued operations .................... 437 --
--------- ---------
Total noncurrent liabilities .............................. 81,344 90,247
--------- ---------
Stockholder's deficit
Common stock and paid-in-capital .............................. 16,486 16,486
Cumulative other elements of comprehensive income ............. (243) (618)
Accumulated deficit ........................................... (27,454) (33,917)
--------- ---------
Total stockholder's deficit ............................... (11,211) (18,049)
--------- ---------
Total liabilities and stockholder's deficit ............... $ 124,972 $ 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
(IN THOUSANDS)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ -------------------------
(UNAUDITED) (UNAUDITED)
2003 2002 2003 2002
--------- -------- --------- ---------
Net sales .................................. $ 104,379 $ 78,388 $ 308,560 $ 255,674
Cost of sales .............................. 88,466 68,824 261,678 219,881
--------- -------- --------- ---------
Gross profit ............................... 15,913 9,564 46,882 35,793
Selling, general and administrative expense 9,034 9,353 26,393 29,965
Exchange offer costs ....................... (109) -- 831 --
Other income ............................... (384) (163) (544) (217)
--------- -------- --------- ---------
Operating income ........................... 7,372 374 20,202 6,045
Interest expense ........................... 3,066 3,082 9,308 9,382
--------- -------- --------- ---------
Income (loss) before income taxes .......... 4,306 (2,708) 10,894 (3,337)
Income tax provision (benefit) ............. 1,823 (784) 4,391 (473)
--------- -------- --------- ---------
Income (loss) before discontinued operations 2,483 (1,924) 6,503 (2,864)
Income (loss) from discontinued operations . (12) (371) (40) (1,538)
--------- -------- --------- ---------
Net Income (loss) .......................... $ 2,471 $ (2,295) $ 6,463 $ (4,402)
========= ======== ========= =========
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)
2003 2002
-------- -------
Net income (loss) ........................................................... $ 6,463 $(4,402)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization .......................................... 6,532 7,135
Debt issuance costs .................................................... 469 300
Non-cash provision for excess and obsolete inventory ................... 205 400
Non-cash provision for doubtful accounts receivable .................... 176 109
Gain on buy back of Senior Secured Notes ............................... (368) --
Deferred federal income tax provision (benefit) ........................ 3,915 (2,959)
Operating cash flows from discontinued operations ...................... (175) 681
Other .................................................................. (96) 182
Change in assets and liabilities net of the effect of discontinued operations
and acquisitions:
Accounts receivable .................................................... (11,165) (4,338)
Inventories ............................................................ (2,150) (128)
Prepaid expenses and other ............................................. (652) 38
Accounts payable ....................................................... 3,305 850
Accrued income taxes ................................................... 74 (332)
Other accrued liabilities .............................................. 4,689 3,586
-------- -------
Net cash provided by operating activities ................................... 11,222 1,123
-------- -------
Cash flows used in investing activities:
Proceeds from sales of business and equipment .......................... 865 72
Purchase of business ................................................... (400) --
Acquisition of property, plant and equipment ........................... (2,793) (4,296)
Discontinued operations ................................................ 953 (156)
-------- -------
Net cash used in investing activities .............................. (1,375) (4,380)
-------- -------
Cash flows provided by (used in) financing activities:
Net proceeds from revolving lines of credit and
short-term debt .................................................... 4,382 6,373
Payments of long-term debt and capital leases .......................... (9,384) (1,870)
Discontinued operations ................................................ -- (980)
Exchange Offer consent fee and debt costs .............................. (2,719) --
Change in restricted cash .............................................. (1,872) (250)
-------- -------
Net cash (used in) provided by financing activities ................ (9,593) 3,273
-------- -------
Effect of exchange rate on cash ........................................ (254) (16)
-------- -------
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
NOTES TO CONDENSED 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 one operating
subsidiary, Universal Brixius Inc., ("Universal") which together with MIC Group
and EFP Corporation ("EFP") comprise the Specialty Manufacturing Group (SMG).
The condensed 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, 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. The consolidated balance sheet as of December 31, 2002 was derived
from the audited financial statements for the period ended December 31, 2002.
(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,
------------------------ -------------------------
2003 2002 2003 2002
--------- -------- --------- ---------
NET SALES:
Morgan ...................... $ 55,487 $ 33,170 $ 168,317 $ 116,082
TAG ......................... 34,901 31,784 99,317 98,942
Specialty Manufacturing Group 13,991 13,434 40,926 40,650
--------- -------- --------- ---------
Net Sales ................... $ 104,379 $ 78,388 $ 308,560 $ 255,674
========= ======== ========= =========
OPERATING INCOME (LOSS):
Morgan ...................... $ 4,256 $ 847 $ 13,319 $ 3,885
TAG ......................... 2,805 (293) 7,711 3,306
Specialty Manufacturing Group 441 640 1,820 2,693
JBPCO (Parent) .............. (130) (820) (2,648) (3,839)
--------- -------- --------- ---------
Operating Income ............ $ 7,372 $ 374 $ 20,202 $ 6,045
========= ======== ========= =========
SEPTEMBER 30, DECEMBER 31,
TOTAL ASSETS AS OF: 2003 2002
--------- ---------
Morgan ...................... $ 53,839 $ 45,490
TAG ......................... 44,679 42,346
Specialty Manufacturing Group 28,699 28,018
JBPCO (Corporate) ........... (2,245) (515)
--------- ---------
Total Assets ................ $ 124,972 $ 115,339
========= =========
Morgan has two customers (truck leasing and rental companies) that
accounted for approximately 44% and 35% of Morgan's net sales during each of the
nine months ended September 30, 2003 and 2002, respectively. The production of
consumer rental units at Morgan is historically completed in the first and
second quarters of the year.
5
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Morgan's sales of consumer rental products for the three and nine month periods
ended September 30, 2003 and 2002 were approximately $7,200,000, $26,000,
$29,455,000 and $25,801,000, respectively. SMG has an industry concentration, in
international oil field service companies; sales to these customers accounted
for 28% and 22% of net sales, with one customer that accounted for approximately
14% and 13% of SMG's net sales during each of the nine months ended September
30, 2003 and 2002, 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,
------------------- -------------------
2003 2002 2003 2002
------ ------- ------ -------
Net income ................. $2,471 $(2,295) $6,463 $(4,402)
Foreign currency translation
adjustments ............ 25 (129) 375 (19)
------ ------- ------ -------
Comprehensive income ....... $2,496 $(2,424) $6,838 $(4,421)
====== ======= ====== =======
(4) INVENTORIES. Consolidated net inventories consisted of the following (in
thousands):
SEPTEMBER 30, DECEMBER 31,
2003 2002
-------- --------
FIFO Basis Inventory:
Raw Materials ................... $ 16,563 $ 15,228
Work in Process ................. 6,178 4,606
Finished Goods .................. 4,868 5,392
Allowance for excess and obsolete (1,914) (2,123)
-------- --------
Total Inventory ...................... $ 25,695 $ 23,103
======== ========
(5) REVOLVING LOAN AGREEMENTS. At September 30, 2003 and December 31, 2002, the
Company had total borrowing availability of approximately $39,618,000 and
$30,312,000 of which approximately $5,170,000 and $4,100,000, respectively, was
used to secure letters of credit. Additionally as of September 30, 2003 and
December 31, 2002, $20,006,000 and $15,866,000, respectively had been borrowed
to fund operations and as of September 30, 2003, to fund the purchase of
$9,131,000 of the Company's 2007 Senior Notes, resulting in unused availability
of $14,442,000 and $10,366,000 respectively.
(6) DISCONTINUED OPERATIONS. The Gem Top division of TAG was sold effective
February 28, 2003 and has been presented as a discontinued operation. During the
nine months ended September 30, 2003 and 2002, net sales of the Gem Top division
were $918,000 and $4,923,000, respectively and operating losses, net of income
taxes, were $241,000 and $178,000 respectively.
The operations of SWK (formerly KWS, a division of SMG) were sold
effective December 31, 2002 and have been presented as discontinued. During the
nine months ended September 30, 2003 operating losses of SWK were $67,000 net of
income taxes. For the nine months ended September 30, 2002 net sales of SWK were
$6,388,000 and the operating loss was $708,000 net of income taxes.
The Company sold its Lowy operations during 1999 and presented the
operations as discontinued. During the nine months ended September 30, 2003,
Lowy recorded a gain of $268,000, net of income taxes, as a result of a legal
settlement and proceeds from the liquidation of certain life insurance policies.
6
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
During the nine months ended September 30, 2002, the Income (loss) from
discontinued operations included the operating losses of the TAG Polymer
Products and Distribution divisions and the Marlin plant of SMG of $407,000 and
$248,000 net of income taxes, respectively. The tax benefit of $1,093,000
recorded against discontinued operations as of September 30, 2002 was reduced by
a valuation allowance of $1,093,000 effective December 31, 2002.
(7) LONG TERM DEBT AND NOTE OFFERING. Effective June 10, 2003 the Company
successfully completed the exchange (Exchange Offer) of $84,985,000 of its 12.5%
Senior Notes due May 2004 (Old Notes) for $84,985,000 of 12.5% Senior Secured
Notes due May 2007 (New Notes). Effective September 29, 2003 the Company
purchased for cash $9,131,000 of the New Notes. The interest rate on the New
Notes is 12.50% per year; provided that, if on May 15, 2006, the Company has not
retired (either through tender offers or redemptions) at least an additional
aggregate of $3,319,000 of New Notes since the issue date of the New Notes, the
interest rate on the New Notes will increase by an additional 250 basis points
(i.e., 2.5%) from the interest rate then in effect until the interest payment
date immediately succeeding the date on which the Company has repaid an
aggregate of at least $3,319,000 of New Notes. Interest on the New Notes accrues
from May 15, 2003 and will be payable on May 15 and November 15 of each year and
at maturity, commencing on November 15, 2003. Interest will be paid in cash
provided that, at the option of the Company, any three of the first five
interest payments (i.e., November 15, 2003, May 15 and November 15, 2004 and May
15 and November 15, 2005) may be made (i) half in cash and (ii) half in the form
of additional New Notes, or paid-in kind, with a principal amount equal to
112.5% of the amount of cash that would have otherwise been payable.
The New Notes rank senior in right of payment to all subordinated debt of
the Company, and pari passu in right of payment with all senior debt of the
Company, including obligations under the Company's Revolving Loan Agreement.
However, the New Notes are effectively subordinated to the Company's obligations
under the Revolving Loan Agreement to the extent of the value of the assets
securing such obligations. While the Company's unsecured and unsubordinated
indebtedness rank pari passu with the New Notes in right of payment, the holders
of the New Notes may, to the exclusion of unsecured creditors, seek recourse
against the pledged assets as security for the New Notes until amounts owed
under the New Notes are satisfied in full.
The Company's obligations under the New Notes are guaranteed by all of its
current and future subsidiaries (the "Subsidiaries" or the "Guarantors"), other
than Beltrami Door Company ("Beltrami") which was merged with and into Morgan
effective June10, 2003 and Acero-Tec. S.A. de C.V., that was sold, subsequent to
September 30, 2003, for approximately $123,000 net of taxes and expenses,
effective October 19, 2003.
The New Notes are secured by a perfected, first priority security interest
in all the assets owned by the Company and the Subsidiaries except for the
assets securing the Revolving Credit Agreement (primarily cash, inventory and
accounts receivable) and the assets of Universal Brixius, Inc., that secure
borrowings under a term loan agreement. The New Notes are also secured by a
pledge of the capital stock of the Company's subsidiaries, other than the stock
of Morgan.
The New Indenture includes covenants that limit the ability of the Company
and the ability of the Company's Restricted Subsidiaries to: incur additional
debt, including guarantees; make acquisitions; sell assets; make investments and
other restricted payments, pay dividends, redeem or repurchase capital stock or
subordinated obligations, subject to certain exceptions; create specified liens;
create or permit restrictions on the ability of the Company's Restricted
Subsidiaries to pay dividends or make other distributions to the Company; engage
in transactions with affiliates; engage in sale and leaseback transactions;
consolidate or merge with or into other companies or sell all or substantially
all of their assets. The Company is in compliance with all the restrictive
covenants of the New Indenture as of September 30, 2003.
Costs associated with the Exchange Offer of $831,000 were expensed during
the nine months ended
7
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2003. The Company paid a consent fee to the holders of the Old
Notes of 3% or approximately $2,550,000 that was paid in cash effective June 10,
2003. The consent fee was capitalized as deferred loan costs and will be
amortized as interest expense over the term of the New Notes.
Effective September 29, 2003 the Company purchased for cash $9,131,000
principal amount of its New Notes pursuant to an offer to purchase up to $12.5
million of the New Notes. The Company paid approximately $8,838,000, including
accrued interest of approximately $438,000, and recorded a gain, included in
Other Income, on the purchase of approximately $367,000 net of deferred loan
costs of $288,000 associated with the New Notes purchased.
(8) ASSET ACQUISITIONS, DISPOSITIONS AND SUBSEQUENT EVENT. Effective May 12,
2003, the Company sold the Morgan facility located in Monterrey, Mexico. The
Company received cash proceeds of approximately $865,000, net of fees, which was
used to pay down borrowings under the Revolving Loan Agreement. There was no
gain or loss on the transaction. Effective October 19, 2003, the Company sold
the capital stock of Acero-Tec S.A. de C.V., for approximately $123,000 net of
foreign taxes and expenses.
Effective May 5, 2003 Beltrami purchased certain assets, primarily
inventory, of a truck body manufacturer, located in Los Angeles, California.
Beltrami was an un-restricted, non-guarantor subsidiary of Morgan prior to June
10, 2003 and was merged into Morgan on that date. 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 two year non-compete agreement with the former owner and a two year consulting
agreement with a former officer of the company. Beltrami will pay an aggregate
of approximately $380,000 each year under the terms of the agreements. The
acquisition provided Morgan with an operational manufacturing facility and was a
cost effective alternative to a planned investment in a new facility in the Los
Angeles market.
(9) 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 for the nine months ended September
30, 2003 and the benefit for the 2002 period differ from amounts computed based
on the federal statutory rate as a result of state and foreign taxes.
The Company recorded a valuation allowance of $2,665,000 during the year
ended December 31, 2002 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.
(10) 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 product 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
8
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
based on historical experience and estimated future claims. The Company had
accrued warranty costs of $2,614,000 and $2,519,000 at September 30, 2003 and
December 31, 2002, respectively. During the nine months ended September 30, 2003
and 2002, the Company increased accrued warranty costs by charging to expense
$1,787,000 and $1,892,000 and reduced the amount of accrued warranty costs by
making warranty payments of $1,692,000 and $2,069,000, respectively.
ENVIRONMENTAL MATTERS. The Company's operations are subject to numerous
environmental statutes and regulations, including laws and regulations affecting
its products, the materials used in and wastes generated by manufacturing the
Company's products and the investigation and cleanup of contaminated sites. 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 or that
impose workplace health and safety requirements. Pursuant to these laws, some of
the Company's operations require permits which may restrict the Company's
operations and which are subject to renewal, modification or revocation by
issuing authorities. The Company also generates hazardous and 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. Further, we cannot
assure you that the Company has been or will be at all times in compliance with
all of these requirements, including those related to reporting or permit
restrictions or that the Company will not incur material fines, penalties, costs
or liabilities in connection with such requirements or a failure to comply with
them. The Company expects that the nature of its operations will continue to
make it subject to increasingly stringent environmental and workplace health and
safety regulatory standards and to the increasingly stringent enforcement of
those 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.
In a memorandum dated January 10, 2002 issued 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 January 29, 2003, USEPA notified TAG 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. The liability with respect to the alleged violation is
estimated to be approximately $11,000. The Company has accrued expenses of
$20,000 and has implemented four Supplemental Environmental Projects, undertaken
in connection with this matter, that require approximately $125,000 of capital
expenditures.
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 November 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.
9
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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.
(11) RELATED PARTY TRANSACTIONS. John Poindexter owns 100% of the capital stock
of Morgan Olson Corporation. Effective with the acquisition by Morgan Olson
Corporation on July 15, 2003 of the business and assets of a truck body
manufacturing plant located in Sturgis, Michigan, the Company agreed to provide
certain services to Morgan Olson pursuant to a Management Services Agreement
between the companies. The Company charged Morgan Olson $592,000 during the
period ended September 30, 2003 for services provided and as of that date,
Accounts Receivable included $158,000 owed to the Company by Morgan Olson that
has been subsequently paid.
(12) RECENTLY ISSUED ACCOUNTING STANDARDS. 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 initially applied to
variable interest entities created after January 31, 2003 and to variable
interest entities in which a company obtained an interest after that date. The
effective date of FIN 46 has been deferred to December 31, 2003 for all
interests in variable interest entities existing prior to January 31, 2003.
Since the Company had no such interests arising subsequent to or before January
31, 2003, this interpretation has had no impact on its consolidated results of
operations or consolidated balance sheet to date.
Effective January 1, 2003, the Company adopted SFAS 146, "Accounting for
Costs Associated with Disposal or Exit Activities", which requires liabilities
for costs associated with exit or disposal activities to be recognized when the
liabilities are incurred, rather than when an entity commits to an exit plan.
The new rule changes the timing of liability and expense recognition related to
exit or disposal activities, but not the ultimate amount of such expenses. This
SFAS has had no impact on the Company's consolidated results of operations or
consolidated balance sheet.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2002
Net sales increased $52.9 million, or 21% to $308.6 million for the nine
months ended September 30, 2003 compared to $255.7 million during the nine
months ended September 30, 2002. Morgan's net sales increased 45% or $52.2
million on a 37% increase in unit shipments to approximately 22,000 units. The
greater percentage increase in net sales over unit shipments reflects changes in
the mix of products sold and not improved pricing. Shipment of product to
consumer rental companies that historically are completed in the first and
second quarters of the year and generally command a lower unit price decreased
slightly compared to the same period in 2002. However, shipments of commercial
units that represent about 70% of Morgan's sales increased significantly as
Morgan's major fleet customers and dealers increased new truck body purchases
from Morgan. TAG's net sales increased less than 1% on a 2% decline in unit
shipments during the 2003 period compared to the prior year period. Sales of
pick up trucks, a leading indicator of TAG's business, rose less than 1% over
the same period. SMG's net sales increased 1% to $40.9 million as a $2.1 million
increase in sales to customers in the energy industry was offset by decreased
sales to non-energy customers.
Morgan's backlog at September 30, 2003 was $34.6 million compared to $46.3
million at December 31, 2002 and $23.4 million at September 30, 2002. Morgan's
backlog decreased at the end of September because it typically
10
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
comprises commercial sales only at that date, whereas the December backlog
includes consumer rental orders also that will be completed during the second
quarter of the following year. SMG's backlog at September 30, 2003 was $15.7
million compared to $18.1 million at December 31, 2002 and $15.8 million at
September 30, 2002. 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 $4.0 million at September 30, 2003 compared
to $3.6 million as of December 31, 2002 and $4.1 million as of September 30,
2002.
Cost of sales increased to $261.7 million for the nine months ended
September 30, 2003 compared to $219.9 million during the nine months ended
September 30, 2002. Gross profit increased to $46.9 million (15% of net sales)
during the nine months ended September 30, 2003 compared to $35.8 million (14%
of net sales) for the nine months ended September 30, 2002. Gross profit at
Morgan increased $10.3 million or 78% to $23.5 million or 14% of sales compared
to 11% of sales during 2002, primarily due to higher volume of sales and
improved absorption of overhead. TAG's gross profit increased $2.4 million or
18% to $16.3 million (16% of net sales) compared to $13.9 million (14% of net
sales) during the nine months ended September 30, 2002 period on a 2% decline in
cost of sales due primarily to lower material cost due to changes in product
mix. SMG's gross profit decreased $1.7 million to $7.1 million (17% of net
sales) compared to $8.7 million (22% of net sales) during the nine months ended
September 30, 2002 primarily due to increased raw material content and related
costs on non-oil related business.
Selling, general and administrative expenses decreased $3.6 million or 12%
to $26.4 million (9% of net sales) for the nine months ended September 30, 2003
compared to $30.0 million (12% of net sales) during the nine months ended
September 30, 2002. Expenses decreased to 6% of sales at Morgan compared to 8%
for the nine months ended September 30, 2002. Expenses decreased $1.9 million or
18% at TAG, due to reductions in administrative personnel and associated costs.
Corporate expenses for the 2003 period declined $1.2 million or 31% primarily as
a result of personnel reductions and their associated costs of approximately
$0.6 million and a reduction in insurance costs of $0.4 million during 2003.
Operating income increased $14.2 million to $20.2 million (7% of net
sales) for the nine months ended September 30, 2003 compared to $6.0 million (2%
of net sales) during the nine months ended September 30, 2002. Morgan's
operating income increased $9.4 million to $13.3 million for the period due to
higher sales. TAG's operating income increased $4.4 million to $7.7 million (8%
of net sales) compared to $3.3 million (3% of net sales) during 2002. SMG's
operating income decreased $0.9 million, as increased profits from sales to
customers in the energy business were offset by reductions in non-oil related
profits. The Company recorded a gain of $0.4 million on the buy back of $9.1
million of its New Notes that was included in Other Income for the period.
Operating income for the 2003 period was reduced by costs of $0.8 million
associated with the offer to exchange the Senior Notes that was successfully
completed on June 10, 2003.
Interest expense was $9.3 million for the nine months ended September 30,
2003 compared to $9.4 million for the same period in 2002.
The income tax provision (benefit) for the nine months ended September 30,
2003 and 2002 differ from amounts computed based on the federal statutory rate
due to state and foreign taxes.
THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002
Net sales increased $26.0 million or 33% to $104.4 million for the quarter
ended September 30, 2003 compared to $78.4 million during the 2002 period.
Morgan's sales increased 67% or $22.3 million as shipments of Morgan's
commercial units increased 40% and Morgan completed a shipment of approximately
1,600 consumer rental units, production of which is traditionally finished by
the end of the second quarter. TAG's sales increased 10% to $34.9 million on a
7% increase in units shipped. SMG's sales increased 4% or $0.6 million to $14.0
million primarily due
11
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
to a $1.1 million increase in sales to customers in the energy services business
offset by decreases in sales of packaging products.
Cost of sales increased to $88.5 million for the quarter ended September
30, 2003 compared to $68.8 million during the 2002 period. Gross profit
increased to $15.9 million (15% of net sales) during the 2003 quarter compared
to $9.5 million (12% of net SALES) for 2002. Gross profit at Morgan increased
$4.1 million to $8.0 million or 14% of sales compared to 12% of sales during
2002 as the higher volume of 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 increased to 17% during the 2003 compared to
10% during the 2002 period as a result of lower costs relative to sales. SMG's
gross profit decreased $0.4 million to $2.1 million (15% of net sales) during
2003 compared to $2.5 million (19% of net sales) during 2002 primarily due to
increased material costs.
Selling, general and administrative expenses were $9.0 million (9% of net
sales) for the quarter ended September 30, 2003 compared to $9.3 million (12% of
net sales) during 2002. Overall the average general and administrative headcount
was reduced by 40 or 22% for the current quarter compared to a year ago.
Operating income was $7.4 million (7% of net sales) for the quarter ended
September 30, 2003 compared to $0.4 million (less than 1% of net sales) in 2002.
Morgan's operating income increased $3.4 million for the period on higher sales
and an improved gross profit margin and TAG's operating income increased $3.1
million on improved gross profits and reduced general and administrative
expense. SMG's operating income decreased $0.2 million as a result of lower
gross profits partially offset by lower general and administrative expense.
Interest expense was $3.1 million for the quarter ended September 30,
2003, flat with the 2002 period.
LIQUIDITY AND CAPITAL RESOURCES
Effective June 10, 2003 the Company successfully completed the exchange of
$84,985,000 of its 12.5% 2004 Senior Notes for a like number of 12.5% 2007
Senior Secured Notes ("New Notes"), thereby extending the maturity of the
principal portion of its long term debt by 3 years. The Company paid a consent
fee of 3% or approximately $2,550,000 in cash at the time of closing to the
holders of the Old Notes. The Company made an offer to purchase up to $12.5
million of its New Notes at a price of between $870 and $920 per $1,000
principal amount effective August 29, 2003. The offer expired on September 29,
2003 and the Company acquired $9.1 million of its New Notes at $920 per $1,000
par value using borrowings under its Revolving Credit Agreement.
The Company's total funded debt was $98.5 million and $103.7 million as of
September 30, 2003 and December 31, 2002, respectively. Long-term Debt decreased
$9.4 million primarily as a result of the Company's purchase of $9.1 million of
its New Notes which was offset by a $4.1 million increase in borrowings under
the Revolving Loan Agreement. The reduction in Long-term Debt will reduce
interest expense by approximately $0.5 million per year at current short term
interest rates.
At September 30, 2003 the Consolidated EBITDA Coverage Ratio, as defined
in the 2007 12.5% Senior Secured Notes Bond Indenture was 3:1. As a result, the
Company is able to incur additional borrowings for capital expenditures. The
Company's Revolving Loan Agreement and Senior Secured Notes Indenture restrict
the ability of the Company to, 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.
Operating activities during the nine months ended September 30, 2003
generated cash of $11.2 million compared to $1.1 million during the same period
in 2002. Working capital at September 30, 2003 was $10.7 million compared to
$5.9 million at December 31, 2002. The increase was primarily due to increased
receivables and inventory in response to the increase in sales during the nine
months ended September 30, 2003.
12
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 November 7, 2003,
the Company had unused available borrowing capacity of approximately $20.0
million under the terms of the Revolving Loan Agreement. Borrowings under the
Revolving Loan Agreement at September 30, 2003 were $20.0 million compared to
$15.9 million at December 31, 2002 and $14.3 million at September 30, 2002. The
increase in borrowings at September 30, 2003 was primarily due to the purchase
of $9.1 million of the Company's New Notes.
Capital expenditures for the nine months ended September 30, 2003 were
$2.5 million compared to $4.3 million during the same period in 2002.
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
September 30, 2003
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 10-Q and is therefore filing this form with reduced
disclosure format.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management with the participation of the 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 as of
the end of the fiscal quarter ended September 30, 2003. Based on this
evaluation, the CEO and CFO have concluded that the Company's disclosure
controls and procedures were effective as of the end of the fiscal quarter ended
September 30, 2003 to ensure that information that is required to be disclosed
by the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.116 Management Services Agreement between J.B. Poindexter & Co.,
Inc., and Morgan Trailer Mfg. Co., and Morgan Olson
Corporation.
31.1 Certification by the Chief Executive Officer dated November
13, 2003.
13
J.B. POINDEXTER AND CO., INC. AND SUBSIDIARIES
31.2 Certification by the Principal Financial Officer dated
November 13, 2003.
b. Reports on Form 8-K. The Company filed the following reports Form
8-K during the quarter for which this Form 10-Q is filed:
Form 8-K filed with the Commission on August 29,2003
14
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 13, 2003 By: R.S.Whatley
--------------------------------
R. S. Whatley, Principal Financial
and Accounting Officer
15
Exhibit Index
10.116 Management Services Agreement between J.B. Poindexter & Co.,
Inc., and Morgan Trailer Mfg. Co., and Morgan Olson
Corporation.
31.1 Certification by the Chief Executive Officer dated November
13, 2003.
31.2 Certification by the Principal Financial Officer dated
November 13, 2003.
16