SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2004
Commission file number 1-5654
EXX INC
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | 88-0325271 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) | |
| 1350 East Flamingo Road, Suite 689, Las Vegas, Nevada | 89119-5263 | |
| (Address or Principal Executive Offices) | (Zip Code) | |
(702) 598-3223
(Registrant’s Telephone Number, Including Area Code)
NONE
(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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange Act).
Yes ¨ NO x
Number of shares of common stock outstanding as of May 7, 2004:
10,412,307 Class A Shares and 858,093 Class B Shares.
PART 1. FINANCIAL INFORMATION
| ITEM 1. | EXX INC AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS |
| (In thousands, except share and per share amounts) |
| A. | Consolidated Balance Sheets |
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 7,862 | $ | 12,056 | ||||
| Accounts receivable, less allowances of $180 and $180 |
22,605 | 17,928 | ||||||
| Inventories |
11,633 | 12,452 | ||||||
| Other current assets |
1,797 | 1,711 | ||||||
| Refundable income taxes |
— | 196 | ||||||
| Deferred tax asset |
1,511 | 1,511 | ||||||
| Total current assets |
45,408 | 45,854 | ||||||
| Property and equipment, net |
34,409 | 35,858 | ||||||
| Other assets |
||||||||
| Goodwill |
14,519 | 14,941 | ||||||
| Intangible assets, net |
1,923 | 1,986 | ||||||
| Other |
2,217 | 1,714 | ||||||
| 18,659 | 18,641 | |||||||
| $ | 98,476 | $ | 100,353 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Long-term debt, current portion |
$ | 2,564 | $ | 3,639 | ||||
| Accounts payable and other current liabilities |
15,801 | 15,751 | ||||||
| Total current liabilities |
18,365 | 19,390 | ||||||
| Long-term liabilities |
||||||||
| Long-term debt, less current portion |
32,105 | 34,207 | ||||||
| Post-retirement benefits, other than pension |
3,372 | 3,406 | ||||||
| Pension liability and other |
7,878 | 7,566 | ||||||
| Deferred tax liability |
17,567 | 17,567 | ||||||
| 60,922 | 62,746 | |||||||
| Minority interest |
128 | 119 | ||||||
| Stockholders’ equity |
||||||||
| Preferred stock, $.01 par value, authorized 5,000,000 shares, none issued |
||||||||
| Common stock, Class A, $.01 par value, authorized 25,000,000 shares, issued 12,061,607 shares |
121 | 121 | ||||||
| Common stock, Class B, $.01 par value, authorized 1,000,000 shares, issued 874,693 shares |
9 | 9 | ||||||
| Capital in excess of par value |
2,859 | 2,859 | ||||||
| Accumulated other comprehensive loss |
(276 | ) | (276 | ) | ||||
| Retained earnings |
17,334 | 16,371 | ||||||
| Less treasury stock, 1,649,300 shares of Class A common stock and 16,600 shares of Class B common stock, at cost |
(986 | ) | (986 | ) | ||||
| Total stockholders’ equity |
19,061 | 18,098 | ||||||
| $ | 98,476 | $ | 100,353 | |||||
See notes to consolidated financial statements.
2
| B. | EXX INC AND SUBSIDIARIES |
Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share amounts)
| For the Three-Month Period Ended |
||||||||
| March 31, 2004 |
March 31, 2003 |
|||||||
| Net sales |
$ | 36,314 | $ | 27,962 | ||||
| Cost of sales |
30,857 | 22,762 | ||||||
| Gross profit |
5,457 | 5,200 | ||||||
| Selling, general and administrative expenses |
3,513 | 2,993 | ||||||
| Operating income |
1,944 | 2,207 | ||||||
| Other income (expenses) |
||||||||
| Interest expense |
(494 | ) | (372 | ) | ||||
| Interest income |
8 | — | ||||||
| Other income |
15 | 92 | ||||||
| Minority interest in income of consolidated subsidiary |
(9 | ) | (12 | ) | ||||
| (480 | ) | (292 | ) | |||||
| Income from continuing operations before income taxes |
1,464 | 1,915 | ||||||
| Income taxes |
(501 | ) | (655 | ) | ||||
| Income from continuing operations |
963 | 1,260 | ||||||
| Discontinued operations: |
||||||||
| Income from discontinued operations of subsidiary, net of income taxes of $31 |
— | 59 | ||||||
| Net income |
$ | 963 | $ | 1,319 | ||||
| Basic net income per common share: |
||||||||
| Income from continuing operations |
$ | .09 | $ | .11 | ||||
| Income from discontinued operations |
— | .01 | ||||||
| Net income |
$ | .09 | $ | .12 | ||||
| Assuming dilution net income per common share: |
||||||||
| Income from continuing operations |
.08 | $ | .11 | |||||
| Income from discontinued operations |
$ | — | $ | .01 | ||||
| Net income |
$ | .08 | $ | .12 | ||||
| Weighted average common shares outstanding: |
||||||||
| Basic |
11,270,400 | 11,020,400 | ||||||
| Diluted |
12,762,391 | 11,231,740 | ||||||
See notes to consolidated financial statements.
3
| C. | EXX INC AND SUBSIDIARIES |
Consolidated Statements of Cash Flow (Unaudited)
(In thousands)
| For the Three-Month Period Ended |
||||||||
| March 31, 2004 |
March 31, 2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 963 | $ | 1,319 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
1,629 | 989 | ||||||
| Deferred tax expense |
422 | — | ||||||
| Changes in operating assets and liabilities, net |
(3,920 | ) | (5,148 | ) | ||||
| Net cash (used in) operating activities |
(906 | ) | (2,840 | ) | ||||
| Cash flows from investing activities |
||||||||
| Excess of cash acquired net of cash expended in acquisition of subsidiary |
— | 935 | ||||||
| Acquisition of property and equipment, net |
(117 | ) | (1,223 | ) | ||||
| Net cash (used in) investing activities |
(117 | ) | (288 | ) | ||||
| Cash flows from financing activities |
||||||||
| Net borrowed (repaid) on revolving credit line |
1,000 | (1,141 | ) | |||||
| Repayment of term loan |
(3,911 | ) | (82 | ) | ||||
| Repayments on promissory notes/capital leases |
(260 | ) | (100 | ) | ||||
| Net cash (used in) financing activities |
(3,171 | ) | (1,323 | ) | ||||
| Net (decrease) in cash and cash equivalents |
(4,194 | ) | (4,451 | ) | ||||
| Cash and cash equivalents, beginning of period |
12,056 | 9,889 | ||||||
| Cash and cash equivalents, end of period |
$ | 7,862 | $ | 5,438 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 934 | $ | 92 | ||||
| Income taxes |
$ | 1,075 | $ | 175 | ||||
| Supplemental disclosure of non-cash, investing and financing activities: |
||||||||
| Issuance of notes payable for acquisition of property and equipment |
$ | — | $ | 2,188 | ||||
See notes to consolidated financial statements.
4
| D. | EXX INC AND SUBSIDIARIES |
Notes to Consolidated Financial Statements
(In thousands, except number of shares and per share amounts)
| Note 1: | Basis of Presentation |
The unaudited consolidated financial statements of EXX INC (“Company”) as of March 31, 2004 and for the three month period ended March 31, 2004 and 2003 set forth in this Form 10-Q include the accounts of the Company and its consolidated subsidiaries and reflect all adjustments which are necessary in the opinion of management for a fair presentation of the results for the periods stated. All adjustments so made are of a normal recurring nature. The unaudited consolidated financial statements do not include all information and footnotes necessary for a complete presentation in accordance with accounting principles generally accepted in the United States. The reader is referred to the audited consolidated financial statements and notes thereto included in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003. Results for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year ended December 31, 2004.
| Note 2: | Acquisition of Reorganized Newcor, Inc. |
On January 31, 2003, a Plan of Reorganization of Newcor, Inc. (“Newcor”) became effective. Under a rights offering to shareholders included as part of Newcor’s Plan of Reorganization, the Company purchased 11,877 shares of common stock of Newcor for a total purchase price of $5,939. The shares purchased by the Company constitute 98.975% of the outstanding common stock of the reorganized Newcor entity and, as a result, Newcor ceased to be a stand-alone public reporting company and became a consolidated subsidiary of the Company. The purchase price was established in the Plan of Reorganization, as approved by the creditors, the United States Trustee for the District of Delaware and the United States Bankruptcy Court in the District of Delaware. The source of funds for the Company’s purchase was cash on hand. In addition to the purchase made by the Company, certain former stockholders of Newcor purchased shares of common stock of Newcor under the rights offering made in connection with the Plan of Reorganization. The former stockholders purchased an aggregate of 123 shares totaling $61, which represented 1.025%, of the aggregate purchase price and are accounted for as a minority interest in the Company’s consolidated financial statements. The primary purpose of the acquisition of Newcor was to expand the Company’s operations. Newcor designs and manufactures precision machine components and assemblies and custom rubber and plastic products primarily for the automotive and agricultural vehicle markets. Newcor is also a supplier of standard and specialty machines and equipment systems mainly for the automotive and appliance industries.
Newcor’s operations are included in the consolidated financial statements of the Company commencing January 31, 2003.
The following reflects the results of continuing operations of the Company for the three months ended March 31, 2003 as if the acquisition of Newcor occurred on January 1, 2003.
| March 31, 2003 | |||
| Revenue |
$ | 38,874 | |
| Net income |
$ | 1,332 | |
| Net income per common share- basic and diluted |
$ | .12 | |
This information is not necessarily indicative of the actual results of operations that would have occurred had the acquisition of Newcor, Inc. occurred on January 1, 2003.
| Note 3: | Inventories |
| March 31, 2004 |
December 31, 2003 | |||||
| Inventories are summarized as follows: |
||||||
| Raw materials |
$ | 3,384 | $ | 6,208 | ||
| Work in process |
5,133 | 2,652 | ||||
| Finished goods |
3,116 | 3,592 | ||||
| $ | 11,633 | $ | 12,452 | |||
5
| Note 4: | Notes Payable and Long-Term Debt |
A summary of debt follows:
| March 31, 2004 |
December 31, 2003 | |||||
| Term note, variable interest rates (.75% over prime), due 2008(a) |
$ | — | $ | 3,911 | ||
| Revolving credit line at 2% over Libor, currently 4.09%(a) |
1,000 | — | ||||
| Promissory notes secured by certain equipment, various fixed rates of 7% - 8.5% |
4,151 | 4,407 | ||||
| Notes payable at 4% through 2015 collateralized by substantially all of the assets of a subsidiary(b) |
388 | 398 | ||||
| Notes payable at 4% through 2023 collateralized by substantially all of the assets of a subsidiary(b) |
371 | 371 | ||||
| Capital lease obligations of a subsidiary(b) |
759 | 759 | ||||
| Unsecured Notes payable of a subsidiary, currently 6%, due 2013 |
28,000 | 28,000 | ||||
| Subtotal |
34,669 | 37,846 | ||||
| Less current portion |
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