**U.S. Securities and Exchange Commission**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

| **ý**                         | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------------------------------|----------------------------------------------------------------------------------------------|
|                               |                                                                                         |
| **For the quarterly period ended** |
|                               |                                                                                         |
| **November 30, 2004**         |
|                               |                                                                                         |
| **o**                              | **TRANSITION REPORT UNDER SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**      |

 

**For the transition period from     N/A    to     N/A  **

 

**Commission file no. 1–7755**

 

**Summa Industries**

(Name of registrant as specified in itscharter)

 

| **Delaware**                                                              | ** ** | **95–1240978**                     |
|---------------------------------------------------------------------------|------------|-----------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. employer identification number) |
|                                                                      |       |                                    |
| **21250 Hawthorne Boulevard, Suite 500,  Torrance, California 90503**     |
| (Address of principle executive offices,  including zip code)             |
|                                                                      |       |                                    |
| Registrant’s telephone number: **(310) 792–7024**               |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Exchange Act during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes  ý     No  o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b–2 of the Exchange Act).

Yes  o     No  ý

 

The number of shares of common stockoutstanding as of December 31, 2004 was 4,002,527.

 

 

----

 

**Summa Industries**

 

**INDEX**

 

| PART I – FINANCIAL INFORMATION |                                                                                                                                           |
|-------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                                           |   |
| Item 1.                        | Financial Statements:                                                                                                                          |   |
|                                |                                                                                                                                           |   |
|                                | Condensed Consolidated Balance Sheets –  November 30, 2003 (unaudited), August 31, 2004 and November 30,  2004 (unaudited) |   |
|                                |                                                                                                                                           |   |
|                                | Condensed Consolidated Income Statements  (unaudited) –  three months ended November 30, 2003 and 2004                               |   |
|                                |                                                                                                                                           |   |
|                                | Condensed Consolidated Statements of Cash  Flows (unaudited) –  three months ended November 30, 2003 and 2004                        |   |
|                                |                                                                                                                                           |   |
|                                | Notes to Condensed Consolidated Financial  Statements (unaudited)                                                                              |   |
|                                |                                                                                                                                           |   |
| Item 2.                        | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                    |   |
|                                |                                                                                                                                           |   |
| Item 3.                        | Quantitative and Qualitative Disclosure  about Market Risk.                                                                                    |   |
|                                |                                                                                                                                           |   |
| Item 4.                        | Controls and Procedures.                                                                                                                       |   |
|                                |                                                                                                                                           |   |
| PART  II – OTHER INFORMATION   |                                                                                                                                           |
|                                |                                                                                                                                           |   |
| Item 1.                        | Legal Proceedings                                                                                                                              |   |
| Item 2.                        | Unregistered Sales of Equity Securities and  Use of Proceeds                                                                                   |   |
| Item 3.                        | Defaults upon Senior Securities                                                                                                                |   |
| Item 4.                        | Submission of Matters to a Vote of Security  Holders                                                                                           |   |
| Item 5.                        | Other Information                                                                                                                              |   |
| Item 6.                        | Exhibits                                                                                                                                       |   |
|                                |                                                                                                                                           |   |
| Signature  Page                     |                                                                                                                                           |
|                                     |                                                                                                                                                |  |  |

 

2

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**Summa Industries**

CONDENSEDCONSOLIDATED BALANCE SHEETS

(unaudited)

 

| ** **                                                                                                                            | ** ** | **November 30, 2003** | ** ** | **August 31, 2004** | ** ** | **November 30, 2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|--------------------------|------------|----------------------------|------------|
| **ASSETS**                                                                                                                            | ** ** | ** **                 | ** ** | ** **               | ** ** | ** **                 | ** ** |
| Current assets:                                                                                                                       |       |                       |       |                     |       |                       |       |
| Cash and cash equivalents                                                                                                             |       | $                          | 297,000    |                     | $          | 1,248,000                  |       | $ | 832,000 |   |
| Accounts receivable                                                                                                                   |       | 15,681,000                 |       | 18,227,000               |       | 16,371,000                 |       |
| Inventories                                                                                                                           |       | 13,198,000                 |       | 14,749,000               |       | 15,118,000                 |       |
| Prepaid expenses and other                                                                                                            |       | 3,060,000                  |       | 3,782,000                |       | 4,512,000                  |       |
| Total current assets                                                                                                                  |       | 32,236,000                 |       | 38,006,000               |       | 36,833,000                 |       |
| Property, plant and equipment                                                                                                         |       | 56,261,000                 |       | 63,842,000               |       | 67,152,000                 |       |
| Less accumulated depreciation                                                                                                         |       | (30,637,000                | )          | (32,789,000              | )          | (34,066,000                | )          |
| Net property, plant and equipment                                                                                                     |       | 25,624,000                 |       | 31,053,000               |       | 33,086,000                 |       |
| Other assets                                                                                                                          |       | 2,518,000                  |       | 1,804,000                |       | 1,840,000                  |       |
| Goodwill and other intangibles, net                                                                                                   |       | 9,361,000                  |       | 9,254,000                |       | 9,186,000                  |       |
| Total assets                                                                                                                          |       | $                          | 69,739,000 |                     | $          | 80,117,000                 |       | $ | 80,945,000 |   |
| Current liabilities:                                                                                                                  |       |                       |       |                     |       |                       |       |
| Accounts payable                                                                                                                      |       | $                          | 6,149,000  |                     | $          | 9,088,000                  |       | $ | 6,543,000 |   |
| Accrued liabilities                                                                                                                   |       | 4,504,000                  |       | 7,429,000                |       | 6,744,000                  |       |
| Current maturities of long–term debt                                                                                             |       | 3,448,000                  |       | 2,195,000                |       | 2,702,000                  |       |
| Total current liabilities                                                                                                             |       | 14,101,000                 |       | 18,712,000               |       | 15,989,000                 |       |
| Long–term debt, net of current maturities                                                                                        |       | 16,247,000                 |       | 28,663,000               |       | 31,591,000                 |       |
| Other long–term liabilities                                                                                                      |       | 2,594,000                  |       | 2,508,000                |       | 2,500,000                  |       |
| Total long–term liabilities                                                                                                      |       | 18,841,000                 |       | 31,171,000               |       | 34,091,000                 |       |
| Mandatorily redeemable convertible  preferred stock, par value $.001, 5,000 shares authorized,  issued and outstanding |       | 6,287,000                  |       | —                   |       | —                     |       |
| Minority interest in subsidiary                                                                                                       |       | —                     |       | 205,000                  |       | 205,000                    |       |
| Stockholders’ equity:                                                                                                            |       |                       |       |                     |       |                       |       |
| Common stock, par value $.001; 10,000,000 shares  authorized; issued and outstanding:                                                 |       |                       |       |                     |       |                       |       |
| 4,317,492 at November 30, 2003,  3,974,187 at August 31, 2004 and  4,002,527 at November 30, 2004                      |       | 18,061,000                 |       | 15,305,000               |       | 15,566,000                 |       |
| Retained earnings                                                                                                                     |       | 12,449,000                 |       | 14,724,000               |       | 15,094,000                 |       |
| Total stockholders’ equity                                                                                                       |       | 30,510,000                 |       | 30,029,000               |       | 30,660,000                 |       |
|                                                                                                                                  |       |                       |       |                     |       |                       |       |
| Total liabilities, mandatorily redeemable  preferred stock and stockholders’ equity                                              |       | $                          | 69,739,000 |                     | $          | 80,117,000                 |       | $ | 80,945,000 |   |

 

See accompanying notes to condensed consolidated financial statements*.*

 

3

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**Summa Industries**

CONDENSEDCONSOLIDATED INCOME STATEMENTS

(unaudited)

 

| ** **                                           | ** ** | **Three months ended November 30** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                           | ** ** | **2003**                                | ** ** | **2004** | ** ** |
| Net sales                                            |       | $                                       | 25,926,000 |   | $ | 28,238,000 |   |
| Cost of sales                                        |       | 19,555,000                              |       | 21,793,000 |   |
| Gross profit                                         |       | 6,371,000                               |       | 6,445,000 |   |
| Selling, general, administrative and other  expenses |       | 4,820,000                               |       | 5,118,000 |   |
| Operating income                                     |       | 1,551,000                               |       | 1,327,000 |   |
| Interest expense                                     |       | 305,000                                 |       | 367,000 |   |
| Income before income taxes                           |       | 1,246,000                               |       | 960,000 |   |
| Provision for income taxes                           |       | 416,000                                 |       | 350,000 |   |
| Net income                                           |       | $                                       | 830,000    |   | $ | 610,000 |   |
| Preferred stock accretion                            |       | $                                       | 184,000    |   | $ | — |   |
| Net income available to common stockholders          |       | $                                       | 646,000    |   | $ | 610,000 |   |
| Earnings per common share                            |       |                                    |       |   |   |
| Basic                                                |       | $                                       | .15        |   | $ | .15 |   |
| Diluted                                              |       | $                                       | .15        |   | $ | .15 |   |
| Weighted average common shares outstanding:          |       |                                    |       |   |   |
| Basic                                                |       | 4,287,000                               |       | 3,984,000 |   |
| Diluted                                              |       | 4,355,000                               |       | 4,064,000 |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

4

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**Summa Industries**

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

| ** **                                                                         | ** ** | **Three months ended November 30** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                         | ** ** | **2003**                                | ** ** | **2004** | ** ** |
| Operating activities:                                                              |       |                                    |       |   |   |
| Net income                                                                         |       | $                                       | 830,000    |   | $ | 610,000 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                    |       |   |   |
| Depreciation                                                                       |       | 1,163,000                               |       | 1,277,000 |   |
| Amortization                                                                       |       | 61,000                                  |       | 68,000 |   |
| Net change in assets and liabilities:                                              |       |                                    |       |   |   |
| Accounts receivable                                                                |       | 48,000                                  |       | 1,856,000 |   |
| Inventories                                                                        |       | (1,553,000                              | )          | (369,000 | ) |
| Prepaid expenses and other assets                                                  |       | (350,000                                | )          | (766,000 | ) |
| Accounts payable                                                                   |       | 847,000                                 |       | (2,545,000 | ) |
| Accrued liabilities                                                                |       | (173,000                                | )          | (672,000 | ) |
| Total adjustments                                                                  |       | 43,000                                  |       | (1,151,000 | ) |
| Net cash provided by (used in) operating  activities                               |       | 873,000                                 |       | (541,000 | ) |
| Investing activities:                                                              |       |                                    |       |   |   |
| Purchases of property and equipment                                                |       | (675,000                                | )          | (3,310,000 | ) |
| Net cash (used in) investing activities                                            |       | (675,000                                | )          | (3,310,000 | ) |
| Financing activities:                                                              |       |                                    |       |   |   |
| Net proceeds from line of credit                                                   |       | 877,000                                 |       | 1,743,000 |   |
| Proceeds from issuance of long–term debt                                      |       | —                                  |       | 2,229,000 |   |
| Payments on long–term debt                                                    |       | (1,297,000                              | )          | (537,000 | ) |
| Proceeds from the exercise of stock options                                        |       | 139,000                                 |       | — |   |
| Net cash provided by (used in) financing  activities                               |       | (281,000                                | )          | 3,435,000 |   |
| Net (decrease) in cash and cash equivalents                                        |       | (83,000                                 | )          | (416,000 | ) |
| Cash and cash equivalents, beginning of  period                                    |       | 380,000                                 |       | 1,248,000 |   |
| Cash and cash equivalents, end of period                                           |       | $                                       | 297,000    |   | $ | 832,000 |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

 

5

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**Summa Industries**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

November 30,2004

 

**1.****                                      Basisof presentation**

 

The accompanyingunaudited condensed consolidated financial statements of Summa Industries (the “Company”)have been condensed in certain respects and should, therefor, be read inconjunction with the audited consolidated financial statements and notesrelated thereto contained in the Company’s Annual Report on Form 10–K forthe year ended August 31, 2004. Certain prior year amounts have beenreclassified in the accompanying financial statements to conform with currentyear presentations.  In the opinion ofthe Company, these financial statements contain all adjustments necessary for afair presentation for the interim period, all of which were normal recurringadjustments.  The results of operationsfor the three months ended November 30, 2004 are not necessarilyindicative of the results to be expected for the full year ending August 31,2005.

 

**Recent accounting pronouncements**

 

In December 2004, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”), “Share–BasedPayments,” which requires companies to recognize in the income statement thegrant–date fair value of stock options and equity–based compensation issued toemployees. The Company reports equity based compensation in accordance withAccounting Principles Board Opinion No. 25 and Financial Interpretation No. 44,and accordingly, no compensation expense is recognized in the financialstatements. The pro forma effect of equity–based compensation under SFAS No.123, “Accounting for Stock–Based Compensation,” is disclosed in Note 4 below.The standard is effective for interim or annual reporting periods beginningafter June 15, 2005. The Company is currently evaluating the impact ofadopting this standard.

 

In November 2004, the FASB issuedStatement of Financial Accounting Standards No. 151 (“SFAS No. 151”), “InventoryCosts–an amendment of ARB 43, Chapter 4.” This statement amends the guidance in ARB No. 43, Chapter 4, InventoryPricing, to clarify the accounting for abnormal amount of idle facilityexpense, freight, handling costs and wasted material.  This statement requires that those items berecognized as current period charges.  Inaddition, this statement requires that allocation of fixed production overheadto the costs of conversion be based on the normal capacity of the productionfacilities.  The Company will adopt thisstatement, effective with its fiscal year beginning September 1,2005.  The Company is currentlyevaluating the effect of the adoption of this statement on the Company’sresults of operations or financial position.

 

**2.****                                      Inventories**

 

Inventories were as follows:

 

| ** **          | ** ** | **November 30, 2003** | ** ** | **August 31, 2004** | ** ** | **November 30, 2004** | ** ** |
|---------------------|------------|----------------------------|------------|--------------------------|------------|----------------------------|------------|
| Finished goods      |       | $                          | 5,202,000  |                     | $          | 6,407,000                  |       | $ | 6,771,000 |   |
| Work in process     |       | 325,000                    |       | 296,000                  |       | 292,000                    |       |
| Materials and parts |       | 7,671,000                  |       | 8,046,000                |       | 8,055,000                  |       |
|                |       |                       |       |                     |       |                       |       |
|                |       | $                          | 13,198,000 |                     | $          | 14,749,000                 |       | $ | 15,118,000 |   |

 

**3.             Earningsper share**

 

Basic earnings pershare (“EPS”) was computed by dividing net income available to commonstockholders by the weighted average number of common shares outstanding duringeach period. The Company had 5,000 shares of redeemable convertible preferredstock outstanding until its repurchase on May 3, 2004, which provided foran accretion in its redemption price. This accretion reduced the net income available to common stockholdersused in the EPS calculation prior to that date.

 

Diluted EPSreflects the potential dilution that could occur if securities or othercontracts to issue common stock were exercised or converted into commonstock.  Diluted EPS was calculated usingthe “treasury stock” method as if dilutive options had been exercised and thefunds were used to purchase common shares at the average market price duringthe period.  Options to purchase 616,000common shares as of

 

6

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November 30,2003 and 590,000 common shares as of November 30, 2004 were excluded fromthe calculation of equivalent shares, as they would have been anti–dilutive.  The 5,000 shares of outstanding preferredstock, convertible into 625,000 shares of common stock, were excluded from thecalculation of equivalent shares for the three month period ended November 30,2003, as they would have been anti–dilutive.

 

The following is areconciliation of the numerators and denominators of the basic and diluted EPScomputations for “income available to common stockholders” and otherdisclosures required by FASB Statement of Accounting Standards No. 128, “Earningsper Share”:

 

| ** **                                                             | ** ** | **Three months ended November 30** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                             | ** ** | **2003**                                | ** ** | **2004** | ** ** |
| Numerators:                                                            |       |                                    |       |   |   |
|                                                                   |       |                                    |       |   |   |
| Net income                                                             |       | $                                       | 830,000    |   | $ | 610,000 |   |
| Preferred stock accretion                                              |       | (184,000                                | )          | — |   |
| Income available to common stockholders                                |       | $                                       | 646,000    |   | $ | 610,000 |   |
|                                                                   |       |                                    |       |   |   |
| Denominators:                                                          |       |                                    |       |   |   |
|                                                                   |       |                                    |       |   |   |
| Weighted average shares outstanding – basic                       |       | 4,287,000                               |       | 3,984,000 |   |
| Impact of common shares assumed to be  issued under stock option plans |       | 68,000                                  |       | 80,000 |   |
| Weighted average shares outstanding – diluted                     |       | 4,355,000                               |       | 4,064,000 |   |

 

**4.             Stock–basedcompensation plans**

 

The Company accounts for stock options issuedto employees and directors in accordance with the recognition and measurementprinciples of Accounting Principles Board Opinion No. 25 and FinancialInterpretation No. 44. Consequently, no compensation expense was recognized forthe Company’s stock option plans. The following table illustrates the effect onnet earnings and net earnings per share if the Company had applied the fairvalue recognition provisions of Statement of Financial Accounting Standards No.123, “Accounting for Stock–Based Compensation”. The fair value estimate wascomputed using the Black–Scholes option pricing model.

** **

| ** **                                         | ** ** | **Three months ended November 30** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                         | ** ** | **2003**                                | ** ** | **2004** | ** ** |
|                                               |       |                                    |       |   |   |
| Income available to common stockholders            |       | $                                       | 646,000    |   | $ | 610,000 |   |
| Pro forma impact of expensing stock options        |       | (30,000                                 | )          | (32,000 | ) |
| Pro forma income available to common  stockholders |       | $                                       | 616,000    |   | $ | 578,000 |   |
|                                               |       |                                    |       |   |   |
| Earnings per share:                                |       |                                    |       |   |   |
| As reported:                                       |       |                                    |       |   |   |
| Basic                                              |       | $                                       | .15        |   | $ | .15 |   |
| Diluted                                            |       | $                                       | .15        |   | $ | .15 |   |
|                                               |       |                                    |       |   |   |
| Pro forma:                                         |       |                                    |       |   |   |
| Basic                                              |       | $                                       | .14        |   | $ | .15 |   |
| Diluted                                            |       | $                                       | .14        |   | $ | .14 |   |

 

7

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**5.             Supplementalcash flow information**

** **

| ** **                         | ** ** | **Three months ended November 30** | ** ** |
|------------------------------------|------------|-----------------------------------------|------------|
| ** **                         | ** ** | **2003**                                | ** ** | **2004** | ** ** |
| Cash paid during the period:       |       |                                    |       |   |   |
| Interest                           |       | $                                       | 250,000    |   | $ | 387,000 |   |
| Income taxes                       |       | $                                       | 36,000     |   | $ | 550,000 |   |
| Non–cash financing activity:  |       |                                    |       |   |   |
| Common stock issued to 401(k) Plan |       | $                                       | 345,000    |   | $ | 261,000 |   |
| Dividend declared, $.06 per share  |       | —                                  |       | $ | (240,000 | ) |

 

**6*.    *Segment information**

 

The Company has four reportable segmentsidentified by differences in products and distribution channels.  The accounting policies of the segments arethe same as those described in the summary of significant accountingpolices.  The Company’s operations arereported in the following business segments:

 

***Optical Components.***  In its Optical Components segment, Summadesigns and manufactures plastic prismatic lenses, reflectors and diffusers andother plastic products, which are used in commercial and industrial lightingfixtures, display, signage, architectural and other applications.

 

***Material Handling Components.**** *In its MaterialHandling Components segment, Summa designs and manufactures engineered plasticcomponents, which form conveyer belts and chains and other plastic products foruse in food processing.

 

***Irrigation Components.***  In its Irrigation Components segment, Summadesigns and manufactures plastic injection–molded fittings, valves, filters andaccessories, extruded tubing and other plastic products for drip irrigationsystems used in agriculture, commercial landscape and other applications.

 

***Electrical Components.***  In its Electrical Components segment, Summadesigns and manufactures thermoplastic coil forms or “bobbins” and otherplastic products used principally in the manufacture of magnetic devices suchas transformers, relays, switches, power supplies and small electric motors.

 

8

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Financial information by reportable businesssegment is reported in the following tables:

 

| ** **                   | ** ** | **Three months ended November 30** | ** ** |
|------------------------------|------------|-----------------------------------------|------------|
| ** **                   | ** ** | **2003**                                | ** ** | **2004** | ** ** |
| External sales               |       |                                    |       |   |   |
| Optical components           |       | $                                       | 13,592,000 |   | $ | 14,150,000 |   |
| Material handling components |       | 5,893,000                               |       | 6,409,000 |   |
| Irrigation components        |       | 3,580,000                               |       | 4,929,000 |   |
| Electrical components        |       | 2,861,000                               |       | 2,750,000 |   |
| Consolidated                 |       | $                                       | 25,926,000 |   | $ | 28,238,000 |   |
|                         |       |                                    |       |   |   |
| Inter–segment sales     |       |                                    |       |   |   |
| Optical components           |       | $                                       | 446,000    |   | $ | 291,000 |   |
| Material handling components |       | —                                  |       | — |   |
| Irrigation components        |       | 798,000                                 |       | — |   |
| Electrical components        |       | —                                  |       | — |   |
| Other                        |       | (1,244,000                              | )          | (291,000 | ) |
| Consolidated                 |       | $                                       | —     |   | $ | — |   |
|                         |       |                                    |       |   |   |
| Total sales                  |       |                                    |       |   |   |
| Optical components           |       | $                                       | 14,038,000 |   | $ | 14,441,000 |   |
| Material handling components |       | 5,893,000                               |       | 6,409,000 |   |
| Irrigation components        |       | 4,378,000                               |       | 4,929,000 |   |
| Electrical components        |       | 2,861,000                               |       | 2,750,000 |   |
| Other                        |       | (1,244,000                              | )          | (291,000 | ) |
| Consolidated                 |       | $                                       | 25,926,000 |   | $ | 28,238,000 |   |
|                         |       |                                    |       |   |   |
| Operating income (loss)      |       |                                    |       |   |   |
| Optical components           |       | $                                       | 1,808,000  |   | $ | 1,282,000 |   |
| Material handling components |       | 157,000                                 |       | 710,000 |   |
| Irrigation components        |       | (94,000                                 | )          | 163,000 |   |
| Electrical components        |       | 140,000                                 |       | (379,000 | ) |
| Other                        |       | (460,000                                | )          | (449,000 | ) |
| Consolidated                 |       | $                                       | 1,551,000  |   | $ | 1,327,000 |   |

 

| ** **                   | ** ** | **November 30 2003** | ** ** | **August 31 2004** | ** ** | **November 30 2004** | ** ** |
|------------------------------|------------|---------------------------|------------|-------------------------|------------|---------------------------|------------|
| Assets                       |       |                      |       |                    |       |                      |       |
| Optical components           |       | $                         | 28,737,000 |                    | $          | 30,183,000                |       | $ | 28,995,000 |   |
| Material handling components |       | 19,271,000                |       | 20,069,000              |       | 21,781,000                |       |
| Irrigation components        |       | 10,194,000                |       | 13,622,000              |       | 13,709,000                |       |
| Electrical components        |       | 6,956,000                 |       | 10,453,000              |       | 10,737,000                |       |
| Other                        |       | 4,581,000                 |       | 5,790,000               |       | 5,723,000                 |       |
|                         |       |                      |       |                    |       |                      |       |
| Consolidated                 |       | $                         | 69,739,000 |                    | $          | 80,117,000                |       | $ | 80,945,000 |   |

 

9

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In the fourth quarter of fiscal 2004, all ofthe assets and operations of the former Miscellaneous Plastic Componentssegment were integrated with the Irrigation Components segment.  Prior period segment information has beenrestated to conform to the consolidation. Segment information as reported prior to the consolidation is as followsfor the three months ended November 30:

 

| ** **                       | ** ** | **2003**  | ** ** |
|----------------------------------|------------|-----------|------------|
| External sales:                  |       |      |       |
| Irrigation Components            |       | $         | 3,271,000  |   |
| Miscellaneous Plastic Components |       | 309,000   |       |
| Total                            |       | $         | 3,580,000  |   |
| Inter–segment sales:        |       |      |       |
| Irrigation Components            |       | $         | —     |   |
| Miscellaneous Plastic Components |       | 798,000   |       |
| Total                            |       | $         | 798,000    |   |
| Total sales:                     |       |      |       |
| Irrigation Components            |       | $         | 3,271,000  |   |
| Miscellaneous Plastic Components |       | 1,107,000 |       |
| Total                            |       | $         | 4,378,000  |   |
| Operating income (loss):         |       |      |       |
| Irrigation Components            |       | $         | 56,000     |   |
| Miscellaneous Plastic Components |       | (150,000  | )          |
| Total                            |       | $         | (94,000    | ) |
| Assets:                          |       |      |       |
| Irrigation Components            |       | $         | 7,895,000  |   |
| Miscellaneous Plastic Components |       | 2,299,000 |       |
| Total                            |       | $         | 10,194,000 |   |

 

Interest expense and income taxes are notshown in the preceding tables, as they are not fully allocated by segment.  “Other” includes inter–company eliminationsand corporate and other expenses not allocated by segment.

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

Statementscontained in this Quarterly Report on Form 10–Q, which are not purelyhistorical, are forward–looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934, including but not limited to statements regarding Summa’sexpectations, hopes, beliefs, intentions or strategies regarding the future,such as those set forth in Part II, Item 1 “Legal Proceedings” below.  Actual results could differ materially fromthose projected in any forward–looking statements as a result of a number offactors, including those detailed in this “Management’s Discussion and Analysis”section and elsewhere herein and in the Company’s Annual Report on Form 10–Kfor the fiscal year ended August 31, 2004. The forward–looking statements are made as of the date hereof, and theCompany assumes no obligation to update the forward–looking statements, or toupdate the reasons why actual results could differ materially from thoseprojected in the forward–looking statements. For a discussion of risks and uncertainties that should be consideredand which could materially adversely affect the Company, please see “RiskFactors” in the “Management Discussion and Analysis” section of the Company’sAnnual Report on Form 10–K for the fiscal year ended August 31, 2004.

 

Summa manufactures plastic products fordiverse commercial and industrial markets. Through its four reportablesegments, Summa designs and manufactures injection–molded and formed plasticoptical components for OEM customers in the lighting industry; modular plasticconveyor belt and chain for the food processing industry; engineered plasticfittings, valves, filters and tubing for irrigation systems used inagriculture, commercial landscape and other applications; molded plastic coilforms (“bobbins”) for use in transformers, motors, relays and switches; andother molded and extruded plastic components for diverse industries.

 

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***Results of Operations***

 

During the quarter ended November 30,2004, the Company experienced some difficulty and delays in passing throughplastic resin price increases, which adversely impacted gross margins andresulted in some loss of business to competitors who did not try to increaseprices to the full extent of cost increases. Although most of the recent price increases have now been implemented,further resin price increases have been announced or are anticipated in thenear future and passing these on will represent a continuing challenge.

 

After the end of the quarter, the Company announced that it plans tosell several parcels of real estate which have or will become excess, primarilyas a result of several consolidation and restructuring initiatives.  Summa estimates that the sales could resultin a book gain of $5 to $9 million and generate cash, net of taxes, of $9 to$14 million.  The parcels will be offeredfor sale separately and the timing of each sale is uncertain.

 

The followingtable sets forth certain information, derived from Summa’s unaudited condensedconsolidated statements of operations, as a percent of sales for the threemonth periods ended November 30, 2003 and 2004 and the Company’s effectiveincome tax rate during those periods:

 

| ** **                          | ** ** | **Three months ended November 30** | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|
| ** **                          | ** ** | **2003**                                | ** ** | **2004** | ** ** |
| Net sales                           |       | 100.0                                   | %          | 100.0 | % |
| Cost of sales                       |       | 75.4                                    | %          | 77.2 | % |
| Gross profit                        |       | 24.6                                    | %          | 22.8 | % |
| S,G & A and other expenses, net |       | 18.6                                    | %          | 18.1 | % |
| Operating income                    |       | 6.0                                     | %          | 4.7 | % |
| Interest expense, net               |       | 1.2                                     | %          | 1.3 | % |
| Income before tax                   |       | 4.8                                     | %          | 3.4 | % |
| Provision for income taxes          |       | 1.6                                     | %          | 1.2 | % |
| Net Income                          |       | 3.2                                     | %          | 2.2 | % |
|                                |       |                                    |       |   |   |
| Effective tax rate                  |       | 33.4                                    | %          | 36.5 | % |

 

**Quarter ended November 30, 2004 comparedto the quarter ended November 30, 2003**

 

Sales for the first quarter ended November 30,2004 increased $2,312,000, or 9%, primarily due to the contribution of salesfrom recently acquired operations in the Irrigation Components segment and theeffects of price increases. Sales increased 4% in the Optical Componentssegment, primarily due to price increases; increased 9% in the MaterialHandling Components segment, primarily due to improved efficiencies, sales ofnew products and price increases; increased 38% in the Irrigation Componentssegment, primarily due to the inclusion of sales from recently acquiredoperations, recaptured market share from certain major customers, improvedmarket conditions, the inclusion of the sales of the former MiscellaneousPlastic components segment and price increases; and decreased 4% in theElectrical Components segment, despite price increases, primarily due toreduced customer demand.

 

Gross profit forthe first quarter increased $74,000, or 1%, from the comparable prior yearperiod, primarily due to higher sales, substantially offset by increasedmaterial costs and plant consolidation costs. Gross margin decreased from 24.6% to 22.8%, primarily due todifficulties and delays in fully passing through increases in plastic resinprices.

 

Operating expensesfor the first quarter increased $298,000, or 6%, from the comparable prior yearperiod, due to higher variable selling expenses related to higher sales, theinclusion of operating expenses of newly acquired operations and increasedcosts related to compliance with Sarbanes–Oxley rules and regulations and plantconsolidation costs.  As a percent ofsales, operating expenses decreased from 18.6% to 18.1%.

 

Operating incomefor the first quarter was $1,327,000, which was $224,000, or 14%, lower than inthe comparable prior year period.  Bysegment, operating income decreased $526,000 in the Optical Components segment,due primarily to difficulty and delays in fully passing through resin priceincreases and an unfavorable product mix; increased $553,000 in the Material

 

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HandlingComponents segment, primarily due to low sales volume and inefficienciesrelated to a plant consolidation in the prior year first quarter; increased$257,000 in the Irrigation Components segment, primarily due to the effects ofhigher sales volume; and decreased $519,000 in the Electrical Componentssegment, primarily due to costs of the business relocation which is underway.Operating margin for the quarter decreased from 6.0% in the first quarter offiscal 2003 to 4.7% in the first quarter of fiscal 2004, due to the factorsdiscussed above.

 

Net interestexpense for the first quarter ended November 30, 2004 increased $62,000from the prior year first quarter, due to higher average debt levels, despitelower average interest rates.

 

The provision forincome taxes in the first quarter was $66,000 lower than in the prior yearfirst quarter, despite a significantly higher effective tax rate of 36.5%versus 33.4% in the prior year, due to lower income before taxes.

 

The Company’sbacklog of unfilled orders, believed to be firm, was $7,699,000 at November 30,2003, $7,696,000 at August 31, 2004 and $7,877,000 at November 30,2004.  Because the time between enteringan order and shipping the product and recording a sale is typically shorterthan one month, backlog levels are not a reliable indicator of future salesvolume.

 

***Liquidity andCapital Resources***

 

*Working Capital. *TheCompany’s working capital was $18,135,000 at November 30, 2003;$19,294,000 at August 31, 2004 and $20,844,000 at November 30,2004.  Working capital at November 30, 2004 was $1,550,000 greaterthan at August 31, 2004, primarily due to a decrease in accounts payabledue to seasonality, the timing of payments on capital projects and increaseddiscounting of vendor invoices and increases in prepaid expenses and inventory,partially offset by a decrease in accounts receivable due to lower sequentialquarter sales and improved collections. Working capital at November 30, 2004 was $2,709,000 greater than atNovember 30, 2003, primarily due to the refinancing of a term loan whichreduced the current portion of term debt, an increase in inventory in anticipationof increased sales, and a bulk purchase of inventory as part of an assetacquisition, partially offset by an increase in accrued liabilities.

 

Summary of the Company’s debt at November 30,2004:

 

| **Description  of Debt**     | ** ** | **Balance** | ** ** | **Weighted  Average Interest Rate** | ** ** | **Additional  Availability** | ** ** | **Fiscal Year Due** | ** **               |
|------------------------------|------------|-------------|------------|-------------------------------------|------------|------------------------------|------------|---------------------|--------------------------|
| ** **                   | **2005**   | ** **  | **2006**   | ** **                          | **2007**   | ** **                   | **2008**   | ** **          | **2009 and  thereafter** | ** ** |
| ** **                   | ** ** | ** **  | ** ** | ** **                          | ** ** | ** **                   | ** ** | ** **          | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revolving line of  credit    |       | $           | 14,086,000 |                                | 3.7        | %                            | $          | 5,282,000           |                     | $ | — |   | $ | — |   | $ | 14,086,000 |   | $ | — |   | $ | — |   |
| Bank term loan               |       | 4,310,000   |       | 4.7                                 | %          | —                       |       | 699,000             |                     | 971,000 |   | 1,019,000 |   | 1,068,000 |   | 553,000 |   |
| Real estate and  other loans |       | 12,902,000  |       | 4.4                                 | %          | 3,377,000                    |       | 1,027,000           |                     | 4,330,000 |   | 3,933,000 |   | 891,000 |   | 2,721,000 |   |
| Subordinated debt            |       | 2,995,000   |       | 7.5                                 | %          | —                       |       | —              |                     | 2,000,000 |   | 995,000 |   | — |   | — |   |
| Total debt                   |       | $           | 34,293,000 |                                | 4.4        | %                            | $          | 8,659,000           |                     | $ | 1,726,000 |   | $ | 7,301,000 |   | $ | 20,033,000 |   | $ | 1,959,000 |   | $ | 3,274,000 |   |

 

The interest rate on the bank term loan isfixed for five years.  Interest rates onthe bank line of credit are subject to market fluctuation and are subject toreduction as the Company achieves certain financial milestones.  Interest rates on most of the real estate andother loans are subject to market fluctuation. The interest rate on the subordinated debt is scheduled to decrease asthe outstanding balance is reduced.

 

In October 2004, theCompany announced a plan to repurchase up to $2,000,000 of its Common Stockwith no time limit (the “2005 Buy Back”). No shares were purchased during the quarter ended November 30,2004.

 

*Sources and Uses of Funds*.  Net cash used in operating activities for thefirst quarter of fiscal 2005 was $541,000 compared to $873,000 provided byoperating activities for the first quarter of fiscal 2004. The decrease wasprimarily due to decreases in accounts payable related to the timing ofpayments for inventory and capital equipment additions, partially offset bydecreased accounts receivable due to seasonal reasons and improved collections.Net cash used in investing activities was $3,310,000 in the first quarter offiscal 2005, $2,635,000 more than in the first quarter of fiscal 2004,primarily related to the investment in a new facility in the Material HandlingComponents segment. Net cash of $3,435,000 was provided by financing activitiesfor the first quarter of fiscal 2005, primarily by debt related to the newfacility, compared to $281,000 net cash used in the prior year first quarterused in paying debt.

 

Summa believes that cashflows from operations and existing credit facilities will be sufficient to fundworking capital

 

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requirements, plannedinvestments and debt service for the next twelve months.  The Company has a strategy of growth byacquisition.  In the event an acquisitionplan is adopted which requires funds exceeding the availability describedabove, an alternate source of funds to accomplish the acquisition would have tobe developed.  The Company has 10,000,000shares of common stock authorized, of which 4,002,527 shares were outstandingat November 30, 2004 and 5,000,000 shares of “blank check” preferred stockauthorized, of which none was outstanding at November 30, 2004.  The Company could issue additional shares ofcommon or preferred stock or enter into new or revised borrowing arrangementsto raise funds.

 

### ***Off–Balance Sheet Arrangements***

 

The Company’s material off–balance sheetarrangements are as follows:

 

*Future Lease Payments.*  The Company leases offices and manufacturingfacilities and certain equipment under non–cancelable operating leases.  Future payments under these leases at November 30,2004 are approximately as follows:

 

| **Fiscal Year**     | ** ** | **Amount** | ** ** |
|---------------------|------------|------------|------------|
| 2005                |       | $          | 699,000    |   |
| 2006                |       | $          | 971,000    |   |
| 2007                |       | $          | 1,019,000  |   |
| 2008                |       | $          | 1,068,000  |   |
| 2009                |       | $          | 553,000    |   |
| 2010 and thereafter |       | $          | —     |   |

 

In recent years the Company has consolidatedand/or abandoned several facilities in an effort to improve efficiencies andoperating results, and plans further consolidations.  In the event the Company was to abandon afacility prior to its being leased to a new tenant, the Company could becomeobligated for accelerated lease payments or other expenses.

 

#### ***Critical Accounting Policies and Estimates***

 

The foregoing discussion and analysis of the Company’s financialcondition and results of operations are based upon the consolidated financialstatements of the Company, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Thepreparation of such financial statements requires management to make estimatesand assumptions in applying certain critical accounting policies. Certainaccounting estimates are particularly sensitive because of their significanceto the Company’s consolidated financial statements and because of thepossibility that future events affecting the estimates could differ markedlyfrom current expectations. The Company believes that the following are some ofthe more critical judgment areas in the application of its accounting policiesthat affect the Company’s financial statements:

 

###### *Impairment of Long–Lived Assetsand Long–Lived Assets to be Disposed of.***** The Companyreviews its long–lived assets and certain identifiable intangibles forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto the undiscounted future operating cash flows expected to be generated by theasset. If such assets are considered to be impaired, the impairment to berecognized is measured by the amount by which the carrying amount of the assetsexceeds the fair value of the assets. Assets to be disposed of by sale arereported at the lower of the carrying amount or fair value less costs to sell.

 

TheCompany has a significant amount of property and equipment and intangibleassets. The determination as to whether events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable involvesmanagement’s judgment. In addition, should the Company conclude thatrecoverability of an asset is in question, the estimate of undiscounted futureoperating cash flows to determine whether an asset is recoverable and, if not,the final determination of the fair value of the asset are also based on thejudgment of management. These judgments can be impacted by a variety ofunderlying assumptions, such as the general business climate, effectiveness ofcompetition and supply and cost of resources. Accordingly, actual results can differ significantly from theassumptions made by management in making its estimates. Future changes inmanagement’s estimates could result in indicators of impairment and futureimpairment charges.

 

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###### *Valuation of Inventory.** ***TheCompany values its inventories at the lower of cost or market using the first–in,first–out (FIFO) method. The Company records adjustments to the value ofinventory based upon obsolescence and changes in market value as permanentchanges in the carrying amount of such inventory until its ultimate sale orother disposition. The Company has evaluated the current level of inventoriesconsidering historical sales and other factors and, based on this evaluation,has recorded adjustments to cost of goods sold to adjust inventory to netrealizable value.  These adjustments areestimates, which could vary significantly, either favorably or unfavorably,from actual requirements if future economic conditions, customer demand orcompetition differ from expectations.

 

*Accounts Receivable. *TheCompany performs ongoing evaluations of customers and adjusts credit limitsbased upon each customer’s payment history and credit worthiness, as determinedby credit information available at that time. The Company monitors collections and payments from customers andmaintains allowances for doubtful accounts for the inability of customers tomake required payments.  If the financialcondition of customers were to deteriorate resulting in an impairment of their abilityto make payments, additional allowances may be required.

 

*Goodwill.** ***Goodwillrepresents the excess of purchase price over fair value of net assetsacquired.  Goodwill is tested forimpairment annually in the fourth quarter, after completion of an annualplanning process, or earlier if events occur which require an impairmentanalysis to be performed.  With respectto each reporting unit which has any goodwill, the fair value is determinedusing traditional valuation methodology, and compared with its carryingvalue.  If the fair value exceeds theunit’s carrying value, goodwill of the reporting unit is considered not to beimpaired.  If the unit’s carrying valueexceeds its fair value, assets of the unit are individually valued to determinethe implied fair value of the reporting unit goodwill.  Impairment loss is recognized to the extentthat the carrying value of the goodwill exceeds its implied fair value.  Significantmanagement judgment is involved in determining the fair value of assets. Futurechanges in management’s estimates could result in additional impairment chargesto goodwill.

 

**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Except for theoutstanding debt and related variable interest rates set forth in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Liquidity and Capital Resources” above, there are no material changes to thedisclosure set forth in Item 7A of the Company’s Annual Report on Form 10–Kfor the fiscal year ended August 31, 2004. The Company has no market risk sensitive instruments entered into fortrading purposes.

 

**EFFECTIVENESSOF DISCLOSURE****CONTROLS AND PROCEDURES**

 

As of the end ofthe period covered by this report, the Company carried out an evaluation, underthe supervision and with the participation of the Company’s management,including the Company’s Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Exchange Act Rules 13a – 14 and 13a–15.  Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are effective.  There were no significant changes in theCompany’s internal controls that could significantly affect these controlssubsequent to the date of their evaluation.

 

**PART II****– OTHER INFORMATION**

 

### ***Item 1.  Legal Proceedings***

 

The Company encounters lawsuits from time totime in the ordinary course of business and, at November 30, 2004, theCompany and/or its affiliates were parties to several civil lawsuits. Summadoes not expect that the resolution of these lawsuits will have a materialadverse impact on future results of operations or financial position.   Certain lawsuits filed against the Companyfrom time to time contain claims not covered by insurance, or seek damages inexcess of policy limits, and such claims could be filed in the future.  The Company may file patent infringementand/or other types of lawsuits in the future which may result in materiallyincreased costs and other adverse consequences. Any costs and/or losses that Summa may suffer from such lawsuits, andthe effect such litigation may have upon the reputation and marketability ofSumma’s products, could have a material adverse impact on the future results ofoperations, financial condition and/or prospects of the Company.

 

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###### ***Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds***

 

In October 2004, theCompany announced a plan to repurchase up to $2,000,000 of its Common Stockwith no time limit (the “2005 Buy Back”). As of November 30, 2004, no shares had been repurchased under the2005 Buy Back.

 

#### ***Item 3.  Defaults upon Senior Securities***

 

None.

 

***Item 4. Submission of Matters to aVote of Security Holders***

 

None.

 

***Item 5. Other Information***

 

None.

 

***Item 6.  Exhibits***

 
| 31.1 | Section 302 Certification |
|------|--------------------------------|
| 32.1 | Section 906 Certification |

 

**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 theundersigned thereunto duly authorized on January 5, 2005.

 

**SummaIndustries**

 
|   /s/ James R. Swartwout |                         |   /s/ Trygve M. Thoresen |   |
|-----------------------------------------|------------------------------|-----------------------------------------|--------|
| James R. Swartwout                      | Trygve M. Thoresen           |
| President and Chief Financial Officer   | Vice President and Secretary |

 

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