UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 13(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 0-5181
ELCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-1033080
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
1111 SAMUELSON ROAD, P.O. BOX 7009, ROCKFORD, ILLINOIS 61125
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (815) 397-5151
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
4,984,554 Common Shares, $5 Par Value as of May 6, 1994
PART I. FINANCIAL INFORMATION
The condensed financial statements reflect all adjustments, consisting of
normal recurring accruals, which the Company considers necessary for a fair
presentation of the results for the indicated periods.
Incorporated herein is the following unaudited (except for the
Consolidated Condensed Balance Sheet as of June 30, 1993, which is
audited) financial information:
Consolidated Condensed Balance Sheets as of March 31, 1994
and June 30, 1993.
Consolidated Condensed Income Statements for the three-month and
nine-month periods ended March 31, 1994 and 1993.
Statements of Consolidated Cash Flows for the nine-month periods
ended March 31, 1994 and 1993.
Notes to Consolidated Condensed Financial Statements.
Management's Discussion and Analysis of Results of Operations and
Financial Position.
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
March 31 June 30
1994 1993
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents $ 5,048 $ 8,013
Accounts receivable - less
allowances (March 31,
$536; June 30, $475) 30,023 29,282
Inventories 27,148 22,324
Deferred taxes on income 1,822 1,166
Prepaid and other current assets 527 446
Total current assets 64,568 61,231
Property, Plant and Equipment
Land 449 449
Land and leasehold improvements 3,200 3,074
Buildings and building equipment 24,603 23,287
Machinery and equipment 111,493 105,084
Furniture and office equipment 8,959 8,448
Construction in progress 1,811 3,262
Total 150,515 143,604
Less accumulated depreciation and
amortization 82,785 76,183
Property, plant and equipment-net 67,730 67,421
Intangibles, Net 10,246 11,201
Investment in and Advances to Unconsolidated
Affiliate 1,752 1,628
Other Assets 5,419 5,708
TOTAL $149,715 $147,189
See Notes to Consolidated Condensed Financial Statements.
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
March 31 June 30
1994 1993
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade creditors $ 11,088 $ 13,153
Current maturities of long-term
obligations 4,037 3,736
Accrued liabilities:
Salaries, wages and commissions 3,276 3,039
Compensated absences 2,937 2,131
Federal and state taxes on income 996 1,112
Other taxes 1,513 1,074
Retirement plans 1,426 819
Interest 1,049 812
Other 2,883 2,853
Total current liabilities 29,205 28,729
Long-Term Debt 43,067 46,290
Long-Term Lease Obligations 7
Contingencies
Deferred Taxes on Income 8,016 6,859
Other Deferred Liabilities 4,337 4,153
Stockholders' Equity
Capital stock:
Preferred - Authorized,
250,000 shares at $1 par value;
issued and outstanding - none
Common - Authorized, 20,000,000
shares at $5 par value; issued
March 31, 4,987,635 shares and June 30,
4,984,255 shares 24,938 24,921
Additional paid-in capital 7,919 7,867
Retained earnings 32,270 28,412
Total 65,127 61,200
Less common stock in treasury
at cost-March 31, 3,081 shares;
June 30, 4,081 shares 37 49
Total stockholders' equity 65,090 61,151
TOTAL $149,715 $147,189
See Notes to Consolidated Condensed Financial Statements.
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED INCOME STATEMENTS
(UNAUDITED)
(Dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
March 31 March 31
1994 1993 1994 1993
Net sales $57,692 $ 50,735 $164,008 $144,288
Cost of products sold 46,700 41,104 132,431 118,019
Gross profit 10,992 9,631 31,577 26,269
Selling and administrative
expenses 6,575 6,110 19,480 17,796
Income from operations 4,417 3,521 12,097 8,473
Interest expense 766 890 2,381 2,853
Interest income 15 27 70 74
Income before provision for taxes
and equity in income (loss)
of unconsolidated affiliate 3,666 2,658 9,786 5,694
Provision for taxes on income:
Current:
Federal 1,043 751 2,904 1,653
State 335 242 897 504
Deferred 143 123 260 234
Total provision for taxes on
income 1,521 1,116 4,061 2,391
Income before equity in income
(loss) of unconsolidated affiliate 2,145 1,542 5,725 3,303
Equity in income (loss) of
unconsolidated affiliate 94 (67) 77 (171)
Net income $ 2,239 $ 1,475 $ 5,802 $ 3,132
Net income per common share $ .45 $ .30 $ 1.16 $ .63
Dividends per common share $ .13 $ .13 $ .39 $ .39
Weighted average number of
shares outstanding 4,984,276 4,959,174 4,982,311 4,953,694
See Notes to Consolidated Condensed Financial Statements.
ELCO INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Nine Months Ended
March 31,
1994 1993
Cash flows from operating activities:
Net income $ 5,802 $ 3,132
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment 7,517 6,935
Amortization of intangibles 955 449
Loss on retirement and disposal of property,
plant and equipment 10 8
Change in assets and liabilities:
Accounts receivable (741) (1,144)
Inventories (4,824) 156
Prepaid and other current assets (81) (8)
Accounts payable (2,065) (374)
Accrued liabilities 2,240 2,479
Deferred taxes on income 501 234
Other deferred liabilities 184 127
ESOP contribution from common and treasury shares 309
Equity in loss (income) of unconsolidated
affiliate (77) 171
Other 673 (89)
Net cash provided by operating activities 10,094 12,385
Cash flows from investing activities:
Additions to property, plant and equipment (8,152) (5,673)
Proceeds from retirement and disposal of
property, plant and equipment 316 225
Decrease in construction/project funds held
in trust 2,109
Increase in other assets (303) (632)
Advances to unconsolidated affiliate (47) (16)
Net cash required for investing activities (8,186) (3,987)
Cash flows from financing activities:
Proceeds from long-term debt 7,000
Payments on long-term debt (9,898) (2,098)
Payments on long-term lease obligations (31) (157)
Dividends paid (1,944) (1,934)
Net cash required for financing activities (4,873) (4,189)
Net decrease in cash and cash equivalents (2,965) 4,209
Cash and cash equivalents at beginning of year 8,013 2,562
Cash and cash equivalents at end of period $ 5,048 $ 6,771
Cash paid for: Interest $ 2,197 $ 2,724
Income taxes $ 3,814 $ 1,795
See Notes to Consolidated Condensed Financial Statements.
ELCO INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
1. ACCOUNTING POLICIES
The consolidated condensed balance sheet as of March 31,
1994, the consolidated condensed income statements for the
three month and nine month periods ended March 31, 1994 and
1993, and the statements of consolidated cash flows for the
nine month periods ended March 31, 1994 and 1993 have been
prepared by the Company without audit. The June 30, 1993
consolidated condensed balance sheet was derived from
audited financial statements, but does not include all
disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary
to present fairly the financial position, results of
operations and cash flows at March 31, 1994 and for all
periods presented have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted.
It is suggested that these consolidated financial statements
be read in conjunction with the financial statements and
notes thereto included in the Company's June 30, 1993 annual
report to stockholders. The results of operations for the
period ended March 31, 1994 are not necessarily indicative
of the operating results for the full year.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method for
approximately 49% and 48% of the Company's inventories at
March 31, 1994 and June 30, 1993, respectively, and by the
first-in, first-out (FIFO) and actual cost methods for all
other inventories. The inventories are summarized as
follows:
March 31 June 30
1994 1993
Raw materials and supplies $13,502 $11,701
Work in process 10,183 7,798
Finished goods 12,046 10,808
35,731 30,307
Less LIFO reserve (8,583) (7,983)
Total $27,148 $22,324
The replacement cost of inventories at March 31, 1994 and
June 30, 1993 approximates FIFO value.
3. LONG-TERM DEBT
The Company must meet certain debt covenants. Under the
most restrictive covenant, $3,878 of retained earnings at
March 31, 1994 is not restricted as to payments of
dividends. The agreements include a change in control
provision which may result in a prepayment penalty and all
unpaid principal and interest due immediately.
4. SHORT-TERM LINES OF CREDIT
At March 31, 1994, the Company had bank lines of credit
permitting borrowing up to an aggregate of $18,000 at the
banks' corporate base rate or a fixed rate (at the option of
the Company) as defined in the agreements. The lines
require no compensating balances or commitment fees. The
lines, generally reviewed annually for renewal, are subject
to the usual terms and conditions applied by the banks. At
March 31, 1994, none of the lines were used.
5. TAXES ON INCOME
The effective tax rate for the quarters ended March 31, 1994
and 1993 were 41.5% and 42.0%, respectfully. The effective
tax rate for the nine-month periods ended March 31, 1994 and
1993 were 41.5% and 42.0%, respectively.
6. INTEREST
The Company capitalizes interest costs relating to
construction of property and equipment. Such costs are
amortized over the depreciable lives of the related assets.
Certain information regarding this capitalization follows:
Three Months Ended Nine Months Ended
3/31/94 3/31/93 3/31/94 3/31/93
Interest costs incurred $ 789 $ 912 $2,479 $2,903
Interest capitalized 23 22 98 50
Interest expensed $ 766 $ 890 $2,381 $2,853
7. CONTINGENCIES
The Company is currently involved in matters of litigation
arising from the normal course of business, including
environmental matters. The Company, together with other
parties, has been designated a "Potentially Responsible
Party" by the United States Environmental Protection Agency
(USEPA) with respect to the cost of investigation and clean-
up of a site in Illinois. Together with other parties, the
Company is a third-party defendant in a federal enforcement
action brought by the USEPA against several other primary
defendants. The Company is also involved with clean-up
efforts with respect to two pieces of property that it
previously owned in Connecticut. The Company's potential
exposure for these environmental matters has been evaluated
and a liability has been recorded for its likely costs based
on available information. Such liability is not material to
the financial condition of the Company. It is the opinion
of management, after consultation with counsel, that
additional liabilities, if any, resulting from litigation
matters are not expected to have a material adverse effect
on the financial condition of the Company, although such
matters could have a material effect on quarterly or annual
operating results when resolved in a future period.
In January 1994, the USEPA notified the Company that it is
one of over 300 PRPs with respect to the old Southington
Landfill Superfund Site in Southington, Connecticut. Elco
was identified as a successor to a company that allegedly
used the site. The USEPA has not yet selected a plan of
remediation for the site. The Company has insufficient
information to determine its potential exposure in
connection with the site, when (or if) it will incur such
costs and the ultimate impact of the costs upon the
Company's financial condition and results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL POSITION
General
The Company's products are classified into two segments: Industrial
Products and Home and Construction Products. The following tabulation
sets forth the sales and income from operations of each product segment
for the periods indicated and the percentage of total sales.
Qtr % Qtr %
Ended Of Ended Of %
3/31/94 Total 3/31/93 Total Change
(000's) (000's)
NET SALES:
Industrial $ 45,458 78.8% $ 38,489 75.9% 18.1 %
Home and Construction 12,234 21.2% 12,246 24.1% (0.1)%
Consolidated Net Sales $ 57,692 100.0% $ 50,735 100.0% 13.7 %
Nine Nine
Months % Months %
Ended Of Ended Of %
3/31/94 Total 3/31/93 Total Change
(000's) (000's)
NET SALES:
Industrial $122,947 75.0% $105,412 73.1% 16.6 %
Home and Construction 41,061 25.0% 38,876 26.9% 5.6 %
Consolidated Net Sales $164,008 100.0% $144,288 100.0% 13.7 %
Qtr % Qtr %
Ended Of Ended Of %
3/31/94 Sales 3/31/93 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $ 4,422 9.7% $ 3,112 8.1% 42.1 %
Home and Construction 485 4.0% 781 6.4% (37.9)%
4,907 3,893
Corporate expenses (490) (372)
Total Income from
Operations $ 4,417 7.7% $ 3,521 6.9% 25.4 %
Nine Nine
Months % Months %
Ended Of Ended Of %
3/31/94 Sales 3/31/93 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $10,180 8.3% $ 6,319 6.0% 61.1 %
Home and Construction 3,734 9.1% 3,431 8.8% 8.8 %
13,914 9,750
Corporate expenses (1,817) (1,277)
Total Income from
Operations $12,097 7.4% $ 8,473 5.9% 42.8 %
The following table presents, for the periods indicated, certain
information derived from the Consolidated Condensed Income Statements of
the Company expressed as percentages of net sales and the percentage
changes in the dollar amount of such items compared to the prior period.
Percentage of Net Sales Percentage Increase
(Decrease)
Three Months Ended Three Months Ended
March 31, March 31, 1994
1994 1993 over 1993
Net sales 100.0 100.0 13.7
Cost of products sold 80.9 81.0 13.6
Gross profit 19.1 19.0 14.1
Selling and administrative
expenses 11.4 12.1 7.6
Income from operations 7.7 6.9 25.4
Interest expense 1.3 1.8 (14.0)
Interest income 0.0 0.1 (48.1)
Income before provision
for taxes and equity in
income (loss) of uncon-
solidated affiliate 6.4 5.2 37.9
Provision for taxes on
income 2.7 2.2 36.3
Income before equity
in income (loss) of uncon-
solidated affiliate 3.7 3.0 39.1
Equity in income (loss) of
unconsolidated affiliate 0.2 (.1)
Net income 3.9 2.9 51.8
Percentage of Net Sales Percentage Increase
(Decrease)
Nine Months Ended Nine Months Ended
March 31, March 31, 1994
1994 1993 over 1993
Net sales 100.0 100.0 13.7
Cost of products sold 80.7 81.8 12.2
Gross profit 19.3 18.2 20.2
Selling and administrative
expenses 11.9 12.3 9.5
Income from operations 7.4 5.9 42.8
Interest expense 1.5 2.0 (16.5)
Interest income 0.1 0.0 (5.4)
Income before provision
for taxes and equity in
income (loss) of uncon-
solidated affiliate 6.0 3.9 71.9
Provision for taxes on
income 2.5 1.6 69.8
Income before equity
in income (loss) of
unconsolidated affiliate 3.5 2.3 73.3
Equity in income (loss) of
unconsolidated affiliate 0.0 (.1)
Net income 3.5 2.2 85.2
RESULTS OF OPERATIONS
(Dollars in Thousands)
Three Month Period Ended March 31, 1994 Compared To The Three Month
Period Ended March 31, 1993.
Net sales increased $6,957 or 13.7%, primarily due to an 18.1% increase
in the Industrial Products Group. Growth in the Industrial Products
Group resulted from increased automobile and light truck production and
the growing economy. Net sales in the Home and Construction Products
Group were comparable to the year earlier period due to declining sales
to two significant retail customers due to incompatibility in product or
distribution strategy. In subsequent periods, the Company anticipates
replacing these lost sales with sales from new programs to two home
centers. The setups of these new programs are anticipated to be
completed by the end of calendar 1994.
Gross profit remained constant at approximately 19.0% of net sales. The
Company incurred an expense of approximately $500 relating to the loss of
one of the customers mentioned previously. Without this charge, gross
profit would have increased from 19.1% of net sales to 19.9%.
Selling and administrative expenses decreased from 12.1% of net sales to
11.4%. These expenses increased at a rate lower than the sales increase
due to cost containment efforts and to the fixed nature of certain of the
expenses.
Income from operations increased from 6.9% of net sales to 7.7%, one of
the best results since the end of the last economic expansion in 1989.
Operating margins for the Industrial Products Group increased from 8.1%
of net sales to 9.7% as a result of higher sales levels, higher capacity
utilization rates and continuing productivity improvement programs.
Operating margins for the Home and Construction Products Group declined
due to the lost customer expense mentioned previously. Without that
charge, operating income would have increased on flat sales.
Net interest expense declined 13.0% primarily reflecting lower levels of
debt and the effect of the refinancing of a portion of long-term debt.
The effective income tax rate decreased from 42.0% to 41.5% due to a
favorable mix of state income taxes and to a reduced effect of certain
non-deductible expenses.
The Company's share of the results of operations of Rocknel Fastener,
Inc. ("Rocknel"), a joint venture company, improved from a loss of $67 to
income of $94 due to continually improving operations and to an increase
in the sale of higher margin products to new customers.
Net income increased from $.30 per share to $.45, a 50.0% increase.
Nine Months Ended March 31, 1994 Compared to Nine Months Ended March 31,
1993
Net sales increased $19,720 or 13.7% with a 16.6% increase in the
Industrial Products Group and a 5.6% increase in the Home and
Construction Products Group. Increases in vehicle production and the
continued growing economy primarily generated the Industrial Products
Group growth. Growth in the Home and Construction Products Group was
somewhat limited as a result of declining sales to two significant retail
customers due to incompatibility in product or distribution strategy.
Gross profit increased from 18.2% of net sales to 19.3% primarily due to
stronger sales performance, efficiency improvements and ongoing expense
reduction programs.
Selling and administrative expenses decreased from 12.3% of net sales to
11.9%, reflecting the fixed nature of certain of these expenses. The
1994 expenses included a one-time charge of approximately $366 related to
the refinancing of certain long-term debt at lower rates.
Income from operations increased from 5.9% of net sales to 7.4% primarily
due to strong performance from the Industrial Products Group, where
greater capacity utilization and a shift in sales to higher margin
products contributed to improved gross profit margins. Margins improved
modestly in the Home and Construction Products Group in spite of an
expense of approximately $500 related to the loss of one of the customers
mentioned previously.
Net interest expense decreased 16.8% reflecting lower levels of debt, a
more favorable effect of an interest rate swap agreement, lower effective
interest rates and the effect of the refinancing of a portion of long-
term debt.
The effective income tax rate decreased from 42.0% to 41.5% due to a
favorable mix of state income taxes and to a reduced effect of certain
non-deductible expenses.
The Company's share of the results of operations of Rocknel Fastener,
Inc., a joint venture company, improved from a loss of $171 to income of
$77. This improvement was the result of continued cost containment
efforts, productivity improvements and the introduction of new, higher
margin products to new customers.
Net income for the 1994 period was $5,802 or $1.16 per share, increases
of 85.2% and 84.1%, respectively, from the prior periods results.
NEW ACCOUNTING PRONOUNCEMENTS
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," which will
be effective for the year ended June 30, 1995, and will require accrual
accounting for the estimated cost of benefits provided to former or
inactive employees after employment but before retirement. Management
has not yet performed a complete evaluation to determine the financial
impact, however, a preliminary assessment indicates that it is not likely
to have a material impact on the Company.
During December 1991, the Financial Accounting Standards Board issued
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
which will require additional disclosures regarding long-term debt and
other financial instruments. The Company must adopt SFAS No. 107 no
later than June 30, 1996. Adoption of this statement will not impact the
carrying value of the Company's assets and liabilities.
SEASONAL VARIATIONS IN BUSINESS
Sales and revenues of a material portion of the Company's business are
normally stronger in the second half of the Company's fiscal year.
Production levels are generally lower during the Company's first half of
the fiscal year because of customer plant shutdowns due to summer
vacations and the number of holidays scheduled during the month of
December by both customers and the Company.
LIQUIDITY AND CAPITAL RESOURCES
(Dollars in thousands)
The following tabulation provides a summary of Changes in Consolidated
Cash Flows for the periods indicated.
Nine Months Ended
March 31
1994 1993
(in thousands)
Cash provided by (required for):
Operating Activities $10,094 $12,385
Investment Activities (8,186) (3,987)
Financing Activities (4,873) (4,189)
Net cash required (2,965) 4,209
Balance at the beginning of the period 8,013 2,562
Balance at the end of the period $ 5,048 $ 6,771
Working capital at March 31, 1994 was $35,363 or approximately 16% of
annualized sales, a level somewhat higher than normal and reflective of
initial stocking requirements for two new major home center customers.
Cash balances decreased from $8,013 to $5,048 during the period from July
1, 1993 to March 31, 1994. The increase in working capital required to
support the significantly increased sales, plus cash requirements for
capital expenditures and required debt payments exceeded cash provided by
net income, depreciation and amortization. The Company anticipates that
capital expenditures will approximate $13,000 for its current fiscal year
(including approximately $5,000 to be spent in its fourth quarter) and
$14,500 for fiscal 1995, including approximately $3,000 that it expects
to spend in connection with an expansion at its Precision Stamping
Division over the next 18 months.
At March 31, 1994 the Company had $18,000 of bank lines of credit, none
of which were in use or required compensating balances or commitment
fees.
The Company believes that available sources of borrowing and anticipated
funds from operations will satisfy the Company's projected cash
requirements through fiscal 1995.
PART II. OTHER INFORMATION
Item 1. Legal proceedings - There have been no material developments in
the legal proceedings addressed in the report on Form 10-K for
June 30, 1993.
Item 2. Changes in the rights of the Company's security holders -
Inapplicable this quarter.
Item 3. Defaults by the Company on its senior securities - Inapplicable
this quarter.
Item 4. Results of votes of security holders - Inapplicable this
quarter.
Item 5. Other information - Inapplicable this quarter.
Item 6a. Exhibits - No exhibits are required this quarter.
Item 6b. Reports on Form 8-K - No reports on Form 8-K were filed for the
three-month period ended March 31, 1994.
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.
ELCO INDUSTRIES, INC.
Date: May 13, 1994 John C. Lutz
John C. Lutz, President and Chief
Executive Officer
Date: May 13, 1994 August F. DeLuca
August F. DeLuca, Vice President-
Finance and Chief Financial Officer