FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 13(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
(State or other jurisdiction of incorporation of organization)
36-1033080
(I.R.S. Employer Identification No.)
1111 SAMUELSON ROAD, P.O. BOX 7009, ROCKFORD, ILLINOIS
(Address of principal executive offices)
61125
(Zip Code)
(815) 397-5151
(Registrant's telephone number, including area code)
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 [ ]
At October 31, 1994, 4,914,337 shares of common stock of the Registrant
were outstanding.
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 financial information
(except for the Consolidated Condensed Balance Sheet as of June 30,
1994, which is derived from audited financial information):
Consolidated Condensed Balance Sheets as of September 30, 1994
and June 30, 1994.
Consolidated Condensed Income Statements for the three-month
periods ended September 30, 1994 and 1993.
Statements of Consolidated Cash Flows for the three-month
periods ended September 30, 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)
September 30 June 30
1994 1994
ASSETS
Current Assets
Cash and cash equivalents $ 817 $ 3,861
Accounts receivable - less
allowances (September 30,
$513; June 30, $473) 34,208 32,684
Inventories 27,120 25,652
Deferred taxes on income 2,093 2,055
Prepaid and other current assets 718 562
Total current assets 64,956 64,814
Property, Plant and Equipment
Land 449 449
Land and leasehold improvements 3,263 3,260
Buildings and building equipment 25,517 25,052
Machinery and equipment 117,865 114,458
Furniture and office equipment 8,724 8,489
Construction in progress 1,899 1,510
Total 157,717 153,218
Less accumulated depreciation and
amortization 86,406 83,901
Property, plant and equipment-net 71,311 69,317
Intangibles, Net 9,957 10,101
Investment in and Advances to Unconsolidated
Affiliate 2,075 1,908
Other Assets 5,309 5,324
TOTAL $153,608 $151,464
See Notes to Consolidated Condensed Financial Statements.
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
September 30 June 30
1994 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade creditors $ 12,362 $ 12,845
Current maturities of long-term obligations 4,430 4,437
Bank notes payable 2,000
Accrued liabilities:
Salaries, wages and commissions 3,227 5,001
Compensated absences 2,572 2,234
Federal and state taxes on income 2,173 736
Other taxes 1,357 1,189
Retirement plans 1,082 961
Interest 1,144 764
Other 3,078 3,267
Total current liabilities 33,425 31,434
Long-Term Debt 39,852 41,860
Contingencies
Deferred Taxes on Income 8,094 8,117
Other Deferred Liabilities 5,074 5,087
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
September 30 and June 30,
4,987,635 shares 24,938 24,938
Additional paid-in capital 7,831 7,872
Retained earnings 35,739 34,048
Total 68,508 66,858
Less common stock in treasury
at cost-September 30, 73,298 shares;
June 30, 103,081 shares 1,345 1,892
Total stockholders' equity 67,163 64,966
TOTAL $153,608 $151,464
See Notes to Consolidated Condensed Financial Statements.
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Dollars in thousands except per share amounts)
Three Months Ended
September 30,
1994 1993
Net sales $ 59,805 $ 52,877
Cost of products sold 48,064 42,064
Gross profit 11,741 10,813
Selling and administrative expenses 7,002 6,721
Income from operations 4,739 4,092
Interest expense 809 814
Interest income 24 45
Income before provision for taxes and
equity in income (loss) of unconsolidated
affiliate 3,954 3,323
Provision for taxes on income:
Current:
Federal 1,351 1,003
State 331 314
Deferred (61) 62
Total provision for taxes on income 1,621 1,379
Income before equity in income (loss) of
unconsolidated affiliate 2,333 1,944
Equity in income (loss) of unconsolidated
affiliate 91 (19)
Net income $ 2,424 $ 1,925
Net income per common share $ .50 $ .39
Dividends per common share $ .15 $ .13
Weighted average number of shares outstanding 4,886,148 4,980,174
See Notes to Consolidated Condensed Financial Statements.
ELCO INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
Three Months Ended
September 30,
1994 1993
Cash flows from operating activities:
Net income $ 2,424 $ 1,925
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment 2,714 2,551
Amortization of intangibles 144 149
Loss (gain) on retirement and disposal of
property, plant and equipment (1) 24
Change in assets and liabilities:
Accounts receivable (1,524) 305
Inventories (1,468) (1,628)
Prepaid and other current assets (156) (120)
Accounts payable (483) (2,201)
Accrued liabilities 528 1,104
Deferred taxes on income (61) 143
Other deferred liabilities (13) 31
ESOP contribution from common and treasury shares 459
Equity in loss (income) of unconsolidated
affiliate (91) 19
Other 15 13
Net cash provided by operating activities 2,487 2,315
Cash flows from investing activities:
Additions to property, plant and equipment (4,712) (3,271)
Proceeds from retirement and disposal of
property, plant and equipment 5 228
Increase in other assets (303)
Advances to unconsolidated affiliate (76) (5)
Net cash required for investing activities (4,783) (3,351)
Cash flows from financing activities:
Proceeds from long-term debt 7,000
Payments on long-term debt (2,008) (9,007)
Payments on long-term lease obligations (7) (12)
Increase in bank notes payable 2,000
Dividends paid (733) (648)
Net cash required for financing activities (748) (2,667)
Net decrease in cash and cash equivalents (3,044) (3,703)
Cash and cash equivalents at beginning of year 3,861 8,013
Cash and cash equivalents at end of period $ 817 $ 4,310
Cash paid for: Interest $ 477 $ 628
Income taxes $ 244 $ 514
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 September 30,
1994, the consolidated condensed income statements for the
three month periods ended September 30, 1994 and 1993, and
the statements of consolidated cash flows for the three
month periods ended September 30, 1994 and 1993 have been
prepared by the Company without audit. The June 30, 1994
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 September 30, 1994 and for all
periods presented have been made.
In October 1994, The Financial Accounting Standard Board
issued SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" and
requires additional disclosures about derivative financial
instruments including interest rate swaps.
The Company enters into interest rate swap agreements with
the objective of converting fixed rate debt to variable rate
debt in order to take advantage of lower variable rates
expected over the period of the swap. The swaps are settled
every six months and the effect is recorded as an increase
or decrease to current interest expense during the
appropriate six-month period.
Certain other 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, 1994 annual
report to stockholders. The results of operations for the
period ended September 30, 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 46% of the Company's inventories at
September 30 and June 30, 1994, respectively, and by the
first-in, first-out (FIFO) and actual cost methods for all
other inventories. The inventories are summarized as
follows:
September 30 June 30
1994 1994
Raw materials and supplies $14,315 $13,350
Work in process 9,758 8,609
Finished goods 12,026 12,288
36,099 34,247
Less LIFO reserve (8,979) (8,595)
Total $27,120 $25,652
The replacement cost of inventories at September 30 and June
30, 1994 approximates FIFO value.
3. LONG-TERM DEBT
The Company must meet certain debt covenants. Under the
most restrictive covenant, $3,642 of retained earnings at
September 30, 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 September 30, 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
September 30, 1994, $2,000 of the lines were used.
5. TAXES ON INCOME
The effective tax rate for the periods ended September 30,
1994 and 1993 were 41.0% and 41.5%, respectfully.
6. CONTINGENCIES
The Company is currently involved in matters of litigation
arising from the normal course of business, including
certain environmental and product liability matters. There
have been no material changes in any of these matters since
June 30, 1994 and no additional liability has been recorded.
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 %
9/30/94 Total 9/30/93 Total Change
(000's) (000's)
NET SALES:
Industrial $44,007 73.6% $37,466 70.9% 17.5 %
Home and Construction 15,798 26.4% 15,411 29.1% 2.5 %
Consolidated Net Sales $59,805 100.0% $52,877 100.0% 13.1 %
Qtr % Qtr %
Ended Of Ended Of %
9/30/94 Sales 9/30/93 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $ 4,465 10.1% $ 2,997 8.0% 49.0 %
Home and Construction 814 5.2% 1,928 12.5% (57.8)%
5,279 4,925
Corporate expenses (540) (833)
Total Income from
Operations $ 4,739 7.9% $ 4,092 7.7% 15.8 %
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
September 30, September 30, 1994
1994 1993 over 1993
Net sales 100.0 100.0 13.1
Cost of products sold 80.4 79.6 14.3
Gross profit 19.6 20.4 8.6
Selling and administrative
expenses 11.7 12.7 4.2
Income from operations 7.9 7.7 15.8
Interest expense 1.3 1.5 (.6)
Interest income .1 (46.7)
Income before provision
for taxes and equity in
income (loss) of uncon-
solidated affiliate 6.6 6.3 19.0
Provision for taxes on
income 2.7 2.6 17.5
Income before equity
in income (loss) of uncon-
solidated affiliate 3.9 3.7 20.0
Equity in income (loss) of
unconsolidated affiliate .2 (.1)
Net income 4.1 3.6 25.9
RESULTS OF OPERATIONS
Three Month Period Ended September 30, 1994 Compared To The Three Month
Period Ended September 30, 1993.
Net sales increased $6,928 or 13.1% primarily due to a 17.5% increase in
the Industrial Products Group. Market-focused efforts for non-automotive
business, especially computer and off-road construction equipment,
produced sales increases exceeding the increases in automotive markets.
Sales in the Home and Construction Products Group were about as planned
and included shipments of new programs to two major home center
customers. These shipments more than offset business lost during the
past year with two significant retail customers.
Consolidated gross profit remained constant at approximately 20% of net
sales. While costs in the Industrial Products Group increased at a rate
lower than the rate of sales increase, higher costs related to initial
stocking and product introduction associated with the new business
depressed the margins in the Home and Construction Products Group.
Selling and administrative expenses decreased from 12.7% of net sales to
11.7% due to cost containment efforts and to the fixed nature of certain
of the expenses.
Net interest expense was approximately the same in both periods. Lower
levels of debt were offset by higher interest rates on variable rate debt
and a less favorable effect of interest rate swap agreements.
The effective income tax rate decreased from 41.5% to 41.0% due to the
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 $19 to income of
$91 due to higher customer demand and the introduction of new higher
margin products.
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits". The effects of this change were immaterial, and, accordingly,
no cumulative effect adjustment for the adoption was required.
NEW ACCOUNTING PRONOUNCEMENTS
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.
Three Months Ended
September 30
1994 1993
(in thousands)
Cash provided by (required for):
Operating Activities $2,487 $2,315
Investment Activities (4,783) (3,351)
Financing Activities (748) (2,667)
Net cash required (3,044) (3,703)
Balance at the beginning of the period 3,861 8,013
Balance at the end of the period $ 817 $4,310
Working capital at September 30, 1994 was $31,531 or approximately 13% of
annualized sales, a level somewhat below the level the Company considers
normal. This is reflective of the use of cash and short-term borrowing
to finance an increase in inventories to support the higher anticipated
level of sales and to finance purchases of capital expenditures that had
a high level of concentration in the first quarter. The Company
anticipates that capital expenditures will approximate $14,500 for the
fiscal year, more than 30% of which was incurred in the first quarter.
At September 30, 1994, the Company had $18,000 of bank lines of credit,
$2,000 of which was used.
The Company believes that anticipated funds from operations and
additional use of the lines of credit during the next quarter will
satisfy the Company's projected cash requirements during the balance of
the fiscal year.
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, 1994.
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 - In accordance with the
Company's Certificate of Incorporation which provides for a
classified Board of Directors, three directors were elected at
the annual meeting of stockholders held November 4, 1994.
Proxies were solicited pursuant to Regulation 14A under the Act.
There was no solicitation in opposition to management's nominees
as listed in the proxy statement and all nominees were elected.
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 September 30, 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: November 9, 1994 /s/ John C. Lutz
John C. Lutz, President and Chief
Executive Officer
Date: November 9, 1994 /s/ August F. DeLuca
August F. DeLuca, Vice President -
Finance and Chief Financial Officer