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 December 31, 1993
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:
4,983,554 Common Shares, $5 Par Value as of February 1, 1994
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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 December 31, 1993
and June 30, 1993.
Consolidated Condensed Income Statements for the three-month and
six-month periods ended December 31, 1993 and 1992.
Statements of Consolidated Cash Flows for the six-month periods
ended December 31, 1993 and 1992.
Notes to Consolidated Condensed Financial Statements.
Management's Discussion and Analysis of Results of Operations
and Financial Position.
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ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
December 31 June 30
1993 1993
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and cash equivalents $ 1,978 $ 8,013
Accounts receivable - less
allowances (December 31,
$527; June 30, $475) 26,677 29,282
Inventories 26,454 22,324
Deferred taxes on income 1,508 1,166
Prepaid and other current assets 581 446
Total current assets 57,198 61,231
Property, Plant and Equipment
Land 449 449
Land and leasehold improvements 3,178 3,074
Buildings and building equipment 24,381 23,287
Machinery and equipment 110,063 105,084
Furniture and office equipment 8,837 8,448
Construction in progress 1,200 3,262
Total 148,108 143,604
Less accumulated depreciation and
amortization 80,546 76,183
Property, plant and equipment-net 67,562 67,421
Intangibles, Net 10,904 11,201
Investment in and Advances to Unconsolidated
Affiliate 1,632 1,628
Other Assets 5,561 5,708
TOTAL $142,857 $147,189
See Notes to Consolidated Condensed Financial Statements.
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ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
December 31 June 30
1993 1993
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade creditors $ 9,823 $ 13,153
Current maturities of long-term
obligations 4,051 3,736
Accrued liabilities:
Salaries, wages and commissions 1,585 3,039
Compensated absences 2,900 2,131
Federal and state taxes on income 496 1,112
Other taxes 1,192 1,074
Retirement plans 826 819
Interest 720 812
Other 2,910 2,853
Total current liabilities 24,503 28,729
Long-Term Debt 43,075 46,290
Long-Term Lease Obligations 7
Deferred Taxes on Income 7,479 6,859
Other Deferred Liabilities 4,322 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
December 31, 4,987,635 and June 30,
4,984,255 shares 24,938 24,921
Additional paid-in capital 7,910 7,867
Retained earnings 30,679 28,412
Total 63,527 61,200
Less common stock in treasury
at cost-December 31 and June 30,
4,081 shares 49 49
Total stockholders' equity 63,478 61,151
TOTAL $142,857 $147,189
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED INCOME STATEMENTS
(UNAUDITED)
(Dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
December 31 December 31
1993 1992 1993 1992
Net sales $53,439 $46,928 $106,316 $93,553
Cost of products sold 43,667 38,758 85,731 76,915
Gross profit 9,772 8,170 20,585 16,638
Selling and administrative
expenses 6,184 5,878 12,905 11,686
Income from operations 3,588 2,292 7,680 4,952
Interest expense 801 941 1,615 1,963
Interest income 10 18 55 47
Income before provision for taxes
and equity in income (loss)
of unconsolidated affiliate 2,797 1,369 6,120 3,036
Provision for taxes on income:
Current:
Federal 858 406 1,861 902
State 248 124 562 262
Deferred 55 28 117 111
Total provision for taxes on
income 1,161 558 2,540 1,275
Income before equity in income
(loss) of unconsolidated affiliate 1,636 811 3,580 1,761
Equity in income (loss) of
unconsolidated affiliate 2 (104) (17) (104)
Net income $ 1,638 $ 707 $ 3,563 $ 1,657
Net income per common share $ .33 $ .14 $ .72 $ .33
Dividends per common share $ .13 $ .13 $ .26 $ .26
Weighted average number of
shares outstanding 4,982,525 4,955,511 4,981,350 4,951,014
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
ELCO INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Six Months Ended
December 31,
1993 1992
Cash flows from operating activities:
Net income $ 3,563 $ 1,657
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment 5,077 4,651
Amortization of intangibles 297 299
Loss on retirement and disposal of property,
plant and equipment 30 5
Change in assets and liabilities:
Accounts receivable 2,605 1,638
Inventories (4,130) (314)
Prepaid and other current assets (135) (168)
Accounts payable (3,330) (2,392)
Accrued liabilities (1,211) (445)
Deferred taxes on income 278 111
Other deferred liabilities 169 92
ESOP contribution from common and treasury shares 309
Equity in loss of unconsolidated affiliate 17 104
Other 510 (48)
Net cash provided by operating activities 3,740 5,499
Cash flows from investing activities:
Additions to property, plant and equipment (5,541) (3,296)
Proceeds from retirement and disposal of
property, plant and equipment 293 102
Decrease in construction/project funds held
in trust 1,546
Increase in other assets (303) (323)
Advances to unconsolidated affiliate (21) (19)
Net cash required for investing activities (5,572) (1,990)
Cash flows from financing activities:
Proceeds from long-term debt 7,000
Payments on long-term debt (9,890) (2,090)
Payments on long-term lease obligations (17) (145)
Dividends paid (1,296) (1,288)
Net cash required for financing activities (4,203) (3,523)
Net decrease in cash and cash equivalents (6,035) (14)
Cash and cash equivalents at beginning of year 8,013 2,562
Cash and cash equivalents at end of period $ 1,978 $ 2,548
Cash paid for: Interest $ 1,728 $ 2,067
Income taxes $ 3,014 $ 1,289
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
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 December 31,
1993, the consolidated condensed income statements for the
three month and six month periods ended December 31, 1993
and 1992, and the statements of consolidated cash flows for
the six month periods ended December 31, 1993 and 1992 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 December 31, 1993 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 December 31, 1993 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
December 31 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:
December 31 June 30
1993 1993
Raw materials and supplies $13,680 $11,701
Work in process 9,622 7,798
Finished goods 11,587 10,808
34,889 30,307
Less LIFO reserve (8,435) (7,983)
Total $26,454 $22,324
The replacement cost of inventories at December 31 and June
30, 1993 approximates FIFO value.
<PAGE>
3. LONG-TERM DEBT
The Company must meet certain debt covenants. Under the
most restrictive covenant, $3,416 of retained earnings at
December 31, 1993 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 December 31, 1993, 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
December 31, 1993, none of the lines were used.
5. TAXES ON INCOME
The effective tax rate for the quarters ended December 31,
1993 and 1992 were 41.5% and 40.8%, respectfully. The
effective tax rate for the six-month periods ended December
31, 1993 and 1992 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 Six Months Ended
12/31/93 12/31/92 12/31/93 12/31/92
Interest costs incurred $ 831 $ 956 $1,690 $1,992
Interest capitalized 30 15 75 29
Interest expensed $ 801 $ 941 $1,615 $1,963
<PAGE>
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 %
12/31/93 Total 12/31/92 Total Change
(000's) (000's)
NET SALES:
Industrial $ 40,023 74.9% $33,943 72.3% 17.9%
Home and Construction 13,416 25.1% 12,985 27.7% 3.3%
Consolidated Net Sales $ 53,439 100.0% $46,928 100.0% 13.9%
Six Six
Months % Months %
Ended Of Ended Of %
12/31/93 Total 12/31/92 Total Change
(000's) (000's)
NET SALES:
Industrial $ 77,489 72.9% $66,923 71.5% 15.8%
Home and Construction 28,827 27.1% 26,630 28.5% 8.3%
Consolidated Net Sales $106,316 100.0% $93,553 100.0% 13.6%
<PAGE>
Qtr % Qtr %
Ended Of Ended Of %
12/31/93 Sales 12/31/92 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $ 2,761 6.9% $ 1,531 4.5% 80.3%
Home and Construction 1,321 9.8% 1,265 9.7% 4.4%
4,082 2,796
Corporate expenses (494) (504)
Total Income from
Operations $ 3,588 6.7% $ 2,292 4.9% 56.5%
Six Six
Months % Months %
Ended Of Ended Of %
12/31/93 Sales 12/31/92 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $ 5,758 7.4% $ 3,207 4.8% 79.5%
Home and Construction 3,249 11.3% 2,650 10.0% 22.6%
9,007 5,857
Corporate expenses (1,327) (905)
Total Income from
Operations $ 7,680 7.2% $ 4,952 5.3% 55.1%
<PAGE>
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
December 31, December 31, 1993
1993 1992 over 1992
Net sales 100.0 100.0 13.9
Cost of products sold 81.7 82.6 12.7
Gross profit 18.3 17.4 19.6
Selling and administrative
expenses 11.6 12.5 5.2
Income from operations 6.7 4.9 56.5
Interest expense 1.5 2.0 (14.9)
Interest income 0.0 0.0 (44.4)
Income before provision
for taxes and equity in
income (loss) of uncon-
solidated affiliate 5.2 2.9 104.3
Provision for taxes on
income 2.1 1.2 108.1
Income before equity
in income (loss) of uncon-
solidated affiliate 3.1 1.7 101.7
Equity in income (loss) of
unconsolidated affiliate 0.0 (.2)
Net income 3.1 1.5 131.7
<PAGE>
Percentage of Net Sales Percentage Increase
(Decrease)
Six Months Ended Six Months Ended
December 31, December 31, 1993
1993 1992 over 1992
Net sales 100.0 100.0 13.6
Cost of products sold 80.6 82.2 11.5
Gross profit 19.4 17.8 23.7
Selling and administrative
expenses 12.2 12.5 10.4
Income from operations 7.2 5.3 55.1
Interest expense 1.5 2.1 (17.7)
Interest income 0.1 0.1 17.0
Income before provision
for taxes and equity in
loss of unconsolidated
affiliate 5.8 3.3 101.6
Provision for taxes on
income 2.4 1.4 99.2
Income before equity
in income (loss) of
unconsolidated affiliate 3.4 1.9 103.3
Equity in income (loss) of
unconsolidated affiliate 0.0 (.1)
Net income 3.4 1.8 115.0
<PAGE>
RESULTS OF OPERATIONS
(Dollars in Thousands)
Three Month Period Ended December 31, 1993 Compared To The Three Month
Period Ended December 31, 1992.
Consolidated net sales increased $6,511 or 14% resulting from an 18%
increase in the Industrial Products segment and a 3% increase in the
Home and Construction Products segment. The growth in the Industrial
Products segment was a function of a 12% increase in automobile and light
truck production and stronger demand from most other industrial markets.
Weak demand from two customers in the Home and Construction Products
segment limited that segment's sales growth.
Gross profit increased from 17% of net sales to 18% primarily due to
operations of the Industrial Products segment. Greater capacity
utilization, higher margins on new products and ongoing expense control
efforts contributed to that segment's improved margins. Margins in the
Home and Construction Products segment kept pace with the sales increase.
Selling and administrative expenses increased at a lower rate than the
sales increase due to cost containment efforts and to the fixed nature of
certain of the expenses.
Net interest expense decreased 14% reflecting lower levels of debt and
somewhat lower effective interest rates.
The effective income tax rate was approximately 41% in both periods.
Improvement in the operation of the Company's unconsolidated affiliate
resulted in a breakeven level of profit compared to a loss in the prior
period.
Six Month Period Ended December 31, 1993 Compared To The Six Month Period
Ended December 31, 1992
Consolidated net sales increased $12,763 or 14% led by a 16% increase in
the Industrial Products segment and followed by an 8% increase in the
Home and Construction Products segment. Increases in vehicle production
and the growing economy generated the Industrial Products segment growth.
Growth in the Home and Construction Products segments was somewhat
limited due to weaker demand from certain customers.
Gross profit increased from 18% of net sales to 19% primarily due to
strong performance from the Industrial Products segment. Added volume
and greater efficiencies generated this improvement. Improved operations
in the Home and Construction Products segment resulted in a 23% increase
in margins on an 8% increase in sales.
<PAGE>
Selling and administrative expenses increased, but at a rate lower than
the increase in sales. This primarily reflects the fixed nature of
certain of these expenses.
Net interest expense decreased 19% reflecting lower levels of debt and,
to a lesser extent, lower effective interest rates.
The effective income tax rate decreased modestly reflecting a favorable
impact of state income taxes.
The operations of the Company's unconsolidated affiliate improved to near
breakeven.
NEW ACCOUNTING PRONOUNCEMENTS
In November 1992, the FASB adopted Statement 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
(Dollars in thousands)
The following tabulation provides a summary of Changes in Consolidated
Cash Flows for the periods indicated.
Six Months Ended
December 31
1993 1992
(in thousands)
Cash provided by (required for):
Operating Activities $3,740 $5,499
Investment Activities (5,572) (1,990)
Financing Activities (4,203) (3,523)
Net cash required (6,035) (14)
Balance at the beginning of the period 8,013 2,562
Balance at the end of the period $1,978 $2,548
Working capital at December 31, 1993 represented approximately 15% of
annualized sales, a level within a range the Company considers normal and
has maintained for at least five years. Cash required for capital
expenditures, required debt payments and working capital requirements
exceeded that provided by income and depreciation. The Company expects
to generate positive cash flow during the last six months of the fiscal
year and to internally generate the cash required for operations and to
finance capital expenditures.
At December 31, 1993, the Company had $18,000 of bank lines of credit,
none of which were used or require compensating balances or commitment
fees. Based on current operating plans, the Company does not believe it
will be necessary to utilize these lines for any significant borrowing
during the remainder of the year.
<PAGE>
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 December 31, 1993.
<PAGE>
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: February 10, 1994 John C. Lutz
John C. Lutz
President and Chief Executive Officer
Date: February 10, 1994 August F. DeLuca
August F. DeLuca
Vice President-Finance and
Chief Financial Officer
