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 December 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
(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 February 3, 1995, 4,949,914 shares of common stock of the Registrant
were outstanding.
<PAGE>
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 December 31, 1994
and June 30, 1994.
Consolidated Condensed Income Statements for the three-month and
six-month periods ended December 31, 1994 and 1993.
Statements of Consolidated Cash Flows for the six-month periods
ended December 31, 1994 and 1993.
Notes to Consolidated Condensed Financial Statements.
Management's Discussion and Analysis of Results of Operations
and Financial Position.
<PAGE>
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
December 31 June 30
1994 1994
ASSETS
Current Assets
Cash and cash equivalents $ 1,769 $ 3,861
Accounts receivable - less
allowances (December 31,
$527; June 30, $473) 29,086 32,684
Inventories 26,072 25,652
Deferred taxes on income 2,136 2,055
Prepaid and other current assets 674 562
Total current assets 59,737 64,814
Property, Plant and Equipment
Land 449 449
Land and leasehold improvements 3,303 3,260
Buildings and building equipment 25,841 25,052
Machinery and equipment 120,346 114,458
Furniture and office equipment 8,929 8,489
Construction in progress 2,795 1,510
Total 161,663 153,218
Less accumulated depreciation and
amortization 88,874 83,901
Property, plant and equipment-net 72,789 69,317
Intangibles, Net 9,812 10,101
Investment in and Advances to Unconsolidated
Affiliate 2,081 1,908
Other Assets 5,426 5,324
TOTAL $149,845 $151,464
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
December 31 June 30
1994 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade creditors $ 10,311 $ 12,845
Current maturities of long-term obligations 4,430 4,437
Bank notes payable 2,000
Accrued liabilities:
Salaries, wages and commissions 2,346 5,001
Compensated absences 2,993 2,234
Federal and state taxes on income 92 736
Other taxes 1,393 1,189
Retirement plans 1,321 961
Interest 789 764
Other 3,546 3,267
Total current liabilities 29,221 31,434
Long-Term Debt 38,645 41,860
Contingencies
Deferred Taxes on Income 8,035 8,117
Other Deferred Liabilities 5,283 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
December 31 and June 30,
4,987,635 shares 24,938 24,938
Additional paid-in capital 7,764 7,872
Retained earnings 36,651 34,048
Total 69,353 66,858
Less common stock in treasury
at cost-December 31, 37,721 shares;
June 30, 103,081 shares 692 1,892
Total stockholders' equity 68,661 64,966
TOTAL $149,845 $151,464
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31
1994 1993 1994 1993
Net sales $58,906 $53,439 $118,711 $106,316
Cost of products sold 48,449 43,667 96,513 85,731
Gross profit 10,457 9,772 22,198 20,585
Selling and administrative
expenses 6,851 6,184 13,853 12,905
Income from operations 3,606 3,588 8,345 7,680
Interest expense 920 801 1,729 1,615
Interest income 24 10 48 55
Income before provision for taxes
and equity in income (loss)
of unconsolidated affiliate 2,710 2,797 6,664 6,120
Provision for taxes on income:
Current:
Federal 938 858 2,288 1,861
State 275 248 606 562
Deferred (102) 55 (162) 117
Total provision for taxes on
income 1,111 1,161 2,732 2,540
Income before equity in income
(loss) of unconsolidated affiliate 1,599 1,636 3,932 3,580
Equity in income (loss) of
unconsolidated affiliate 51 2 142 (17)
Net income $ 1,650 $ 1,638 $ 4,074 $ 3,563
Net income per common share $ .34 $ .33 $ .83 $ .72
Dividends per common share $ .15 $ .13 $ .30 $ .26
Weighted average number of
shares outstanding 4,923,352 4,982,525 4,904,750 4,981,350
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
ELCO INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
Six Months Ended
December 31,
1994 1993
Cash flows from operating activities:
Net income $ 4,074 $ 3,563
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment 5,453 5,077
Amortization of intangibles 289 297
Loss on retirement and disposal of
property, plant and equipment 7 30
Change in assets and liabilities:
Accounts receivable 3,598 2,605
Inventories (420) (4,130)
Prepaid and other current assets (112) (135)
Accounts payable (2,534) (3,330)
Accrued liabilities (1,625) (1,211)
Deferred taxes on income (163) 278
Other deferred liabilities 196 169
ESOP contribution from common and treasury shares 905
Equity in loss (income) of unconsolidated
affiliate (142) 17
Other 38 510
Net cash provided by operating activities 9,564 3,740
Cash flows from investing activities:
Additions to property, plant and equipment (8,947) (5,541)
Proceeds from retirement and disposal of
property, plant and equipment 15 293
Increase in other assets (303)
Advances to unconsolidated affiliate (31) (21)
Net cash required for investing activities (8,963) (5,572)
Cash flows from financing activities:
Proceeds from long-term debt 7,000
Payments on long-term debt (3,215) (9,890)
Payments on long-term lease obligations (7) (17)
Increase in bank notes payable 2,000
Dividends paid (1,471) (1,296)
Net cash required for financing activities (2,693) (4,203)
Net decrease in cash and cash equivalents (2,092) (6,035)
Cash and cash equivalents at beginning of year 3,861 8,013
Cash and cash equivalents at end of period $ 1,769 $ 1,978
Cash paid for: Interest $ 1,820 $ 1,728
Income taxes $ 3,539 $ 3,014
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,
1994, the consolidated condensed income statements for the
three month and six month periods ended December 31, 1994 and
1993, and the statements of consolidated cash flows for the
six month periods ended December 31, 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
December 31, 1994 and for all periods presented have been
made.
Effective July 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments" which requires additional disclosure 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 December 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 48% and 46% of the Company's inventories at
December 31 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:
December 31 June 30
1994 1994
Raw materials and supplies $13,674 $13,350
Work in process 9,458 8,609
Finished goods 11,924 12,288
35,056 34,247
Less LIFO reserve (8,984) (8,595)
Total $26,072 $25,652
The replacement cost of inventories at December 31 and June
30, 1994 approximates FIFO value.
3. LONG-TERM DEBT
The Company must meet certain debt covenants. Under the most
restrictive covenant, $4,312 of retained earnings at December
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 December 31, 1994, the Company had bank lines of credit
permitting borrowing up to an aggregate of $22,000 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, 1994, $2,000 of the lines were used.
5. TAXES ON INCOME
The effective tax rates for the quarters ended December 31,
1994 and 1993 were 41.0% and 41.5%, respectively. The
effective tax rates for the six-month periods ended December
31, 1994 and 1993 were 41.0% and 41.5%, respectively.
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.
<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 %
12/31/94 Total 12/31/93 Total Change
(000's) (000's)
NET SALES:
Industrial $ 45,352 77.0% $ 40,023 74.9% 13.3 %
Home and Construction 13,554 23.0% 13,416 25.1% 1.0 %
Consolidated Net Sales $ 58,906 100.0% $ 53,439 100.0% 10.2 %
Six Six
Months % Months %
Ended Of Ended Of %
12/31/94 Total 12/31/93 Total Change
(000's) (000's)
NET SALES:
Industrial $ 89,359 75.3% $ 77,489 72.9% 15.3 %
Home and Construction 29,352 24.7% 28,827 27.1% 1.8 %
Consolidated Net Sales $118,711 100.0% $106,316 100.0% 11.7 %
Qtr % Qtr %
Ended Of Ended Of %
12/31/94 Sales 12/31/93 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $ 3,864 8.5% $ 2,761 6.9% 39.9 %
Home and Construction 331 2.4% 1,321 9.8% (74.9)%
4,195 4,082
Corporate expenses (589) (494)
Total Income From
Operations $ 3,606 6.1% $ 3,588 6.7% 0.5 %
Six Six
Months % Months %
Ended Of Ended Of %
12/31/94 Sales 12/31/93 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $ 8,329 9.3% $ 5,758 7.4% 44.7 %
Home and Construction 1,145 3.9% 3,249 11.3% (64.8)%
9,474 9,007
Corporate expenses (1,129) (1,327)
Total Income From
Operations $ 8,345 7.0% $ 7,680 7.2% 8.7 %
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, 1994
1994 1993 over 1993
Net sales 100.0 100.0 10.2
Cost of products sold 82.2 81.7 11.0
Gross profit 17.8 18.3 7.0
Selling and administrative
expenses 11.6 11.6 10.8
Income from operations 6.2 6.7 0.5
Interest expense 1.6 1.5 14.9
Income before provision
for taxes and equity in
income of uncon-
solidated affiliate 4.6 5.2 (3.1)
Provision for taxes on
income 1.9 2.1 (4.3)
Income before equity
in income of uncon-
solidated affiliate 2.7 3.1 (2.3)
Equity in income of
unconsolidated affiliate .1
Net income 2.8 3.1 0.7
Percentage of Net Sales Percentage Increase
(Decrease)
Six Months Ended Six Months Ended
December 31, December 31, 1994
1994 1993 over 1993
Net sales 100.0 100.0 11.7
Cost of products sold 81.3 80.6 12.6
Gross profit 18.7 19.4 7.8
Selling and administrative
expenses 11.7 12.2 7.3
Income from operations 7.0 7.2 8.7
Interest expense 1.4 1.5 7.1
Interest income .1 (12.7)
Income before provision
for taxes and equity in
income (loss) of uncon-
solidated affiliate 5.6 5.8 8.9
Provision for taxes on
income 2.3 2.4 7.6
Income before equity
in income (loss) of uncon-
solidated affiliate 3.3 3.4 9.8
Equity in income (loss) of
unconsolidated affiliate .1
Net income 3.4 3.4 14.3
<PAGE>
RESULTS OF OPERATIONS
Three Month Period Ended December 31, 1994 Compared To The Three Month
Period Ended December 31, 1993.
Net sales increased $5,467 or 10.2% led by a 13.3% increase in the
Industrial Products Group continuing the strong sales trend which started
four to five quarters ago. Strengthened marketing efforts for non-
automotive business generated sales increases greater than increases in
automotive markets. Sales for the Home and Construction Products Group
were comparable with the prior period. Certain major customers of this
group were reducing their inventory levels resulting in flattened sales for
the Group.
Consolidated gross profit decreased from 18.3% of net sales to 17.8%. Gross
profit for the Industrial Products Group increased at a rate greater than
the rate of sales increase reflecting increased asset utilization and
attention to cost control. Gross profit for the Home and Construction
Products Group declined reflecting the flattened sales discussed above and
as a result of continuing expenses associated with initial stocking and
product introductions for new customers, and, to a lesser extent, high
shipping costs. This group's sales are expected to increase and margins
expected to improve by the end of the next two quarters as customer
inventories reach desired levels, the do-it-yourself market continues to
grow and the costs associated with setting up new customers tapers off.
Selling and administrative expenses were comparable for both periods at
11.6%. Within the Home and Construction Products Group, the combination of
certain costs being fixed along with flattened sales, prevented a more
favorable relationship of selling and administrative expenses to sales.
Net interest expense increased modestly even though the level of debt was
lower reflecting higher 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 income of Rocknel Fastener, Inc., a joint
venture company, continued to increase as Rocknel introduced new higher
margin products to a wider customer base.
Six Month Period Ended December 31, 1994 Compared To The Six Month Period
Ended December 31, 1993.
Net sales increased $12,395 or 11.7% with growth in the Industrial Products
Group out pacing that of the Home and Construction Products Group
reflecting the same factors as those described above for the quarterly
periods.
Consolidated gross profit decreased from 19.4% of net sales to 18.7%.
While gross profit margin for the Industrial Products Group improved
dramatically reflecting strong sales performance, margins for the Home and
Construction Products Group declined primarily as a result of expenses
associated with initial stocking and product introductions for new
customers. Margins are expected to improve over the next two quarters as
these costs abate.
Selling and administrative expenses decreased from 12.2% of net sales to
11.7% reflecting the benefit of absorbing committed costs over a higher
sales base.
Net interest expense increased modestly for the same reasons as discussed
in the previous section.
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 $17 to income of $142
reflecting the introduction of new higher margin products to a wider
customer base and greater capacity utilization.
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 income 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
1994 1993
(in thousands)
Cash provided by (required for):
Operating Activities $9,564 $3,740
Investment Activities (8,963) (5,572)
Financing Activities (2,693) (4,203)
Net cash required (2,092) (6,035)
Balance at the beginning of the period 3,861 8,013
Balance at the end of the period $1,769 $1,978
Working capital at December 31, 1994 was $30,516 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 half of the fiscal year. The Company
anticipates that capital expenditures will approximate $16,500 for the
fiscal year, more than 54% of which was incurred in the first six months.
At December 31, 1994, the Company had $22,000 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.
<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, 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 - 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, 1994.
<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, 1995 John C. Lutz
John C. Lutz, President and Chief
Executive Officer
Date: February 10, 1995 August F. DeLuca
August F. DeLuca, Vice President-
Finance and Chief Financial Officer
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<COMMON> 24,938
0
0
<OTHER-SE> 43,723
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