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 March 31, 1995
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 May 5, 1995, 4,974,914 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 March 31, 1995
and June 30, 1994.
Consolidated Condensed Income Statements for the three-month and
nine-month periods ended March 31, 1995 and 1994.
Statements of Consolidated Cash Flows for the nine-month periods
ended March 31, 1995 and 1994.
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)
March 31 June 30
1995 1994
ASSETS
Current Assets
Cash and cash equivalents $ 4,925 $ 3,861
Accounts receivable - less
allowances (March 31,
$556; June 30, $473) 34,343 32,684
Inventories 27,759 25,652
Deferred taxes on income 2,194 2,055
Prepaid and other current assets 498 562
Total current assets 69,719 64,814
Property, Plant and Equipment
Land 449 449
Land and leasehold improvements 3,303 3,260
Buildings and building equipment 26,699 25,052
Machinery and equipment 123,379 114,458
Furniture and office equipment 9,148 8,489
Construction in progress 1,349 1,510
Total 164,327 153,218
Less accumulated depreciation and
amortization 91,325 83,901
Property, plant and equipment-net 73,002 69,317
Intangibles, Net 9,667 10,101
Investment in and Advances to Unconsolidated
Affiliate 2,212 1,908
Other Assets 4,974 5,324
TOTAL $159,574 $151,464
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
ELCO INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
March 31 June 30
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade creditors $ 14,010 $ 12,845
Current maturities of long-term obligations 4,568 4,437
Accrued liabilities:
Salaries, wages and commissions 4,511 5,001
Compensated absences 3,174 2,234
Federal and state taxes on income 1,673 736
Other taxes 1,936 1,189
Retirement plans 1,140 961
Interest 1,318 764
Other 3,670 3,267
Total current liabilities 36,000 31,434
Long-Term Debt 38,500 41,860
Contingencies
Deferred Taxes on Income 8,084 8,117
Other Deferred Liabilities 5,340 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
March 31 and June 30,
4,987,635 shares 24,938 24,938
Additional paid-in capital 7,681 7,872
Retained earnings 39,264 34,048
Total 71,883 66,858
Less common stock in treasury
at cost-March 31, 12,721 shares;
June 30, 103,081 shares 233 1,892
Total stockholders' equity 71,650 64,966
TOTAL $159,574 $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 Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
Net sales $66,726 $57,692 $185,437 $164,008
Cost of products sold 52,845 46,700 149,358 132,431
Gross profit 13,881 10,992 36,079 31,577
Selling and administrative
expenses 7,599 6,575 21,452 19,480
Income from operations 6,282 4,417 14,627 12,097
Interest expense 910 766 2,639 2,381
Interest income 31 15 79 70
Income before provision for taxes
and equity in income of
unconsolidated affiliate 5,403 3,666 12,067 9,786
Provision for taxes on income:
Current:
Federal 1,865 1,043 4,154 2,904
State 359 335 965 897
Deferred (8) 143 (171) 260
Total provision for taxes on
income 2,216 1,521 4,948 4,061
Income before equity in income
of unconsolidated affiliate 3,187 2,145 7,119 5,725
Equity in income of uncon-
solidated affiliate 169 94 311 77
Net income $ 3,356 $ 2,239 $ 7,430 $ 5,802
Net income per common share $ .68 $ .45 $ 1.51 $ 1.16
Dividends per common share $ .15 $ .13 $ .45 $ .39
Weighted average number of
shares outstanding 4,950,192 4,984,276 4,919,676 4,982,311
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
ELCO INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
Nine Months Ended
March 31,
1995 1994
Cash flows from operating activities:
Net income $ 7,430 $ 5,802
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment 8,134 7,517
Amortization of intangibles 434 955
Loss (gain) on retirement and disposal of
property, plant and equipment (12) 10
Change in assets and liabilities:
Accounts receivable (1,659) (741)
Inventories (2,107) (4,824)
Prepaid and other current assets 64 (81)
Accounts payable 1,165 (2,065)
Accrued liabilities 3,317 2,240
Deferred taxes on income (172) 501
Other deferred liabilities 253 184
ESOP contribution from common and treasury
shares 1,281
Equity in income of unconsolidated affiliate (311) (77)
Other 490 673
Net cash provided by operating activities 18,307 10,094
Cash flows from investing activities:
Additions to property, plant and equipment (11,845) (8,152)
Proceeds from retirement and disposal of
property, plant and equipment 38 316
Increase in other assets (303)
Decrease (increase) in advances to
unconsolidated affiliate 7 (47)
Net cash required for investing activities (11,800) (8,186)
Cash flows from financing activities:
Proceeds from long-term debt 7,000
Payments on long-term debt (3,222) (9,898)
Payments on long-term lease obligations (7) (31)
Dividends paid (2,214) (1,944)
Net cash required for financing activities (5,443) (4,873)
Net increase (decrease) in cash and cash
equivalents 1,064 (2,965)
Cash and cash equivalents at beginning of year 3,861 8,013
Cash and cash equivalents at end of period $ 4,925 $ 5,048
Cash paid for: Interest $ 2,235 $ 2,197
Income taxes $ 4,182 $ 3,814
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 March 31,
1995, the consolidated condensed income statements for the
three month and nine month periods ended March 31, 1995 and
1994, and the statements of consolidated cash flows for the
nine month periods ended March 31, 1995 and 1994 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
March 31, 1995 and for all periods presented have been made.
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 March 31, 1995 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 51% and 46% of the Company's inventories at
March 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:
March 31 June 30
1995 1994
Raw materials and supplies $13,822 $13,350
Work in process 9,475 8,609
Finished goods 13,446 12,288
36,743 34,247
Less LIFO reserve (8,984) (8,595)
Total $27,759 $25,652
The replacement cost of inventories at March 31 and June 30,
1994 approximates FIFO value.
<PAGE>
3. LONG-TERM DEBT
The Company must meet certain debt covenants. Under the most
restrictive covenant, $5,620 of retained earnings at March 31,
1995 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, 1995, 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 March 31,
1995, none of the lines were used.
5. TAXES ON INCOME
The effective tax rates for the quarters ended March 31, 1995
and 1994 were 41.0% and 41.5%, respectively. The effective
tax rates for the nine-month periods ended March 31, 1995 and
1994 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 %
3/31/95 Total 3/31/94 Total Change
(000's) (000's)
NET SALES:
Industrial $ 52,391 78.5% $ 45,458 78.8% 15.3 %
Home and Construction 14,335 21.5% 12,234 21.2% 17.2 %
Consolidated Net Sales $ 66,726 100.0% $ 57,692 100.0% 15.7 %
Nine Nine
Months % Months %
Ended Of Ended Of %
3/31/95 Total 3/31/94 Total Change
(000's) (000's)
NET SALES:
Industrial $141,750 76.4% $122,947 75.0% 15.3 %
Home and Construction 43,687 23.6% 41,061 25.0% 6.4 %
Consolidated Net Sales $185,437 100.0% $164,008 100.0% 13.1 %
<PAGE>
Qtr % Qtr %
Ended Of Ended Of %
3/31/95 Sales 3/31/94 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $ 6,666 12.7% $ 4,422 9.7% 50.7 %
Home and Construction 726 5.1% 485 4.0% 49.7 %
7,392 4,907
Corporate expenses (1,110) (490)
Total Income From
Operations $ 6,282 9.4% $ 4,417 7.7% 42.2 %
Nine Nine
Months % Months %
Ended Of Ended Of %
3/31/95 Sales 3/31/94 Sales Change
(000's) (000's)
INCOME FROM OPERATIONS:
Industrial $ 14,995 10.6% $ 10,180 8.3% 47.3 %
Home and Construction 1,871 4.3% 3,734 9.1% (49.9)%
16,866 13,914
Corporate expenses (2,239) (1,817)
Total Income From
Operations $ 14,627 7.9% $ 12,097 7.4% 20.9 %
<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
March 31, March 31, 1995
1995 1994 over 1994
Net sales 100.0 100.0 15.7
Cost of products sold 79.2 80.9 13.2
Gross profit 20.8 19.1 26.3
Selling and administrative
expenses 11.4 11.4 15.6
Income from operations 9.4 7.7 42.2
Interest expense 1.3 1.3 18.8
Income before provision
for taxes and equity in
income of uncon-
solidated affiliate 8.1 6.4 47.4
Provision for taxes on
income 3.3 2.7 45.7
Income before equity
in income of uncon-
solidated affiliate 4.8 3.7 48.6
Equity in income of
unconsolidated affiliate 0.2 0.2 79.8
Net income 5.0 3.9 49.9
<PAGE>
Percentage of Net Sales Percentage Increase
(Decrease)
Nine Months Ended Nine Months Ended
March 31, March 31, 1994
1995 1994 over 1994
Net sales 100.0 100.0 13.1
Cost of products sold 80.5 80.7 12.8
Gross profit 19.5 19.3 14.3
Selling and administrative
expenses 11.6 11.9 10.1
Income from operations 7.9 7.4 20.9
Interest expense 1.4 1.5 10.8
Interest income .1 12.9
Income before provision
for taxes and equity in
income of unconsolidated
affiliate 6.5 6.0 23.3
Provision for taxes on
income 2.7 2.5 21.8
Income before equity
in income of unconsolidated
affiliate 3.8 3.5 24.3
Equity in income of uncon-
solidated affiliate 0.2 0.0 303.9
Net income 4.0 3.5 28.1
<PAGE>
RESULTS OF OPERATIONS
Three Month Period Ended March 31, 1995 Compared To The Three Month Period
Ended March 31, 1994.
Net sales increased $9,034 or 15.7% including a 15.3% increase in the
Industrial Products Group and a 17.2% increase in the Home and Construction
Products Group. Within the Industrial Products Group, an increased
marketing and operating focus for non-automotive business resulted in a 38%
increase for that business while automotive business increased 6%. A major
realignment of the Home and Construction Products Group customer base to
higher growth segments of the do-it-yourself market strengthened that
group's sales.
Consolidated gross profit increased from 19.1% to 20.8% of net sales
primarily due to increased asset utilization in the Industrial Products
Group. While gross profit for the Home and Construction Products Group
improved modestly from the year earlier period, it remained below normal
levels due to initial stocking and product introduction costs associated
with new business at two large home center customers gained in early 1994.
Selling and administrative expenses were comparable for both periods at
11.4%. An increased investment in sales and marketing focus in the Home
and Construction Products Group, while beneficial in the long-term,
presented a short-term increase in selling and administrative expenses
stated as a percentage of sales for that group.
Net interest expense, while remaining at 1.3% of sales, increased even
though the level of debt was lower. The increase was reflective of 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, increased as Rocknel improved capacity utilization by
adding new higher margin products to an expanded customer base.
Nine Month Period Ended March 31, 1995 Compared To The Nine Month Period
Ended March 31, 1994.
Net sales increased $21,429 or 13.1% with growth in the Industrial Products
Group at 15.3% and growth in the Home and Construction Products Group at
6.4%. The increased marketing and operating focus described in the
quarterly period above, on the non-automotive portion of the Industrial
Products Group resulted in a 24% sales increase as compared to an 11%
increase in automotive business.
Consolidated gross profit increased modestly from 19.3% of net sales to
19.5%. The benefit of performance improvement in the Industrial Products
Group was essentially offset in the Home and Construction Products Group by
initial stocking and product introduction costs associated with adding two
new large home centers in early 1994. Since it typically takes a year to
get past these initial costs, the Company anticipates profits for this
group to begin to improve in the fourth fiscal quarter.
Selling and administrative expenses decreased from 11.9% to 11.6%
reflecting the benefit of absorbing committed costs over the increased
sales base.
Net interest expense remained relatively constant as a percent of sales for
the same reasons described in the previous section.
The effective income tax rate decreased form 41.5% to 41.0% for the same
reasons described in the previous section.
The Company's share of the results of operations of Rocknel Fastener, Inc.,
increased dramatically from $77 to $311 reflecting Rocknel's success at
utilizing available capacity to provide products to an expanded customer
base.
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.
Nine Months Ended
March 31
1995 1994
(in thousands)
Cash provided by (required for):
Operating Activities $18,307 $10,094
Investment Activities (11,800) (8,186)
Financing Activities (5,443) (4,873)
Net cash provided (required) 1,064 (2,965)
Balance at the beginning of the period 3,861 8,013
Balance at the end of the period $ 4,925 $ 5,048
Working capital at March 31, 1995 was $33,719 or approximately 14% of
annualized sales, approaching the 15% level the Company considers normal.
This is reflective of the use of cash and, for a portion of the period,
short-term borrowing to finance an increase in inventories to support the
higher anticipated level of sales and to finance purchases of capital
expenditures. The Company anticipates that capital expenditures will
approximate $17,500 for the fiscal year, more than 2/3 of which was
incurred in the first nine months.
At March 31, 1995, the Company had $22,000 of bank lines of credit, none of
which was used.
The Company believes that anticipated funds from operations and use of the
lines of credit, if necessary, 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 March 31, 1995.
<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: May 11, 1995 John C. Lutz
John C. Lutz, President and Chief
Executive Officer
Date: May 11, 1995 August F. DeLuca
August F. DeLuca, Vice President-
Finance and Chief Financial Officer
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<PERIOD-END> MAR-31-1994
<CASH> 4,925
<SECURITIES> 0
<RECEIVABLES> 34,899
<ALLOWANCES> 556
<INVENTORY> 27,759
<CURRENT-ASSETS> 69,719
<PP&E> 164,327
<DEPRECIATION> 91,325
<TOTAL-ASSETS> 159,574
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<BONDS> 0
<COMMON> 24,938
0
0
<OTHER-SE> 46,712
<TOTAL-LIABILITY-AND-EQUITY> 159,574
<SALES> 185,437
<TOTAL-REVENUES> 185,437
<CGS> 149,358
<TOTAL-COSTS> 149,358
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