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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
Commission File No. 333-43523
Elgin National Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3908410
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2001 Butterfield Road, Suite 1020, Downers Grove, Illinois 60515-1050
(Address of principal executive offices)
Telephone Number: 630-434-7243
(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. [X] Yes [_] No
As of October 31, 1999, there were outstanding 6,408.3 shares of Class A
Common Stock and 19,951.7 shares of Preferred Stock.
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ELGIN NATIONAL INDUSTRIES, INC.
TABLE OF CONTENTS
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Page
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PART I--FINANCIAL INFORMATION
ITEM 1--Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and December 31,
1998.................................................................. 3
Consolidated Statements of Income for the Nine Months Ended September
30, 1999 and September 30, 1998, and for the Three Months Ended
September 30, 1999 and
September 30, 1998.................................................... 4
Consolidated Statements of Changes in Stockholder's Deficit for the
Nine Months Ended September 30, 1999.................................. 5
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended
September 30, 1999 and September 30, 1998............................. 6
Notes to Condensed Consolidated Financial Statements................... 7
ITEM 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 9
ITEM 3--Quantitative and Qualitative Disclosures about Market Risk....... 13
PART II--OTHER INFORMATION
ITEM 1--Legal Proceedings................................................ 13
ITEM 6--Exhibits and Reports on Form 8-K................................. 14
SIGNATURES................................................................. 15
EXHIBIT INDEX.............................................................. 16
</TABLE>
2
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PART I
ITEM 1. FINANCIAL STATEMENTS
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------ ------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 14,266 $ 9,981
Accounts receivable, net.......................... 23,448 27,389
Inventories, net.................................. 14,376 13,880
Prepaid expenses and other assets................. 1,237 1,318
Deferred income tax............................... 2,811 2,811
-------- --------
Total current assets............................ 56,138 55,379
Property, plant and equipment, net.................. 15,013 15,344
Other assets........................................ 31,432 24,700
Goodwill and intangibles............................ 8,036 8,287
-------- --------
Total assets.................................... $110,619 $103,710
======== ========
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LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
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Current liabilities:
Current portion of long-term debt................. $ 194 $ 330
Accounts payable.................................. 23,533 18,402
Accrued expenses.................................. 13,183 10,832
-------- --------
Total current liabilities....................... 36,910 29,564
Long-term debt less current portion................. 82,000 85,109
Other liabilities................................... 1,874 1,728
Deferred income tax................................. 2,172 2,557
-------- --------
Total liabilities............................... 122,956 118,958
-------- --------
Redeemable preferred stock units.................... 11,652 11,106
-------- --------
Redeemable preferred stock.......................... 3,196 3,046
-------- --------
Common stockholder's deficit:
Common stock, Class A par value $.01 per share;
authorized 23,678 shares; 6,408 issued and
outstanding
Retained deficit.................................. (27,185) (29,400)
-------- --------
Total stockholder's deficit..................... (27,185) (29,400)
-------- --------
Total liabilities and stockholder's deficit..... $110,619 $103,710
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
3
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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
-------------------- ----------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales........................ $ 107,971 $ 119,174 $ 35,962 $ 42,740
Cost of sales.................... 79,366 91,902 26,694 33,244
--------- --------- ---------- ----------
Gross profit................... 28,605 27,272 9,268 9,496
Selling, general and
administrative expenses......... 17,611 16,833 5,947 5,876
Amortization expense............. 613 1,893 175 531
--------- --------- ---------- ----------
Operating income............... 10,381 8,546 3,146 3,089
Other expenses (income)
Interest income................ (962) (827) (249) (275)
Interest expense............... 6,902 6,938 2,258 2,346
--------- --------- ---------- ----------
Income before income taxes....... 4,441 2,435 1,137 1,018
Provision for income taxes....... 1,741 915 445 387
--------- --------- ---------- ----------
Net income....................... $ 2,700 $ 1,520 $ 692 $ 631
========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
For the Nine Months Ended September 30, 1999
(in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Retained Shareholder's
Stock (Deficit) Deficit
-------- --------- -------------
<S> <C> <C> <C>
Balance as of December 31, 1998.............. $ $(29,400) $(29,400)
Net income for the nine months ended
September 30, 1999........................ 2,700 2,700
Redeemable preferred stock unit dividends,
net of tax of $211........................ (335) (335)
Redeemable preferred stock dividends
(19,952 shares at $7.50 per share)........ (150) (150)
-------- -------- --------
Balance as of September 30, 1999............. $ $(27,185) $(27,185)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Net cash provided by operating activities..................... $14,719 $ 7,666
------- -------
Cash flows from investing activities:
Business acquired, net of cash.............................. (1,667) --
Purchase of property, plant and equipment................... (1,348) (2,522)
Proceeds from sale of assets................................ 27 271
Issuance of notes receivable................................ (4,200) --
------- -------
Net cash used by investing activities....................... (7,188) (2,251)
------- -------
Cash flows from financing activities:
Repayments of long-term debt................................ (3,246) (232)
------- -------
Net cash used by financing activities....................... (3,246) (232)
------- -------
Net increase in cash.......................................... 4,285 5,183
Cash and cash equivalents at beginning of period.............. 9,981 9,337
------- -------
Cash and cash equivalents at end of period.................... $14,266 $14,520
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
6
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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Report Preparation
The accompanying consolidated financial statements, which have not been
audited by independent certified public accountants, were prepared in
conformity with generally accepted accounting principles and such principles
were applied on a basis consistent with the preparation of the audited
consolidated financial statements included in the Company's December 31, 1998
10-K filed with the Securities and Exchange Commission. The financial
information furnished includes all normal recurring accrual adjustments which
are, in the opinion of management, necessary for a fair statement of results
for the interim period. Results for the first nine months of 1999 are not
necessarily indicative of the results to be expected for the full year. For
further information refer to the Company's consolidated financial statements
included in the annual report on Form 10-K.
2. Inventories
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
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(in thousands)
<S> <C> <C>
Finished goods................................. $ 9,363 $ 8,465
Work-in-process................................ 2,146 1,635
Raw materials.................................. 5,167 5,822
------- -------
16,676 15,922
Less excess and obsolete reserve............... 2,300 2,042
------- -------
$14,376 $13,880
======= =======
</TABLE>
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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Segment Information
The Company operates primarily in two industries, Manufactured Products and
Engineering Services. In accordance with the Company's method of internal
reporting, corporate headquarters costs are not allocated to the individual
segments. Information about the Company by industry is presented below for the
nine months ended September 30:
<TABLE>
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1999 1998
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(In thousands)
<S> <C> <C>
Net sales to external customers:
Manufactured Products.............................. $ 58,083 $ 61,416
Engineering Services............................... 49,888 57,758
-------- --------
Total net sales to external customers............ $107,971 $119,174
======== ========
Net sales to internal customers:
Manufactured Products.............................. $ 2,026 $ 1,993
Engineering Services............................... 199 426
-------- --------
Total net sales to internal customers............ $ 2,225 $ 2,419
======== ========
Total net sales
Manufactured Products.............................. $ 60,109 $ 63,409
Engineering Services............................... 50,087 58,184
-------- --------
Total net sales.................................. 110,196 121,593
Elimination of net sales to internal customers....... 2,225 2,419
-------- --------
Total consolidated net sales..................... $107,971 $119,174
======== ========
Earnings before interest, taxes and amortization:
Manufactured Products.............................. $ 10,211 $ 11,389
Engineering Services............................... 4,383 2,403
-------- --------
Total segment earnings before interest, taxes and
amortization.................................... 14,594 13,792
Corporate expenses before interest, taxes and
amortization........................................ (3,600) (3,353)
Amortization......................................... (613) (1,893)
Interest income...................................... 962 827
Interest expense..................................... (6,902) (6,938)
-------- --------
Consolidated income before income taxes.............. $ 4,441 $ 2,435
======== ========
</TABLE>
4. Contingencies
The Company has claims against others, and there are claims by others
against it, in a variety of matters arising out of the conduct of the
Company's business. The ultimate resolution of all such claims would not, in
the opinion of management, have a material effect on the Company's financial
position, cash flows or results of operations.
5. Adoption of Accounting Principles
The Company will implement the provisions of Statement of Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), which will be effective for fiscal years beginning
after June 15, 2000. SFAS No. 133 requires all derivatives to be recognized in
the statement of financial position as either assets or liabilities and
measured at fair value. In addition, all hedging relationships must be
designated, reassessed and documented pursuant to the provisions of SFAS No.
133. Management believes the adoption of SFAS No. 133 will not have a material
effect on the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Net Sales: Net sales for the quarter ended September 30, 1999 decreased
$6.7 million, or 15.9%, to $36.0 million from $42.7 million for the
corresponding period in 1998. The Engineering Services Segment's sales
decreased $4.5 million, or 20.6%, due to the timing and size of projects. For
the quarter ended September 30, 1998 the Company had six larger projects with
sales in excess of $1.0 million, totalling $12.7 million in sales, compared to
four such projects totalling $10.8 million in sales for the quarter ended
September 30, 1999. The Manufactured Products Segment's sales decreased $2.2
million, or 10.8%, primarily due to decreased centrifugal dryer sales,
powertrain fastener sales and decreased sales of transformers, partially
offset by increased steel fabrication sales.
Gross Profit: Gross profit for the quarter ended September 30, 1999
decreased $0.2 million, or 2.4%, to $9.3 million from $9.5 million for the
corresponding period in 1998, primarily as a result of decreased revenues,
partially offset by an increase in gross profit margin. As a percentage of net
sales, the gross profit increased to 25.8% for the quarter ended September 30,
1999 from 22.2% for the corresponding period in 1998. The increase resulted
from the completion of projects with lower than anticipated costs within the
Engineering Services Segment.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses of the Company for the quarter ended September 30,
1999 of $5.9 million approximated the selling, general and administrative
expenses of $5.9 million for the corresponding period in 1998. As a percentage
of net sales, selling, general and administrative expenses increased from
13.7% for the quarter ended September 30, 1998 to 16.5% for the quarter ended
September 30, 1999 due to decreased sales.
Amortization Expense: Amortization expense of the Company for the quarter
ended September 30, 1999 decreased $0.3 million, or 67.0%, to $0.2 million
from $0.5 million for the corresponding period in 1998. The decrease was
attributable to decreased amortization expense related to non-compete
agreements.
Interest Income: Interest income of the Company for the quarter ended
September 30, 1999 of $0.2 million approximated the interest income for the
quarter ended September 30, 1998.
Interest Expense: Interest expense of the Company for the quarter ended
September 30, 1999 of $2.3 million approximated the interest expense for the
quarter ended September 30, 1998.
Provision for Income Taxes: Provision for income taxes of the Company for
the quarter ended September 30, 1999 of $0.4 million approximated the
provision for income taxes for the quarter ended September 30, 1998.
Net Income: The net income for the Company for the quarter ended September
30, 1999 of $0.7 million was $0.1 million higher than the net income for the
quarter ended September 30, 1998 for the reasons discussed above. Net income
as a percentage of net sales increased to 1.9% for the quarter ended September
30, 1999 from 1.5% for the corresponding quarter in 1998.
Nine months ended September 30, 1999 Compared to Nine months ended September
30, 1998
Net Sales: Net sales for the nine months ended September 30, 1999 decreased
$11.2 million, or 9.4%, to $108.0 million from $119.2 million for the
corresponding period in 1998. The Engineering Services Segment's sales
decreased $7.9 million, or 13.6%, due to the timing and size of projects. For
the nine months ended September 30, 1999 the Company had eleven projects with
sales in excess of $1.0 million, totalling $37.5 million, compared to eleven
such projects, totalling $41.5 million for the nine months ended September 30,
1998. The Engineering Services Segment also had five projects with sales
between $500,000 and $1.0 million, totalling $3.9 million for the nine months
ended September 30, 1999, compared to six such projects totalling $5.2 million
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in sales for the nine months ended September 30, 1998. The Manufactured
Products Segment's sales decreased $3.3 million, or 5.4%, primarily due to
decreased powertrain fastener sales, centrifugal dryers and decreased sales of
high voltage equipment, partially offset by increased steel fabrication sales.
Gross Profit: Gross profit for the nine months ended September 30, 1999
increased $1.3 million, or 4.9%, to $28.6 million from $27.3 million for the
corresponding period in 1998. As a percentage of net sales, the gross profit
increased to 26.5% for the nine months ended September 30, 1999 from 22.9% for
the corresponding period in 1998. The increase was primarily due to a reduction
in the cost of sales of approximately $1.6 million due to the settlement of a
lawsuit relating to an engineering contract claim. Without the effect of this
settlement the gross profit would have decreased $0.3 million primarily due to
the decreased sales level, partially offset by higher margins earned on
engineering services projects resulting from favorable close outs on completed
projects.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses of the Company for the nine months ended September 30,
1999 of $17.6 million represented an increase of $0.8 million, or 4.6%, from
$16.8 million for the corresponding period in 1998 primarily due to higher
proposal costs within the Engineering Services Segment and higher warranty
costs within the Manufactured Products Segment. Selling, general and
administrative expenses as a percentage of net sales increased from 14.1% for
the nine months ended September 30, 1998 to 16.3% for the corresponding period
in 1999 due primarily to decreased sales.
Amortization Expense: Amortization expense of the Company for the nine
months ended September 30, 1999 decreased $1.3 million, or 67.6%, to $0.6
million from $1.9 million for the corresponding period in 1998. The decrease
was attributable to decreased amortization expense related to non-compete
agreements.
Interest Income: Interest income of the Company of $1.0 million was $0.2
million, or 16.3%, higher than the interest income of $0.8 million for the nine
months ended September 30, 1998. This increase was due to interest received on
a lawsuit settlement, partially offset by decreased interest bearing deposits.
Interest Expense: Interest expense of the Company for the nine months ended
September 30, 1999 of $6.9 million approximated the interest expense for the
corresponding period in 1998.
Provision for Income Taxes: Provision for income taxes of the Company for
the nine months ended September 30, 1999 increased $0.8 million, or 90.3%, to
$1.7 million from $0.9 million for the corresponding period in 1998. The
increase in the provision for income taxes was due to higher earnings.
Net Income: The net income for the Company for the nine months ended
September 30, 1999 increased $1.2 million, or 77.6%, to $2.7 million from $1.5
million for the nine months ended September 30, 1998 for the reasons discussed
above. Net income as a percentage of net sales increased to 2.5% for the nine
months ended September 30, 1999 from 1.3% for the corresponding nine month
period in 1998.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended
September 30, 1999 of $14.7 million was generated from net income and non-cash
charges, decreased accounts receivable and increased accounts payable and
accrued expenses partially offset with funds used to increase other assets.
Included in non-cash charges for the nine months ended September 30, 1999 was
depreciation of $1.9 million and amortization of $0.6 million, partially offset
with pension overfunding income of $0.7 million. Cash flows from operations for
any specific period are often materially affected by the timing and amounts of
cash receipts and cash disbursements related to engineering services projects.
Cash used in investing activities for the nine months ended September 30,
1999 of $7.2 million consisted of notes receivable issued to officers of $4.2
million, $1.3 million for the Company's regular practice of upgrading and
maintaining its equipment base and facilities, and $1.7 million net of cash
acquired of $0.5 million for the
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stock acquisiton of Vanco International, Inc. ("Vanco") on September 30, 1999
from Video Display Corporation. Vanco, located in Waukegan, Illinois sources,
packages and distributes electronic components.
Cash used in financing activities for the nine months ended September 30,
1999 totalled $3.2 million, and was attributable to the repurchase of $3.0
million of the Company's long-term debt and the scheduled repayment of notes
payable.
The Company's liquidity requirements, both long term (over one year) and
short term, are for working capital, capital expenditures and debt service.
The primary source for meeting these needs has been funds provided by
operations. The Company may also continue to use its liquidity for the
acquisition of businesses or product lines through strategic acquisitions. As
part of its overall business strategy the Company regularly evaluates
potential acquisition candidates. Based on current and planned operations, the
Company believes that funds provided from operations, along with cash on hand,
will be adequate to meet its anticipated debt service requirements, working
capital needs and capital expenditures. The Company has a credit facility to
provide a $20.0 million revolving line of credit, subject to borrowing base
limitations. The term of this facility expires in November, 2000. At September
30, 1999, there were no borrowings under the Senior Credit Facility (excluding
$4.6 million in outstanding letters of credit).
Backlog
The Company's backlog consists primarily of that portion of engineering
services contracts that have been awarded but not performed and also includes
open manufacturing orders. Backlog at September 30, 1999 had increased $8.5
million, or 14.5%, to $67.0 million from $58.5 million at December 31, 1998. A
substantial majority of current backlog is expected to be realized in the next
twelve months.
Year 2000
The following constitutes a Year 2000 readiness disclosure statement of the
Company.
The Year 2000 (or "Y2K") issue denotes the possible inability of computers,
hardware or software to perform properly due to the inability to interpret
date information correctly before, during or after the Year 2000 including all
of the associated consequences of such failures on the Company's operations.
If not corrected, such situations could result in computer-system failures or
miscalculations causing disruptions in the Company's operations.
The Company has developed and is implementing a program (the "Y2K Program")
to address the Y2K issue. The Y2K Program is coordinated at the corporate
level through its Year 2000 committee and is implemented by teams in the
Company's operating units. The Y2K Program is being implemented in three
phases. Phase I is to identify Company systems vulnerable to Y2K issues. Phase
II is the remediation or replacement of critical items. Phase III is the final
testing of each major area to test readiness. Progress of the Y2K Program is
presented on a regular basis to the Company's senior management and to the
Audit Committee of the Company's Board of Directors. In addition the Company
has identified three major areas determined to be critical for successful Y2K
readiness: (1) financial and informational systems applications, (2)
manufacturing applications and (3) third-party relationships.
In accordance with Phase I of the Y2K Program, the Company has conducted an
internal review of systems and has contacted software suppliers to determine
major areas of vulnerability. Critical systems needing to be replaced or
updated have been identified and updated. In the manufacturing applications
area the Company has sent each operating unit an extensive checklist of items
to review that covers hardware, software, operating systems and embedded
systems. The Company currently believes that no critical systems will need to
be replaced in the manufacturing area in order for the Company to be Y2K
ready. The Company has developed and circulated a questionnaire in order to
assess the Y2K readiness of its critical vendors. For purposes of the Y2K
issue, the
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Company has identified its critical vendors as consisting primarily of large
volume suppliers, sole source suppliers, foreign suppliers, and utility
companies. The Company has also compiled a listing of its major customers. The
Company has developed and circulated a questionnaire in order to assess its
customers' Y2K readiness as it relates to issuing purchase orders, accepting
shipments, and paying invoices on a timely basis.
In accordance with Phase II, the remediation phase of the Y2K Program, the
Company has utilized each operating unit's checklist in monitoring progress
towards Y2K readiness. The Company has already replaced computer and related
accounting systems which were deemed to be non-compliant and in need of
updated software. The Company's Y2K plans call for each operating unit to
report its progress towards Y2K readiness to the Company on a periodic basis
using this checklist as a guide.
The Company has completed Phase III, the testing phase, verifying that the
affected systems have been properly repaired. During this phase as it was
determined that additional repairs were required, such repairs were made, or
alternative corrective actions taken.
The Company estimates the total cost of its Year 2000 readiness program at
approximately $0.5 million, consisting of both internal and external costs,
primarily for hardware and software upgrades and replacements (although a
substantial portion of the cost of new hardware and software would have been
purchased by the Company through the regular and routine upgrading of
systems). Such hardware and software will be capitalized and depreciated over
the estimated useful lives of the related assets in accordance with the
Company's accounting policy. All other expenditures will be charged to
expense.
The failure to identify and correct a Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. The Company does not expect such failures to have a materially
adverse effect on its results of operations or financial condition. However,
because of the general uncertainty about Year 2000 readiness throughout the
world economy, which results in uncertainties regarding the readiness of
vendors, customers, utilities, municipalities or other matters outside its
control, the Company is currently unable to determine whether Year 2000
problems may have a materially adverse effect on its results of operations or
financial condition.
It is not presently possible to describe a reasonably likely "worst case
Year 2000 scenario" without making numerous assumptions. The Company presently
believes that a most likely worst case scenario would make it necessary for
the Company to replace some suppliers, rearrange some work plans, or perhaps
interrupt some of its operations. Assuming that this assessment is correct,
the Company does not believe that such circumstances would have a materially
adverse effect on its financial condition or results of operations, even if it
is necessary to incur additional costs to correct unanticipated readiness
failures.
The Company is currently developing contingency plans in the event that all
or portions of the Y2K Program prove to be inadequate in addressing the Y2K
issue. The Company is developing these contingency plans for those business
areas where contingency plans will be necessary and feasible and expects to to
have these contingency plans in place by December 31, 1999. Any contingency
plan will be based on its best estimates of numerous factors, which, in turn
will be derived by relying on numerous assumptions about future events.
However, there can be no assurance that these assumptions or estimates will
have been correctly made, or that the Company will have anticipated all
relevant factors, or that there will not be a delay in or increased costs
associated with the Company's Year 2000 program. Any delay in implementation
of the Year 2000 program could affect the Company's Year 2000 readiness.
Specific factors that might cause the actual outcome to differ from the
projected outcome include, without limitation, the continued availability of
personnel trained in the computer programming skills necessary for the
remediation of Year 2000 problems, the ability to locate and correct all
relevant non-compliant systems, timely and accurate responses by third
parties, and the ability to implement interfaces between new systems and
systems not being replaced.
Safe Harbor
Statements herein regarding Year 2000, the Company's ability to address
Year 2000 issues, the Company's estimates regarding the magnitude and impact
of Year 2000 issues, the Company's estimate of the total costs of
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its Year 2000 Program, the Company's ability to meet its liquidity
requirements, the Company's acquisition plans and the Company's expected
realization of current backlog constitute forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities Act of 1934. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. With respect to
estimated costs, management has made assumptions regarding among other things,
the costs and timing of the system upgrades necessary to make our internal
systems Year 2000 ready and the ability of the Company's vendors, vendees,
utilities and municipalities to meet their Year 2000 readiness timetables.
Further, statements herein regarding the Company's performance in future
periods are subject to risks relating to, deterioration of relationships with,
or the loss of material customers or suppliers, possible product liability
claims, decreases in demand for the Company's products, and adverse changes in
general market and industry conditions. Management believes these forward-
looking statements are reasonable; however, undue reliance should not be placed
on such forward-looking statements, which are based on current expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company continues to use its reputation in the United States to expand
into international markets. In the nine months ended September 30, 1999
approximately 11% of the Company's net sales were attributable to services
provided or products sold for use outside the United States, primarily to
Poland and Trinidad. A portion of these net sales and cost of sales is derived
from international operations which are conducted in foreign currencies.
Changes in the value of these foreign currencies relative to the U.S. dollar
could adversely affect the Company's business, financial condition, results of
operation and debt service capability. The majority of the Company's foreign
sales and costs are denominated in U.S. dollars. With respect to transactions
denominated in foreign currencies, the Company attempts to mitigate foreign
exchange risk by contractually shifting the burden of the risk of currency
fluctuations to the other party to the transactions. It has been the Company's
historic practice to conduct international sales in accordance with the
foregoing. There can be no assurance that the Company's strategies will ensure
that the Company will be fully protected from foreign exchange risk. Foreign
sales, particularly construction management projects undertaken at foreign
locations, are subject to various risks, including exposure to currency
fluctuations, political, religious and economic instability, local labor market
conditions, the imposition of foreign tariffs and other trade barriers, and
changes in governmental policies. There can be no assurance that the Company's
foreign operations, or expansion thereof, would not have a material adverse
effect on the Company's business, financial condition, results of operations
and debt service capability.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in legal proceedings from time
to time in the ordinary course of its business. As of the date of this filing,
neither the Company nor any of its subsidiaries are a party to any lawsuit or
proceeding which, individually or in the aggregate, in the opinion of
management, is reasonably likely to have a material adverse effect on the
financial condition, results of operation or cash flow of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0-Financial Data Schedule
(b) Reports on Form 8-K
None
14
<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.
Elgin National Industries, Inc.
/s/ Wayne J. Conner
By: _________________________________
Name: Wayne J. Conner
Title: Vice President, Treasurer,
and Chief
Financial Officer
(Duly Authorized Officer and
Principal
Financial Officer)
Dated: November 12, 1999
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Footnote
Number Document Description Reference
------- -------------------- ---------
<C> <S> <C>
3.1 Certificate of Incorporation of Elgin National
Industries, Inc. (3)
3.2 Bylaws of Elgin National Industries, Inc. (3)
4.1 Indenture dated November 5, 1997, between Elgin National
Industries, Inc., subsidiaries and Norwest Bank
Minnesota, as Trustee. (2)
4.2 Form of 11% Senior Note due 2007 (included in Exhibit
4.1). (2)
4.3 Registration Rights Agreement dated November 5, 1997, by
and among Elgin National Industries, Inc., certain of
its subsidiaries, and BancAmerica Robertson Stephens and
CIBC Wood Gundy Securities Corp. (3)
4.4 Form of Subsidiary Guaranty (included in Exhibit 4.1). (2)
10.1 Credit Agreement dated as of September 24, 1993, as
Amended and Restated as of Novem- ber 5, 1997, by and
among Elgin National Industries, Inc., various financial
institutions, and Bank of America National Trust and
Savings Association, individually and as agent. (2)
10.2 Employment and Non-Competition Agreement dated as of
November 5, 1997, between Elgin National Industries,
Inc. and Fred C. Schulte.* (2)
10.3 Employment and Non-Competition Agreement dated as of
November 5, 1997, between Elgin National Industries,
Inc. and Charles D. Hall.* (2)
10.4 Employment and Non-Competition Agreement dated as of
November 5, 1997, between Elgin National Industries,
Inc. and Wayne J. Conner.* (2)
10.5 The Elgin National Industries, Inc. Supplemental
Retirement Plan dated as of 1995, and effective January
1, 1995.* (3)
27 Financial Data Schedule (1)
</TABLE>
- --------
(1) Filed herewith.
(2) Incorporated by reference to Form S-4 Registration Statement of the Company
(File No. 333-43523) filed with the Commission on December 30, 1997.
(3) Incorporated by reference to Amendment No. 1 to Form S-4 Registration
Statement of the Company (File No. 333-43523) filed with the Commission on
January 23, 1998.
* Management contract or compensatory plan or arrangement.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 14,266 14,266
<SECURITIES> 0 0
<RECEIVABLES> 24,115 24,115
<ALLOWANCES> 667 667
<INVENTORY> 14,376 14,376
<CURRENT-ASSETS> 56,138 56,138
<PP&E> 27,842 27,842
<DEPRECIATION> 12,829 12,829
<TOTAL-ASSETS> 110,619 110,619
<CURRENT-LIABILITIES> 36,910 36,910
<BONDS> 82,000 82,000
14,848<F2> 14,848<F2>
0 0
<COMMON> (27,185) (27,185)
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 110,619 110,619
<SALES> 35,962 107,971
<TOTAL-REVENUES> 35,962 107,971
<CGS> 26,694 79,366
<TOTAL-COSTS> 26,694 79,366
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (9) 27
<INTEREST-EXPENSE> 2,258 6,902
<INCOME-PRETAX> 1,137 4,441
<INCOME-TAX> 445 1,741
<INCOME-CONTINUING> 692 2,700
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 692 2,700
<EPS-BASIC> 0<F1> 0<F1>
<EPS-DILUTED> 0<F1> 0<F1>
<FN>
<F1> Earnings per share is not calculated in accordance with FAS No. 128
<F2> Preferred stock-mandatory includes preferred stock units
</FN>
</TABLE>
