<PAGE>
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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 March 31, 2000
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 April 30, 2000, 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
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I--FINANCIAL INFORMATION
ITEM 1--Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31,
1999................................................................. 3
Consolidated Statements of Income for the Three Months Ended March 31,
2000 and March 31, 1999.............................................. 4
Consolidated Statements of Changes in Stockholder's Deficit for the
Three Months Ended March 31, 2000.................................... 5
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and March 31, 1999.............................. 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...... 10
PART II--OTHER INFORMATION
ITEM 1--Legal Proceedings............................................... 11
ITEM 6--Exhibits and Reports on Form 8-K................................ 11
SIGNATURES................................................................ 12
EXHIBIT INDEX............................................................. 13
EXHIBIT 27................................................................ 14
</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>
March 31, December 31,
ASSETS 2000 1999
------ --------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 6,609 $ 5,701
Accounts receivable, net.............................. 28,270 27,425
Inventories, net...................................... 15,132 14,492
Prepaid expenses and other assets..................... 669 891
Deferred income taxes................................. 3,322 3,322
-------- --------
Total current assets................................ 54,002 51,831
Property, plant and equipment, net...................... 15,862 15,754
Loans receivable to related parties..................... 7,833 7,833
Other assets............................................ 23,780 23,686
Goodwill and intangibles................................ 7,407 7,600
-------- --------
Total assets........................................ $108,884 $106,704
======== ========
<CAPTION>
LIABILITIES AND COMMON STOCKHOLDER'S DEFICIT
--------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt..................... $ 7,046 $ 7,109
Accounts payable...................................... 22,112 21,074
Accrued expenses...................................... 11,092 10,807
-------- --------
Total current liabilities........................... 40,250 38,990
Long-term debt less current portion..................... 73,950 73,950
Other liabilities....................................... 2,304 2,194
Deferred income taxes................................... 2,894 3,022
-------- --------
Total liabilities................................... 119,398 118,156
-------- --------
Redeemable preferred stock units........................ 12,015 11,834
-------- --------
Redeemable preferred stock.............................. 3,296 3,246
-------- --------
Common stockholder's deficit:
Common stock, Class A par value $.01 per share;
authorized 23,678 shares; 6,408 issued and
outstanding
Retained deficit...................................... (25,825) (26,532)
-------- --------
Total common stockholder's deficit.................. (25,825) (26,532)
-------- --------
Total liabilities and stockholder's deficit......... $108,884 $106,704
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
3
<PAGE>
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2000 and 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Net sales..................................................... $39,315 $34,588
Cost of sales................................................. 29,398 24,669
------- -------
Gross profit................................................ 9,917 9,919
Selling, general and administrative expenses.................. 6,358 5,573
Amortization expense.......................................... 193 240
------- -------
Operating income............................................ 3,366 4,106
Other expenses (income)
Interest income............................................. (231) (483)
Interest expense............................................ 2,168 2,371
------- -------
Income before income taxes.................................... 1,429 2,218
Provision for income taxes.................................... 560 869
------- -------
Net income.................................................... $ 869 $ 1,349
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
4
<PAGE>
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER'S DEFICIT
For the Three Months Ended March 31, 2000
(in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Retained Stockholder's
Stock (Deficit) Deficit
------ --------- -------------
<S> <C> <C> <C>
Balance as of December 31, 1999................ $-- $(26,532) $(26,532)
Net income for the three months ended March
31, 2000.................................... -- 869 869
Redeemable preferred stock unit dividends,
net of tax of $70........................... -- (112) (112)
Redeemable preferred stock dividends (19,952
shares at $2.50 per share).................. -- (50) (50)
---- -------- --------
Balance as of March 31, 2000................... $-- $(25,825) $(25,825)
==== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
5
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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------ -------
<S> <C> <C>
Net cash provided by operating activities...................... $1,767 $ 6,596
------ -------
Cash flows from investing activities:
Proceeds from sale of assets................................. 3 --
Purchase of property, plant and equipment.................... (799) (343)
------ -------
Net cash used by investing activities........................ (796) (343)
------ -------
Cash flows from financing activities:
Repayments of long-term debt................................. (63) (2,580)
------ -------
Net cash used by financing activities........................ (63) (2,580)
------ -------
Net increase in cash........................................... 908 3,673
Cash and cash equivalents at beginning of period............... 5,701 9,981
------ -------
Cash and cash equivalents at end of period..................... $6,609 $13,654
====== =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
6
<PAGE>
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 December 31, 1999 10-K of
Elgin National Industries, Inc. (the "Company"), 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 three months of 2000 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 10K.
2. Inventories
Inventories consist of:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(in thousands)
<S> <C> <C>
Finished goods..................................... $ 9,594 $ 9,177
Work-in-process.................................... 1,899 1,495
Raw materials...................................... 5,259 5,324
------- -------
16,752 15,996
Less excess and obsolete reserve................... 1,620 1,504
------- -------
$15,132 $14,492
======= =======
</TABLE>
7
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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
three months ended March 31:
<TABLE>
<CAPTION>
2000 1999
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(In thousands)
<S> <C> <C>
Net sales to external customers:
Manufactured Products................................ $21,598 $19,557
Engineering Services................................. 17,717 15,031
------- -------
Total net sales to external customers.............. $39,315 $34,588
======= =======
Net sales to internal customers:
Manufactured Products................................ $ 770 $ 310
Engineering Services................................. 19 55
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Total net sales to internal customers.............. $ 789 $ 365
======= =======
Net sales:
Manufactured Products................................ $22,368 $19,867
Engineering Services................................. 17,736 15,086
------- -------
Total net sales.................................... 40,104 34,953
Elimination of net sales to internal customers......... 789 365
------- -------
Total consolidated net sales....................... $39,315 $34,588
======= =======
Earnings before interest, taxes and amortization:
Manufactured Products................................ $ 4,001 $ 3,460
Engineering Services................................. 708 2,103
------- -------
Total segment earnings before interest, taxes and
amortization...................................... 4,709 5,563
Amortization........................................... (193) (240)
Interest income........................................ 231 483
Interest expense....................................... (2,168) (2,371)
Corporate expenses before interest, taxes and
amortization.......................................... (1,150) (1,217)
------- -------
Consolidated income before income taxes................ $ 1,429 $ 2,218
======= =======
</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.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Net Sales--Engineering Services Segment: Net sales for the quarter ended
March 31, 2000 increased $2.7 million, or 17.9%, to $17.7 million from $15.0
million for the corresponding period in 1999 primarily due to increased sales
of smaller engineering services projects in process, each with sales less than
$1.0 million, partially offset with lower sales of larger projects. The
Engineering Services Segment had sales of $8.2 million from smaller projects
in the quarter ended March 31, 2000, compared to $4.9 million of such projects
for the quarter ended March 31, 1999. For the three months ended March 31,
2000 the Company had three larger projects with sales in excess of $1.0
million, totalling $9.5 million in sales, compared to six such projects
totalling $10.1 million in sales for the corresponding period in 1999.
Net Sales--Manufactured Products Segment: Net sales for the quarter ended
March 31, 2000 increased $2.0 million, or 10.4%, to $21.6 million from $19.6
million for the corresponding period in 1999 primarily due to increased sales
of centrifugal dryers, and sales from Vanco International, Inc. ("Vanco"),
acquired on September 30, 1999.
Gross Profit: Gross profit for the quarter ended March 31, 2000
approximated the corresponding period in 1999. As a percentage of net sales,
the gross profit decreased to 25.2% for the quarter ended March 31, 2000 from
28.7% for the corresponding period in 1999 primarily due to a reduction in the
cost of sales of approximately $1.6 million in 1999 due to the settlement of a
lawsuit. Without the effect of the lawsuit, the gross profit would have
increased approximately $1.6 million primarily due to the higher sales level
in the quarter ended March 31, 2000 compared to March 31, 1999.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses of the Company for the quarter ended March 31, 2000 of
$6.4 million were $0.8 million, or 14.1%, higher than the selling, general and
administrative expenses for the corresponding period in 1999 mainly due to the
acquisition of Vanco along with increased selling efforts in other operations.
As a percentage of net sales, selling, general and administrative expenses
increased slightly from 16.1% for the quarter ended March 31, 1999 to 16.2%
for the quarter ended March 31, 2000 due to the increased selling efforts.
Amortization Expense: Amortization expense of the Company for the quarter
ended March 31, 2000 of $0.2 million approximated the amortizaton expense for
the corresponding period in 1999.
Interest Income: Interest income of the Company for the quarter ended March
31, 2000 of $0.2 million decreased $0.3 million or 52.2% from $0.5 million for
the corresponding period in 1999. This decrease was due to a lower level of
interest bearing deposits in 2000, along with interest received on a lawsuit
settlement in 1999.
Interest Expense: Interest expense of the Company for the quarter ended
March 31, 2000 of $2.2 million decreased $0.2 million or 8.6% from $2.4
million for the corresponding period in 1999. The decrease was due to a
decreased debt level along with a decreased effective rate on the debt
outstanding.
Provision for Income Taxes: Provision for income taxes of the Company for
the quarter ended March 31, 2000 decreased $0.3 million, or 35.6%, to $0.6
million from $0.9 million for the corresponding period ended March 31, 1999.
The decrease in the provision for income taxes was due primarily to decreased
earnings before income taxes.
Net Income: The net income for the Company for the three months ended March
31, 2000 decreased $0.4 million, or 35.6%, to $0.9 million from $1.3 million
for the quarter ended March 31, 1999 for the reasons discussed above. Net
income as a percentage of net sales decreased to 2.2% for the quarter ended
March 31, 2000 from 3.9% for the corresponding quarter in 1999.
9
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Liquidity and Capital Resources
Net cash provided by operating activities for the three months ended March
31, 2000 of $1.8 million was generated from increased accounts payable and
accrued expenses, decreased other assets and cash generated from net income
and non-cash charges, partially offset by cash used to increase inventories
and accounts receivable. 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 was used in investing activities for the three months ended March 31,
2000 of $0.8 million for capital expenditures resulting from the Company's
regular practice of upgrading and maintaining its equipment base and
facilities.
Cash used in financing activities for the three months ended March 31, 2000
totaled $0.1 million, and was attributable to the scheduled repayments of the
Company's 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. 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 March 31, 2000, there were
$7.0 million of borrowings outstanding under the Senior Credit Facility
(excluding $4.2 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 March 31, 2000 had decreased $2.9
million, or 4.0%, to $69.8 million from $72.7 million at December 31, 1999. A
substantial majority of current backlog is expected to be realized in the next
twelve months.
Safe Harbor
Statements herein regarding the Company's ability to meet its liquidity
requirements, 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. 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 United States reputation to generate sales
in international markets. In the three months ended March 31, 2000
approximately 9% of the Company's net sales were attributable to services
provided or products sold for use outside the United States, primarily to
Egypt and Poland. 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
10
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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
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
11
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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 __________________________________
Wayne J. Conner
Vice President, Treasurer, and
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial Officer)
Dated: May 10, 2000
12
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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 November 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>
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(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.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,609
<SECURITIES> 0
<RECEIVABLES> 28,983
<ALLOWANCES> 713
<INVENTORY> 15,132
<CURRENT-ASSETS> 54,002
<PP&E> 29,454
<DEPRECIATION> 13,592
<TOTAL-ASSETS> 108,884
<CURRENT-LIABILITIES> 40,250
<BONDS> 73,950
15,311<F2>
0
<COMMON> 0
<OTHER-SE> (25,825)
<TOTAL-LIABILITY-AND-EQUITY> 108,884
<SALES> 34,588
<TOTAL-REVENUES> 34,588
<CGS> 29,398
<TOTAL-COSTS> 29,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> 2,168
<INCOME-PRETAX> 1,429
<INCOME-TAX> 560
<INCOME-CONTINUING> 869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 869
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1> In accordance with SFAS No. 128, earnings per share is not required to be
calculated.
<F2> Preferred stock-mandatory includes preferred stock units
</FN>
</TABLE>
