<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
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 333-16453
SHOP VAC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 13-5609081
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2323 REACH ROAD, WILLIAMSPORT, PA 17701
(717) 326-0502
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [x] No [ ]
Common Shares, No Par Value, Outstanding at September 30, 1997 -- 6,500 Class A
voting and 650,000 Class B non-voting.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHOP VAC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands)
<TABLE>
<CAPTION>
=================================================================================================
Assets December 31, 1996 September 30, 1997
(Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................ $ 21,141 $ 22,925
Receivables, less allowance for doubtful
accounts of $1,853 in 1996 and $2,209
in 1997 ....................................... 29,154 28,940
Inventories (note 2) ............................ 25,314 29,645
Prepaid expenses and other current assets ....... 3,222 2,863
Deferred income taxes............................ ----- 2,154
Net current assets of discontinued operations ... 5,556 -----
- ------------------------------------------------------------------------------------------------
Total current assets ................................ 84,387 86,527
Property, plant, and equipment, net ............. 40,797 36,311
Deferred income taxes............................ ----- 19,954
Other assets .................................... 6,452 5,808
- ------------------------------------------------------------------------------------------------
Total Assets ........................................ $131,636 $148,600
================================================================================================
</TABLE>
(Continued)
1
<PAGE> 3
SHOP VAC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(dollars in thousands)
<TABLE>
<CAPTION>
====================================================================================================
Liabilities and Stockholders' Equity (Deficit) December 31, 1996 September 30, 1997
(Unaudited)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt ................ $ 4,297 $ 2,908
Accounts payable ................................. 20,688 23,723
Accrued expenses ................................. 26,278 16,799
- ----------------------------------------------------------------------------------------------------
Total current liabilities ........................... 51,263 43,430
Long-term debt .................................. 106,100 102,925
Other liabilities ............................... 13,270 15,841
Stockholders' equity (deficit):
Common stock, Class A voting, no par,
20,000 shares authorized, 6,500 shares
issued. Class B non-voting, no par,
1,000,000 shares authorized, 650,000
shares issued ................................ 85 85
Paid in capital ................................. 110 110
Accumulated deficit ............................. (43,986) (16,678)
Foreign currency translation adjustment ......... 4,794 2,887
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity .......................... $ (38,997) $ (13,596)
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity .......... $ 131,636 $ 148,600
===================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(Continued)
2
<PAGE> 4
SHOP VAC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
==================================================================================================
Three months ended Nine months ended
September 30, September 30,
- --------------------------------------------------------------------------------------------------
1996 1997 1996 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ................................. $54,379 $52,217 $151,308 $151,882
Cost of sales ............................. 42,118 38,274 113,980 110,466
- --------------------------------------------------------------------------------------------------
Gross profit .............................. 12,261 13,943 37,328 41,416
Selling, general and administrative expense 8,644 9,835 24,044 27,506
Restructuring charge....................... 4,714 ----- 4,714 -----
- --------------------------------------------------------------------------------------------------
Income (loss) from operations ............. (1,097) 4,108 8,570 13,910
Interest expense, net ..................... 2,406 2,782 7,175 8,600
Other expense (income), net ............... 63 35 396 (30)
- --------------------------------------------------------------------------------------------------
Income (loss) before income taxes ......... (3,566) 1,291 999 5,340
Income tax expense (benefit)............... 411 (22,120) 1,172 (21,968)
- --------------------------------------------------------------------------------------------------
Net income (loss) ......................... $(3,977) $23,411 $ (173) $ 27,308
==================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(Continued)
3
<PAGE> 5
SHOP VAC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
=========================================================================================
Nine months ended
September 30,
- -----------------------------------------------------------------------------------------
1996 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ (173) $27,308
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization ........................ 5,963 4,230
Amortization included in interest expense ............ ----- 437
Restructuring charges ................................ 4,714 (1,021)
Changes in assets and liabilities:
Accounts and notes receivable ..................... (3,909) (986)
Inventories ....................................... (1,109) (5,733)
Prepaid expenses and other current assets ......... (518) (273)
Deferred income taxes.............................. ----- (22,369)
Other assets ...................................... (1,281) (98)
Accounts payable and accrued expenses ............. 6,909 3,176
Other liabilities ................................. (11,811) 1,625
- ------------------------------------------------------------------------------------------
Net cash provided (used) by continuing operations ............ (1,215) 6,296
Net cash provided (used) by discontinued operations .......... (3,151) 1,310
- ------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities ............. (4,366) 7,606
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures ................................. (155) (3,156)
- ------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities ............. (155) (3,156)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving line-of-credit, net .............. 8,193 -----
Proceeds from issuance of other long-term debt ........... 1,207 -----
Long-term debt and capital lease payments ................ (4,544) (2,192)
- ------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities ............. 4,856 (2,192)
- ------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ...................... 125 (474)
- ------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents .................... 460 1,784
Cash and cash equivalents, beginning of year ................. 2,682 21,141
- ------------------------------------------------------------------------------------------
Cash and cash equivalents, end of quarter .................... 3,142 22,925
- ------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for interest ................................... 7,435 10,106
Cash paid for income taxes ............................... 584 694
- ------------------------------------------------------------------------------------------
$ 8,019 $10,800
==========================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
SHOP VAC CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands)
(1) The accompanying interim unaudited consolidated financial statements
include the accounts of Shop Vac Corporation and its wholly owned
subsidiaries (the "Company"). All intercompany accounts and transactions
are eliminated in consolidation.
These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, such
interim statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
and the results of operations and cash flows for the interim periods
presented. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the
audited consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K dated March 21, 1997 for the year
ended December 31, 1996.
(2) Inventories are classified as follows:
<TABLE>
<CAPTION>
============================================================================
December 31, 1996 September 30, 1997
(Unaudited)
- ----------------------------------------------------------------------------
<S> <C> <C>
Raw materials ................ $11,778 $12,114
Work-in-process .............. 5,620 7,216
Finished goods ............... 7,916 10,315
- ----------------------------------------------------------------------------
$25,314 $29,645
============================================================================
</TABLE>
(3) In the third quarter of 1997 the Company reduced its valuation allowance
for deferred income tax assets, resulting in net deferred tax assets
totaling $22,108 as of September 30, 1997. Based on the Company's recent
pre-tax operating results, future reversals of existing taxable
temporary differences, estimates of future taxable income, and available
tax planning strategies, management believes that it is more likely than
not that the recorded deferred tax assets, net of the valuation
allowance, will be realized.
5
<PAGE> 7
SHOP VAC CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales in the quarter were $52.2 million, a decrease of $2.2 million or 4.0%
compared to the third quarter of 1996. Net sales in the first nine months were
$151.9 million, an increase of $600,000 or .4% over the first nine months of
1996. The decline in sales for the quarter was due to reduced sales in Europe,
primarily sales by the Company's Irish operation.
Gross profit in the quarter totaled $13.9 million, an increase of $1.7 million
or 13.7% over the third quarter of 1996. Gross profit in the first nine months
totaled $41.4 million, an increase of $4.1 million or 11.0% over the first nine
months of 1996. The improvements in the quarter and the first nine months were
due to a more favorable product mix and continued cost improvements.
Selling, general and administrative ("SG&A") expense in the quarter totaled $9.8
million, an increase of $1.2 million or 13.8% over the third quarter of 1996.
SG&A expenses in the first nine months totaled $27.5 million, an increase of
$3.5 million or 14.4% over the first nine months of 1996. Increases in SG&A
expenses in the quarter and the first nine months were primarily due to
increased advertising, upgrade of business systems and anticipated expenditures
for performance-based executive incentive programs.
Income from operations in the quarter was $4.1 million, an increase of $500,000
or 13.6% over the third quarter of 1996 (before 1996 restructuring charges).
Income from operations in the first nine months totaled $13.9 million, an
increase of $600,000 or 4.7% over the first nine months of 1996 (before 1996
restructuring charges).
Interest expense was $2.8 million in the quarter, an increase of $400,000 or
15.6% over the third quarter of 1996. Interest expense in the first nine months
was $8.6 million, an increase of $1.4 million or 19.9% over the first nine
months of 1996. These increases were due to increases in average borrowings and
rates as a result of the issuance of the Senior Secured Notes in the fourth
quarter of 1996.
The Company recognized an income tax benefit in the third quarter of 1997
resulting from the reduction of a previously recorded valuation allowance which
had reduced the value of the Company's net deferred tax assets to zero. Due to
the operating results experienced since the disposition of the Company's
discontinued operations as well as other factors, management believes that the
Company will, more likely than not, realize the benefit of these assets in the
future and has recognized these net deferred tax assets, resulting in a recorded
tax benefit of $22.1 million in the third quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997 cash and cash equivalents
increased from $21.1 million to $22.9 million due to cash flow provided by
operating activities of $7.6 million, less capital expenditures of $3.2 million
and debt reductions of $2.2 million.
6
<PAGE> 8
PART II - OTHER INFORMATION
ITEMS 1 - 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended September 30,
1997.
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.
SHOP VAC CORPORATION
By / s / W. Earl Stogner
-----------------------------
W. EARL STOGNER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: November 12, 1997
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 22,925
<SECURITIES> 0
<RECEIVABLES> 31,149
<ALLOWANCES> 2,209
<INVENTORY> 29,645
<CURRENT-ASSETS> 86,527
<PP&E> 95,587
<DEPRECIATION> 59,276
<TOTAL-ASSETS> 148,600
<CURRENT-LIABILITIES> 43,430
<BONDS> 102,925
0
0
<COMMON> 85
<OTHER-SE> (13,681)
<TOTAL-LIABILITY-AND-EQUITY> 148,600
<SALES> 151,882
<TOTAL-REVENUES> 151,882
<CGS> 110,466
<TOTAL-COSTS> 110,466
<OTHER-EXPENSES> 27,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,600
<INCOME-PRETAX> 5,340
<INCOME-TAX> (21,968)
<INCOME-CONTINUING> 27,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,308
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
