<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 JUNE 30, 1998
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 June 30, 1998 -- 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 Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
====================================================================================
Assets December 31, 1997 June 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................ $ 34,450 $ 34,731
Receivables, less allowance for doubtful
accounts of $1,946 in 1997 and $1,351
in 1998 ............................... 25,265 17,779
Inventories (note 2) .................... 22,508 17,193
Prepaid expenses and other current assets 2,636 1,249
Deferred income taxes ................... 3,502 4,762
- ------------------------------------------------------------------------------------
Total current assets ........................ 88,361 75,714
Property, plant, and equipment, net ..... 35,603 29,591
Deferred income taxes ................... 15,846 13,305
Other assets ............................ 5,588 5,111
- ------------------------------------------------------------------------------------
Total assets ................................ $145,398 $123,721
====================================================================================
</TABLE>
(Continued)
1
<PAGE> 3
SHOP VAC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
================================================================================================
Liabilities and Stockholders' Equity (Deficit) December 31, 1997 June 30, 1998
(Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt .................... $ 3,175 $ 30
Accounts payable .................................... 19,450 11,503
Accrued expenses .................................... 17,701 11,300
- ------------------------------------------------------------------------------------------------
Total current liabilities ............................... 40,326 22,833
Long-term debt .......................................... 102,492 100,024
Other liabilities ....................................... 13,652 13,462
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 ................................. (13,649) (12,275)
Other comprehensive income - foreign currency
translation adjustment ........................... 2,382 (518)
- ------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) .................... $ (11,072) $ (12,598)
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit)..... $ 145,398 $ 123,721
================================================================================================
</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 Six months ended
June 30, June 30,
- -----------------------------------------------------------------------------------------------------------------------------
1997 1998 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales......................................... $ 49,727 $ 47,884 $ 99,665 $ 96,561
Cost of sales..................................... 35,484 32,760 72,192 67,411
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit...................................... 14,243 15,124 27,473 29,150
Selling, general and administrative expense....... 8,586 10,162 17,671 20,010
Loss on sale of European operations............... ----- 1,540 ----- 1,540
- -----------------------------------------------------------------------------------------------------------------------------
Income from operations............................ 5,657 3,422 9,802 7,600
Interest expense, net............................. 2,996 2,623 5,818 5,213
Other expense (income), net....................... (34) 39 (65) 23
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes........................ 2,695 760 4,049 2,364
Income tax expense................................ 9 161 152 990
- -----------------------------------------------------------------------------------------------------------------------------
Net income ....................................... $ 2,686 $ 599 $ 3,897 $ 1,374
=============================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(Continued)
3
<PAGE> 5
SHOP VAC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
===============================================================================================
Six months ended
June 30,
- -----------------------------------------------------------------------------------------------
1997 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 3,897 $ 1,374
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization...................... 3,003 2,728
Amortization included in interest expense.......... 292 292
Loss on sale of European operations................ ----- 1,540
Restructuring charges.............................. (918) (46)
Changes in assets and liabilities:
Accounts and notes receivable................... 1,745 457
Inventories..................................... (3,613) (2,415)
Prepaid expenses and other current assets....... (717) (230)
Other assets.................................... (100) (19)
Deferred income taxes........................... ----- 563
Accounts payable and accrued expenses........... 4,563 (4,093)
Other liabilities............................... 1,639 750
- -----------------------------------------------------------------------------------------------
Net cash provided by continuing operations................. 9,791 901
Net cash provided (used) by discontinued operations........ 1,619 (588)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities.................. 11,410 313
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of European operations,
net of European cash balance at date of
sale............................................ ----- 6,043
Capital expenditures............................... (1,843) (2,257)
- -----------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities........... (1,843) 3,786
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt and capital lease payments............... (2,755) (3,800)
- -----------------------------------------------------------------------------------------------
Net cash used by financing activities....................... (2,755) (3,800)
- -----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash..................... (345) (18)
- -----------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents................... 6,467 281
Cash and cash equivalents, beginning of year................ 21,141 34,450
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of quarter................... 27,608 34,731
- -----------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for interest.................................. 4,779 4,959
Cash paid for income taxes.............................. 111 475
===============================================================================================
</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 condensed 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 30, 1998 for the year
ended December 31, 1997.
(2) Inventories are classified as follows:
<TABLE>
<CAPTION>
========================================================================================
December 31, 1997 June 30, 1998
(Unaudited)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials.................................. $ 8,518 $ 7,935
Work-in-process................................ 4,821 5,162
Finished goods................................. 9,169 4,096
- ----------------------------------------------------------------------------------------
$ 22,508 $ 17,193
========================================================================================
</TABLE>
(3) The Company will be required to adopt Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" for its 1998 annual
financial statements. Comprehensive income for the periods ended June 30,
1997 and 1998 are presented below:
<TABLE>
<CAPTION>
===================================================================================================================
Three months ended Six months ended
June 30, June 30,
- -------------------------------------------------------------------------------------------------------------------
1997 1998 1997 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income.......................................... $2,686 $ 599 $3,897 $1,374
Other comprehensive income (loss):
Foreign currency translation adjustment.......... (467) 57 (1,319) (270)
Less: reclassification adjustment for gain
included in net income resulting from the
sale of the European operations.................. ----- (2,630) ----- (2,630)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)......................... $2,219 $(1,974) $2,578 $(1,526)
===================================================================================================================
</TABLE>
(4) On May 28, 1998, the Company completed the sale of its European
operations to Glen Dimplex and certain of its affiliates ("Glen
Dimplex"). In the transaction Shop Vac sold its capital stock ownership
in Goblin
5
<PAGE> 7
Limited (a UK corporation), Goblin Ireland Limited (an Irish
corporation), FAM Nederland B.V. (a Netherlands corporation), and Shop
Vac Gesellschaft mbH (an Austrian corporation) and transferred the
businesses of its French branch operation and of its German subsidiary,
Shop Vac Vertriebs GmbH for approximately $7,500,000 less transaction
costs of approximately $600,000. Glen Dimplex also assumed certain
liabilities of the French branch operation and of Shop Vac Vertriebs
GmbH.
The European operations had assets of $27.5 million as of December 31,
1997. Summarized information relating to the European operations for the
year ended December 31, 1997 and the period from January 1, 1998 to May
28, 1998 (date of sale) is presented below. Amounts presented exclude
intercompany management fees charged to the European operations.
<TABLE>
<CAPTION>
==================================================================================
1997 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net sales ........................................ $ 66,654 $ 20,902
Cost and expenses ................................ 64,868 21,115
- ----------------------------------------------------------------------------------
Income (loss) before income taxes ................ 1,786 (213)
Income taxes ..................................... 286 198
- ----------------------------------------------------------------------------------
Net income (loss) ................................ $ 1,500 $ (411)
==================================================================================
</TABLE>
6
<PAGE> 8
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 second quarter were $47.9 million, a decrease of $1.8 million
or 3.7% compared to the second quarter of 1997. Net sales of the European Group
were $12.2 million lower in the second quarter primarily due to a large
promotional order in the first half of last year and the sale of the European
operations in May 1998. Net sales of the North American Group (which includes
the Company's Australian operations) were $10.4 million higher in the second
quarter compared to 1997. New products introduced in the fall of 1997, increased
advertising, and generally favorable business conditions all had a positive
impact on North American revenues.
Net sales in the first six months were $96.6 million, a decrease of $3.1 million
or 3.1% compared to the first six months of 1997. Net sales of the European
Group were $16.5 million lower in the first six months primarily due to a large
promotional order in the first half of last year and the sale of the European
operations in May. Net sales of the North American Group were $13.4 million
higher in the first six months of 1998 compared to 1997.
Gross profit in the quarter totaled $15.1 million, an increase of $900,000 or
6.2% over the second quarter of 1997. Gross profit in the first six months
totaled $29.2 million, an increase of $1.7 million or 6.1% over the first six
months of 1997. The improvements in the quarter and the first six months were
due to a more favorable product mix, continued cost improvements and the sales
volume increases in the North American Group.
Selling, general and administrative ("SG&A") expense in the quarter totaled
$10.2 million, an increase of $1.6 million or 18.4% over the second quarter of
1997. SG&A expenses in the first six months totaled $20.0 million, an increase
of $2.3 million or 13.2% over the first six months of 1997. Increases in SG&A
expenses in the quarter and the first six months were primarily due to increased
advertising and sales promotional expenditures.
The Company incurred a loss in the second quarter of $1,540,000 on the sale of
its European operations computed as follows:
<TABLE>
<CAPTION>
================================================================================
(Amounts in thousands)
- --------------------------------------------------------------------------------
<S> <C>
Cash proceeds (net of expenses).............................. $ 6,900
Less net assets sold and fees incurred....................... 8,440
- --------------------------------------------------------------------------------
Loss on sale................................................. $ 1,540
================================================================================
</TABLE>
Income from operations (including the loss on sale of the European operations)
in the quarter was $3.4 million, a decrease of $2.2 million or 39.5% compared to
the second quarter of 1997. This decrease is primarily attributable to the
European operations where operating income was $2.1 million lower in the second
quarter than the same period for the prior year as well as the loss on sale of
European operations ($1.5 million). This decline in European operating income
was due to the significant decline in sales compared to the prior year.
Income from operations in the first six months totaled $7.6 million, a decrease
of $2.2 million or 22.5% compared to the first six months of 1997. This decrease
is primarily attributable to the European operations where operating income was
$3.0 million lower in the first six months than the same period for the prior
year as well as the loss on sale of the European operations. This decline in
European operating income was due to the significant decline in sales compared
to the prior year.
These decreases were partially offset by improved North American operating
income.
7
<PAGE> 9
Income from operations in 1998 (excluding the loss on sale of the European
operations) was $5.0 million and $9.1 million in the second quarter and first
six months, respectively.
Net interest expense was $2.6 million in the quarter, a decrease of $400,000 or
12.4% compared to the second quarter of 1997. Net interest expense in the first
six months was $5.2 million, a decrease of $600,000 or 10.4% compared to the
first six months of 1997. The lower net interest expense was due to reduced
borrowings and increased interest income on higher cash investments.
Income tax expense for the quarter increased approximately $150,000 compared to
the second quarter of 1997. Year to date income tax expense was approximately
$800,000 greater than the comparable prior year period. The effective tax rate
for the quarter was 21.2% and for the first six months was 41.9%. These
effective rates differ from the U.S. federal tax rate due to losses in foreign
jurisdictions, principally Europe, as well as state income taxes, both of which
increased the effective tax rate, less the effect of a U.S. state tax law change
enacted during the second quarter of 1998 which reduced the effective tax rate.
The effective tax rates for the second quarter of 1997 and the first six months
of 1997 were .3% and 3.8% respectively, which are substantially lower than the
U.S. federal tax rate, principally due to decreases in the valuation allowance
for deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The consolidated balance sheet as of June 1998 reflects the reductions in assets
and liabilities that were transferred with the European operations. The
accompanying consolidated statement of cash flows excludes the changes in assets
and liabilities that were transferred. The following comments on liquidity are
based on operating performance and do not include changes in balance sheet line
items resulting from the sale of the European operations.
During the six months ended June 30, 1998, cash equivalents increased from $34.5
million to $34.7 million due to cash received on the sale of the European
operations (after expenses) of $6.9 million and cash generated through
operations of $300,000, partially offset by cash used for capital expenditures
of $2.3 million, debt reduction of $3.8 million and European cash transferred as
part of the sale of $900,000. Debt reduction primarily resulted from the payment
of capital leases with cash received from the sale of the European operations.
North American inventories at year end 1997 were unusually low due to
unexpectedly heavy demand in December. Inventories increased during the first
half of 1998, returning to more normal levels and consuming cash of $2.4
million. Accounts payable and accrued expenses consumed $4.1 million during the
first six months of 1998 due to reductions in European accounts payable prior to
the sale and the payment of North American accrued expenses. Other operating
activities generated cash of $6.8 million.
During the three months ended June 30, 1998 there were no significant changes to
the Company's Year 2000 assessment.
The Company believes that it will be able to satisfy its debt service
requirements and its working capital and capital expenditure requirements from
operating cash flows.
FORWARD-LOOKING INFORMATION -- RISK FACTORS
To the extent the Registrant has made "forward-looking statements," certain risk
factors could cause results to differ materially from those anticipated in such
forward-looking statements. Competition from new entrants in the wet/dry vacuum
market or the loss of significant customers could adversely effect the Company's
share of the wet/dry vacuum market. Increases in raw material costs could
adversely impact the future profitability of the Company. The Company's ability
to successfully address Year 2000 issues could also adversely impact future
profits. Overall anticipated performance of the Company could be affected by any
serious economic downturns.
8
<PAGE> 10
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
A report on Form 8-K was filed on June 10, 1998 reporting the sale of the Shop
Vac European operations on May 28, 1998.
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/ David A. Grill
-----------------------------
David A. Grill
Vice President and
Chief Financial Officer
Date: August 12, 1998
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 34,731
<SECURITIES> 0
<RECEIVABLES> 19,130
<ALLOWANCES> 1,351
<INVENTORY> 17,193
<CURRENT-ASSETS> 75,714
<PP&E> 74,811
<DEPRECIATION> 50,211
<TOTAL-ASSETS> 123,310
<CURRENT-LIABILITIES> 22,833
<BONDS> 100,024
0
0
<COMMON> 85
<OTHER-SE> (13,094)
<TOTAL-LIABILITY-AND-EQUITY> 123,310
<SALES> 96,561
<TOTAL-REVENUES> 96,561
<CGS> 67,411
<TOTAL-COSTS> 67,411
<OTHER-EXPENSES> 21,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,213
<INCOME-PRETAX> 2,364
<INCOME-TAX> 1,401
<INCOME-CONTINUING> 963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 963
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
