<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 MARCH 31, 1999
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
(570) 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 March 31, 1999 -- 6,500 Class A
voting and 650,000 Class B non-voting.
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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, 1998 March 31, 1999
(Unaudited)
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<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 45,531 $ 46,783
Receivables, less allowance for doubtful
accounts of $1,377 in 1998 and $1,388
in 1999 ................................................... 17,434 20,937
Inventories (note 2) ........................................ 14,375 13,928
Prepaid expenses and other current assets ................... 1,129 1,093
Deferred income taxes ....................................... 5,539 5,701
- ---------------------------------------------------------------------------------------------------------
Total current assets ............................................ 84,008 88,442
Property, plant, and equipment, net ......................... 26,977 27,825
Deferred income taxes ....................................... 10,479 9,368
Other assets ................................................ 4,586 4,474
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Total assets .................................................... $ 126,050 $ 130,109
=========================================================================================================
Liabilities and Stockholders' Equity (Deficit)
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Current liabilities:
Current portion of long-term debt ............................ $ 31 $ 31
Accounts payable ............................................ 8,479 10,947
Accrued expenses ............................................ 11,752 12,211
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Total current liabilities ....................................... 20,262 23,189
Long-term debt .................................................. 100,008 100,000
Other liabilities ............................................... 13,030 12,409
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Total liabilities ............................................... $ 133,300 $ 135,598
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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 ......................................... (6,702) (5,047)
Other comprehensive income - foreign currency
translation adjustment ................................... (743) (637)
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Total stockholders' equity (deficit) ............................ $ (7,250) $ (5,489)
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Total liabilities and stockholders' equity (deficit) ............ $ 126,050 $ 130,109
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See accompanying notes to condensed consolidated financial statements.
</TABLE>
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SHOP VAC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
===================================================================================
Three months ended
March 31,
- -----------------------------------------------------------------------------------
1998 1999
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net sales ............................................. $ 48,677 $ 42,820
Cost of sales ......................................... 34,651 29,123
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Gross profit .......................................... 14,026 13,697
Selling, general and administrative expense ........... 9,848 8,726
- -----------------------------------------------------------------------------------
Income from operations ................................ 4,178 4,971
Interest expense, net ................................. 2,590 2,263
Other expense (income), net ........................... (16) (78)
- -----------------------------------------------------------------------------------
Income before income taxes ............................ 1,604 2,786
Income tax expense .................................... 829 1,131
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Net income ............................................ $ 775 $ 1,655
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================
Comprehensive Income
===================================================================================
<S> <C> <C>
Net income ............................................ $ 775 $ 1,655
Other comprehensive income (loss):
Foreign currency translation adjustment ............ (327) 106
- -----------------------------------------------------------------------------------
Comprehensive income .................................. $ 448 $ 1,761
===================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(Continued)
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SHOP VAC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
=============================================================================================
Three months ended
March 31,
- ---------------------------------------------------------------------------------------------
1998 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 775 $ 1,655
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization ........................... 1,371 1,148
Amortization included in interest expense ............... 146 146
Restructuring charges ................................... (45) --
Changes in assets and liabilities:
Accounts and notes receivable ........................ 896 (3,477)
Inventories .......................................... (3,126) 499
Prepaid expenses and other current assets ............ (279) (44)
Other assets ......................................... (28) (105)
Deferred income taxes ................................ 640 950
Accounts payable and accrued expenses ................ (6,361) 1,346
Other liabilities .................................... 765 1,079
- ---------------------------------------------------------------------------------------------
Net cash provided (used) by continuing operations ............... (5,246) 3,197
Net cash used by discontinued operations ........................ (398) (139)
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Net cash provided (used) by operating activities ................ (5,644) 3,058
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures .................................... (1,598) (1,828)
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Net cash used by investing activities ........................... (1,598) (1,828)
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from revolving line-of-credit, net ................. -- --
Long-term debt and capital lease payments ................... (478) (8)
- ---------------------------------------------------------------------------------------------
Net cash used by financing activities ........................... (478) (8)
- ---------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ......................... (34) 30
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Net increase (decrease) in cash and cash equivalents ............ (7,754) 1,252
Cash and cash equivalents, beginning of year .................... 34,450 45,531
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents, end of quarter ....................... 26,696 46,783
- ---------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid for interest ...................................... 5,128 4,816
Cash paid for income taxes .................................. 141 318
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
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 16, 1999 for the year
ended December 31, 1998.
(2) Inventories are classified as follows:
<TABLE>
<CAPTION>
================================================================================
December 31, 1998 March 31, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials .......................... $ 5,551 $ 6,251
Work-in-process ........................ 5,674 4,640
Finished goods ......................... 3,150 3,037
- --------------------------------------------------------------------------------
$14,375 $13,928
================================================================================
</TABLE>
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SHOP VAC CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On May 28, 1998, the Company completed the sale of its European operations to
Glen Dimplex and certain of its affiliates. Shop Vac sold its capital stock
ownership in most of the European subsidiaries and the businesses of the French
Branch operation and its German subsidiary. Amounts reported herein for the
first quarter of 1998 include the European operations.
Net sales in the three months ended March 31, 1999 totaled $42.8 million, a
decrease of $5.9 million or 12.0% compared to the three months ended March 31,
1998. Net sales were lower than the prior year due to the sale of the European
Group, which decline was partially offset by increased sales in the North
American Group.
Gross profit in the three months ended March 31, 1999 totaled $13.7 million, a
decrease of approximately $300,000 or 2.4% when compared to the three months
ended March 31, 1998. Gross profit as a percentage of net sales increased from
28.8% in the three months ended March 31, 1998 to 32.0% in the three months
ended March 31, 1999. This improvement was due to continued cost improvements
and the increase in sales in North America.
Selling, general and administrative ("SG&A") expense was $8.7 million in the
three months ended March 31, 1999, a decrease of approximately $1.1 million
compared to the three months ended March 31, 1998. SG&A expense as a percentage
of net sales increased from 20.2% in the 1998 period to 20.4% in the 1999
period. Decreases in SG&A expenses were primarily due to the elimination of
operating expenses of the European Group that was sold in May, 1998 partially
offset by increased advertising expenses in the North American Group.
Income from operations was $5.0 million in the first quarter of 1999 which was
an increase of $800,000 or 19.0% compared to the first quarter of 1998.
Net interest expense was $2.3 million in the three months ended March 31, 1999,
a decrease of $300,000 or approximately 12.6% compared to the three months ended
March 31, 1998. The lower net interest expense was due to reduced borrowings and
increased interest income on higher cash investments.
Income tax expense for the three months ended March 31, 1999 increased
approximately $300,000 compared to income tax expense for the three months ended
March 31, 1998, due to increased pretax earnings. The effective tax rate
decreased from 51.6% in 1998 to 40.6% in 1999. This decrease is primarily due to
losses in European jurisdictions in 1998 for which no tax benefit was available.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999 cash and cash equivalents increased
from $45.5 million to $46.8 million due to cash provided by operating activities
($3.1 million) partially offset by cash used for capital expenditures ($1.8
million).
The Company believes that it will be able to satisfy its debt service
requirements and its working capital expenditure requirements from operating
cash flows.
On May 14, 1999 the Company announced that it has commenced a tender offer and
consent solicitation for all of its 10 5/8% Senior Secured Notes due 2003. The
Company plans to use the proceeds of a new bank credit facility and its cash
balances to fund the purchase of the Notes.
YEAR 2000 STATUS
The Company is in the process of changing computer hardware platforms and
application software for its business management systems. The new software has
been installed and tested to be century compliant. The conversion to the new
system is expected to be completed during the third quarter of 1999.
5
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The Company has also reviewed its systems other than business management systems
to identify and assess operational issues that may result from date sensitive
equipment and has made the required modifications to most of these systems. The
Company expects to complete remaining modifications by the third quarter of
1999.
The Company is in the process of contacting its significant suppliers and larger
customers to determine the extent to which the Company is vulnerable to third
party compliance with Year 2000 issues.
Through the first quarter of 1999 the Company has spent approximately $250,000
to address the Year 2000 issues. The Company believes that the total cost of its
Year 2000 identification, assessment, remediation and testing efforts will not
exceed $500,000 which will be funded from operating cash flows.
A contingency plan has not been developed for dealing with the most reasonably
likely worst case scenario with respect to the Y2K issue. The Company's failure
to correct or develop an adequate contingency plan to mitigate a material Y2K
problem, including problems experienced by suppliers, could result in an
interruption in normal business activities or operations. However, the Company
expects that its efforts to address Year 2000 issues that will allow the Company
to complete a successful transition for the Year 2000. This statement
constitutes a Year 2000 readiness disclosure by Shop Vac Corporation, under the
Year 2000 Information and Readiness Disclosure Act.
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 in the United States.
6
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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 March 31, 1999.
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: May 14, 1999
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 46,783
<SECURITIES> 0
<RECEIVABLES> 22,325
<ALLOWANCES> 1,388
<INVENTORY> 13,928
<CURRENT-ASSETS> 88,442
<PP&E> 83,942
<DEPRECIATION> 56,117
<TOTAL-ASSETS> 130,109
<CURRENT-LIABILITIES> 23,189
<BONDS> 100,000
0
0
<COMMON> 85
<OTHER-SE> (5,574)
<TOTAL-LIABILITY-AND-EQUITY> 130,109
<SALES> 42,820
<TOTAL-REVENUES> 42,820
<CGS> 29,123
<TOTAL-COSTS> 29,123
<OTHER-EXPENSES> 8,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,263
<INCOME-PRETAX> 2,786
<INCOME-TAX> 1,131
<INCOME-CONTINUING> 1,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,655
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
