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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, 2002
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
incorporation or organization) Identification No.)
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, 2002, there were outstanding 6,408.3 shares of Class A
Common Stock and 19,951.7 shares of Preferred Stock.
ELGIN NATIONAL INDUSTRIES, INC.
TABLE OF CONTENTS
Page
----
PART I--FINANCIAL INFORMATION
ITEM 1--Financial Statements
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 ................... 3
Consolidated Statements of Income for the Nine Months Ended September 30, 2002 and
September 30, 2001, and for the Three Months Ended September 30, 2002 and September
30, 2001 .................................................................................... 4
Consolidated Statement of Changes in Stockholder's Deficit for the Nine Months Ended
September 30, 2002 .......................................................................... 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2002 and September 30, 2001 ................................................................. 6
Notes to Condensed Consolidated Financial Statements .......................................... 7
ITEM 2--Management's Discussion and Analysis of Financial Condition and Results of
Operations ..................................................................................... 10
ITEM 3--Quantitative and Qualitative Disclosures about Market Risk ............................... 12
ITEM 4--Controls and Procedures .................................................................. 13
PART II--OTHER INFORMATION
ITEM 1--Legal Proceedings ........................................................................ 13
SIGNATURES ....................................................................................... 14
Certifications ...................................................................................... 15
EXHIBIT INDEX ....................................................................................... 17
2
PART I
ITEM 1. FINANCIAL STATEMENTS
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
(Unaudited)
September 30, December 31,
2002 2001
---- ----
ASSETS
------
Current assets:
Accounts receivable, net .................................................. $ 24,998 $ 37,292
Inventories, net .......................................................... 18,405 18,359
Prepaid expenses and other assets ......................................... 2,151 345
Deferred income taxes ..................................................... 3,542 3,542
--------- ---------
Total current assets ................................................. 49,096 59,538
Property, plant and equipment, net ............................................. 22,768 22,070
Loans receivable to related parties ............................................ 7,833 7,833
Other assets ................................................................... 30,369 29,310
Goodwill ....................................................................... 18,995 18,995
--------- ---------
Total assets ......................................................... $ 129,061 $ 137,746
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
Current liabilities:
Short-term debt ........................................................... $ $ 134
Current portion of long-term debt ......................................... 2,988 3,050
Accounts payable .......................................................... 19,457 32,032
Accrued expenses .......................................................... 10,466 11,941
--------- ---------
Total current liabilities ............................................ 32,911 47,157
Long-term debt less current portion ............................................ 95,030 88,050
Other liabilities .............................................................. 2,123 2,273
Deferred income taxes .......................................................... 3,567 3,778
--------- ---------
Total liabilities .................................................... 133,631 141,258
--------- ---------
Redeemable preferred stock units ............................................... 13,834 13,288
--------- ---------
Redeemable preferred stock ..................................................... 3,795 3,645
--------- ---------
Common stockholder's deficit:
Common stock, Class A par value $.01 per share; authorized 23,678 shares;
6,408 issued and outstanding
Retained deficit .......................................................... (22,199) (20,445)
--------- ---------
Total stockholder's deficit .......................................... (22,199) (20,445)
--------- ---------
Total liabilities and stockholder's deficit .......................... $ 129,061 $ 137,746
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements
3
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(Unaudited)
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales ...................................... $ 112,359 $ 138,118 $ 36,863 $ 43,540
Cost of sales .................................. 89,340 108,557 28,951 33,859
--------- --------- --------- ---------
Gross profit .............................. 23,019 29,561 7,912 9,681
Selling, general and administrative expenses 18,278 18,408 5,904 6,149
Amortization expense ........................... 842 295
--------- --------- --------- ---------
Operating income .......................... 4,741 10,311 2,008 3,237
Other expenses (income)
Interest income ........................... (343) (619) (116) (117)
Interest expense .......................... 7,101 7,214 2,392 2,391
--------- --------- --------- ---------
(Loss) income before income taxes .............. (2,017) 3,716 (268) 963
(Benefit) provision for income taxes ........... (747) 1,625 (65) 433
--------- --------- --------- ---------
Net (loss) income .............................. $ (1,270) $ 2,091 $ (203) $ 530
========= ========= ========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements
4
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
For the Nine Months Ended September 30, 2002
(in thousands except share data)
(Unaudited)
Total
Common Retained Stockholder's
Stock (Deficit) Deficit
----- --------- -------
Balance as of December 31, 2001 .............................................. $ $ (20,445) $ (20,445)
Net loss for the nine months ended September 30, 2002 ..................... (1,270) (1,270)
Redeemable preferred stock unit dividends, net of tax of $211 ............. (334) (334)
Redeemable preferred stock dividends (19,952 shares at $7.50 per share) ... (150) (150)
---------- --------- ---------
Balance as of September 30, 2002 ............................................. $ $ (22,199) $ (22,199)
========== ========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements
5
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2002 and 2001
(in thousands)
(unaudited)
2002 2001
-------- --------
Net cash (used) provided by operating activities ... $ (3,588) $ 7,735
-------- --------
Cash flows from investing activities:
Business acquired, net of cash ................ (20,399)
Purchase of property, plant and equipment ..... (3,270) (3,096)
Proceeds from sale of assets .................. 73 13
-------- --------
Net cash used by investing activities ......... (3,197) (23,482)
-------- --------
Cash flows from financing activities:
Borrowings of long-term debt .................. 9,258 15,100
Repayments of long-term debt .................. (2,473) (1,500)
Debt issuance costs ........................... (874)
-------- --------
Net cash provided by financing activities ..... 6,785 12,726
-------- --------
Net decrease in cash ............................... 0 (3,021)
Cash and cash equivalents at beginning of period ... 3,021
-------- --------
Cash and cash equivalents at end of period ......... $ 0 $ 0
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements
6
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Report Preparation
The accompanying condensed 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, 2001
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 2002 are not
necessarily indicative of the results to be expected for the full year. Certain
reclassifications have been made to the December 31, 2001 financial statements
for comperative purposes. For further information refer to the Company's
consolidated financial statements included in the annual report on Form 10-K.
2. Inventories
September 30, December 31,
2002 2001
---- ----
(in thousands)
Finished goods ....................... $ 11,011 $ 10,990
Work-in-process ...................... 3,095 2,387
Raw materials ........................ 6,171 6,744
-------- --------
20,277 20,121
Less excess and obsolete reserve ..... 1,872 1,762
-------- --------
$ 18,405 $ 18,359
======== ========
7
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 and three months ended September 30:
Nine Months Three Months
Ended September 30 Ended September 30
2002 2001 2002 2001
--------- --------- --------- ---------
(in thousands)
Net sales to external customers:
Manufactured Products .................................... $ 68,734 $ 69,665 $ 21,214 $ 22,281
Engineering Services ..................................... 43,625 68,453 15,649 21,259
--------- --------- --------- ---------
Total net sales to external customers ............... $ 112,359 $ 138,118 $ 36,863 $ 43,540
========= ========= ========= =========
Net sales to internal customers:
Manufactured Products .................................... $ 2,905 $ 3,846 $ 1,139 $ 1,255
Engineering Services ..................................... 171 231 40 81
--------- --------- --------- ---------
Total net sales to internal customers ............... $ 3,076 $ 4,077 $ 1,179 $ 1,336
========= ========= ========= =========
Total net sales
Manufactured Products .................................... $ 71,639 $ 73,511 $ 22,353 $ 23,536
Engineering Services ..................................... 43,796 68,684 15,689 21,340
--------- --------- --------- ---------
Total net sales ..................................... 115,435 142,195 38,042 44,876
Elimination of net sales to internal customers ................ 3,076 4,077 1,179 1,336
--------- --------- --------- ---------
Total consolidated net sales ........................ $ 112,359 $ 138,118 $ 36,863 $ 43,540
========= ========= ========= =========
Earnings (loss) before interest, taxes and amortization:
Manufactured Products .................................... $ 8,468 $ 9,910 $ 2,698 $ 3,526
Engineering Services ..................................... (281) 5,179 289 1,425
--------- --------- --------- ---------
Total segment earnings before interest, taxes and
amortization ....................................... 8,187 15,089 2,987 4,951
Amortization .................................................. (842) (295)
Interest income ............................................... 343 619 116 117
Interest expense .............................................. (7,101) (7,214) (2,392) (2,391)
Corporate expenses before interest, taxes and amortization .... (3,446) (3,936) (979) (1,419)
--------- --------- --------- ---------
Consolidated income (loss) before income taxes ........... $ (2,017) $ 3,716 $ (268) $ 963
========= ========= ========= =========
September 30, December 31,
2002 2001
-------- --------
Assets:
Manufactured Products ......... $ 66,669 $ 67,456
Engineering Services .......... 15,220 25,441
-------- --------
Total segment assets ...... 81,919 92,897
Corporate and other ....... 47,172 44,849
-------- --------
Total assets .............. $129,061 $137,746
======== ========
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.
8
5. Adoption of Accounting Principles
In June 2001, the Financial Accounting Standards Board issued Statements of
Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and
Other Intangible Assets, effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized but are subject to annual impairment
tests in accordance with the Statements. Other intangible assets will continue
to be amortized over their useful lives.
The Company has applied the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of approximately $660,000 per year. During the quarter ended June
30, 2002, the Company performed the first annual impairment evaluation and
determined that none of the recorded goodwill was impaired.
The Company has two reporting segments, Manufactured Products and Engineering
Services, goodwill was allocated to these segments as follows:
June 30, 2002
---------------------
(In thousands)
Engineering Services $ 500
Manufactured Products 18,495
--------
Total $ 18,995
========
The proforma impact of eliminating goodwill amortization on the consolidated
statements of income is as follows:
Nine months ended Three months ended
September 30, 2001 September 30, 2001
-------------------------------------------
(In thousands)
Reported net income $ 2,091 $ 530
Goodwill amortization, net of tax 511 179
------- -------
Adjusted net income $ 2,602 $ 709
======= =======
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001
Net Sales: Net sales for the quarter ended September 30, 2002 decreased
$6.7 million, or 15.3%, to $36.9 million from $43.6 million for the
corresponding period in 2001. The Engineering Services Segment's sales decreased
$5.6 million, or 26.4% to $15.7 million from $21.3 million for the corresponding
period in 2001 as customers have not committed to major capital projects. For
the quarter ended September 30, 2002 the Engineering Services Segment had $2.4
million in projects with sales less than $500,000, compared to $4.1 million for
the quarter ended September 30, 2001.They had five projects with sales in excess
of $500,000, totalling $13.3 million in sales for the quarter ended September
30, 2002, compared to eight such projects totalling $17.2 million in sales for
the quarter ended September 30, 2001. The Manufactured Products Segment's sales
decreased $1.1 million, or 4.8%, primarily due to the decrease of equipment
sales to the coal and oil industries, partially offset with increased fastener
sales.
Gross Profit: Gross profit for the quarter ended September 30, 2002 of $7.9
million was $1.8 million or 18.3% lower than the gross profit of $9.7 million
for the corresponding period in 2001 due to the lower sales level. As a
percentage of net sales, the gross profit decreased to 21.5% for the quarter
ended September 30, 2002 from 22.2% for the corresponding period in 2001. The
decrease resulted from lower margins earned on Engineering Services Segment's
projects.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses of the Company for the quarter ended September 30, 2002
of $5.9 million were $0.2 million or 4.0% below the selling, general and
administrative expenses of $6.1 million for the corresponding period in 2001.
This was due to lower employee related costs. As a percentage of net sales,
selling, general and administrative expenses increased from 14.1% for the
quarter ended September 30, 2001 to 16.0% for the quarter ended September 30,
2002 due to decreased sales.
Amortization Expense: Beginning January 1, 2002 the Company discontinued
the amortization of goodwill in accordance with the provisions of Statement of
Accounting Standards No. 142 - Goodwill and Other Intangible Assets. Goodwill
amortization was $0.3 million for the quarter ended September 30, 2001.
Interest Income: Interest income of the Company for the quarter ended
September 30, 2002 of $0.1 million approximated interest income for the
corresponding period ended September 30, 2001.
Interest Expense: Interest expense of the Company for the quarter ended
September 30, 2002 of $2.4 million approximated interest expense for the
corresponding period in 2001.
(Benefit) Provision for Income Taxes: Benefit for income taxes of the
Company for the quarter ended September 30, 2002 of $0.1 million compared to an
income tax provision of $0.4 million for the quarter ended September 30, 2001.
The decrease of $0.5 million was due to the loss before income taxes for the
quarter ended September 30, 2002.
Net (Loss) Income: The net loss for the Company for the quarter ended
September 30, 2002 of $0.2 million was $0.7 million lower than the net income of
$0.5 million for the quarter ended September 30, 2001 for the reasons discussed
above. Net loss as a percentage of net sales was 0.6% for the quarter ended
September 30, 2002 compared to net income as a percentage of net sales of 1.2%
for the corresponding quarter in 2001.
10
Nine months ended September 30, 2002 Compared to Nine months ended September 30,
2001
Net Sales: Net sales for the nine months ended September 30, 2002 decreased
$25.7 million, or 18.6%, to $112.4 million from $138.1 million for the
corresponding period in 2001. The Engineering Services Segment's sales decreased
$24.8 million, or 36.3% as compared to the prior year period. For the nine
months ended September 30, 2002 the Company had seven projects with sales in
excess of $1.0 million, totalling $34.3 million, compared to twelve such
projects, totalling $57.6 million for the nine months ended September 30, 2001.
The Manufactured Products Segment's sales decreased $0.9 million, or 1.3%,
primarily due to decreased sales of centrifugal dryers and industrial capital
equipment, partially offset with increased fastener and electronic component
sales.
Gross Profit: Gross profit for the nine months ended September 30, 2002
decreased $6.6 million to $23.0 million from $29.6 million for the corresponding
period in 2001. As a percentage of net sales the gross profit decreased to 20.5%
for the nine months ended September 30, 2002 from 21.4% for the nine months
ended September 30, 2001. Within the Engineering Services Segment the gross
profit of $4.0 million was $5.2 million or 56.1% lower than the gross profit of
$9.2 million for the corresponding period in 2001. The lower gross profit
resulted from the lower sales level, a reduction of margins on larger jobs due
to higher than anticipated labor and equipment costs in the nine months ended
September 30, 2002 as well as higher margins realized upon the completion of
Engineering Services Segment projects within the nine months ended September 30,
2001. Within the Manufactured Products Segment the gross profit of $19.0 million
decreased $1.4 million or 6.8% from $20.4 million for the corresponding period
in 2001 due to the lower sales level and costs incurred towards the start-up of
a plating facility. As a percentage of sales the Manufactured Products Segment's
gross profit decreased to 27.6% from 29.2%.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses of the Company for the nine months ended September 30,
2002 of $18.3 million represented a decrease of $0.1 million, or 0.7%, from
$18.4 million for the corresponding period in 2001. This was primarily due to
lower employee related costs, partially offset with the reversal of a provision
on a note receivable that was collected in full in 2001 within the Engineering
Services Segment.
Amortization Expense: Beginning January 1, 2002 the Company discontinued
the amortization of goodwill in accordance with the provisions of Statement of
Accounting Standards No. 142 - Goodwill and Other Intangible Assets. Goodwill
amortization was $0.8 million for the nine months ended September 30, 2001.
Interest Income: Interest income of the Company of $0.3 million for the
nine months ended September 30, 2002 decreased $0.3 million or 44.6% from $0.6
million for the corresponding period in 2001. The decrease was due to interest
earned on a note receivable within the Engineering Services Segment during 2001.
Interest Expense: Interest expense of the Company for the nine months ended
September 30, 2002 of $7.1 million was $0.1 million lower than the interest
expense of $7.2 million for the corresponding period in 2001. This decrease was
due to decreased interest rates, partially offset with an increased debt level.
(Benefit) Provision for Income Taxes: Benefit for income taxes of the
Company for the nine months ended September 30, 2002 of $0.7 million was $2.3
million lower than the provision for income taxes of $1.6 million for the nine
months ended September 30, 2001 due to the loss before taxes for the nine month
period ended September 30, 2002.
Net (Loss) Income: The net loss for the Company for the nine months ended
September 30, 2002 of $1.3 million compared to net income of $2.1 million for
the nine months ended September 30, 2001 for the reasons discussed above. Net
loss as a percentage of net sales was 1.1% for the nine months ended September
30, 2002 compared to net income as a percentage of sales of 1.5% for the
corresponding nine month period in 2001.
11
Liquidity and Capital Resources
Net cash used by operating activities for the nine months ended September
30, 2002 of $3.6 million was used to decrease accounts payable and accrued
expenses and to increase prepaid expenses and other assets. These uses were
partially offset with cash generated from the net loss adjusted for non-cash
charges and decreased accounts receivable. Included in non-cash charges for the
nine months ended September 30, 2002 was depreciation of $2.9 million and other
non-cash charges of $0.3 million, partially offset with pension overfunding
income of $1.1 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,
2002 of $3.2 million consisted of $2.6 million used for the construction of a
plating facility and $0.7 million for the Company's regular practice of
upgrading and maintaining its equipment base and facilities, partially offset
with $0.1 million of proceeds from the sale of equipment.
Cash provided by financing activities for the nine months ended September
30, 2002 of $6.8 million consisted of the borrowing of $8.2 million of long-term
debt drawn on the Company's revolver loan and borrowings of $1.1 million on the
construction loan for the plating facility, partially offset by repayment of
long-term debt of $2.5 million.
The Company's liquidity requirements, both long-term and short-term, are
primarily for debt service, working capital needs and capital expenditures. The
recent decline in the cash flow generated by the Company's business during the
nine months ended September 30, 2002 has resulted in the Company's liquidity
being constrained. The Company anticipates that with improved operating results,
the funds provided from future operations and anticipated borrowing should be
sufficient to meet its anticipated debt service requirements, working capital
needs and capital expenditures. However, there can be no assurance as to the
foregoing, and it is uncertain whether the Company's operating results will
improve. The failure of the Company's future operations to generate improved
cash flow would require the Company to pursue other sources of liquidity in
order to meet it liquidity needs. There can be no assurance that any such
sources would be available if required.
The Company has entered into a Waiver and Fourth Amendment to Credit
Agreement with its senior lenders, the purpose of which was, among other things,
to waive non-compliance with certain financial covenants for the period ending
September 30, 2002, and to revise certain financial covenants in its Senior
Credit Facility. This waiver expires on January 31, 2003, at which time the
Company will need to be in compliance with the covenants contained in its Senior
Credit Facility, or obtain another waiver or amendment. The Company continues to
work with its senior lenders to address the Company's liquidity requirements.
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, 2002 was $35.1 million.
Approximately $11.8 million relates to the Manufactured Products Segment, with
the remainder of $23.3 million relating to the Engineering Services Segment. A
substantial majority of current backlog is expected to be realized in the next
twelve months.
Safe Harbor
Certain statements herein constitute forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities Act of 1934; including
statements regarding the Company's ability to meet its liquidity requirements,
and the Company's expected realization of current backlog. 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 services, adverse changes in general market and industry
conditions and any resulting inability to comply with the financial covenants
imposed by the Company's senior credit facility. 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, 2002
approximately 13% of the Company's net sales were attributable to services
provided or products sold for use outside the United States, primarily to Puerto
Rico, Australia and Venezuela. A portion of these net sales and cost of sales is
derived from international operations which are conducted in foreign
12
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.
ITEM 4. CONTROLS AND PROCEDURES
Elgin National Industries, Inc. management, including the Chief Executive
Officer and the Chief Financial Officer, have conducted an evaluation of the
effectiveness of disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion. There have
been no significant changes in internal controls, or in other factors that could
significantly affect internal controls, subsequent to the date the Chief
Executive Officer and Chief Financial Officer completed their evalution.
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
None
13
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.
By /s/ Wayne J. Conner
-----------------------------------
Name: Wayne J. Conner
Title: Vice President, Treasurer, and Chief
Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
Dated: November 12, 2002
14
Certification:
I, Wayne J. Conner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Elgin National
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
fulfilling the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 12, 2002
/s/ Wayne J. Conner
-----------------------------------
Chief Financial Officer
15
Certification:
I, Fred C. Schulte, certify that:
7. I have reviewed this quarterly report on Form 10-Q of Elgin National
Industries, Inc.;
8. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
9. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
10. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
11. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
fulfilling the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
12. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 12, 2002
/s/ Fred C. Schulte
-----------------------------------
Chief Executive Officer
16
EXHIBIT INDEX
Exhibit Footnote
------- --------
Number Document Description Reference
------ -------------------- ---------
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)
10.6 Credit Agreement dated as of September 24, 1993, as Amended and Restated as of January 18,
2001, by and among Elgin National Industries, Inc., various financial institutions, and
PNC Bank, National Association, individually and as agent. (4)
10.7 First Amendment to Credit Agreement dated as of September 24, 1993, as Amended and Restated
as of January 18, 2001, and further amended as of March 1, 2001 by and among Elgin National
Industries, Inc., various financial institutions, and PNC Bank, National Association, (4)
individually and as agent.
10.8 Second Amendment to Credit Agreement dated as of September 24, 1993, as Amended and Restated
as of January 18, 2001, and further amended as of June 28, 2001 by and among Elgin National
Industries, Inc., various financial institutions, and PNC Bank, National Association, (4)
individually and as agent.
17
10.9 Third Amendment to Credit Agreement dated as of September 24, 1993, as Amended and Restated
as of January 18, 2001, and further amended as of March 31, 2002 by and among Elgin National
Industries, Inc., various financial institutions, and PNC Bank, National Association, (5)
individually and as agent.
10.10 Waiver and Fourth Amendment to Credit Agreement dated as of September 24, 1993, as Amended
and Restated as of January 18, 2001, and further amended as of Septmber 30, 2002 by and among
Elgin National Industries, Inc., various financial institutions, and PNC Bank, National (1)
Association, individually and as agent.
(1) Filed within
(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.
(4) Incorporated by reference to Form 10-Q of the Company (File No.
001-03771) filed with the Commission on August 10, 2001.
(5) Incorporated by reference to Form 10-Q of the Company (File No.
001-05771) filed with the Commission on May 15, 2002
a. Management contract or compensatory plan or arrangement.
18