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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 March 31, 2003
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-Q or any amendment to this Form 10-Q. [_] Yes [x] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [_] Yes [x] No
As of April 30, 2003, 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 March 31, 2003 and December 31, 2002 ....................... 3
Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and
March 31, 2002 ............................................................................. 4
Consolidated Statement of Changes in Stockholder's Deficit for the Three Months Ended
March 31, 2003 ............................................................................. 5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003
and March 31, 2002 ......................................................................... 6
Notes to Condensed Consolidated Financial Statements .......................................... 7
ITEM 2--Management's Discussion and Analysis of Financial Condition and Results of
Operations ...................................................................................... 11
ITEM 3--Quantitative and Qualitative Disclosures about Market Risk ................................. 13
ITEM 4--Controls and Procedures .................................................................... 13
PART II--OTHER INFORMATION
ITEM 1--Legal Proceedings .......................................................................... 13
ITEM 6--Exhibits and Reports on Form 8-K ........................................................... 14
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)
March 31, December 31,
2003 2002
---- ----
ASSETS
------
Current assets:
Accounts receivable, net ........................................ $ 22,386 $ 23,196
Inventories, net ................................................ 16,783 16,711
Prepaid expenses and other assets ............................... 3,404 2,801
Deferred income taxes ........................................... 3,797 3,797
---------- ----------
Total current assets ....................................... 46,370 46,505
Property, plant and equipment, net .................................. 21,752 22,441
Loans receivable to related parties ................................. 10,415 10,268
Other assets ....................................................... 27,327 26,408
Goodwill ............................................................ 18,995 18,995
---------- ----------
Total assets ............................................... $ 124,859 $ 124,617
========== ==========
LIABILITIES AND COMMON STOCKHOLDER'S DEFICIT
--------------------------------------------
Current liabilities:
Current portion of long-term debt ............................... $ 1,906 $ 2,984
Accounts payable ................................................ 13,556 16,120
Accrued expenses ................................................ 11,145 9,251
---------- ----------
Total current liabilities .................................. 26,607 28,355
Long-term debt less current portion ................................. 98,266 94,345
Other liabilities ................................................... 2,323 2,323
Deferred income taxes ............................................... 3,578 4,808
---------- ----------
Total liabilities .......................................... 130,774 129,831
---------- ----------
Redeemable preferred stock units .................................... 14,198 14,016
---------- ----------
Redeemable preferred stock .......................................... 3,894 3,844
---------- ----------
Common stockholder's deficit:
Common stock, Class A par value $.01 per share; authorized
23,678 shares; 6,408 issued and outstanding as of March 31,
2003 and December 31, 2002
Retained deficit ................................................ (24,007) (23,074)
---------- ----------
Total common stockholder's deficit ......................... (24,007) (23,074)
---------- ----------
Total liabilities and stockholder's deficit ................ $ 124,859 $ 124,617
========== ==========
The accompanying notes are an integral part of the condensed
consolidated financial statements
3
ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2003 and 2002
(in thousands)
(Unaudited)
2003 2002
--------- ---------
Net sales ............................................ $ 28,462 $ 38,219
Cost of sales ........................................ 21,276 29,863
--------- ---------
Gross profit .................................... 7,186 8,356
Selling, general and administrative expenses ......... 6,021 5,974
--------- ---------
Operating income ................................ 1,165 2,382
Other expenses (income)
Interest income ................................. (153) (114)
Interest expense ................................ 2,555 2,320
--------- ---------
(Loss) income before income taxes .................... (1,237) 176
(Benefit) provision for income taxes ................. (466) 114
--------- ---------
Net (loss) income .................................... $ (771) $ 62
========= =========
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 COMMON STOCKHOLDER'S DEFICIT
For the Three Months Ended March 31, 2003
(in thousands except share data)
(Unaudited)
Total
Common Retained Stockholder's
Stock (Deficit) Deficit
----- --------- --------
Balance as of December 31, 2002 ................................... $ $ (23,074) $ (23,074)
Net loss for the three months ended March 31, 2003 ................ (771) (771)
Redeemable preferred stock unit dividends, net of tax of $70 ...... (112) (112)
Redeemable preferred stock dividends (19,952 shares at $2.50 per
share) ..................................................... (50) (50)
---------- --------- ---------
Balance as of March 31, 2003 ...................................... $ $ (24,007) $ (24,007)
========== ========= =========
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 Three Months Ended March 31, 2003 and 2002
(in thousands)
(Unaudited)
2003 2002
-------- --------
Net cash used in operating activities ....................... $ (967) $ (3,373)
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets ........................... 16
Purchase of property, plant and equipment .............. (100) (1,517)
-------- --------
Net cash used by investing activities .................. (100) (1,501)
-------- --------
Cash flows from financing activities:
Borrowings on short-term debt .......................... 824
Borrowings on long-term debt ........................... 25,000 4,800
Repayments of long-term debt ........................... (22,157) (750)
Debt issuance costs .................................... (1,776)
-------- --------
Net cash provided by financing activities .............. 1,067 4,874
-------- --------
Net (decrease) increase in cash ............................. 0 0
Cash and cash equivalents at beginning of period ............ 0 0
-------- --------
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 consolidated financial statements, which have not been
audited by independent certified public accountants, were prepared in conformity
with accounting principles generally accepted in the United States 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,
2002 Form 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 three months of 2003 are not
necessarily indicative of the results to be expected for the full year. For
further information refer to the Company's consolidated financial statements
included in the annual report on Form 10K.
2. Inventories
Inventories consist of:
March 31, December 31,
2003 2002
---- ----
(in thousands)
Finished goods ............................ $ 10,368 $ 10,655
Work-in-process ........................... 2,229 2,007
Raw materials ............................. 5,727 5,569
--------- ----------
18,324 18,231
Less excess and obsolete reserve .......... 1,541 1,520
--------- ----------
$ 16,783 $ 16,711
========= ==========
3. Senior Credit Facility
On February 10, 2003, the Company and its subsidiaries entered into a Loan
and Security Agreement to increase its borrowing capacity. Proceeds from the
Loan and Security Agreement were used to repay and retire all amounts
outstanding under the prior Bank Credit Agreement. The Loan and Security
Agreement includes three term loans, Term Loan A, Term Loan B and Term Loan C,
having original principal amounts of $7,500,000, $2,500,000 and $15,000,000,
respectively. The Loan and Security Agreement also includes a revolver loan with
a commitment amount of $27,500,000 subject to borrowing base and other
restrictions, as well as restrictions under the Company's Indenture. Term Loan A
and Term Loan B will require monthly principal payments of $104,000 and $63,000,
respectively beginning May 2003. Term C does not require current principal
repayments and is due in full on February 10, 2006. The Company's assets are
pledged under the terms of the Loan and Security Agreement. The Loan and
Security Agreement has a maturity date of February 10, 2008. Term Loan A will
accrue interest at the prime rate set by Wells Fargo's principal office ("Prime
Rate") plus a margin determined by a pricing grid. Term Loan B will accrue
interest at the Prime Rate plus 3.00% per annum. Term Loan C will accrue
interest at the Prime Rate plus 4.75% per annum. The revolver loan will accrue
interest at the Prime Rate plus 1.00% per annum.
Upon refinancing remaining financing costs related to the prior Bank Credit
Agreement of $488,000 were expensed.
7
Annual principal payments on the term loan portion of the Loan and Security
Agreement will be as follows (in thousands):
Term Term Term
Loan A Loan B Loan C Total
------ ------ ------ -----
2003 ....................... $ 500 $ 832 $ 1,332
2004 ....................... 750 1,250 2,000
2005 ....................... 1,125 418 1,543
2006 ....................... 1,200 $15,000 16,200
2007 ....................... 1,200 1,200
2008 and thereafter ........ 2,725 - - 2,725
------- ------- ------- -------
$ 7,500 $ 2,500 $15,000 $25,000
======= ======= ======= =======
Along with scheduled principal repayments, the term loans require additional
principal payments after the end of each year based on an excess cash flow
calculation.
4. Segment Information
The Company operates primarily in two industries, Manufactured Products and
Engineering Services. In accordance with the Company's method of internal
reporting, corporate headquarters costs are not allocated to the individual
segments. Information about the Company by industry is presented below for
the three months ended March 31:
2003 2002
-------- --------
(In thousands)
Net sales to external customers:
Manufactured Products ......................... $ 22,048 $ 23,944
Engineering Services .......................... 6,414 14,275
-------- --------
Total net sales to external customers ...... $ 28,462 $ 38,219
======== ========
Net sales to internal customers:
Manufactured Products ......................... $ 596 $ 824
Engineering Services .......................... 24 79
-------- --------
Total net sales to internal customers ..... $ 620 $ 903
======== ========
8
2003 2002
-------- --------
(In thousands)
Net sales:
Manufactured Products ............................... $ 22,644 $ 24,768
Engineering Services ................................ 6,438 14,354
-------- --------
Total net sales ................................ 29,082 39,122
Elimination of net sales to internal customers .. 620 903
-------- --------
Total consolidated net sales ................... $ 28,462 $ 38,219
======== ========
Earnings before corporate expenses, interest, and
income taxes:
Manufactured Products ............................... $ 2,672 $ 2,742
Engineering Services ................................ 284 758
-------- --------
Total segment earnings .......................... 2,956 3,500
Corporate expenses ..................................... (1,791) (1,118)
Interest income ........................................ 153 114
Interest expense ....................................... (2,555) (2,320)
-------- --------
Consolidated (loss) income before income taxes .. $ (1,237) $ 176
======== ========
5. Subsidiary Guarantors
The Company's payment obligations under the Senior Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively,
"Subsidiary Guarantees") by Tabor Machine Company, Norris Screen and
Manufacturing, Inc., TranService, Inc., Mining Controls, Inc., Clinch River
Corporation, Centrifugal Services, Inc., Roberts & Schaefer Company, Soros
Associates, Inc., Vanco International, Inc., Leland Powell Fasteners, Inc. and
Best Metal Finishing, Inc. ("the Guarantors") each a direct, wholly-owned
subsidiary of the Company. The following summarized combined financial data
illustrates the composition of the combined Guarantors.
March 31, 2003
--------------
(in thousands)
Combined Consolidating Consolidated
Parent Guarantors Adjustments Total
------ ---------- ----------- -----
Current assets ............................... $15,327 $ 32,065 $ 47,392
Noncurrent assets ............................ 60,766 42,366 ($24,643) 78,489
------- --------- --------- --------
Total assets ................................. $76,093 $ 74,431 ($24,643) $125,881
======= ========= ========= ========
Current liabilities .......................... $ 9,964 $ 16,505 $ 26,469
Total liabilities ............................ $78,729 $ 53,067 $131,796
9
December 31, 2002
-----------------
(in thousands)
Combined Consolidating Consolidated
Parent Guarantors Adjustments Total
------ ---------- ----------- -----
Current assets ................................ $13,492 $33,013 $ 46,505
Noncurrent assets ............................. 59,266 42,325 ($23,479) 78,112
------- ------- --------- --------
Total assets .................................. $72,758 $75,338 ($23,479) $124,617
======= ======= ========= ========
Current liabilities ........................... $10,087 $18,268 $ 28,355
Total liabilities ............................. $74,993 $54,838 $129,831
Three months ended March 31, 2003
---------------------------------
(in thousands)
Combined Consolidating Consolidated
Parent Guarantors Adjustments Total
------ ---------- ----------- -----
Sales, net .................................... $ 8,002 $21,080 ($620) $ 28,462
Gross profit .................................. 2,557 4,629 7,186
(Loss) income before income tax ............... (2,625) 1,388 (1,237)
Net (loss) Income ............................. (1,634) 863 (771)
Cash (used in) provided by operating
activities .................................... (1,049) 82 (967)
Cash used in investing activities ............. (18) (82) (100)
Cash provided by financing activities ......... 1,067 1,067
Three months ended March 31, 2002
---------------------------------
(in thousands)
Combined Consolidating Consolidated
Parent Guarantors Adjustments Total
------ ---------- ----------- -----
Sales, net .................................... $ 7,726 $31,396 ($903) $38,219
Gross profit .................................. 2,336 6,020 8,356
(Loss) income before income tax ............... (1,882) 2,058 176
Net (loss) Income ............................. (1,105) 1,167 62
Cash (used in) provided by operating
activities .................................... (3,865) 492 (3,373)
Cash used in investing activities ............. (185) (1,316) (1,501)
Cash provided by financing activities ......... 4,050 824 4,874
The direct and non-direct, non-guarantor subsidiaries, in terms of assets,
equity, income, and cash flows, on an individual and combined basis are
inconsequential.
Separate financial statements of the Guarantors are not presented because
management has determined that these would not be material to investors.
5. 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.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Net Sales - Engineering Services Segment: Net sales for the quarter ended
March 31, 2003 decreased $7.9 million, or 55.1%, to $6.4 million from $14.3
million for the corresponding period in 2002 due to the decrease in size and
number of projects in process. For the quarter ended March 31, 2003 the
Engineering Services Segment had no projects with sales over $1.0 million,
compared to three such projects with sales totaling $8.2 million for the quarter
ended March 31, 2002. Sales of projects under $0.5 million also decreased $0.7
million. These decreases were partially offset with increases in projects
between $0.5 million and $1.0 million. The Engineering Services Segment had four
projects with sales between $0.5 million and $1.0 million totaling $3.1 million
for the first quarter of 2003, compared to three such projects totaling $2.1
million during the same period ended 2002.
Net Sales - Manufactured Products Segment: Net sales for the quarter ended
March 31, 2003 decreased $1.9 million, or 7.9%, to $22.0 million from $23.9
million for the corresponding period in 2002 primarily due to decreased sales of
mining equipment, partially offset with increased fastener sales.
Gross Profit - Engineering Services Segment: Gross profit for the quarter
ended March 31, 2003 decreased $1.0 million, or 44.8%, to $1.2 million from $2.2
million in the corresponding period in 2002, primarily due to the decreased
sales level. As a percentage of net sales, the gross profit increased to 18.9%
for the quarter ended March 31, 2003 from 15.4% for the corresponding period in
2002 due to lower margins earned on larger engineering services projects in
2002.
Gross Profit - Manufactured Products Segment: Gross profit for the quarter ended
March 31, 2003 decreased $0.2 million, or 3.0%, to $6.0 million from $6.2
million in the corresponding period in 2002 due to the lower sales level. As a
percentage of net sales, the gross profit increased to 27.1% for the quarter
ended March 31, 2003 from 25.7% for the corresponding period in 2002. The
increase was primarily due to higher margins earned from screen and screen cloth
sales.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses of the Company for the quarter ended March 31, 2003 of
$6.0 million approximated the corresponding period in 2002 with the write-off of
remaining financing expenses related to the retired credit facility offset with
decreased employee related expenses.
Interest Income: Interest income of the Company for the quarter ended March
31, 2003 of $0.2 million approximated the corresponding period in 2002.
Interest Expense: Interest expense of the Company for the quarter ended
March 31, 2003 of $2.6 million increased $0.3 million or 10.1% from $2.3 million
for the corresponding period in 2002. The increase was due to a higher debt
level.
Benefit (Provision) for Income Taxes: Benefit for income taxes of the
Company for the quarter ended March 31, 2003 of $0.5 million decreased $0.6
million from the provision of $0.1 million for the corresponding quarter ended
March 31, 2002 due to the lower income level. The effective tax rate for the
quarter ended March 31, 2003 of 37.7% decreased from 64.8% for the quarter ended
March 31, 2002 due to foreign tax expense incurred in 2002.
Net (Loss) Income: The Company recorded a net loss of $0.8 million for the
three months ended March 31, 2003 compared to net income of $0.1 million for the
quarter ended March 31, 2002. The decrease was due to the reasons discussed
above.
11
Liquidity and Capital Resources
Net cash used by operating activities for the three months ended March 31,
2003 of $1.0 million was used by decreased accounts payable, increased prepaid
expenses and other assets and increased inventories partially offset with cash
generated from net loss adjusted for non-cash charges, decreased accounts
receivable and increased accrued expenses. Included in non-cash charges for the
quarter ended March 31, 2003 was depreciation of $0.8 million and other non-cash
charges of $0.7 million, partially offset with pension overfunding income of
$0.3 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 three months ended March 31, 2003
of $0.1 million consisted of capital expenditures resulting from the Company's
regular practice of upgrading and maintaining its equipment base and facilities.
Cash provided by financing activities for the three months ended March 31,
2003 of $1.1 million consisted of the issuance of $25.0 million of long-term
debt, partially offset by the repayment of long-term debt of $22.1 million and
debt issuance costs of $1.8 million.
On February 10, 2003, the Company and its subsidiaries entered into a Loan and
Security Agreement to increase its borrowing capacity. Proceeds from the new
credit facility were used to repay and retire all amounts outstanding under the
existing Senior Credit Facility. The new Loan and Security Agreement includes
three term loans, Term Loan A, Term Loan, B and Term Loan C, having original
principal amounts of $7,500,000, $2,500,000 and $15,000,000, respectively. The
new Loan and Security Agreement also includes a revolver loan with a commitment
amount of $27,500,000 subject to borrowing base and other restrictions, as well
as restrictions under the Company's Indenture. Term Loan A will require monthly
principal payments of $0.1 million beginning May 2003. Term Loan B will require
monthly principal payments of $0.1 million beginning in May 2003. Term Loan C
does not require current principal repayments. The Company's assets are pledged
under the terms of the new Loan and Security Agreement.
The Company's liquidity requirements, both long term (over one year) and
short term, are for working capital, capital expenditures and debt service. The
primary source for meeting these needs has been funds provided by operations and
funds available under the Loan and Security Agreement. The Company anticipates
with improved operating results that funds provided by future operations and
available credit will be sufficient to meet its anticipated debt service
requirements, working capital needs and capital expenditures.
Backlog
The Company's backlog consists primarily of that portion of engineering
services contracts that have been awarded but not performed and also includes
open manufacturing orders. Backlog at March 31, 2003 was $35.2 million.
Approximately $11.5 million relates to the Manufactured Products Segment, with
the remainder of $23.7 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
Statements herein regarding the Company's ability to meet its liquidity
requirements, and the Company's expected realization of current backlog
constitute forward-looking statements within the meaning of the Securities Act
of 1933 and the Securities Act of 1934. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Further, statements herein regarding the Company's
performance in future periods are subject to risks relating to, deterioration of
relationships with, or the loss of material customers or suppliers, possible
product liability claims, decreases in demand for the Company's products,
adverse changes in general market and industry
12
conditions and any resulting inability to comply with the financial covenants
imposed by the Company's credit agreement. Management believes these
forward-looking statements are reasonable; however, undue reliance should not be
placed on such forward-looking statements, which are based on current
expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company continues to use its United States reputation to generate sales
in international markets. In the three months ended March 31, 2003 approximately
7% of the Company's net sales were attributable to services provided or products
sold for use outside the United States, primarily to Australia. A portion of
these net sales and cost of sales is derived from international operations which
are conducted in foreign currencies. Changes in the value of these foreign
currencies relative to the U.S. dollar could adversely affect the Company's
business, financial condition, results of operation and debt service capability.
The majority of the Company's foreign sales and costs are denominated in U.S.
dollars. With respect to transactions denominated in foreign currencies, the
Company attempts to mitigate foreign exchange risk by contractually shifting the
burden of the 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
13
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
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: May 15, 2003
14
CERTIFICATIONS
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: May 15, 2003
/s/ Wayne J. Conner
-------------------
Chief Financial Officer
15
CERTIFICATIONS
I, Fred C. Schulte, 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: May 15, 2003
/s/ Fred C. Schulte
-------------------
Chief Executive Officer
16
EXHIBITS 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., (2)
subsidiaries and Norwest Bank Minnesota, as Trustee.
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 (3)
National Industries, Inc., certain of its subsidiaries, and BancAmerica
Robertson Stephens and CIBC Wood Gundy Securities Corp.
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 (2)
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.
10.2 Employment and Non-Competition Agreement dated as of November 5, 1997, (2)
between Elgin National Industries, Inc. and Fred C. Schulte.*
10.3 Employment and Non-Competition Agreement dated as of November 5, 1997, (2)
between Elgin National Industries, Inc. and Charles D. Hall.*
10.4 Employment and Non-Competition Agreement dated as of November 5, 1997, (2)
between Elgin National Industries, Inc. and Wayne J. Conner.*
10.5 The Elgin National Industries, Inc. Supplemental Retirement Plan dated as of (3)
1995, and effective January 1, 1995.*
10-6 Credit Agreement dated as of September 24, 1993, as Amended and Restated (4)
as of January 18, 2001, by and among Elgin National Industries, Inc.,
various financial institutions, and PNC Bank, National Association,
individually and as agent.
10-7 First Amendment to Credit Agreement dated as of September 24, 1993, as (4)
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,
individually and as agent.
10-8 Second Amended to Credit Agreement dated as of September 24, 1993, as (4)
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,
individually and as agent.
10-9 Third Amendment to Credit Agreement dated as of September 24, 1993, as (5)
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,
individually and as agent.
17
10-10 Waiver and Fourth Amendment to Credit Agreement dated as of September (6)
(6) 24, 1993, as Amended and Restated as of January 18, 2001, and
further amended as of September 30, 2002 by and among Elgin National
Industries, Inc., various financial institutions, and PNC Bank,
National Association, individually and as agent.
10-11 Loan and Security Agreement, dated February 10, 2003 by and among Elgin (7)
National Industries, Inc. and each of its subsidiaries and Foothill
Capital Corporation, as lender, Arranger and administrative agent and
Ableco Finance LLC, as lender.
10-12 Amendment to Employment and Non-Competition Agreement dated as of (8)
January 29, 2003, between Elgin National Industries, Inc. and
Charles D. Hall.
10-13 Amendment to Employment and Non-Competition Agreement dated as of (8)
January 29, 2003, between Elgin National Industries, Inc. and Fred
C. Schulte.
10-14 Amendment to Employment and Non-Competition Agreement dated as of (8)
January 29, 2003, between Elgin National Industries, Inc. and Wayne
J. Conner.
21 Subsidiaries of Elgin National Industries, Inc. (2)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant (1)
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant (1)
to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Filed within
(2) Incorporated by reference to Pre-Effective 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 Pre-Effective 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
(6) Incorporated by reference to Form 10-Q of the Company (File No. 001-05771)
filed with the Commission on November 12, 2002.
(7) Incorporated by reference to Form 8-K of the Company (File No. 001-05771)
filed with the Commission on February 18, 2003.
(8) Incorporated by reference to Form 10-K of the company (File No. 001-05771)
filed with the Commission on March 27, 2003.
* Management contract or compensatory plan or arrangement
18