Back to GetFilings.com



Table of Contents

 

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, 2004

 

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

incorporation or organization)

 

(I.R.S. Employer

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 September 30, 2004, there were outstanding 6,408.3 shares of Class A Common Stock and 19,951.7 shares of Preferred Stock.

 



Table of Contents

ELGIN NATIONAL INDUSTRIES, INC.

 

TABLE OF CONTENTS

 

     Page

PART I—FINANCIAL INFORMATION

    

ITEM 1—Financial Statements

    

Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003

   3

Consolidated Statements of Operations for the Nine Months Ended September 30, 2004 and September 30, 2003, and for the Three Months Ended September 30, 2004 and September 30, 2003

   4

Consolidated Statements of Changes in Stockholder’s Deficit for the Nine Months Ended September 30, 2004

   5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and September 30, 2003

   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

   14

ITEM 6—Exhibits and Reports on Form 8-K

   14

SIGNATURES

   15

EXHIBIT INDEX

   16

 

2


Table of Contents

PART I

 

ITEM 1.    FINANCIAL STATEMENTS

 

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands except share data)

(Unaudited)

 

    

September 30,

2004


   

December 31,

2003


 
ASSETS                 

Current assets:

                

Cash and equivalents

   $       $ 3,391  

Accounts receivable, net

     37,511       27,062  

Inventories, net

     20,658       17,495  

Prepaid expenses and other assets

     3,216       2,277  

Deferred income taxes

     3,497       3,497  
    


 


Total current assets

     64,882       53,722  

Property, plant and equipment, net

     19,329       20,308  

Loans receivable to related parties

     11,320       10,855  

Other assets

     30,309       29,507  

Goodwill

     18,995       18,995  
    


 


Total assets

   $ 144,835     $ 133,387  
    


 


LIABILITIES AND COMMON STOCKHOLDER’S DEFICIT                 

Current liabilities:

                

Current portion of long-term debt

   $ 2,033     $ 2,019  

Accounts payable

     28,473       25,076  

Accrued expenses

     14,127       9,568  
    


 


Total current liabilities

     44,633       36,663  

Long-term debt less current portion

     100,659       96,741  

Redeemable preferred stock units

     15,289       14,743  

Redeemable preferred stock

     4,194       4,044  

Other liabilities

     2,323       2,345  

Deferred income taxes

     4,428       4,411  
    


 


Total liabilities

     171,526       158,947  
    


 


Common stockholder’s deficit:

                

Common stock, Class A par value $.01 per share; authorized 23,678 shares; 6,408 issued and outstanding as of September 30, 2004 and December 31, 2003

                

Retained deficit

     (26,958 )     (25,836 )

Accumulated other comprehensive income

     267       276  
    


 


Total common stockholder’s deficit

     (26,691 )     (25,560 )
    


 


Total liabilities and stockholder’s deficit

   $ 144,835     $ 133,387  
    


 


 

The accompanying notes are an integral part of the condensed consolidated financial statements

 

3


Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands)

(Unaudited)

 

    

For the Nine Months

Ended September 30,


   

For the Three Months

Ended September 30,


 
     2004

    2003

    2004

    2003

 

Net sales

   $ 155,215     $ 93,667     $ 51,991     $ 33,461  

Cost of sales

     128,379       70,868       43,386       25,707  
    


 


 


 


Gross profit

     26,836       22,799       8,605       7,754  

Selling, general and administrative expenses

     20,383       18,286       6,933       6,371  
    


 


 


 


Operating income

     6,453       4,513       1,672       1,383  

Other expenses (income)

                                

Interest income

     (518 )     (474 )     (183 )     (158 )

Interest expense

     8,795       7,952       2,989       2,677  
    


 


 


 


Loss before income taxes

     (1,824 )     (2,965 )     (1,134 )     (1,136 )

Benefit for income taxes

     (702 )     (1,097 )     (436 )     (423 )
    


 


 


 


Net loss

   $ (1,122 )   $ (1,868 )   $ (698 )   $ (713 )
    


 


 


 


 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

 

4


Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

 

CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDER’S DEFICIT

 

For the Nine Months Ended September 30, 2004

(in thousands except share data)

(Unaudited)

 

    

Common

Stock


  

Retained

(Deficit)


   

Accumulated

Other

Comprehensive

Income


   

Total

Stockholder’s

Deficit


 

Balance as of December 31, 2003

   $      $ (25,836 )   $ 276     $ (25,560 )

Net loss for the nine months ended September 30, 2004

            (1,122 )             (1,122 )

Foreign currency translation adjustments net of tax of $(5)

                    (9 )     (9 )
    

  


 


 


Balance as of September 30, 2004

   $       $ (26,958 )   $ 267     $ (26,691 )
    

  


 


 


 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

 

5


Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

For the Nine Months Ended September 30, 2004 and 2003

(in thousands)

(Unaudited)

 

     2004

    2003

 

Net cash (used in) provided by operating activities

   $ (6,380 )   $ 665  
    


 


Cash flows from investing activities:

                

Proceeds from sale of assets

     5       37  

Purchase of property, plant and equipment

     (939 )     (610 )
    


 


Net cash used by investing activities

     (934 )     (573 )
    


 


Cash flows from financing activities:

                

Borrowings on long-term debt

     5,450       25,000  

Repayments of long-term debt

     (1,518 )     (23,005 )

Debt issuance costs

             (2,087 )
    


 


Net cash provided by (used in) financing activities

     3,932       (92 )
    


 


Effect of exchange rates on cash

     (9 )     0  
    


 


Net decrease in cash

     (3,391 )        
    


 


Cash and cash equivalents at beginning of period

     3,391          
    


 


Cash and cash equivalents at end of period

   $ 0     $ 0  
    


 


 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

 

6


Table of Contents

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, 2003 Form 10-K filed with the Securities and Exchange Commission. Due to the timing of the change in the Company’s certifying accountants, this report on Form 10-Q has not been reviewed by the Company’s independent certified public accountants. The Company will file an amendment to this Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 as soon as practicable after this review is completed. 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 2004 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:

 

    

September 30,

2004


  

December 31,

2003


     (in thousands)

Finished goods

   $ 12,456    $ 11,098

Work-in-process

     3,015      2,420

Raw materials

     7,095      5,519
    

  

       22,566      19,037

Less excess and obsolete reserve

     1,908      1,542
    

  

     $ 20,658    $ 17,495
    

  

 

3.    Comprehensive loss

 

Total comprehensive loss and its components, net of related tax are as follows:

 

    

For the Nine

Months Ended

September 30,


   

For the Three

Months Ended

September 30,


 
     2004

    2003

    2004

    2003

 
     (in thousands)  

Net loss

   $ (1,122 )   $ (1,868 )   $ (698 )   $ (713 )

Foreign currency translation

     (9 )             37          
    


 


 


 


     $ (1,131 )   $ (1,868 )   $ (661 )   $ (713 )
    


 


 


 


 

The components of accumulated other comprehensive income, net of related tax consists of foreign currency translation of $267,000 and $276,000 as of September 30, 2004 and December 31, 2003, respectively.

 

7


Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

4.    Components of Net Periodic Pension Cost

 

     Nine Months Ended
September 30,


   

Three Months Ended

September 30,


 
     2004

    2003

    2004

    2003

 
     (in thousands)  

Service cost

   $ 2,923     $ 787     $ 1,124     $ 263  

Interest cost

     3,963       892       1,523       297  

Expected return on assets

     (8,617 )     (2,395 )     (3,312 )     (798 )

Net amortization of prior service costs

     (65 )     (55 )     (25 )     (19 )

Net amortization of prior gain

     1,153       21       443       7  
    


 


 


 


Net periodic pension cost

   $ (643 )   $ (750 )   $ (247 )   $ (250 )
    


 


 


 


 

5.    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 the three months ended September 30:

 

     Nine Months Ended
September 30


    Three Months Ended
September 30


 
     2004

    2003

    2004

    2003

 
     (in thousands)  

Net sales to external customers:

                                

Manufactured Products

   $ 79,939     $ 65,640     $ 27,402     $ 20,852  

Engineering Services

     75,276       28,027       24,589       12,609  
    


 


 


 


Total net sales to external customers

   $ 155,215     $ 93,667     $ 51,991     $ 33,461  
    


 


 


 


Net sales to internal customers:

                                

Manufactured Products

   $ 5,505     $ 2,356     $ 1,359     $ 1,013  

Engineering Services

     334       84       169       27  
    


 


 


 


Total net sales to internal customers

   $ 5,839     $ 2,440     $ 1,528     $ 1,040  
    


 


 


 


Total net sales

                                

Manufactured Products

   $ 85,444     $ 67,996     $ 28,761     $ 21,865  

Engineering Services

     75,610       28,111       24,758       12,636  
    


 


 


 


Total net sales

     161,054       96,107       53,519       34,501  

Elimination of net sales to internal customers

     5,839       2,440       1,528       1,040  
    


 


 


 


Total consolidated net sales

   $ 155,215     $ 93,667     $ 51,991     $ 33,461  
    


 


 


 


Earnings (loss) before corporate expenses, interest, taxes and income taxes:

                                

Manufactured Products

   $ 11,028     $ 8,972     $ 3,361     $ 3,288  

Engineering Services

     305       77       (3 )     (586 )
    


 


 


 


Total segment earnings

     11,333       9,049       3,358       2,702  

Corporate expenses

     (4,880 )     (4,536 )     (1,686 )     (1,319 )

Interest income

     518       474       183       158  

Interest expense

     (8,795 )     (7,952 )     (2,989 )     (2,677 )
    


 


 


 


Consolidated loss before income taxes

   $ (1,824 )   $ (2,965 )   $ (1,134 )   $ (1,136 )
    


 


 


 


 

8


Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

6.    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.

 

     September 30, 2004

 
     Parent

   

Combined

Guarantors


   

Consolidating

Adjustments


   

Consolidated

Total


 
     (in thousands)  

Current assets

   $ 14,993     $ 49,889             $ 64,882  

Noncurrent assets

     55,937       47,448     $ (23,432 )     79,953  
    


 


 


 


Total assets

   $ 70,930     $ 97,337     $ (23,432 )   $ 144,835  
    


 


 


 


Current liabilities

   $ 10,135     $ 34,498             $ 44,633  

Total liabilities

   $ 95,189     $ 76,337             $ 171,526  
     December 31, 2003

 
     Parent

   

Combined

Guarantors


   

Consolidating

Adjustments


   

Consolidated

Total


 
     (in thousands)  

Current assets

   $ 16,852     $ 36,870             $ 53,722  

Noncurrent assets

     49,824       49,810     $ (19,969 )     79,665  
    


 


 


 


Total assets

   $ 66,676     $ 86,680     $ (19,969 )   $ 133,387  
    


 


 


 


Current liabilities

   $ 9,761     $ 26,902             $ 36,663  

Total liabilities

   $ 90,174     $ 68,773             $ 158,947  
     Nine months ended September 30, 2004

 
     Parent

   

Combined

Guarantors


   

Consolidating

Adjustments


   

Consolidated

Total


 
     (in thousands)  

Sales, net

   $ 25,542     $ 131,457     $ (1,784 )   $ 155,215  

Gross profit

     8,976       17,860               26,836  

(Loss) income before income tax

     (1,824 )     5,445       (5,445 )     (1,824 )

Net (loss) income

     (1,122 )     3,107       (3,107 )     (1,122 )

Cash (used in) provided by operating activities

     (7,230 )     850               (6,380 )

Cash used in investing activities

     (111 )     (823 )             (934 )

Cash provided by (used in) financing activities

     3,950       (18 )             3,932  

Effect of exchange rate on cash

             (9 )             (9 )
     Nine months ended September 30, 2003

 
     Parent

   

Combined

Guarantors


   

Consolidating

Adjustments


   

Consolidated

Total


 
     (in thousands)  

Sales, net

   $ 22,886     $ 71,866     $ (1,085 )   $ 93,667  

Gross profit

     8,190       14,609               22,799  

(Loss) income before income tax

     (2,965 )     3,629       (3,629 )     (2,965 )

Net (loss) income

     (1,868 )     2,129       (2,129 )     (1,868 )

Cash provided by operating activities

     131       534               665  

Cash used in investing activities

     (61 )     (512 )             (573 )

Cash used in financing activities

     (70 )     (22 )             (92 )

 

9


Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

     Three months ended September 30, 2004

 
     Parent

   

Combined

Guarantors


  

Consolidating

Adjustments


   

Consolidated

Total


 
     (in thousands)  

Sales, net

   $ 8,117     $ 44,470    $ (596 )   $ 51,991  

Gross profit

     2,491       6,114              8,605  

(Loss) income before income tax

     (1,134 )     1,483      (1,483 )     (1,134 )

Net (loss) income

     (698 )     832      (832 )     (698 )
     Three months ended September 30, 2003

 
     Parent

   

Combined

Guarantors


  

Consolidating

Adjustments


   

Consolidated

Total


 
     (in thousands)  

Sales, net

   $ 7,933     $ 26,088    $ (560 )   $ 33,461  

Gross profit

     3,185       4,569              7,754  

(Loss) income before income tax

     (1,136 )     383      (383 )     (1,136 )

Net (loss) income

     (713 )     181      (181 )     (713 )

 

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.

 

7.    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.    Adoption of Accounting Principles

 

In May 2003 the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).

 

The Company implemented the provision of SFAS No. 150 in the first quarter of 2004. Through the implementation of SFAS No. 150 the Company has classified its redeemable preferred stock units and redeemable preferred stock as liabilities. The corresponding dividend amounts to be paid to holders is recorded as interest expense beginning in the first quarter of 2004.

 

9.    Reclassification

 

Certain amounts in the 2003 financial statements have been reclassified to conform to the 2004 presentation.

 

10


Table of Contents

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Results of Operations

 

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

 

Net Sales: Net sales for the quarter ended September 30, 2004 increased $18.5 million, or 55.4%, to $52.0 million from $33.5 million for the corresponding period in 2003. The Engineering Services Segment’s sales increased $12.0 million, or 95.0%, to $24.6 million for the quarter ended September 30, 2004 from $12.6 million for the quarter ended September 30, 2003. For the quarter ended September 30, 2004 the Company had seven larger projects with sales in excess of $1.0 million, totalling $20.6 million in sales, compared to two such projects totalling $7.9 million in sales for the quarter ended September 30, 2003. The Manufactured Products Segment’s sales increased $6.5 million, or 31.4%, primarily due to increased sales of screens, steel fabrication, fasteners, industrial capital equipment and lighting products.

 

Gross Profit: Gross profit for the quarter ended September 30, 2004 increased $0.8 million, or 11.0%, to $8.6 million from $7.8 million for the corresponding period in 2003. As a percentage of net sales, the gross profit decreased to 16.6% for the quarter ended September 30, 2004 from 23.2% for the corresponding period in 2003. The decrease resulted from a large percentage of sales from large engineering projects with smaller margins.

 

Selling, General and Administrative Expenses: Selling, general and administrative expenses of the Company for the quarter ended September 30, 2004 of $6.9 million were $0.5 million, or 8.8%, higher than the selling and administrative expenses of $6.4 million for the corresponding period in 2003 mainly due to higher employee related expenses and professional fees. As a percentage of net sales, selling, general and administrative expenses decreased from 19.0% for the quarter ended September 30, 2003 to 13.3% for the quarter ended September 30, 2004 due to the increased sales level.

 

Interest Income: Interest income of the Company for the quarter ended September 30, 2004 of $0.2 million approximated the corresponding period ended September 30, 2003.

 

Interest Expense: Interest expense of the Company for the quarter ended September 30, 2004 of $3.0 million increased $0.3 million, or 11.7%, from $2.7 million for the corresponding period in 2003. This increase was due to interest recorded on the Company’s preferred stock, and preferred stock units beginning in 2004 in accordance with FASB No. 150, along with a higher debt level.

 

Benefit for Income Taxes: Benefit for income taxes of the Company for the quarter ended September 30, 2004 of $0.4 million approximated the benefit for the quarter ended September 30, 2003.

 

Net Loss: The net loss for the Company for the quarter ended September 30, 2004 of $0.7 million approximated the quarter ended September 30, 2003 results for the reasons discussed above.

 

Nine months ended September 30, 2004 Compared to Nine months ended September 30, 2003

 

Net Sales: Net sales for the nine months ended September 30, 2004 increased $61.5 million, or 65.7%, to $155.2 million from $93.7 million for the corresponding period in 2003. The Engineering Services Segment’s sales increased $47.2 million, or 168.6%, from $28.1 million for the nine months ended September 30, 2003 to $75.3 million for the nine months ended September 30, 2004, due to the timing and size of projects. For the nine months ended September 30, 2004 the Company had thirteen projects with sales over $1.0 million, totalling $66.3 million in sales, compared to seven such projects totalling $19.3 million in sales for the nine months ended September 30, 2003. The Manufactured Products Segment’s sales increased $14.3 million or 28.3% from $65.6 million for the nine months ended September 30, 2003 to $79.9 million for the nine months ended September 30, 2004, with increased sales of screens, centrifugal dryers, fasteners, electronic components, starters, and steel fabrication, partially offset with decreased sales of industrial capital equipment.

 

11


Table of Contents

Gross Profit: Gross profit for the nine months ended September 30, 2004 increased $4.0 million, or 17.7%, to $26.8 million from $22.8 million for the corresponding period in 2003. The increase resulted from the higher sales level, partially offset with a lower margin earned as a percentage of net sales. As a percentage of net sales, the gross profit decreased to 17.3% for the nine months ended September 30, 2004 from 24.3% for the corresponding period in 2003. This decrease as a percentage of sales was mainly due to a reduction of margin on an Engineering Service’s Segment project due to higher than anticipated construction costs, and increased steel costs.

 

Selling, General and Administrative Expenses: Selling, general and administrative expenses of the Company for the nine months ended September 30, 2004 of $20.4 million were $2.1 million, or 11.5% higher than the selling, general and administrative expenses for the corresponding period in 2003 mainly due to higher employee related expenses, commissions, bad debt expense, and professional fees.

 

Interest Income: Interest income of the Company of $0.5 million for the nine months ended September 30, 2004 approximated the corresponding period in 2003.

 

Interest Expense: Interest expense of the Company for the nine months ended September 30, 2004 of $8.8 million was $0.8 million or 10.6% higher than the interest expense of $8.0 million for the corresponding period in 2003. This increase was due to interest expense recorded on the Company’s preferred stock, and preferred stock units beginning in 2004 in accordance with FASB No. 150, along with a higher debt level.

 

Benefit for Income Taxes: Benefit for income taxes of the Company for the nine months ended September 30, 2004 of $0.7 million compared to $1.1 million for the nine months ended September 30, 2003. The decrease of $0.4 million was due to the smaller loss before income taxes for the nine months ended September 30, 2004.

 

Net Loss: The net loss for the Company for the nine months ended September 30, 2004 decreased to $1.1 million compared to $1.9 million for the nine months ended September 30, 2003 for the reasons discussed above.

 

Liquidity and Capital Resources

 

Net cash used by operating activities for the nine months ended September 30, 2004 of $6.4 million was used by increased accounts receivable, inventories, prepaid expenses and other assets, partially offset with increased accounts payable, accrued expenses, and cash generated from net loss adjusted for non-cash charges. Included in non-cash charges for the nine months ended September 30, 2004 was depreciation of $1.9 million and other non-cash charges of $0.5 million, partially offset with pension overfunding income of $0.6 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, 2004 of $0.9 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 nine months ended September 30, 2004 of $3.9 million consisted of borrowings on the Company’s revolver loan of $5.4 million, partially offset with the repayment of $1.5 million on the Company’s term loans.

 

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.

 

12


Table of Contents

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, 2004 was $91.4 million. Approximately $15.8 million relates to the Manufactured Products Segment, with the remainder of $75.6 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 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 nine months ended September 30, 2004 approximately 11% of the Company’s net sales were attributable to services provided or products sold for use outside the United States, primarily to Australia and Indonesia. 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. Sales from the Australia office of Roberts & Schaefer are usually denominated in Australian dollars. The majority of the Company’s foreign sales and costs originated outside the Australia office of Roberts & Schaefer are denominated in U.S. dollars. With respect to transactions denominated in foreign currencies, when possible 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 as of the end of the period covered by this report. 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.

 

13


Table of Contents

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

 

Because of the inability of the Company’s new public accountants to complete its review, as required by Rule 10-01(d) of Regulation S-X, the Company’s Chief Executive Officer and Chief Financial Officer are unable to complete the statement required under 18 U.S.C. sec 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

 

As noted earlier, this inability to timely complete the review resulted from the recent change in the Company’s public accountants.

 

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

 

Report dated October 25, 2004 for Item 4.01. No financial statements were filed with this report.

 

14


Table of Contents

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 9, 2004

 

15


Table of Contents

INDEX TO EXHIBITS

 

Exhibit
Number


  

Document Description


  

Footnote

Reference


 
3.1    Certificate of Incorporation of Elgin National Industries, Inc.    (2 )
3.2    Bylaws of Elgin National Industries, Inc.    (2 )
4.1    Indenture dated November 5, 1997, between Elgin National Industries, Inc., subsidiaries and Norwest Bank Minnesota, as Trustee.    (1 )
4.2    Form of 11% Senior Note due 2007 (included in Exhibit 4.1).    (1 )
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.    (2 )
4.4    Form of Subsidiary Guaranty (included in Exhibit 4.1).    (1 )
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.    (1 )
10.2    Employment and Non-Competition Agreement dated as of November 5, 1997, between Elgin National Industries, Inc. and Fred C. Schulte.*    (1 )
10.3    Employment and Non-Competition Agreement dated as of November 5, 1997, between Elgin National Industries, Inc. and Charles D. Hall.*    (1 )
10.4    Employment and Non-Competition Agreement dated as of November 5, 1997, between Elgin National Industries, Inc. and Wayne J. Conner.*    (1 )
10.5    The Elgin National Industries, Inc. Supplemental Retirement Plan dated as of 1995, and effective January 1, 1995.*    (2 )
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.    (3 )
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, individually and as agent.    (3 )
10-8    Second Amended to Credit Agreement dated as of September 24, 1993, as Amended and Restated as of January 18, 2001, and further amended as of September 28, 2001 by and among Elgin National Industries, Inc., various financial institutions, and PNC Bank, National Association, individually and as agent.    (3 )
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, individually and as agent.    (4 )
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 September 30, 2002 by and among Elgin National Industries, Inc., various financial institutions, and PNC Bank, National Association, individually and as agent.    (5 )
10-11    Loan and Security Agreement, dated February 10, 2003 by and among Elgin National Industries, Inc. and each of its subsidiaries and Foothill Capital Corporation, as lender, Arranger and administrative agent and Ableco Finance LLC, as lender.    (6 )

 

16


Table of Contents
Exhibit
Number


  

Document Description


  

Footnote

Reference


 
10-12    Amendment to Employment and Non-Competition Agreement dated as of January 29, 2003, between Elgin National Industries, Inc. and Charles D. Hall.    (7 )
10-13    Amendment to Employment and Non-Competition Agreement dated as of January 29, 2003, between Elgin National Industries, Inc. and Fred C. Schulte.    (7 )
10-14    Amendment to Employment and Non-Competition Agreement dated as of January 29, 2003, between Elgin National Industries, Inc. and Wayne J. Conner.    (7 )
10-15    First Amendment to Loan and Security Agreement, dated February 19, 2004 by and among Elgin National Industries, Inc. and each of its subsidiaries and Foothill Capital Corporation, as lender, Arranger and administrative agent and Ableco Finance LLC, as lender.    (8 )
10-16    Second Amendment to Loan and Security Agreement, dated June 30, 2004 by and among Elgin National Industries, Inc. and each of its subsidiaries and Foothill Capital Corporation, as lender, Arranger and administrative agent and Ableco Finance LLC, as lender.    (9 )
21    Subsidiaries of Elgin National Industries, Inc.    (2 )

(1) 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.
(2) 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.
(3) Incorporated by reference to Form 10-Q of the Company (File No. 001-03771) filed with the Commission on August 10, 2001.
(4) Incorporated by reference to Form 10-Q of the Company (File No. 001-05771) filed with the Commission on May 15, 2002.
(5) Incorporated by reference to Form 10-Q of the Company (File No. 001-05771) filed with the Commission on November 12, 2002.
(6) Incorporated by reference to Form 8-K of the Company (File No. 001-05771) filed with the Commission on February 19, 2003.
(7) Incorporated by reference to Form 10-K of the Company (File No. 001-05771) filed with the Comission on March 27, 2003.
(8) Incorporated by reference to Form 10-K of the Company (File No. 001-05771) filed with the Comission on March 27, 2004.
(9) Incorporated by reference to Form 10-Q of the Company (File No. 001-05771) filed with the Commission on August 13, 2004.
* Management contract or compensatory plan or arrangement.

 

17