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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File Number 1-9897
VALLEY FORGE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 58-0833796
(State of incorporation) (IRS Employer Identification Number)
100 SMITH RANCH ROAD
SUITE 326
SAN RAFAEL, CALIFORNIA 94903
(Address of principal executive offices) (Zip code)
(415) 492-1500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
<S> <C>
Common Stock, Par Value $.50
Per Share American Stock Exchange
</TABLE>
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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-K or any amendment to
the Form 10-K. [ ]
Indicate by a 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. YES [X] NO [ ]
Theaggregate market value of the voting stock held by non-affiliates of the
Registrant at March 2, 1998 was approximately $24,962,000.
The number of shares of Registrant's Common Stock outstanding on March 2, 1998
was 4,105,839.
The Exhibit Index is located on page 11.
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Page 1 of 36
<PAGE> 2
ITEM 1. BUSINESS
Valley Forge Corporation (the Company), incorporated in 1955, was formerly a
Georgia corporation and reincorporated in Delaware in June 1997. The Company
conducts its business through its subsidiaries and affiliates, Atlantic Guest,
Inc., Cruising Equipment Company, Force 10 Marine Ltd., Gits Manufacturing
Company, Inc., Glendinning Marine Products, Inc., Heart Interface Corporation,
Mastervolt International B.V., Marine Industries Company, Inc., Multiplex
Technology, Inc., and Turner Electric Corporation.
In April 1996, the Company acquired a 50% interest in Mastervolt International
B.V. ("Mastervolt"), and an effective 46% interest in its primary operating
subsidiary, Intervolt B.V. Intervolt B.V. is a Dutch manufacturer of power
inverters and battery chargers for the marine and industrial markets. During
1997, the Company increased its effective ownership interest in Intervolt B.V.
to approximately 47%. In May 1994, the Company incorporated Atlantic Guest,
Inc., which acquired substantially all of the assets of The Guest Company, Inc.
in June 1994, and concurrently sold a 14% interest to two officers of Atlantic
Guest, Inc. In July 1996, the Company purchased 7% of the stock of Atlantic
Guest, Inc. from the officers, increasing its ownership interest to 93%.
For information concerning the revenues, operating profits, and identifiable
assets by segment, refer to Note K to the Consolidated Financial Statements.
INDUSTRIAL GROUP
GITS MANUFACTURING COMPANY, INC.
Gits Manufacturing Company, Inc. (Gits), located in Creston, Iowa, manufactures
turbocharger actuators, lubricating devices, environmental control vents, and
chemical tank pressure/relief vents. Products marketed under the Gits name are
sold through distributors and include oilers, oil breather mechanisms, and
central lubricating devices. Gits' actuators, environmental control vents, and
other products are sold directly to original equipment manufacturers. Gits
exports approximately 20% of its production, principally to England, Japan, and
China. Gits has several competitors, none of whom dominate the market.
Sales and production levels are relatively constant throughout the year. Raw
materials are readily available and are purchased from a variety of nationwide
suppliers. Prices of raw materials have remained relatively stable over the last
year, and no substantial increases or decreases are anticipated in the near
future.
MULTIPLEX TECHNOLOGY, INC.
Multiplex Technology, Inc. (Multiplex), located in Brea, California, is the
developer, manufacturer, and marketer of the ChannelPlus brand of
telecommunications equipment. ChannelPlus products are used primarily in master
antenna, cable, satellite master antenna, and closed circuit television systems.
Principal product lines include all-in-one video systems, RF modulators,
broadband distribution amplifiers, and solid state video cameras. Applications
for these products are found primarily in residential video distribution
systems.
Multiplex markets its products to video system designers, installation
contractors, and dealers through a worldwide network of distributors. Multiplex
exports approximately 7% of its production, principally to Canada and Japan.
Multiplex has many competitors, only a few of which compete directly in its
market niche.
Sales and production levels are not seasonal. Raw materials are purchased from a
variety of suppliers located in the United States, Europe, and Asia. Most parts
are available from a number of suppliers. Certain other parts are sole sourced
and/or custom tooled, and Multiplex maintains several production cycles of parts
on hand as safety stock. Prices for raw materials have remained stable over the
last year, and no substantial increases or decreases are anticipated in the near
future.
TURNER ELECTRIC CORPORATION
Turner Electric Corporation (Turner), located in Fairview Heights, Illinois, is
a manufacturer of high voltage switches and other electrical equipment. Turner
markets to investor-owned utility companies, rural electric associations and
cooperatives, and municipal utilities.
Turner conducts business with utilities that depend on regulatory authorities
for capital expenditures. Sales and production levels are somewhat seasonal in
that sales in the first quarter are generally lower than the other quarters.
Sales are conducted through independent sales representatives. Turner competes
on the basis of price and product performance with other manufacturers of
varying size, none of whom dominate the marketplace.
2
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Production materials are purchased mainly from a number of local suppliers and
have been readily available. Material costs have been relatively stable over the
past year, and no substantial increases or decreases are anticipated in the near
future.
RECREATIONAL GROUP
ATLANTIC GUEST, INC.
Atlantic Guest, Inc. (Guest), located in Meriden, Connecticut, designs,
manufactures, and distributes a broad line of marine accessories including
battery chargers, battery switches, spotlights, cabin lights, and safety
equipment. These products are sold worldwide to retailers, distributors, and
original equipment manufacturers.
Sales and production levels are relatively constant throughout the year. Guest
has a number of competitors, none of whom dominate the market. Guest exports
approximately 10% of its production, principally to Europe. Raw materials are
readily available and are purchased from a variety of worldwide suppliers.
Material costs have remained relatively stable during the year with no
substantial increases or decreases anticipated in the near future.
HEART INTERFACE CORPORATION
Heart Interface Corporation (Heart), located in Kent, Washington, manufactures
power inverters which convert DC power stored in batteries into AC power and
modular electrical panels which provide visual identification and control of
electrical systems. Heart also markets integrated battery monitors and inverter
remote controls manufactured by Cruising Equipment. Heart's products are sold in
the recreational vehicle, marine, renewable energy, and industrial markets. Its
products are primarily sold through independent sales representatives to
retailers, distributors, dealers, and manufacturers. Heart has a number of
competitors, none of whom dominate the market.
Sales and production levels are not seasonal. Heart exports approximately 10% of
its production, principally to Europe. Raw materials are readily available from
a number of suppliers. Prices of raw materials have remained relatively stable
over the last year, and no substantial increases or decreases are anticipated in
the near future.
MARINE INDUSTRIES COMPANY, INC.
Marine Industries Company, Inc. (Marinco), located in Napa, California, consists
of two business units: Marinco/AFI Marine Products and Marinco Specialty Wiring
Devices. Marinco/AFI Marine Products serves the marine marketplace and
manufactures marine electrical shore power connectors under the "Marinco" brand
name and distributes other marine accessories including teak, horns, windshield
wipers, and boarding systems under the "AFI" brand name. In June 1995,
Marinco/AFI Marine Products acquired the Nicro Ventilation Systems product line
and began manufacturing marine solar and passive ventilation systems under the
"Nicro" brand name. Marinco/AFI Marine Products are sold nationwide to
retailers, distributors, and boat builders. Marinco Specialty Wiring Devices
manufactures and distributes a broad line of specialty wiring devices for
industrial applications. These devices are sold directly and through
distributors to original equipment manufacturers.
Marinco's sales and production levels are not seasonal. Marinco competes on the
basis of product performance, service, and price with other manufacturers of
varying size, several of whom are larger than Marinco. Marinco/AFI exports
approximately 10% of its production, principally to Canada and Europe.
Raw materials are readily available from a number of suppliers. Material costs
have remained relatively stable during the year, and no substantial increases or
decreases are anticipated in the near future. Marinco/AFI imports a portion of
its products from Thailand, Japan, and Taiwan and product sources are readily
available. Foreign exchange rates and price changes have not had a material
effect since it is Marinco's policy to adjust pricing to current market
conditions.
OTHER SUBSIDIARIES
Other subsidiaries and affiliates in the Valley Forge Recreational Group include
Cruising Equipment Company (Cruising), Force 10 Marine Ltd. (Force 10),
Glendinning Marine Products, Inc. (Glendinning), and Mastervolt.
WORKING CAPITAL
Some of the companies in the recreational segment offer special payment terms to
their marine customers under certain conditions known as "dating" in the marine
industry. The dating programs have various terms but generally have the effect
that sales made during the fourth and first quarter are not collected until the
second calendar quarter. The Company feels that its line of credit is sufficient
to meet the working capital requirements of the dating program.
3
<PAGE> 4
BACKLOG
The backlogs of the Company's subsidiaries for uncompleted orders and contracts
are presented below by industry segment. Generally, all orders and contracts in
the backlogs at year-end are completed during the following year. The backlogs
are calculated based on firm orders and contracts received.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Industrial products $ 8,338,000 $4,366,000
Recreational products 4,031,000 2,866,000
----------- ----------
$12,369,000 $7,232,000
=========== ==========
</TABLE>
PATENTS
The Company's subsidiaries hold various active United States and foreign patents
related to their products, which expire at various times. The Company views its
patents as valuable assets, but believes that its position in the market is not
dependent upon patent protection.
EMPLOYEES
The Company and its subsidiaries had approximately 725 employees at December 31,
1997. The number of employees varies primarily with market conditions.
Approximately 9% of total employees are represented by a labor union under a
contract expiring in 1999. The Company considers its labor relations to be
satisfactory.
ENVIRONMENT
Compliance with federal, state, and local provisions regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment is not expected to have a material effect upon the capital
expenditures, earnings, or the competitive position of the Company.
ITEM 2. PROPERTIES
The following table describes the properties presently operated by the Company
and its subsidiaries:
<TABLE>
<CAPTION>
SQUARE
COMPANY LOCATION DESCRIPTION FOOTAGE
<S> <C> <C> <C>
Cruising Seattle, WA Plant 12,000
Force 10 Richmond, B.C. Plant 15,000
Gits Creston, IA Plant 61,000
Glendinning Conway, SC Plants 41,000
Guest Meriden, CT Plant 33,000
Heart Kent, WA Plant 73,000
Marinco Napa, CA Plants 77,000
Multiplex Brea, CA Plant 35,000
Turner Fairview Heights, IL Plant 52,000
Turner Milstadt, IL Plant/Warehouse 28,000
Corporate San Rafael, CA Office 2,000
</TABLE>
Force 10, Gits, Glendinning, and Guest own their facilities. Cruising, Heart,
Marinco, Multiplex, and the Company's corporate headquarters lease their
facilities. Turner owns its facility in Fairview Heights and leases its
facilities located in Milstadt. These properties are considered adequate and
suitable for their intended use.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal actions either for or against the Company or
any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
4
<PAGE> 5
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the American Stock Exchange (AMEX)
under the symbol "VF." On July 28, 1997, the Company's Board of Directors
authorized a three-for-two stock split effected in the form of a 50% stock
dividend distributed on September 16, 1997, to stockholders of record on
September 5, 1997. Accordingly, all references to numbers of shares, per share
amounts, stock option data, and market prices of the Company's common stock
presented herein for periods prior to the split have been restated (see Note A
to the Consolidated Financial Statements). The Company had approximately 900
stockholders on March 6, 1998.
The following table is based on the closing price as published by the AMEX.
<TABLE>
<CAPTION>
1997 1996
------------------------------ ---------------------------
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First quarter $11.250 $ 8.583 $ 9.583 $7.778
Second quarter 12.750 10.083 10.167 8.917
Third quarter 16.333 11.667 9.167 7.667
Fourth quarter 15.938 12.563 9.250 8.500
</TABLE>
In 1996 and 1997 the quarterly dividend rate was $.04 or $.16 annually. In
December 1997, the Board of Directors declared a quarterly dividend of $.05 or
$.20 annually. The first quarter cash dividend for 1998 is payable March 17,
1998, to stockholders of record on March 6, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The response to this Item is addressed in the "Five-Year Summary," which is
included in Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following selected financial data have been derived from the financial
statements of the Company. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements and notes
thereto.
FIVE-YEAR SUMMARY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenues $93,252 $81,063 $75,128 $66,036 $53,256
Gross profit 37,549 31,977 29,489 26,201 20,769
Operating income 8,864 7,024 6,739 6,021 4,079
Net income 4,833 3,630 3,366 2,817 2,115
Total assets 61,950 56,349 50,741 50,945 37,668
Long-term obligations 8,268 12,667 11,484 11,383 1,437
Basic earnings per share $1.20 $.91 $.84 $.72 $.56
Diluted earnings per share 1.15 .88 .82 .70 .54
Cash dividends per share .16 .16 .15 .13 .13
</TABLE>
Earnings per share for 1996 and prior years have been restated to reflect the
adoption by the Company of Statement of Financial Accounting Standards No. 128,
and the 50% stock dividend distributed on September 16, 1997.
5
<PAGE> 6
1997 COMPARED TO 1996
Fiscal 1997 sales were up $12 million (15.0%) to $93 million compared to $81
million for 1996. The recreational group sales increased 16.9% and the
industrial group sales increased 13.0% over the prior year. Sales were up on
higher volume of both existing and new products. Existing as well as new
customers contributed to this sales growth.
Gross profits rose approximately $5.6 million (17.4%) due to the increase in
sales. The gross profit margin increased in 1997 to 40.3% from 39.4% in 1996.
Selling and administrative expenses increased $3.7 million or 15.0% in 1997 over
1996, while remaining constant as a percent of sales at 30.8% for both years.
Selling and administrative expenses increased in 1997 over 1996 due to the
increased sales, implementation of new marketing strategies, and increased
research and development expenses.
Other, net decreased from $0.4 million for 1996 to $0.3 million for 1997. Other,
net for 1996 included $250,000 of proceeds from a life insurance policy on the
former president of Gits. Other, net for 1997 includes an increase of
approximately $72,000 in the equity in earnings of Mastervolt over 1996.
Income tax expense as a percent of pretax income increased from 38.1% in 1996 to
39.1% in 1997 principally as a result of increased state taxes.
1996 COMPARED TO 1995
Fiscal 1996 sales were up $6 million (7.9%) to $81 million compared to $75
million for 1995. The industrial group sales increased 8.8% and the recreational
group increased 7.1% over the prior year. Sales increases in both segments were
due principally to volume increases with only minor increases in price.
Gross profits rose approximately $2.5 million (8.4%) due to the increase in
sales. The gross profit margin was relatively the same for both years with 1996
at 39.4% and 1995 at 39.3%.
Selling and administrative expenses rose 9.7% in 1996 over 1995 due to the
increased sales volume and increased research and development expenses. Selling
and administrative expenses were nearly the same as a percent of sales for the
two years at 30.8% for 1996 and 30.3% for 1995.
Other, net for the year ended December 31, 1996 includes the receipt of $250,000
of proceeds from a life insurance policy on the former president of Gits.
Income tax expense as a percent of pretax income increased slightly from 1995 at
37.8% of pretax income to 38.1% of pretax income for 1996.
LIQUIDITY AND SOURCES OF CAPITAL
During 1997, the Company financed its operations with borrowings from its
commercial and other lenders and with cash generated from operations.
Cash provided by operating activities decreased from $6.5 million in 1996 to
$5.5 million in 1997. This decrease is primarily due to increases in working
capital items associated with higher sales volume.
The Company had an outstanding balance on its revolving bank line of credit of
$0.6 million at December 31, 1997, and an additional $5.4 million available.
Borrowings under the line of credit bear interest at 1.0% under the prime rate.
At December 31, 1997, the bank's prime rate was 8.5%. The Company also has an
advanceable term loan due June 30, 1998, originally providing for borrowings of
up to $3.5 million that was used to fund acquisitions. At December 31, 1997,
$2.9 million was outstanding on this advanceable term loan bearing interest at
the prime rate less 0.5%. The Company expects that it will refinance the
outstanding balance of this loan. The Company also has another advanceable term
loan facility available and unused of $3.0 million, due December 31, 1998,
bearing interest at the prime rate less 0.5%. This facility was intended to be
used to fund acquisition and construction of manufacturing plants. At December
31, 1997, the Company does not anticipate using this facility.
The Company borrowed $0.5 million from certain directors and stockholders during
1997 at 1.25% over the 90-day Treasury bill rate. This resulted in savings of
approximately 1.0% over comparable borrowings during the same periods at the
Company's rate on the line of credit. The Company expects to repay these loans
by April 1998 using cash from operations or from borrowings on its line of
credit.
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<PAGE> 7
The Company borrowed $11 million in June 1994 from a group of insurance
companies to purchase the assets of Guest for $6.5 million and to pay down
short-term borrowings on the line of credit. This debt requires annual principal
payments of $1 million which began in June 1996 and continue through June 2006.
This debt bears interest at a fixed rate of 8.15%. Annual debt service payments
are made from the Company's operating cash flow.
The Company invested approximately $3.0 million in plant and equipment during
1997, including $0.7 million for manufacturing plants. Management estimates that
1998 capital expenditures will be approximately $3.0 million, including
approximately $0.3 million on manufacturing plants.
In April 1996, the Company invested approximately $2.7 million in Mastervolt.
The investment consisted of an equity investment of $2.4 million and loans of
approximately $0.3 million. During 1997, the Company invested an additional $33
thousand in equity, increasing its effective ownership interest in Intervolt
B.V., the primary operating entity, to 47%. Additional loans of $0.3 million
were made during 1997 to fund expanded European Mastervolt operations. This
investment is subject to the risk of foreign currency rate fluctuations. During
the year ended December 31, 1997, the Company recorded a foreign currency
translation loss adjustment of $0.1 million.
The Company used $0.6 million to pay cash dividends in 1997, based on an annual
dividend rate of $0.16 per share, as restated for the 50% stock dividend in
September 1997. The dividend rate for 1998 will be $0.20 per share with total
dividend payments expected to be approximately $0.8 million.
Management believes that cash flows from operations and the line of credit will
be adequate to fund working capital requirements, capital expenditures, debt
repayments, and dividends for the next twelve months.
YEAR 2000 COMPLIANCE
Based on a preliminary study, the Company expects to spend between $150,000 to
$200,000 during 1998 and 1999 on software upgrades and a system replacement to
make its core computer systems Year 2000 compliant. The Company expects to be
Year 2000 compliant by mid-1999. Costs to replace outdated systems will be
capitalized in accordance with the Company's normal capitalization policy. Costs
to upgrade core operating systems in order to be Year 2000 compliant will be
expensed. The Company plans to fund these expenses from operating cash flow. The
Company does not anticipate that it will be impacted by Year 2000 issues with
either its customers or vendors.
OTHER MATTERS
Inflation had little effect on revenues and related costs during 1997.
Management anticipates that margins will be maintained at acceptable levels to
minimize the effects of inflation, if any.
The Company has total interest bearing debt of approximately $14 million, of
which one obligation with a balance of $9 million is long-term and bears
interest at a fixed rate of 8.15%. Management believes that increases in
short-term rates could have an adverse effect on the Company's 1998 results, but
only with respect to the approximately $5 million of short-term debt
outstanding.
Management believes that foreign currency fluctuations should not have a
significant impact on gross margins due to the low volume of business affected
by foreign currencies.
Management is not aware of any significant environmental loss liabilities and
believes product liabilities are adequately covered by general liability
insurance.
FORWARD LOOKING INFORMATION
Certain statements contained in this Management's Discussion and Analysis, that
are not related to historical results are "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1934 and Section 21E of the
Securities Exchange Act of 1934 and involve risks and uncertainties. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimate," or variations of such words and similar expressions are intended to
identify such forward looking statements. Although the Company believes that the
assumptions upon which these forward looking statements are based are
reasonable, there can be no assurance that such assumptions will prove to be
accurate and actual results could differ materially from those discussed in the
forward looking statements. A wide range of factors could contribute to those
differences, including but not limited to general business conditions; the
sensitivity of the recreational industry to economic downturns; actions of
competitors including price competition; changes in laws and regulations,
including changes in accounting standards; inventory risks due to shifts in
market demand and/or product mix; price volatility in the cost of purchased
components; and the risk factors listed from time to time in the Company's
Securities and Exchange Commission reports.
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<PAGE> 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 6, 1997, Valley Forge Corporation selected Deloitte & Touche LLP as the
certifying accountants to audit the Registrant's financial statements. The
Registrant's former auditors, Coopers & Lybrand L.L.P., were dismissed effective
the same day. The Board of Directors of Valley Forge Corporation approved the
decision to dismiss Coopers & Lybrand L.L.P. and to appoint Deloitte and Touche
LLP.
In connection with the audits of the two most recent years and the subsequent
interim period, there were no disagreements with Coopers & Lybrand L.L.P. on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure.
Coopers & Lybrand L.L.P.'s report on the financial statements for the past two
years contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table lists the names and ages of each of the directors and
executive officers of the Company at December 31, 1997.
<TABLE>
<CAPTION>
YEAR FIRST
ALL POSITIONS AND OFFICES ELECTED AS
NAME AGE WITH THE COMPANY DIRECTOR
<S> <C> <C> <C>
Martin J. Bloom 67 Co-Chairman of the Board 1983
Theodore P. Desloge, Jr. 58 Co-Chairman of the Board 1983
David R. Brining 55 CEO, President, Director 1981
Phillip F. Dressel 61 Director 1985
Dale J. Warner 75 Director 1983
Monica J. Burke 46 CFO, V.P. Finance,
Secretary
</TABLE>
Directors are elected at the annual meeting of the stockholders to serve for one
year and until successors are elected and qualified. Officers are elected by the
Board of Directors immediately following the annual meeting of stockholders and
serve until their successors are elected and qualified.
Mr. Bloom has been a Director of the Company since 1983, Co-Chairman of the
Board since 1984, and is a Director of most of the Company's subsidiaries. He is
a past Director and Chairman of the Board of Park 'N Fly, Inc., an operator of
off-airport parking services.
Mr. Desloge has been a Director of the Company since 1983 and Co-Chairman of the
Board since 1984. He is a past Director and President of Park 'N Fly, Inc.
Mr. Brining has been President, CEO, and a Director of the Company since 1981.
He has served as a Director or Chairman of each of the Company's subsidiaries
since their acquisition.
Mr. Dressel has been a Director of the Company since 1985. Until January 1996,
he was Chairman of the Board and President of Consolidated Flavor Corporation, a
privately held flavoring business located in St. Louis, Missouri. Mr. Dressel
was delinquent in filing a Form 4 for one transaction during 1997 required under
Item 405 of Regulation S-K.
Mr. Warner has been a Director of the Company since 1983. He was a Director of
Gits Bros. Mfg. Co until June 1990.
Ms. Burke has served as CFO, V.P. Finance, and Secretary since 1988.
8
<PAGE> 9
ITEM 11. EXECUTIVE COMPENSATION
The following table shows certain summary information concerning compensation
paid or accrued by the Company to or on behalf of the Company's Chief Executive
Officer and the other executive officer of the Company whose compensation
exceeds $100,000 (Named Executives):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------- LONG-TERM
NAME AND FISCAL OTHER ANNUAL COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
<S> <C> <C> <C> <C> <C> <C>
David R. Brining, 1997 $317,050 $263,600 $ 6,328 0 $ 20,500
CEO(3) 1996 300,067 77,250 6,203 0 17,149
1995 276,317 135,725 6,600 0 17,073
Monica J. Burke, 1997 119,583 62,500 0 0 15,060
CFO(3) 1996 114,583 19,675 0 4,500 13,256
1995 109,667 31,500 0 0 13,514
</TABLE>
(1) In August 1987 and incident to the relocation of the corporate headquarters
from St. Louis, Missouri to San Rafael, California, the Company accepted a
$75,000 demand, non-interest bearing note from Mr. Brining. The amounts
included under Other Annual Compensation represent interest calculated at
the prime rate on the demand note. In January 1998, Mr. Brining paid the
note in full.
(2) Represents amounts contributed to the Company's two profit sharing plans.
(3) Mr. Brining and Ms. Burke also serve as officers of each of the Company's
subsidiaries.
There are no employment contracts or termination agreements with Named
Executives.
AGGREGATED OPTION(1) EXERCISES IN 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED,
SHARES NUMBER OF UNEXERCISED IN THE MONEY
NAMED ACQUIRED ON VALUE OPTIONS HELD AT YEAR END OPTIONS HELD AT YEAR END(2)
EXECUTIVES EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
David R. Brining 0 $ 0 84,375 28,125 $589,359 $196,453
Monica J. Burke 10,125 88,898 1,125 3,375 5,957 17,871
</TABLE>
(1) The Company has no plans pursuant to which stock appreciation rights (SARs)
may be granted.
(2) Value of unexercised "in the money" options is the difference between the
market price of the Common Stock on December 31, 1997 ($14.375 per share)
and the exercise price of the option, multiplied by the number of shares.
OPTION GRANTS IN 1997
None to Named Executives.
DIRECTORS' COMPENSATION
The Company entered into consulting agreements with Messrs. Bloom and Desloge in
1983. Pursuant to the terms of the agreements, Messrs. Bloom and Desloge are to
provide the Company with advice on any corporate acquisitions, retention of
corporate assets, evaluation of key personnel, evaluation of the operations of
subsidiaries, supervision of new product development, and general strategic
planning. The agreements are renewable annually on December 31 with the
consulting fee for the succeeding year set at that time. The Company agreed to a
fee of $75,000 for Mr. Bloom and $50,000 for Mr. Desloge for 1997. The Company
has also retained Mr. Warner in a consulting role for a fee of $8,400 which is
renewable each year. In addition, the Company generally pays directors $500 for
each board meeting attended.
9
<PAGE> 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 1998, the information with
respect to the beneficial ownership of the Company's common stock by each of the
Company's directors and officers and each stockholder known by the Company to
beneficially own more than 5% of the outstanding common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT
<S> <C> <C>
Martin J. Bloom 936,456(2),(3) 22.81%
Theodore P. Desloge, Jr. 951,718(3) 23.18%
David R. Brining 384,712(4) 9.18%
Phillip F. Dressel 118,573(5) 2.89%
All directors and officers as a 2,409,459(6) 57.47%
group
FMR Corp.
82 Devonshire Street
Boston, MA 02109 405,000(7) 9.86%
</TABLE>
(1) Except as otherwise noted, each person has sole voting and investment power
with respect to the shares listed subject to community property laws where
applicable.
(2) Does not include 22,500 shares (.55%) owned by Mr. Bloom's wife with
respect to which Mr. Bloom disclaims beneficial ownership.
(3) Includes 190,278 shares owned by Bloom & Desloge Enterprises, Inc., a
corporation in which Messrs. Bloom and Desloge are each 50% stockholders.
Bloom and Desloge Enterprises, Inc. owns a total of 380,556 shares of common
stock.
(4) Includes options to purchase 84,375 shares at $7.39 per share. Does not
include 2,137 shares (.05%) owned by Mr. Brining's wife with respect to
which Mr. Brining disclaims beneficial ownership.
(5) Represents shares deposited under trust agreements for the benefit of Mr.
Dressel. Does not include 1,245 shares (.03%) held in trust by Mr. Dressel's
wife with respect to which Mr. Dressel disclaims beneficial ownership.
(6) Includes options to purchase 2,250 shares at $9.08 per share purchasable by
an officer. In addition to the disclaimed shares described in (2) and (4)
above, does not include 8,100 shares (.20%) held in trust by Mr. Warner's
wife with respect to which Mr. Warner disclaims beneficial ownership.
(7) Based solely upon a Schedule 13G dated February 14, 1998. Of the 405,000
shares shown as beneficially owned by FMR Corp., 405,000 are beneficially
owned by Fidelity Management Research Company ("Fidelity Research"), a
wholly-owned subsidiary of FMR Corp. and investment advisor of several
investment companies. FMR Corporation and its chairman, Edward C. Johnson
3rd, each has sole power to dispose of the shares owned by Fidelity
Research, but neither FMR Corp. nor Mr. Johnson has the sole power to vote
or to direct the voting of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1987 and incident to the relocation of the corporate headquarters from
St. Louis, Missouri to San Rafael, California, the Company accepted a $75,000
demand, non-interest bearing note from Mr. Brining, the President and CEO of the
Company. In January 1998, Mr. Brining repaid the loan.
Since March 1994, the Company has borrowed a total of $950,000 from certain
officers, stockholders, and directors. The borrowings are evidenced by
short-term notes that have original maturities of 13 weeks from the date of
issuance and can be renewed. At December 31, 1997, two notes totaling $500,000
were outstanding with interest rates ranging from 6.30% to 6.66%. The note for
$400,000 matures in March 1998 and will be repaid upon maturity. The note for
$100,000 was renewed in January at 6.55% and will be repaid upon maturity in
April 1998.
10
<PAGE> 11
During 1997, the Company paid consulting and directors' fees to members of its
Board of Directors totaling approximately $135,000.
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Certain documents filed as part of the Form 10-K:
The response to this portion of Item 14 is submitted as a separate section of
this report.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
FINANCIAL STATEMENT SCHEDULES
Valuation and Qualifying Accounts and Reserves (Schedule II)
The response to this portion of Item 14 is submitted in a separate section of
this report.
EXHIBITS
Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO
<S> <C> <C>
3 Articles of Incorporation and By-Laws Exhibits B and C to Proxy Statement
filed on Form DEF 14A dated May 1,
1997 (Commission File No. 001-09897)
4.1 Note Purchase Agreement dated as of May 15, Exhibit 4.1 to Form 10-K/A for the
1994, among the Registrant and Northwestern year ended December 31, 1996
National Life Insurance Company, Bankers
Security Life (formerly The North Atlantic Life
Insurance Company of America), and The Northern
Life Insurance Company
4.2 Amended and Restated Credit Agreement dated Exhibit 4.2 to Form 10-K/A for the
August 31, 1996, between the Registrant and The year ended December 31, 1996
Boatmen's National Bank of St. Louis
4.3 Amendment Agreement dated December 16, 1997, to Page 33
Amended and Restated Credit Agreement dated
August 31, 1996, between the Registrant and
NationsBank, N.A., f/k/a The Boatmen's National
Bank of St. Louis
10.1 Valley Forge Corporation Amended and Restated Exhibit to Registration Statement
1987 Stock Option Plan Filed on Form S-8, dated July 2, 1996
(Commission File No. 333-07475)
22 Listing of Significant Subsidiaries Page 34
24.1 Independent Auditors' Consent Page 35
24.2 Consent of Independent Accountants Page 36
</TABLE>
11
<PAGE> 12
VALLEY FORGE CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
INDEX
<TABLE>
<CAPTION>
PAGE
FINANCIAL STATEMENTS:
<S> <C>
Independent Auditors' Report 13
Report of Independent Accountants 14
Consolidated Statements of Income for the three years ended
December 31, 1997 15
Consolidated Balance Sheets at December 31, 1997 and 1996 16
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1997 17
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997 18
Notes to Consolidated Financial Statements 19
QUARTERLY FINANCIAL DATA - unaudited 28
FINANCIAL STATEMENT SCHEDULE:
Independent Auditors' Report 29
Report of Independent Accountants 30
Valuation and Qualifying Accounts and Reserves (Schedule II) 31
</TABLE>
12
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Valley Forge Corporation
We have audited the accompanying consolidated balance sheet of Valley Forge
Corporation and subsidiaries (the "Company") as of December 31, 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Valley Forge Corporation and
subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the year then ended December 31, 1997, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, California
February 27, 1998
13
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Valley Forge Corporation:
We have audited the accompanying consolidated balance sheet of Valley Forge
Corporation and Subsidiaries as of December 31, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Valley Forge
Corporation and Subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Cooper and Lybrand L.L.P.
San Francisco, California
February 19, 1997
14
<PAGE> 15
VALLEY FORGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996, and 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUES $ 93,252 $ 81,063 $ 75,128
Costs of goods sold 55,703 49,086 45,639
-------- -------- --------
GROSS PROFIT 37,549 31,977 29,489
Selling and administrative expenses 28,685 24,953 22,750
-------- -------- --------
OPERATING INCOME 8,864 7,024 6,739
Other income (expense):
Interest expense (1,182) (1,234) (1,205)
Other, net 269 410 51
-------- -------- --------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS 7,951 6,200 5,585
Income taxes 3,107 2,363 2,111
Minority interests 11 207 108
-------- -------- --------
NET INCOME $ 4,833 $ 3,630 $ 3,366
======== ======== ========
BASIC EARNINGS PER SHARE $ 1.20 $ .91 $ .84
Diluted earnings per share $ 1.15 $ .88 $ .82
Basic weighted average shares outstanding 4,031 4,002 3,993
Diluted weighted average shares outstanding 4,209 4,121 4,098
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 16
VALLEY FORGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Accounts receivable, less allowance of $255 in 1997 and
$257 in 1996 $ 13,935 $ 11,288
Inventories, less allowance of $806 in 1997 and $734 in 1996 19,121 17,102
Other current assets 2,258 1,623
-------- --------
Total current assets 35,314 30,013
Property, plant and equipment, net 10,683 9,652
Goodwill, net of accumulated amortization of $6,016 in 1997
and $5,181 in 1996 11,762 12,601
Investment in and advances to affiliate 3,054 2,721
Other assets 1,137 1,362
-------- --------
$ 61,950 $ 56,349
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans and notes payable $ 1,065 $ 830
Current portion of long-term debt 4,385 1,433
Accounts payable and accrued expenses 9,408 6,901
-------- --------
Total current liabilities 14,858 9,164
Long-term debt 8,268 12,667
Deferred income taxes 815 806
-------- --------
Total liabilities 23,941 22,637
-------- --------
Minority interests 1,375 1,486
-------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.50 par value, authorized 5,000,000 shares,
issued 4,146,358 shares in 1997 and 1996 2,073 2,073
Capital in excess of par value 7,892 7,775
Cumulative foreign currency translation adjustment (385) (167)
Retained earnings 27,651 23,465
Less treasury stock, at cost, 83,269 shares in 1997 and
144,832 shares in 1996 (597) (920)
-------- --------
36,634 32,226
-------- --------
$ 61,950 $ 56,349
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 17
VALLEY FORGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996, and 1995
(in thousands, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
SHARES CAPITAL IN CUMULATIVE
ISSUED AND ISSUED EXCESS OF TRANSLATION RETAINED TREASURY
OUTSTANDING AMOUNT PAR VALUE ADJUSTMENT EARNINGS STOCK
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994 3,981,276 $ 2,073 $ 7,728 $ (192) $ 17,714 $ (984)
Net income -- -- -- -- 3,366 --
Cash dividends, $.15 per share -- -- -- -- (604) --
Foreign currency translation -- -- -- 36 -- --
Exercise of stock options 18,000 -- 40 -- -- 57
--------- --------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1995 3,999,276 2,073 7,768 (156) 20,476 (927)
Net income -- -- -- -- 3,630 --
Cash dividends, $.16 per share -- -- -- -- (641) --
Foreign currency translation -- -- -- (11) -- --
Exercise of stock options 2,250 -- 7 -- -- 7
--------- --------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1996 4,001,526 2,073 7,775 (167) 23,465 (920)
Net income -- -- -- -- 4,833 --
Cash dividends, $.16 per share -- -- -- -- (647) --
Foreign currency translation -- -- -- (218) -- --
Exercise of stock options 61,563 -- 117 -- -- 323
--------- --------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1997 4,063,089 $ 2,073 $ 7,892 $ (385) $ 27,651 $ (597)
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 18
VALLEY FORGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996, and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 4,833 $ 3,630 $ 3,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,149 1,923 1,644
Amortization 1,071 926 914
Other (423) 123 92
Changes in assets and liabilities, net of
businesses acquired:
Accounts receivable (2,647) (939) (814)
Inventories (1,867) (582) (374)
Other current assets (433) (14) (386)
Accounts payable and accrued expenses 2,823 1,434 76
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,506 6,501 4,518
------- ------- -------
INVESTING ACTIVITIES
Additions to property, plant and equipment (2,976) (3,653) (2,878)
Proceeds from sale of constructed facility -- -- 2,821
Investment in and advances to affiliate (345) (2,693) --
Businesses acquired in purchase transactions (570) (700) (876)
Other 7 (39) 203
------- ------- -------
NET CASH USED FOR INVESTING ACTIVITIES (3,884) (7,085) (730)
------- ------- -------
FINANCING ACTIVITIES
Net borrowings (repayments) on line of credit 235 330 (2,833)
agreement
Principal payments on long-term debt (1,448) (1,481) (188)
Proceeds from long-term debt -- 2,678 1,565
Net proceeds (repayments) of construction loans -- -- (1,941)
Net proceeds (repayments) of short-term notes -- (350) 150
payable
Dividends paid (647) (641) (604)
Stock options exercised 238 14 97
------- ------- -------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (1,622) 550 (3,754)
------- ------- -------
CHANGE IN CASH AND EQUIVALENTS -- (34) 34
Cash and equivalents at beginning of year
-- 34 --
------- ------- -------
Cash and equivalents at end of year $ -- $ -- $ 34
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 19
VALLEY FORGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Valley Forge Corporation is a holding company that operates in two business
segments: the industrial group, which includes the manufacture and sale of
turbo-charger actuators, lubricating devices for machinery and equipment,
high-performance video signal distribution equipment, specialty wiring device
products, and high-voltage switches; and the recreational group, which includes
the manufacture and sale of marine and recreational accessories including
electrical connectors, inverters, battery chargers, monitors and switches,
lights, horns, vents, teak accessories, engine synchronizers, stoves, and
barbecues. The industrial group consists of Gits Manufacturing Company, Turner
Electric Corporation, and Multiplex Technology. The recreational products group
is one of the largest manufacturers of products for the U.S. recreational marine
industry and consists of Marinco/AFI, Heart Interface Corporation, The Guest
Company, Glendinning Marine Products, Inc., Force 10 Marine, and Cruising
Equipment Company. The Company also has an interest in Mastervolt International
B.V.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Valley Forge
Corporation and all its majority-owned subsidiaries (the Company). All
significant intercompany balances and transactions have been eliminated.
Investments in which the Company has a 20% to 50% interest are accounted for
using the equity method.
USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Actual results could differ from these estimates.
FINANCIAL STATEMENT RECLASSIFICATION
Certain reclassifications have been made to prior years' financial statements to
conform to the 1997 presentation with no impact on previously reported net
income or stockholders' equity.
CONCENTRATION OF CREDIT RISK
The Company sells its recreational and industrial products to original equipment
manufacturers, dealers, and distributors located in the United States and
throughout the world. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses.
STOCK SPLIT
On July 28, 1997, the Company's Board of Directors authorized a three-for-two
stock split effected in the form of a 50 percent stock dividend distributed on
September 16, 1997, to stockholders of record on September 5, 1997. Accordingly,
all references in the financial statements to numbers of shares, per share
amounts, and stock option data of the Company's common stock prior to the date
of the split have been retroactively restated.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, generally using the
first-in, first-out (FIFO) method. Cost for certain inventories in the
industrial group is determined using the last-in, first-out (LIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is primarily
provided by the straight-line method over the estimated useful lives of the
various assets. When assets are sold or retired, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
income.
19
<PAGE> 20
GOODWILL
Goodwill is stated at cost and is amortized on the straight-line basis over
various periods ranging from fifteen to forty years. The Company periodically
evaluates the recoverability of its goodwill by comparing the aggregate
estimated future cash flows generated by those assets with their carrying value.
If the carrying value should exceed the aggregate cash flow amount, goodwill
would be reduced accordingly.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income tax assets and liabilities are computed annually for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's Canadian subsidiary and the equity
investment in the foreign affiliate are translated at year-end exchange rates
while the income statement amounts are translated using an average exchange rate
for the year. Translation adjustments are recorded as a separate component of
stockholders' equity.
REVENUE RECOGNITION
Revenue is recognized when goods are shipped. Sales returns and allowances are
recorded as an offset to revenues.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company adopted SFAS 128 in the fourth quarter of fiscal 1997 and restated
earnings per share (EPS) data for prior periods.
SFAS 128 replaces previous EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS is computed by dividing net
income (available to common shareholders) by the weighted average of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Basic and diluted EPS are calculated
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C> <C> <C>
Net income $4,833 $4,833 $3,630 $3,630 $3,366 $3,366
====== ====== ====== ====== ====== ======
Weighted average shares outstanding 4,031 4,031 4,002 4,002 3,993 3,993
Common equivalent shares - 178 - 119 - 105
--------- -------- --------- -------- --------- --------
Total shares 4,031 4,209 4,002 4,121 3,993 4,098
===== ===== ===== ===== ===== =====
Earnings per share $1.20 $1.15 $.91 $.88 $.84 $.82
===== ===== ==== ==== ==== ====
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation using the intrinsic
value method prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from non-owner sources; and No.
131, "Disclosures about Segments of an Enterprise and Related Information" which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas,
and major customers. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures. These
statements are effective for fiscal years beginning after December 15, 1997.
20
<PAGE> 21
NOTE B - INVENTORIES
At December 31, 1997 and 1996, inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Raw materials $ 9,395 $ 8,673
Work-in-process 2,815 3,069
Finished goods 6,911 5,360
------- -------
$19,121 $17,102
======= =======
</TABLE>
At December 31, 1997 and 1996, inventories of approximately $15,880,000 and
$14,867,000, respectively, were valued using the FIFO method. Inventories of
approximately $3,241,000 and $2,235,000 were valued using the LIFO method at
December 31, 1997 and 1996, respectively. The replacement cost of LIFO
inventories exceeds the LIFO value by approximately $109,000 and $275,000 at
December 31, 1997 and 1996, respectively.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
At December 31, 1997 and 1996, property, plant and equipment consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 804 $ 820
Buildings 4,494 3,449
Machinery and equipment 16,350 14,684
Furniture and fixtures 3,498 3,240
Leasehold improvements 352 339
Construction in progress - 376
-------- --------
25,498 22,908
Less accumulated depreciation
and amortization (14,815) (13,256)
-------- --------
$10,683 $ 9,652
======= ========
</TABLE>
NOTE D - INVESTMENT IN AND ADVANCES TO AFFILIATE
To enhance its strategic position in the European marketplace, in April 1996 the
Company acquired a 50% interest in Mastervolt International B.V. ("Mastervolt"),
and an effective 46% interest in its primary operating subsidiary, Intervolt
B.V. Intervolt B.V. is a Dutch manufacturer of power inverters and battery
chargers for the marine and industrial markets. The Company paid $2,364,000 in
cash for this investment. During 1997, the Company invested an additional
$33,000 in equity in Mastervolt, increasing its effective ownership interest in
Intervolt B.V. to approximately 47%. The purchase price in excess of net
tangible assets acquired, approximately $2,100,000, is being amortized over 25
years. The Company has advanced $641,000 as of December 31, 1997 to this
affiliate for working capital and to fund European expansion. The investment is
being accounted for using the equity method.
NOTE E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, 1997 and 1996, accounts payable and accrued expenses consist of
the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accounts payable $4,184 $2,512
Wages, salaries, and benefits 2,260 1,630
Other accrued expenses 2,964 2,528
Income taxes payable - 231
------ ------
$9,408 $6,901
</TABLE>
NOTE F - COMMITMENTS AND CONTINGENCIES
Commitments under non-cancelable operating leases for manufacturing and office
facilities are $1,069,000 in 1998, $1,035,000 in 1999, $698,000 in 2000,
$508,000 in 2001, $488,000 in 2002, and $2,763,000 thereafter. Rental expense
for operating leases for the years ended December 31, 1997, 1996, and 1995, was
$1,081,000, $1,028,000, and $843,000, respectively.
21
<PAGE> 22
NOTE G - LONG-TERM DEBT
At December 31, 1997 and 1996, long-term debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Notes payable to insurance companies, 8.15%, annual
principal payments of $1,000 through June 2006 $ 9,000 $ 10,000
Advanceable term loan, quarterly payments of $75
(see Note H) through June 1998 2,900 3,200
Mortgages 596 726
Other 157 174
-------- --------
12,653 14,100
Less current maturities (4,385) (1,433)
-------- --------
$ 8,268 $ 12,667
======== ========
</TABLE>
Annual maturities of long-term debt are: $4,385,000 in 1998; $1,141,000 in 1999;
$1,062,000 in 2000; $1,015,000 in 2001, $1,015,000 in 2002, and $4,035,000
thereafter.
The agreement for the notes payable to insurance companies contains covenants,
which require the maintenance of certain financial ratios and maintenance of
consolidated net worth, as defined, at $18,000,000.
The Company has two mortgage loans collateralized by manufacturing facilities.
The mortgages require monthly payments of principal and interest totaling
$14,000 and bear interest of 7% and 9%.
At December 31, 1997, the carrying value of long-term debt approximates fair
value based on rates currently available to the Company for debt with similar
characteristics.
NOTE H - LOANS AND NOTES PAYABLE
On August 31, 1996, the Company entered into a bank credit agreement for an
advanceable term loan with borrowings up to $3,500,000 and a revolving credit
note with borrowings up to $6,000,000. This bank credit agreement requires the
maintenance of certain financial ratios, as well as minimum capital
requirements, at specified levels. The revolving credit note bears interest at
1% under the bank's prime rate and expires June 30, 1998. The advanceable term
loan bears interest at .5% below the bank's prime rate. At December 31, 1997,
the balance outstanding under the revolving credit note was $565,000 and the
balance outstanding under the advanceable term loan was $2,900,000 (see Note G).
The bank's prime rate was 8.5% at December 31, 1997.
Included in the bank credit agreement described above is a second advanceable
term loan with borrowings up to $3,000,000 at the bank's prime rate and due
December 31, 1998. The Company has not used this facility.
Since March 1994, the Company has borrowed a total of $950,000 from certain
officers, stockholders, and directors. The borrowings are evidenced by
short-term notes that have original maturities of 13 weeks from the date of
issuance and can be renewed. At December 31, 1997, the borrowings outstanding
under the notes totaled $500,000 at interest rates ranging from 6.30 to 6.66%.
The weighted average interest rate on the above revolving credit note and
short-term notes was 6.97% during 1997 and 7.55% during 1996.
NOTE I - ACQUISITIONS
In 1994, Valley Forge Corporation acquired an 86% interest in Atlantic Guest
Inc. (Guest). In connection with the acquisition, two officers of the subsidiary
acquired 14% of Guest with each officer issuing notes to the Company for
$150,500. The Company and officers also entered into agreements whereby the
officers may require the Company to purchase their shares at book value. The
Company's total purchase obligation shall not exceed $75,000 in any twelve-month
period, and it has right of first refusal to purchase the officers' stock. Under
this agreement, in July 1996, the Company purchased a 7% interest from the
officers (3.5% from each) increasing its ownership interest to 93%. The Company
paid $75,250 to each officer and the officers executed new notes to the Company
in the amount of $75,250 each. The reissued notes bear interest at 8.15% and are
due December 31, 1999. The notes are collateralized by the officers' Guest stock
and, accordingly, the notes and accrued interest of approximately $150,000 at
December 31, 1997, are recorded as a reduction of minority interests.
22
<PAGE> 23
In connection with the Company's acquisition of a 66% ownership interest in
Multiplex Technology, Inc. (Multiplex) in 1991, the Company entered into an
agreement with all Multiplex common stock and option holders whereby they may
require the Company to purchase their shares of Multiplex up to a maximum of
$200,000 a year. Under this agreement, the Company may have an obligation to
purchase all of the then outstanding common stock of Multiplex if there is a
specified change in control of the Company. The Multiplex stock is revalued each
quarter based on an earnings formula. As of December 31, 1997, the total
purchase obligation would be approximately $950,000. Since 1991, the Company has
purchased a total of 11,168 shares for approximately $162,000. During 1997,
Multiplex acquired 6,500 treasury shares from minority shareholders for
$143,000, increasing the Company's ownership interest in Multiplex to 68%.
In addition to the above, since 1995, the Company has invested $1,878,000 in
product line and other business acquisitions.
NOTE J - INCOME TAXES
The components of the provision for income taxes for the years ended December
31, 1997, 1996, and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal
Current $ 2,986 $ 2,175 $ 1,923
Deferred (282) (45) (65)
------- ------- -------
2,704 2,130 1,858
------- ------- -------
State
Current 422 238 213
Deferred (24) (13) 34
------- ------- -------
398 225 247
------- ------- -------
Foreign - current 5 8 6
------- ------- -------
$ 3,107 $ 2,363 $ 2,111
======= ======= =======
</TABLE>
The components of deferred income taxes as of December 31, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred income tax liabilities:
Property, plant and equipment $ 813 $ 807
LIFO reserve 242 242
Other 26 148
------- -------
1,081 1,197
------- -------
Deferred income tax assets:
Tax net operating loss, expense, and
credit carryforwards (203) (228)
Inventory basis differences (447) (364)
Accrued expenses (749) (467)
Other (113) (98)
------- -------
(1,512) (1,157)
Valuation allowance 203 228
------- -------
(1,309) (929)
------- -------
Net deferred income tax (asset) liability (228) 268
Deferred income taxes included in other current assets 1,043 538
------- -------
Long-term deferred income tax liability $ 815 $ 806
======= =======
</TABLE>
The Company has Canadian tax net operating loss carryforwards of approximately
$90,000 and Canadian research and development expense carryforwards of
approximately $285,000 available to offset future Canadian taxable income. The
net operating loss carryforwards will expire in various years from 1999 through
2004. The research and development expense carryforwards have no expiration
period. The Company also has Canadian research and development credit
carryforwards totaling approximately $58,000 available to offset future Canadian
taxable income. These credits expire in the years 2000 through 2006.
23
<PAGE> 24
The valuation allowance for deferred income tax assets relates to the
realizability of tax net operating loss, research and development expense, and
tax credit carryforwards by the Company's Canadian subsidiary. The net change in
the valuation allowance during 1997 was a reduction of $25,000 due to the
utilization of net operating losses during the year.
The differences between the statutory and effective tax rates on income are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
U.S. federal statutory rate 34.0% 34.0% 34.0%
Nondeductible items, primarily goodwill
amortization 1.8 1.2 2.9
State income taxes, less federal benefit 3.3 2.4 2.4
Utilization of net operating losses and credits (.6) (.5) (1.8)
Other, net 0.6 1.0 0.3
------ ------ ------
39.1% 38.1% 37.8%
====== ====== ======
</TABLE>
NOTE K - SEGMENT INFORMATION
Revenues consist principally of sales to unaffiliated customers; sales to
affiliated customers are not material. No general corporate expenses, interest
expense, interest income, or other income (expense) have been allocated to the
operating income of either industry segment. Financial information by industry
segment for each of the three years in the period ended December 31, 1997
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUES
Industrial group $ 43,171 $ 38,220 $ 35,142
Recreational group 50,081 42,843 39,986
-------- -------- --------
$ 93,252 $ 81,063 $ 75,128
======== ======== ========
OPERATING INCOME
Industrial group $ 7,975 $ 6,596 $ 5,493
Recreational group 2,680 1,877 2,699
General corporate (1,791) (1,449) (1,453)
-------- -------- --------
$ 8,864 $ 7,024 $ 6,739
======== ======== ========
IDENTIFIABLE ASSETS
Industrial group $ 23,072 $ 19,551 $ 18,648
Recreational group 36,976 35,246 29,856
General corporate 1,902 1,552 2,237
-------- -------- --------
$ 61,950 $ 56,349 $ 50,741
======== ======== ========
CAPITAL EXPENDITURES
Industrial group $ 996 $ 1,102 $ 1,582
Recreational group 1,966 2,543 1,273
General corporate 14 8 23
-------- -------- --------
$ 2,976 $ 3,653 $ 2,878
======== ======== ========
DEPRECIATION AND AMORTIZATION
Industrial group $ 1,310 $ 1,274 $ 1,111
Recreational group 1,889 1,553 1,426
General corporate 21 22 21
-------- -------- --------
$ 3,220 $ 2,849 $ 2,558
======== ======== ========
</TABLE>
The recreational group's revenues include sales to one customer of approximately
$9,000,000 in 1997 and $8,100,000 in 1996. Sales to this customer in 1995 were
less than 10% of total revenues. Export revenues from unaffiliated customers
accounted for approximately 13% of total revenues in 1997 and 11% of total
revenues in both 1996 and 1995.
24
<PAGE> 25
NOTE L - RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense for the years ended December 31, 1997, 1996,
and 1995 was approximately $3,031,000, $2,408,000, and $1,821,000, respectively.
NOTE M - RETIREMENT PLANS
The Company sponsors a profit sharing plan for all non-union employees at
several subsidiaries. Under this plan, contributions are discretionary and
limited to a percentage of eligible employees' compensation. Profit sharing
expense for this plan for 1997, 1996, and 1995 was approximately $195,000,
$171,000, and $180,000, respectively.
The Company has a 401(k) plan which covers all employees at domestic locations
in which the Company has an ownership interest in excess of 80%. Employee
contributions of up to 3% of each covered employee's compensation are matched
100% by the Company. Employer contributions to the plan were approximately
$330,000, $298,000, and $273,000 in 1997, 1996, and 1995, respectively.
Multiplex has a 401(k) plan which covers all of its employees. Multiplex's
contributions to the plan are discretionary and totaled approximately $26,000
and $19,000 in 1996 and 1995, respectively. No contribution was made to the plan
in 1997.
Gits Manufacturing Corporation (Gits) has a noncontributory defined benefit
pension plan (the "Plan") covering its union employees retiring after August 1,
1993. Pension benefits are based on a multiple of a fixed amount per month and
years of service, as defined in the union agreement. Benefits generally vest
over a seven-year period. Gits funds the Plan under the minimum funding
requirements of the Employee Retirement Income Security Act ("ERISA") of 1974.
The assets of the Plan are managed and invested by an insurance company.
The funded status of the Plan and the components of net periodic defined benefit
pension cost are set forth in the following table. The rates used in determining
the actuarial present value of the benefit obligations at December 31 were (i)
discount rate - 6.25% in 1997 and 6.5% in 1996, and (ii) the expected long-term
rate of return on assets - 8.75% in 1997 and 1996. Benefit obligations are
sensitive to changes in these estimated rates and actual results may differ from
the estimated obligations in the following table (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (864) $ (790)
Nonvested benefits (73) (70)
------- -------
Accumulated and projected
benefit obligations (ABO and PBO) (937) (860)
Plan assets at fair value 1,270 1,077
------- -------
Plan assets in excess of ABO and PBO 333 217
Prior service cost not yet recognized
in net periodic pension cost 40 43
Unrecognized net gain (300) (216)
Unrecognized net asset being
amortized over 13.7 years (24) (26)
------- -------
Prepaid pension cost $ 49 $ 18
======= =======
Net pension cost included the following components:
Service cost $ 38 $ 40
Interest cost 55 50
Actual return on plan assets (212) (156)
Net amortization and deferral 111 77
------- -------
Net pension cost $ (8) $ 11
======= =======
</TABLE>
25
<PAGE> 26
NOTE N - RELATED PARTY TRANSACTIONS
The Company pays consulting and director fees to the non-employee members of its
Board of Directors. These fees amounted to approximately $135,000 in 1997,
$135,000 in 1996, and $142,000 in 1995.
At December 31, 1997, 1996, and 1995, there was a non-interest bearing demand
note due from an officer of $75,000. This note arose due to relocation of the
Company's headquarters and was repaid in January 1998.
NOTE O - STOCK OPTION PLAN
The Company has a nonqualified stock option plan for key employees. In 1996, the
stockholders approved an amendment to the plan to increase the number of shares
available for option grants by 450,000 to a total of 1,125,000 shares
authorized. Under the plan, options are granted at prices not less than the fair
market value of the stock on the date of grant. The options expire not more than
seven years from the grant date and generally vest over four years.
Activity under the stock option plan follows:
<TABLE>
<CAPTION>
OPTIONED SHARES
----------------------
OPTIONS WEIGHTED
AVAILABLE NUMBER AVERAGE PRICE
FOR GRANT OF OPTIONS PER SHARE
-------- -------- --------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1994 45,000 335,813 $ 5.49
Options granted (45,000) 45,000 8.00
Options exercised -- (18,000) 3.95
-------- -------- --------
BALANCES, DECEMBER 31, 1995 -- 362,813 5.88
Options authorized 450,000 --
Options granted (65,250) 65,250 8.85
Options exercised -- (2,250) 5.17
Options lapsed 23,625 (23,625) 6.58
-------- -------- --------
BALANCES, DECEMBER 31, 1996 408,375 402,188 6.32
Options granted (15,500) 15,500 12.27
Options exercised -- (61,563) 3.86
Options lapsed 4,500 (4,500) 9.08
-------- -------- --------
BALANCES, DECEMBER 31, 1997 397,375 351,625 $ 6.98
======== ======== ========
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF PRICES NUMBER REMAINING LIFE AVERAGE PRICE NUMBER OF AVERAGE PRICE
PER SHARE PRICE OF OPTIONS (IN YEARS) PER SHARE OPTIONS PER SHARE
<S> <C> <C> <C> <C> <C>
$3.19 - $3.22 46,250 .24 $3.20 46,250 $3.20
$5.22 - $7.39 198,000 3.24 $6.72 164,250 $6.58
$7.83 - $10.42 99,375 5.07 $8.68 29,438 $8.40
$14.00 8,000 6.76 $14.00 - -
--------- ------------
$3.19 - $14.00 351,625 239,938
======= =======
</TABLE>
The following table summarizes information about vested options:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Number of Options 239,938 228,375 172,688
Price Per Share $3.19 - $9.08 $3.19 - $8.00 $3.19 - $7.39
</TABLE>
26
<PAGE> 27
The Company applies APB No. 25 and related Interpretations in accounting for
grants to employees under its stock-based compensation plan, described above.
Accordingly, no compensation expense has been recognized for grants to employees
under its fixed stock option plan. Had compensation expense been charged to net
income for grants to employees under the Company's fixed stock option plans
based on fair value at the grant dates for awards under the plan, consistent
with the method encouraged by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been decreased to the pro forma amounts indicated
below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
AS AS AS
REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 4,833 $ 4,795 $ 3,630 $ 3,589 $ 3,366 $ 3,356
Basic earnings per share 1.20 1.19 0.91 0.90 0.84 0.84
Diluted earnings per share 1.15 1.14 0.88 0.87 0.82 0.82
</TABLE>
The fair value of each option grant is estimated as of the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Expected dividend yield 1.50% 1.85% 1.85%
Expected volatility 26.81% 23.10% 26.00%
Risk-free interest rate 6.36% 6.30% 5.98%
Expected lives (years) 5.5 3.5 3.5
</TABLE>
The weighted-average grant-date fair value of options granted during 1997, 1996,
and 1995 was $3.99, $2.97, and $2.81, respectively.
NOTE P - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest during 1997, 1996, and 1995 was as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income taxes $3,693 $1,942 $2,419
Interest 1,195 1,225 1,216
</TABLE>
In August 1995, the Company sold a building that was used in its operations for
$242,000 cash and a $600,000 promissory note.
27
<PAGE> 28
VALLEY FORGE CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1997
Revenues $22,492 $24,540 $22,366 $23,854
Gross profit 9,166 10,158 8,837 9,388
Net income 1,210 1,507 965 1,151
Basic earnings per share $ .30 $ .38 $ .24 $ .28
Diluted earnings per share .29 .36 .23 .27
1996
Revenues $19,022 $22,153 $19,361 $20,527
Gross profit 7,520 8,717 7,446 8,294
Net income 918 1,105 709 898
Basic earnings per share $ .23 $ .28 $ .18 $ .22
Diluted earnings per share .22 .27 .17 .22
</TABLE>
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Valley Forge Corporation:
We have audited the accompanying consolidated balance sheet of Valley Forge
Corporation and subsidiaries (the "Company") as of December 31, 1997 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year ended December 31, 1997 and have issued our report thereon dated
February 27, 1998; such report is included elsewhere in this Form 10-K. Our
audit also included the 1997 financial statement schedule of the Company listed
in Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
San Francisco, California
February 27, 1998
29
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Valley Forge Corporation:
Our report on the consolidated financial statements of Valley Forge Corporation
and Subsidiaries is included on page 14 of this Form 10-K. In connection with
our audits of the 1996 and 1995 financial statements, we have also audited the
related financial statement schedule listed in the index on page 12 of this Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers and Lybrand L.L.P.
San Francisco, California
February 19, 1997
30
<PAGE> 31
VALLEY FORGE CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------
Beginning
Balance at balance of Charged to Balance
beginning consolidated costs and at end of
Description of period subsidiary expenses Deductions(1) period
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1997 $257,000 $ -- $176,000 $178,000 $255,000
Year ended December 31, 1996 211,000 -- 182,000 136,000 257,000
Year ended December 31, 1995 151,000 -- 96,000 36,000 211,000
ALLOWANCE FOR EXCESS AND
OBSOLETE INVENTORY
Year ended December 31, 1997 $734,000 $ -- $213,000 $141,000 $806,000
Year ended December 31, 1996 533,000 -- 248,000 47,000 734,000
Year ended December 31, 1995 373,000 30,000 141,000 11,000 533,000
ACCRUED WARRANTY EXPENSE
Year ended December 31, 1997 $409,000 $ -- $294,000 $ -- $703,000
Year ended December 31, 1996 258,000 -- 151,000 -- 409,000
Year ended December 31, 1995 258,000 -- -- -- 258,000
ACCRUED SALES RETURN RESERVE
Year ended December 31, 1997 $ -- $ -- $223,000 $ -- $223,000
Year ended December 31, 1996 -- -- -- -- --
Year ended December 31, 1995 -- -- -- -- --
</TABLE>
(1) Deductions primarily represent write-offs charged against the reserves
listed.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
VALLEY FORGE CORPORATION
Dated: 3/18/98 /s/
------------------------------
By: David R. Brining
President, Director, and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Dated: 3/18/98 /s/ Dated: 3/18/98 /s/
------------------------ ------------------------
Martin J. Bloom Theodore P. Desloge, Jr.
Co-Chairman of the Board Co-Chairman of the Board
Dated: 3/18/98 /s/ Dated: 3/18/98 /s/
------------------------ ------------------------
David R. Brining Phillip F. Dressel
President, Director, and Director
Chief Executive Officer
Dated: 3/18/98 /s/ Dated: 3/18/98 /s/
------------------------ ------------------------
Dale J. Warner Monica J. Burke
Director CFO and V.P. Finance
Dated: 3/18/98 /s/
------------------------
Sherilyn L. Dacquisto
Corporate Controller
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO
<S> <C> <C>
3 Articles of Incorporation and By-Laws Exhibits B and C to Proxy Statement
filed on Form DEF 14A dated May 1,
1997 (Commission File No. 001-09897)
4.1 Note Purchase Agreement dated as of May 15, Exhibit 4.1 to Form 10-K/A for the
1994, among the Registrant and Northwestern year ended December 31, 1996
National Life Insurance Company, Bankers
Security Life (formerly The North Atlantic Life
Insurance Company of America), and The Northern
Life Insurance Company
4.2 Amended and Restated Credit Agreement dated Exhibit 4.2 to Form 10-K/A for the
August 31, 1996, between the Registrant and The year ended December 31, 1996
Boatmen's National Bank of St. Louis
4.3 Amendment Agreement dated December 16, 1997, to Page 33
Amended and Restated Credit Agreement dated
August 31, 1996, between the Registrant and
NationsBank, N.A., f/k/a The Boatmen's National
Bank of St. Louis
10.1 Valley Forge Corporation Amended and Restated Exhibit to Registration Statement
1987 Stock Option Plan Filed on Form S-8, dated July 2, 1996
(Commission File No. 333-07475)
22 Listing of Significant Subsidiaries Page 34
24.1 Independent Auditors' Consent Page 35
24.2 Consent of Independent Accountants Page 36
27 Financial Data Schedules for years
1997, 1996 and 1996
</TABLE>
<PAGE> 1
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT ("Amendment") is made and entered into as of the 16th
day of December, 1997, by and between VALLEY FORGE CORPORATION ("Borrower"), and
NATIONSBANK, N.A., f/k/a THE BOATMEN'S NATIONAL BANK OF ST. LOUIS (hereinafter
called the "Bank").
WITNESSETH THAT:
WHEREAS, Borrower and Bank have previously entered into an
Amended and Restated Credit Agreement dated August 31, 1996 (together with all
subsequent amendments, the "Agreement"). In conjunction with the Agreement,
Borrower signed a Term Note dated June 15, 1995 and an Advanceable Note dated
August 31, 1996;
WHEREAS, Bank and Borrower have agreed to lower the interest rate
on the Term Loan and the Advanceable Loan in accordance with the terms and
conditions of this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
1. Except as specifically amended by this Amendment, words and phrases
defined in the Agreement will have the same meanings when used herein.
As used herein, the term Prime Rate shall mean a fluctuating rate of
interest established by Bank from time to time, at its discretion,
whether or not such rate shall be otherwise published. The Prime Rate is
established by the Bank as an index and may or may not at any time be
the best or lowest rate charged by Bank on any loan.
2. The rate at which the Term Loan bears interest on the
from-time-to-time unpaid principal balance as referenced in Section 2.2
of the Agreement and the second paragraph of the Term Note shall be
amended to read, "a rate per annum equal to one-half of one percent less
than the from-time-to-time publicly announced Prime Rate of the Bank,
and after maturity, whether by acceleration or otherwise, shall be the
rate per annum equal to two percent (2%) in excess of said Prime Rate".
3. The rate at which the Advanceable Loan bears interest on the
from-time-to-time unpaid principal balance as referenced in the second
paragraph of the Advanceable Note shall be amended to read, "a rate per
annum equal to one-half of one percent less than the from-time-to-time
publicly announced Prime Rate of the Bank, and after maturity, whether
by acceleration or otherwise, shall be the rate per annum equal to two
percent (2%) in excess of said Prime Rate".
4. Borrower affirms the representations and warranties made by it to the
Bank in Section 5 as amended of the Agreement as of the date hereof
(except representations and warranties which expressly relate to an
earlier date or time, which representation and warranties shall be true
and correct on and as of the dates or times referred to therein).
5. It is expressly understood that this Amendment Agreement modifies the
Agreement and that all of the terms, covenants, conditions,
representations, warranties, and provisions thereof, unless specifically
modified herein, are to apply to this Amendment Agreement and are made a
part hereof as though they were expressly incorporated herein and shall
remain in full force and effect except as specifically amended herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year set forth
above.
VALLEY FORGE CORPORATION NATIONSBANK, N.A.
By: /s/ By: /s/
----------------------------- -----------------------
David R. Brining Susan D. Patterson
Title: President Title: Assistant Vice President
----------------------------- ------------------------------
33
<PAGE> 1
EXHIBIT 22
VALLEY FORGE CORPORATION
LISTING OF SIGNIFICANT SUBSIDIARIES
<TABLE>
<CAPTION>
State or Other Percentage
Jurisdiction of Owned by
Incorporation Registrant
------------- ----------
<S> <C> <C>
Atlantic Guest, Inc. Delaware 93%
Gits Manufacturing Company, Inc. Delaware 100%
Heart Interface Corporation Washington 100%
Marine Industries Company, Inc. California 100%
Multiplex Technology, Inc. California 68%
Turner Electric Corporation Illinois 100%
</TABLE>
34
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Valley Forge Corporation and subsidiaries ("the Company") on Form S-8 (File No.
333-07475) and Form S-8 (File No. 33-50250) of our reports dated February 27,
1998, on the Company's 1997 consolidated financial statements and financial
statement schedule; both such reports appearing in this Annual Report on Form
10-K of Valley Forge Corporation and subsidiaries for the year ended December
31, 1997.
Deloitte & Touche LLP
San Francisco, California
March 27, 1998
35
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Valley Forge Corporation and Subsidiaries on Form S-8 (File No. 333-07475) and
Form S-8 (File No. 33-50250) of our reports dated February 19, 1997, on our
audits of the consolidated financial statements and financial statement schedule
of Valley Forge Corporation and Subsidiaries as of December 31, 1996, and for
the years ended December 31, 1996 and 1995, which reports are included in this
Annual Report on Form 10-K.
Coopers and Lybrand L.L.P.
San Francisco, California
March 27, 1998
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EX-27.1997
</LEGEND>
<MULTIPLIER> 1,000
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