<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------
Date of report (Date of earliest event reported): April 1, 1999
---------------
KEY COMPONENTS FINANCE CORP.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 333-58675 14-1805946
- ---------------------------- --------------------- -------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
KEY COMPONENTS, LLC
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 333-58675 04-3425424
- ---------------------------- --------------------- -------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
Wing Road RR1, Box 167D, Millbrook, New York 12545
-------------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (914) 677-8383
---------------
N/A
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Items 1-6 Not Applicable
Item 7 Financial Statements, Pro Forma Financial Information and Exhibits
This amendment provides the proforma financial information of Key
Components, Inc. (the "Company") pursuant to Article II of Regulation S-X
for the year ended December 31, 1998, which was not included in the Form 8-K
filed by Key Components, LLC ("KC LLC") and its wholly-owned subsidiary Key
Components Finance Corp. ("Finance Corp") on February 3, 1999, since
the information for the period was not determinable at such time. KC LLC is a
wholly-owned subsidiary of the Company.
KEY COMPONENTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1998 and the Unaudited Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1998 have been prepared to give
effect to (i) the acquisition by the Company through a wholly-owned
subsidiary of all of the capital stock of Valley Forge Corporation ("VFC") on
January 15, 1999 (the "Acquisition") for $19.00 per share, for an aggregate
purchase price of approximately $84 million, (ii) completion of an offering
of $80,000,000 of 10 1/2% senior notes due 2008, on May 28, 1998 (the
"Offering") a portion of the proceeds of which were used in the
acquisition of VFC, and (iii) the incurrence, by KC LLC, of debt under a
new bank credit facility for the purpose of completing the Acquisition (the
"Acquisition Credit Facility"). The Unaudited Pro Forma Consolidated Balance
Sheet gives effect to the transactions described in clauses (i) and (iii)
above as if they were consummated on December 31, 1998. The Unaudited Pro
Forma Statement of Operations gives effect to all of the transactions
described above as if they had occurred as of January 1, 1998. The Unaudited
Pro Forma Financial Data has been derived by the Company by the application
of pro forma adjustments to the audited financial statements of the Company
as of and for the year ended December 31, 1998 and to the audited financial
statements of VFC as of and for the year ended December 31, 1998.
The Unaudited Pro Forma Financial Data has been derived under the
assumption that the Acquisition has been accounted for using the purchase
method of accounting, under which tangible and identifiable intangible assets
acquired and liabilities assumed are recorded at their respective fair
values. Allocations of the purchase price in the Acquisition have been
determined based on estimates of fair value and, therefor, are subject to
change.
The Unaudited Pro Forma Financial Data is unaudited and does not
purport to be indicative of the financial position or results of operations
which would have been attained had the Acquision, the Offering and the
Acquisition Credit Facility been consummated on the dates indicated or which
may be attained in the future. The pro forma adjustments, as described in the
Notes to the Unaudited Pro Forma Consolidated Balance Sheet and the Notes to
the Unaudited Pro Forma Consolidated Statement of Operations, are based on
available information and upon certain assumptions which management believes
to be reasonable. These pro forma statements should be read in conjunction
with the historical financial statements and accompanying notes of the
Company and VFC. The audited Consolidated Financial Statements for VFC for
the year ended December 31, 1998 are attached hereto. The audited
Consolidated Financial Statements for the Company are contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 and
are incorporated herein by reference.
1
<PAGE>
KEY COMPONENTS, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR TO DATE PERIOD ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
KEY VALLEY SUBSIDIARIES
COMPONENTS, FORGE HELD PRO FORMA
INC. CORPORATION TOTAL FOR SALE (1) ADJUSTMENTS PRO FORMA
----------- ----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 61,862 $ 109,970 $ 171,832 $(13,235) $ -- $ 158,597
Cost of goods sold 39,130 67,143 106,273 (8,065) -- 98,208
-------- --------- --------- -------- -------- ---------
Gross profit 22,732 42,827 65,559 (5,170) -- 60,389
Selling, general and administrative expenses 9,979 32,590 42,569 (4,502) (1,250)(2) 38,237
953 (3)
467 (4)
Related party management fees 800 -- 800 -- -- 800
-------- --------- --------- -------- -------- ---------
Income from operations 11,953 10,237 22,190 (668) (170) 21,352
Other income (expense):
Interest expense (7,641) (1,086) (8,727) 19 (6,757)(5) (15,465)
Other, net 404 232 636 95 (396)(6) 335
-------- --------- --------- -------- -------- ---------
(7,237) (854) (8,091) 114 (7,153) (15,130)
-------- --------- --------- -------- -------- ---------
Income (loss) before income taxes and
extraordinary charge 4,716 9,383 14,099 (554) (7,323) 6,222
Provision (benefit) for income taxes 97 3,475 3,572 (257) 814 (7) 4,129
-------- --------- --------- -------- -------- ---------
Income (loss) before extraordinary charge (8) $ 4,619 $ 5,908 $ 10,527 $ (297) $ (8,137) $ 2,093
======== ========= ========= ======== ======== =========
</TABLE>
2
<PAGE>
KEY COMPONENTS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) The results of operations of Multiplex Technology, Inc. ("MTI") and
Force 10 Marine LTD. ("F10"), two subsidiaries of VFC, are eliminated
from the Pro Forma Consolidated Statement of Operations as it was the
Company's intent to sell both subsidiaries at the time it acquired VFC.
F10 was sold on February 26, 1999 and the Company is in the process of
conducting an auction for MTI. The Company has received bids, is
analyzing these bids and expects to complete the sale of MTI no later
than June 30, 1999.
(2) The adjustment represents contractual reductions in salaries of
certain VFC executives which have been negotiated in conjunction with
the acquisition. The adjustment also includes the elimination of VFC's
directors' fees and costs incurred by VFC related to the acquisition.
(3) As required by purchase accounting in connection with the acquisition
of VFC, the Company will record goodwill of $49,921 and eliminate
goodwill of $9,445 previously recorded on VFC's books. The Unaudited
Pro Forma Consolidated Statement of Operations assumes that the
acquisition of VFC occurred as of January 1, 1998. Accordingly, a net
goodwill amortization adjustment was included in selling, general and
administrative expenses and is comprised of the following:
<TABLE>
<S> <C>
Full year amortization of acquisition goodwill $ 1,664
Amortization included in historical statements of VFC (711)
-------
Net adjustment $ 953
=======
</TABLE>
(4) Represents the net adjustment related to the following changes in the
amortization of debt financing costs assuming (i) the offering, by KC
LLC of $80,000 of 10 1/2% senior notes and (ii) the acquisition of VFC
and the related incurrence of bank debt both occurred as of January 1,
1998:
<TABLE>
<S> <C>
Amortization of of debt financing costs related to the sale of the 10 1/2% senior notes (a) $ 450
Amortization included in historical statements of the Company (290)
Elimination of amortization of debt financing costs associated with debt repaid
with proceeds of the sale of the 10 1/2% senior notes (109)
Amortization of debt financing costs related to debt incurred in connection with
the acquisition of VFC (b) 422
Elimination of amortization of debt financing costs associated with VFC's debt
repaid in connection with the acquisition (6)
-------
$ 467
=======
</TABLE>
(a) Debt financing costs associated with the 10 1/2% senior notes
are approximately $4,500 and include an initial purchase
discount of $2,400 payable in connection with the offering of
the senior notes. These costs are being amortized over ten
years, the life of the senior notes.
(b) These cost are being amortized over five years, the term of
the acquisition debt.
3
<PAGE>
KEY COMPONENTS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(5) Represents the net adjustment to interest expense , assuming that
both the sale of the 10 1/2% senior notes and the acquisition of VFC
occurred January 1, 1998:
<TABLE>
<S> <C>
Interest expense associated with the 10 1/2% senior notes $ 8,400
Interest expense associated with debt incurred in connection with
the acquisition of VFC (a) 6,821
Eliminate interest expense associated with the 10 1/2% senior notes included
in historical statements of the Company (4,970)
Eliminate interest on debt repaid with the proceeds from the sale of the 10 1/2%
senior notes (2,550)
Eliminate interest on debt of VFC repaid at closing of the acquisition thereof (944)
-------
$ 6,757
=======
</TABLE>
(a) Reflects weighted average debt outstanding of approximately
$82,000 for which the interest rates vary based on either
the prime rate or LIBOR. The weighted average interest rate
used for pro forma purposes was 8.19875% with a 0.5%
commitment fee on unused available credit. A change of
0.125% to the weighted average interest rate would result
in approximately a $103 increase to interest expense.
(6) To eliminate interest income to reflect the use of available cash to
fund the acquisition of VFC.
(7) The adjustment reflects the additional income tax provision
resulting from pro forma adjustments (2), (4) and (5) calculated at
the VFC effective rate of 37%. No tax effect has been provided for
other nondeductible items or other items that would be recorded in the
Company's records, which as an S corporation would not be subject to
tax.
(8) During the year ended December 31, 1998, the Company had an
extraordinary loss on early extinguishment of debt of $4,616.
4
<PAGE>
KEY COMPONENTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
KEY VALLEY SUBSIDIARIES
COMPONENTS, FORGE HELD PRO FORMA
INC. CORPORATION TOTAL FOR SALE (1) ADJUSTMENTS PRO FORMA
---------- ----------- --------- ------------ ----------- ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash $ 13,119 $ -- $ 13,119 $ -- $(12,032)(2) $ 1,087
Accounts receivable 7,989 15,783 23,772 (1,522) -- 22,250
Inventory 8,487 22,500 30,987 (2,622) -- 28,365
Prepaid expenses and other
current assets (9) 441 2,474 2,915 (337) -- 2,578
-------- -------- --------- ------- -------- --------
Total current assets 30,036 40,757 70,793 (4,481) (12,032) 54,280
Property and equipment - net 12,222 11,518 23,740 (1,469) -- 22,271
Other assets
Goodwill 44,378 10,891 55,269 (1,446) 40,476(3) 94,299
Deferred financing costs 4,616 -- 4,616 -- 2,142(2) 6,758
Unamortized intangibles 1,620 -- 1,620 -- -- 1,620
Assets held for sale -- -- -- 5,210 2,018(1) 7,228
Investment in affiliate -- 3,358 3,358 -- -- 3,358
Other assets 272 1,194 1,466 (149) (47)(6) 1,270
-------- -------- --------- ------- -------- --------
Total assets $ 93,144 $ 67,718 $ 160,862 $(2,335) $ 32,557 $191,084
======== ======== ========= ======= ======== ========
</TABLE>
5
<PAGE>
KEY COMPONENTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
KEY VALLEY SUBSIDIARIES
COMPONENTS, FORGE HELD PRO FORMA
INC. CORPORATION TOTAL FOR SALE (1) ADJUSTMENTS PRO FORMA
---------- ----------- --------- ------------ ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Notes payable $ -- $ 640 $ 640 $ -- $ (640)(4) $ --
Current portion of long term obligations 518 1,196 1,714 (7) 4,000 (4) 5,707
Accounts payable 1,465 5,719 7,184 (145) -- 7,039
Accrued expenses (9) 1,977 6,711 8,688 (796) 200 (8) 8,092
Accrued interest 750 67 817 -- (55)(2)(6) 762
-------- -------- --------- ------- -------- --------
Total current liabilities 4,710 14,333 19,043 (948) 3,505 21,600
Other liabilities:
10 1/2% Senior notes 80,000 -- 80,000 -- -- 80,000
Other long term obligations 760 8,854 9,614 (15) 66,638 (4) 76,237
Deferred taxes - noncurrent (9) -- 894 894 (38) -- 856
Stock appreciation rights -- -- -- -- 1,397 (5) 1,397
-------- -------- --------- ------- -------- --------
Total liabilities 85,470 24,081 109,551 (1,001) 71,540 180,090
-------- -------- --------- ------- -------- --------
Minority interests -- 1,395 1,395 (1,334) -- 61
Shareholders' equity:
Capital stock 1,536 2,073 3,609 -- 1,186 (2),(7) 4,795
Paid in capital -- 7,929 7,929 -- (7,929)(7) --
Treasury stock -- (54) (54) -- 54 (7) --
Foreign exchange -- (439) (439) -- 439 (7) --
Retained earnings 6,138 32,733 38,871 -- (32,733)(7) 6,138
-------- -------- --------- ------- -------- --------
Total shareholders equity 7,674 42,242 49,916 -- (38,983) 10,933
-------- -------- --------- ------- -------- --------
Total liabilities and shareholders' equity $ 93,144 $ 67,718 $ 160,862 $(2,335) $ 32,557 $191,084
======== ======== ========= ======= ======== ========
</TABLE>
6
<PAGE>
KEY COMPONENTS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) The assets and liabilities of MTI and F10, two subsidiaries of VFC,
are reclassified to "Assets held for sale" on the Unaudited Pro Forma
Balance Sheet and valued at their estimated net realizable value of
$7,228, as it was the Company's intent to sell both subsidiaries at
the time it acquired VFC. F10 was sold on February 26, 1999 and the
Company is in the process of conducting an auction for MTI. The
company has received bids, is analyzing these bids and expects to
complete the sale of MTI no later than June 30, 1999.
<TABLE>
<S> <C>
(2) Represents the net of the following:
Proceeds from issuance of acquisition debt, see Note (4) $ 78,638
Proceeds from the sale of 9.3 shares of common stock of
the Company 3,259
Cash used for the acquisition of VFC shares, net of noncash
items, see Notes (5) and (8) (83,092)
Cash used to pay off certain debt of VFC, see Notes (4) and (6) (8,695)
Deferred financing costs in connection with the bank debt
incurred to complete the acquisition (2,142)
--------
$(12,032)
========
(3) Represents the excess of the total purchase price over the estimated
fair value of net tangible assets acquired as follows:
Total purchase price, including costs and expenses $ 84,689
Fair value of net tangible assets acquired (34,768)
--------
Excess purchase price 49,921
Goodwill included in the historical financial statements of VFC, net
of subsidiaries held for sale (9,445)
--------
Pro Forma adjustment $ 40,476
========
</TABLE>
7
<PAGE>
KEY COMPONENTS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(4) Represents the net amount of debt incurred to complete the acquisition
of VFC less the amount of VFC debt paid off concurrent with completion
of the acquisition as follows:
<TABLE>
<CAPTION>
Current portion
of long term Long term
obligations obligations
--------------- -----------
<S> <C> <C>
Debt incurred under revolving credit facility $ -- $ 18,638
Debt incurred under term loan 5,000 55,000
Debt of VFC paid off (1,640) (7,000)
-------- --------
$ 3,360 $ 66,638
======== ========
The revolving credit facility matures January 2005 and the term loan
facility is payable in quarterly installments through January 2005.
(5) Represents the current value of stock appreciation rights, granted to
holders of options to acquire common shares of VFC, in exchange for
their options.
(6) Represents the write-off of loan fees and the payment of accrued
interest both related to the VFC debt repaid. See Notes (2) and (4).
(7) Represents consolidating entry to eliminate the Company's investment
in VFC of $84,689.
(8) Represents the accrual of severance agreement costs incurred in
connection with the acquisition.
(9) The Company is a subchapter S corporation under the Internal Revenue
Code and as such its Shareholders are generally liable for federal
and state income taxes except for certain franchise and income taxes
which specific states impose on S corporations. If VFC were a
subchapter S corporation, its income would be taxed directly to the
Company's shareholders. At December 31, 1998, after reflecting the
elimination of the subsidiaries held for sale, prepaid expenses and
other current assets include a current deferred tax asset of $1,306,
accrued expenses include taxes payable of $103 and a non-current
deferred tax liability of $856. If the Company elects to treat VFC as
an S corporation, the benefit of the net deferred tax asset will
transfer to the Company's shareholders.
</TABLE>
8
<PAGE>
VALLEY FORGE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
FINANCIAL STATEMENTS:
Independent Auditors' Report 10
Consolidated Statements of Net Income and Comprehensive Income
for the years ended December 31, 1998 and 1997 11
Consolidated Balance Sheets at December 31, 1998 and 1997 12
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997 14
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 15
Notes to Consolidated Financial Statements 16
9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Valley Forge Corporation
We have audited the accompanying consolidated balance sheets of Valley Forge
Corporation and subsidiaries (the "Company") as of December 31, 1998 and 1997
and the related consolidated statements of net income and comprehensive income,
stockholders' equity, and cash flows for the years then ended. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Valley Forge Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Francisco, California
March 5, 1999
10
<PAGE>
VALLEY FORGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME
AND COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
<S> <C> <C>
REVENUES $ 109,970 $ 93,252
Costs of goods sold 67,143 55,703
--------- --------
GROSS PROFIT 42,827 37,549
Selling and administrative expenses 32,590 28,685
--------- --------
OPERATING INCOME 10,237 8,864
Other income (expense):
Interest expense (1,086) (1,182)
Other, net 332 269
--------- --------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS 9,483 7,951
Income taxes 3,475 3,107
Minority interests 100 11
--------- --------
NET INCOME 5,908 4,833
Other comprehensive loss - foreign currency
translation adjustments 54 218
--------- --------
Comprehensive income $ 5,854 $ 4,615
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
11
<PAGE>
VALLEY FORGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Accounts receivable, less allowance of $336 in 1998 and
$255 in 1997 $ 15,783 $ 13,935
Inventories, less allowance of $1,300 in 1998 and $806 in 1997 22,500 19,121
Other current assets 2,474 2,258
-------- --------
Total current assets 40,757 35,314
Property, plant and equipment, net 11,518 10,683
Goodwill, net of accumulated amortization of $6,836 in 1998
and $6,016 in 1997 10,891 11,762
Investment in and advances to affiliate 3,358 3,054
Other assets 1,194 1,137
-------- --------
$ 67,718 $ 61,950
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans and notes payable $ 640 $ 1,065
Current portion of long-term debt 1,196 4,385
Accounts payable and accrued expenses 12,497 9,408
-------- --------
Total current liabilities 14,333 14,858
Long-term debt 8,854 8,268
Deferred income taxes 894 815
-------- --------
Total liabilities 24,081 23,941
-------- --------
Minority interests 1,395 1,375
-------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.50 par value, authorized 10,000,000 shares,
issued 4,146,358 shares in 1998 and 1997 2,073 2,073
Capital in excess of par value 7,929 7,892
Accumulated other comprehensive loss (439) (385)
Retained earnings 32,733 27,651
Treasury stock, at cost, 7,519 shares in 1998 and 83,269 shares in 1997
(54) (597)
-------- --------
42,242 36,634
-------- --------
$ 67,718 $ 61,950
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
12
<PAGE>
VALLEY FORGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- ACCUMULATED
SHARES CAPITAL IN OTHER
ISSUED AND ISSUED EXCESS OF COMPREHENSIVE RETAINED TREASURY
OUTSTANDING AMOUNT PAR VALUE LOSS EARNINGS STOCK
<S> <C> <C> <C> <C> <C> <C>
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) --
Other comprehensive loss -
foreign currency translation adjustments -- -- -- (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)
Net income -- -- -- -- 5,908 --
Cash dividends, $.20 per share -- -- -- -- (826) --
Other comprehensive loss
foreign currency translation adjustments -- -- -- (54) -- --
Exercise of stock options 75,750 -- 37 -- -- 543
--------- ------ ------ ----- -------- -----
BALANCES AT DECEMBER 31, 1998 4,138,839 $2,073 $7,929 $(439) $ 32,733 $ (54)
========= ====== ====== ===== ======== =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
13
<PAGE>
VALLEY FORGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 5,908 $ 4,833
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 2,351 2,149
Amortization 947 1,071
Other (412) (423)
Changes in assets and liabilities:
Accounts receivable (1,930) (2,647)
Inventories (3,379) (1,867)
Other current assets (210) (433)
Accounts payable and accrued expenses 3,766 2,823
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,041 5,506
------- -------
INVESTING ACTIVITIES
Additions to property, plant and equipment (3,444) (2,976)
Investment in and advances to affiliate -- (345)
Businesses acquired in purchase transactions (101) (570)
Other (7) 7
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (3,552) (3,884)
------- -------
FINANCING ACTIVITIES
Net borrowings on line of credit agreement 75 235
Principal payments on long-term debt (4,357) (1,448)
Proceeds from long-term debt 1,755 --
Repayments of short-term notes payable (500) --
Dividends paid (826) (647)
Proceeds from stock option exercises 364 238
------- -------
NET CASH USED FOR FINANCING ACTIVITIES (3,489) (1,622)
------- -------
CHANGE IN CASH AND EQUIVALENTS -- --
Cash and equivalents at beginning of year -- --
------- -------
Cash and equivalents at end of year $ -- $ --
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE>
VALLEY FORGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS
Valley Forge Corporation and its subsidiaries (the Company) 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, 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. (see Note E).
On December 2, 1998, the Company entered into a merger and acquisition agreement
(the Transaction) with Key Components, LLC (Key). Pursuant to this agreement, a
wholly-owned subsidiary of Key commenced a cash tender offer to purchase all
outstanding shares of Valley Forge Corporation common stock on December 9, 1998
for $19 per share. The Transaction was completed on January 19, 1999, with
Valley Forge Corporation surviving as a wholly-owned subsidiary of Key. The
Company's December 31, 1998, selling and administrative expenses include
approximately $500,000 of costs directly related to the Transaction. Subsequent
to completion of the Transaction, management of Key announced plans to sell two
subsidiaries, Force 10 Marine and Multiplex Technology, Inc. The Force 10 Marine
sale was completed on February 26, 1999.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Valley Forge
Corporation and its subsidiaries. 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 the prior year's financial
statements to conform to the 1998 presentation with no impact on previously
reported net income or stockholders' equity.
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.
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.
15
<PAGE>
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, net of allowance for
estimated obsolete or slow-moving product, 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 historical cost, net of depreciation
provided by the straight-line method over the estimated useful lives of the
various assets.
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 the associated assets with their
carrying value. If the carrying value should exceed the aggregate estimated 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.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standard 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. 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. These
translation adjustments are recorded as a separate component of stockholders'
equity and, accordingly, are included in the Company's other comprehensive
income.
REVENUE RECOGNITION
Revenue is recognized when goods are shipped. Sales returns and allowances are
recorded as an offset to revenues.
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.
NOTE C - INVENTORIES
At December 31, 1998 and 1997, inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Raw materials $ 10,447 $ 10,112
Work-in-process 3,830 2,972
Finished goods 8,223 6,037
-------- --------
$ 22,500 $ 19,121
======== ========
</TABLE>
16
<PAGE>
At December 31, 1998 and 1997, inventories of approximately $18,300,000 and
$15,880,000, respectively, were valued using the FIFO method. Inventories of
approximately $4,200,000 and $3,241,000 were valued using the LIFO method at
December 31, 1998 and 1997, respectively. The FIFO cost of LIFO inventory
approximated the LIFO value at December 31, 1998 and exceeded the LIFO value at
December 31, 1997 by approximately $109,000.
NOTE D - PROPERTY, PLANT AND EQUIPMENT
At December 31, 1998 and 1997, property, plant and equipment consist of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 768 $ 804
Buildings 4,666 4,494
Machinery and equipment 18,197 16,350
Furniture and fixtures 4,139 3,498
Leasehold improvements 416 352
-------- --------
28,186 25,498
Less accumulated depreciation
and amortization (16,668) (14,815)
-------- --------
$ 11,518 $ 10,683
======== ========
</TABLE>
NOTE E - 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 through December 31, 1998 to this
affiliate for working capital and to fund European expansion. The investment is
being accounted for using the equity method. In 1998 and 1997, equity earnings
in Mastervolt were approximately $216,000 and $100,000, respectively.
During 1998 and 1997, sales to Mastervolt were approximately $950,000 and
$700,000, respectively. Purchases from Mastervolt in 1998 and 1997 were $150,000
and $250,000, respectively.
NOTE F - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, 1998 and 1997, accounts payable and accrued expenses consist of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Accounts payable $ 5,719 $4,184
Wages, salaries, and benefits 2,357 2,260
Warranty reserve 1,060 723
Other accrued expenses 3,063 2,241
Income taxes payable 298 -
------- ------
$12,497 $9,408
======= ======
</TABLE>
17
<PAGE>
NOTE G - COMMITMENTS AND CONTINGENCIES
Commitments under non-cancelable operating leases for manufacturing and office
facilities are $1,112,000 in 1999; $782,000 in 2000; $553,000 in 2001; $493,000
in 2002; $426,000 in 2003; and $2,337,000 thereafter. Rental expense for
operating leases for the years ended December 31, 1998 and 1997 was $1,106,000
and $1,081,000, respectively.
NOTE H - LONG-TERM DEBT
At December 31, 1998 and 1997, long-term debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Notes payable to insurance companies, 8.15%, annual
principal payments of $1,000 through June 2006 $ 8,000 $ 9,000
Advanceable term loan, quarterly payments of $75
(see Note I) through June 1998 - 2,900
Mortgages 1,900 596
Other 150 157
-------- --------
10,050 12,653
Less current maturities (1,196) (4,385)
-------- --------
$ 8,854 $ 8,268
======== ========
</TABLE>
Annual maturities of long-term debt are $1,196,000 in 1999; $1,104,000 in 2000;
$1,057,000 in 2001; $1,053,000 in 2002; $1,056,000 in 2003; and $4,584,000
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 three mortgage loans collateralized by manufacturing facilities
with maturities ranging from May 8, 2000 to May 1, 2008. The mortgages require
monthly payments of principal and interest totaling $24,000 and bear interest
ranging from 7% to 7.66%.
At December 31, 1998, the carrying value of long-term debt approximates fair
value based on rates currently available to the Company for debt with similar
characteristics.
In connection with the Transaction, notes payable to the insurance companies
were paid in full.
NOTE I - 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, 1999. At December 31, 1998,
the balance outstanding under the revolving credit note was $640,000. The
advanceable term loan was repaid during 1998. The bank's prime rate was 7.75% at
December 31, 1998.
At December 31, 1997, the Company had borrowings outstanding under notes from
stockholders that totaled $500,000 with interest rates ranging from 6.30 to
6.66%. These notes were repaid in 1998.
The weighted average interest rate on the above revolving credit note and
short-term notes was 7.36% during 1998 and 6.97% during 1997.
18
<PAGE>
NOTE J - 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 $157,000 at
December 31, 1998, are recorded as a reduction of minority interests.
In connection with the Company's 1991 acquisition of a 66% ownership interest in
Multiplex Technology, Inc. (Multiplex), the Company entered into an agreement
with all Multiplex common stock and option holders whereby the Company may be
required 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, 1998, the total purchase obligation is
approximately $680,000. Since 1991, the Company has purchased a total of 11,168
shares for approximately $162,000. In 1997, Multiplex acquired 6,500 treasury
shares from minority shareholders for $143,000, increasing the Company's
ownership interest in Multiplex to 68%. During 1998, Multiplex acquired an
additional 10,833 treasury shares from minority shareholders for $101,000,
increasing the Company's ownership interest to 69.1%.
In addition to the above, the Company invested $427,000 in a product line
acquisition during 1997.
NOTE K - INCOME TAXES
The components of the provision for income taxes for the years ended
December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Federal
Current $3,418 $2,986
Deferred (404) (282)
------ ------
3,014 2,704
------ ------
State
Current 492 422
Deferred (37) (24)
------ ------
455 398
------ ------
Foreign - current 6 5
------ ------
$3,475 $3,107
====== ======
</TABLE>
19
<PAGE>
The components of deferred income taxes as of December 31, 1998 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred income tax liabilities:
Property, plant and equipment $ 786 $ 813
LIFO reserve 242 242
Equity earnings of affiliate 120 -
Installment gain 23 23
Other 9 3
------- -------
1,180 1,081
------- -------
Deferred income tax assets:
Net operating loss, expense and
credit carryforwards (123) (203)
Allowance for doubtful accounts (119) (89)
Inventory basis differences (658) (447)
Accrued expenses (1,043) (749)
Basis differences for amortizable assets (37) (24)
------- -------
(1,980) (1,512)
Valuation allowance 123 203
------- -------
(1,857) (1,309)
------- -------
Net deferred income tax asset (677) (228)
Deferred income taxes included in other current assets 1,571 1,043
------- -------
Long-term deferred income tax liability $ 894 $ 815
======= =======
</TABLE>
The Company has Canadian tax net operating loss carryforwards of approximately
$2,000 and Canadian research and development expense carryforwards of
approximately $176,000 available to offset future Canadian taxable income. The
net operating loss carryforwards will expire in 2003 and 2004. The research and
development expense carryforwards have no expiration period. The Company also
has Canadian research and development credit carryforwards totaling
approximately $53,000 available to offset future Canadian taxable income. These
credit carryforwards expire in the years 2000 through 2006.
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 1998 was a reduction of $80,000 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>
1998 1997
<S> <C> <C>
U.S. federal statutory rate 34.0% 34.0%
Nondeductible items, primarily goodwill amortization 1.7 1.8
State income taxes, net of federal tax benefit 3.2 3.3
Utilization of net operating losses and credits (1.4) (0.6)
Other, net (0.8) 0.6
---- ----
36.7% 39.1%
==== ====
</TABLE>
NOTE L - RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense for the years ended December 31, 1998 and 1997
was approximately $3,117,000 and $3,031,000, respectively.
NOTE M - RETIREMENT PLANS
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standard No. 132 "Employers' Disclosures about Pensions and Other
Post-Retirement Benefits." The statement does not change the measurement or
recognition of those plans, but revises disclosures about pensions and other
postretirement benefit plans. Restatement of disclosures for the prior year has
been made for comparative purposes.
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 1998 and 1997 was approximately $270,000 and $195,000,
respectively.
The Company has a 401(k) plan that 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
$404,000 and $330,000 in 1998 and 1997, respectively.
Multiplex has a 401(k) plan that covers all of its employees. Multiplex's
contributions to the plan are discretionary and totaled approximately $18,000 in
1998. No contribution was made to the plan in 1997.
Gits Manufacturing Company (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.
20
<PAGE>
Summarized information on the Plan is shown below (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 937 $ 860
Service cost 36 38
Interest cost 57 55
Actuarial loss 141 27
Benefits paid (49) (43)
------ ------
Benefit obligation at end of year $1,122 $ 937
====== ======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $1,270 $1,077
Actual return on plan assets 145 212
Employer contributions - 24
Benefits paid (49) (43)
------ ------
Fair value of plan assets at end of year $1,366 $1,270
====== ======
RECONCILIATION OF FUNDED STATUS
Overfunded status $ 244 $ 333
Unrecognized net actuarial gain (182) (300)
Unrecognized transition asset (21) (24)
Unrecognized prior service cost 36 40
------ ------
Prepaid benefit $ 77 $ 49
====== ======
COMPONENTS OF NET PERIODIC (BENEFIT) COST
Service cost $36 $38
Interest cost 57 55
Expected return on plan assets (109) (93)
Recognized net actuarial gain (13) (8)
Amortization of transition asset (2) (2)
Amortization of prior service cost 4 3
------ ------
Net periodic benefit $ (27) $ (7)
====== ======
</TABLE>
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSUMPTION AND METHOD DISCLOSURES
Discount rate 5.50% 6.25%
Expected long-term rate of return on assets 8.50% 8.75%
Amortization method Straight- Line Straight- Line
</TABLE>
NOTE N - STOCK OPTION PLAN
The Company has a nonqualified stock option plan for key employees. Under the
plan, 1,125,000 shares are authorized and 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. In addition, upon a change of control, options vest immediately.
21
<PAGE>
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, 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
Options granted (79,000) 79,000 15.01
Options exercised - (75,750) 4.71
Options lapsed 1,125 (1,125) 9.08
--------- ----------- -------
BALANCES, DECEMBER 31, 1998 319,500 353,750 $ 9.25
========= =========== =======
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- -------------------------------------
WEIGHTED AVERAGE
REMAINING LIFE WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF PRICES NUMBER (IN YEARS) PRICE PER SHARE NUMBER OF OPTIONS PRICE PER SHARE
PER SHARE PRICE OF OPTIONS
<C> <C> <C> <C> <C> <C>
$5.22 - $7.39 171,250 2.22 $ 6.70 171,250 $ 6.70
$7.83 - $10.42 95,500 4.06 $ 8.67 51,813 $ 8.49
$14.00 $15.13 87,000 6.21 $14.91 2,000 $14.00
------- -------
$5.22 - $15.13 353,750 225,063
======= =======
</TABLE>
22
<PAGE>
The following table summarizes information about vested options:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Number of options 225,063 239,938
Price per share $5.22 - $14.00 $3.19 - $9.08
</TABLE>
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 plan based
on fair value at the grant dates for awards under the plan, consistent with the
method suggested by Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation," the Company's net income would have
been decreased to the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
AS AS
REPORTED REPORTED
<S> <C> <C> <C> <C>
Net income $5,908 $5,825 $4,833 $4,795
</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>
1998 1997
<S> <C> <C>
Expected dividend yield 1.30% 1.50%
Expected volatility 59.42% 26.81%
Risk-free interest rate 5.61% 6.36%
Expected lives (years) 5.5 5.5
</TABLE>
The weighted-average grant-date fair value of options granted during 1998 and
1997 was $8.06 and $3.99, respectively.
NOTE O - 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 both 1998
and 1997.
At December 31, 1997 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 P - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Income taxes $3,620 $3,693
Interest 1,115 1,195
</TABLE>
23
<PAGE>
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 hereunto duly authorized.
KEY COMPONENTS FINANCE CORP.
By: /s/ Alan L. Rivera
-----------------------------
Alan L. Rivera
Vice President
Date: April 1, 1999
24
<PAGE>
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 hereunto duly authorized.
KEY COMPONENTS, LLC
By: /s/ Alan L. Rivera
-------------------------------
Alan L. Rivera
Vice President
Date: April 1, 1999
26
