<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from ______ to ______
Commission File Number 1-5483
WHITEHALL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 41-0838460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
POST OFFICE BOX 29709 75229
2659 NOVA DRIVE (Zip Code)
DALLAS, TEXAS
(Address of principal executive offices)
Registrant's telephone number, including area code: 214-247-8747
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $0.10 PAR VALUE
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by 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
this Form 10-K.
-------
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 25, 1996, was $57,493,074.
On March 25, 1996, there were issued and outstanding 2,741,300 shares of the
registrant's Common Stock, $0.10 par value, excluding 1,080,656 shares of
treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the annual meeting of
stockholders presently scheduled to be held on May 13, 1996, are incorporated
into Part III by reference.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Whitehall Corporation ("Whitehall" or the "Company" hereinafter) was
incorporated under the laws of Delaware in 1963 as a successor to a Minnesota
corporation organized in 1960.
The Company operates in three segments: Ocean Systems, Aircraft
Maintenance and Electronics. Reference is made to Note I of the Notes to
Consolidated Financial Statements on page 19 herein for pertinent financial
data of each segment as well as information regarding the Company's major
customers.
OCEAN SYSTEMS SEGMENT: The Ocean Systems segment manufactures and
sells underwater sensing systems used for naval surveillance and offshore
geophysical surveys. The principal subsidiary of the Company constituting the
Ocean Systems segment is Hydroscience, Inc. ("Hydroscience"), which is engaged
in the design and manufacture of marine sensor systems for geophysical and
military applications. Because of reductions in defense spending, the Company
invested in the development of a new 24-bit digital seismic streamer known as
CenturyMux. The Company has had some success in using this new technology to
offset the decline in military revenues. However, further growth in this
segment could require expenditures, which may be substantial, for new product
research and development. The Company is currently evaluating options ranging
from making the necessary investment to divesting some or all of the Company's
ownership interest in Hydroscience.
Rogers Explorations, Inc., an additional subsidiary in this segment,
which experienced no operating activity during the past several years was
liquidated in 1995.
AIRCRAFT MAINTENANCE SEGMENT: The Company's wholly-owned subsidiary,
Aero Corporation ("Aero"), located in Lake City, Florida, rebuilds, modifies
and maintains turboprop and jet aircraft. Aero operates as a service business.
Aero's primary business is the modification and maintenance of commercial
passenger and freighter aircraft. Aero has invested heavily in a major
renovation of its facility in Lake City, Florida and has expanded its employee
base in order to attract additional commercial customers. Aero's facility can
accommodate most narrow-body aircraft and has undergone modification to
accommodate nearly all wide-body aircraft in current production. The Company
includes in its customer base passenger airlines, cargo carriers and private
and corporate executive jets. The Company believes that the commercial market
represents a significant opportunity because of the potential associated with
the maintenance and modification of aging aircraft in commercial fleets and
because the current downsizing trend in the airline industry could lead to the
outsourcing of maintenance work to low cost facilities. As an FAA approved
repair station, Aero is qualified to work on DC-8, DC-9, DC-10, 707, 727, 737,
L-100, L-188, C-130 and other military and commercial aircraft. During 1994
Aero acquired a 40% interest in AvAero, a joint venture which developed jet
engine Hushkits for Boeing 737- 100/200 aircraft (see Note M page 24). Aero is
also selectively pursuing military contracts.
ELECTRONICS SEGMENT: Crystek Crystals Corporation, ("Crystek") a
subsidiary of the Company located in Fort Myers, Florida, manufactures and
distributes quartz crystals and oscillators. The products are utilized in
various electronic end products including communications equipment, computers
and timing devices. The Electronics segment provides products to customers in
the computer and communication industries.
RAW MATERIALS: The primary basic raw materials utilized by the
Company are wire, plastics and electronic components primarily used in the
Ocean Systems segment. The Company is not dependent upon any single supplier
or group of suppliers for any of the raw materials it uses in manufacturing its
products and has encountered no difficulties in purchasing sufficient
quantities in the open market.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS: Most
technology utilized by the Company is proprietary technology and attributed to
the Ocean Systems segment. The Company has applied for patent protection for
its CenturyMux product. In the opinion of the Company, no single patent or
group of patents is material to any segment of its business, and it does not
pay or receive substantial royalties under license agreements. The Company
seeks patent protection in the normal course of business with respect to
inventions and improvements developed by its employees which it considers
patentable. The Company holds no franchises or concessions.
COMPETITIVE CONDITIONS: The Company is subject to severe competitive
conditions in all segments of its business. The Company believes other
companies have substantially greater resources available with which to compete.
Although the Company does not have data available to determine its exact
relative market position, the Company does not believe that it presently has a
substantial position in any of the markets for its products and services.
Competition in each segment is primarily related to price and service.
-1-
<PAGE> 3
ITEM 1. BUSINESS (CONTINUED)
CUSTOMERS: The Company has two customers in the Aircraft Maintenance
segment that account for at least 10% of 1995 consolidated revenues: Valujet
Airlines and Continental Airlines. Valujet Airlines accounted for
approximately 30% of consolidated net sales in 1995 and 11% of consolidated net
sales in 1994. Continental Airlines accounted for 21% of consolidated sales in
1995. The United States Government accounted for approximately 2% of net sales
in 1995, 10% of consolidated net sales in 1994 and 14% of consolidated net
sales in 1993. Emery Worldwide accounted for 9% of consolidated net sales in
1995, 25% of consolidated net sales in 1994 and 27% of consolidated net sales
in 1993. Southern Air Transport accounted for approximately 2% of consolidated
net sales in 1995, 18% of consolidated net sales in 1994 and 6% of consolidated
net sales in 1993. The Mexican Government accounted for approximately 1% of
consolidated net sales in 1995, 3% of consolidated net sales in 1994 and 13% of
consolidated net sales in 1993.
ENVIRONMENTAL REGULATION: Aero is taking remedial action pursuant to
Environmental Protection Agency ("EPA") regulations at the Lake City, Florida
facility. The Company does not anticipate any material direct effects upon
the capital expenditures, earnings and competitive position of the Company from
compliance with present Federal, State and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment. The Company does
expect, however, that compliance with such regulations will require, from time
to time, both increased operating costs and capital expenditures which may be
substantial. As of December 31, 1995 and 1994, the Company had reserved
approximately $625,000 and $736,000 respectively for anticipated environmental
remediation costs at the Aero facility. The decrease in accrued environmental
remediation costs was due to expenditures and additional information obtained
relating to the nature and extent of required remediation. The Company will
install a clay barrier over one section of the leased property and additional
testing determined another clay barrier will not be required over a second
section of the property. Other remaining costs to be incurred will include
testing and monitoring to be performed over a 20 to 30 year period. Actual
costs to be incurred in future periods may vary from the estimate, given the
inherent uncertainties in evaluating environmental exposures. These
uncertainties include the extent of required remediation based on testing and
evaluation not yet completed and the varying costs and effectiveness of
remediation methods.
BACKLOG: At December 31, 1995, the Company's consolidated firm
backlog totaled $65,800,000 compared to $21,874,000 at the end of 1994, and
$3,938,000 at the end of 1993. This backlog is not indicative of sales for the
coming year as some portion of the backlog relates to work to be performed
beyond 1996. In addition, the backlog is based on management's estimate of
work to be performed in accordance with customer supplied aircraft input dates
and does not include any drop-in aircraft nor contracts for which the Company
is currently bidding.
RESEARCH AND DEVELOPMENT EXPENDITURES: Reference is made to Note A of
the Notes to Consolidated Financial Statements on page 14 herein for the
amounts of research and development expenditures during the past three calendar
years.
NUMBER OF EMPLOYEES: The Company and its subsidiaries employed a
total of 682 persons at December 31, 1995. The Company has generally enjoyed
good relations with its employees.
-2-
<PAGE> 4
ITEM 2. PROPERTIES
The following are the locations and general character of the principal
plants and other materially important physical properties of the Company and
its subsidiaries:
<TABLE>
<CAPTION>
Approximate
Approximate Square Feet
Industry Segment Total of Floor Owned or
and Location Acreage Space Description Leased
------------ --------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
OCEAN SYSTEMS
Dallas, Texas 5.3 80,000 Executive offices of the Company Owned
and manufacturing facilities and
offices of Hydroscience, Inc.
AIRCRAFT MAINTENANCE
Lake City, Florida 120.0 625,000 Offices and aircraft rebuilding Lease
and modification facilities of expiring 2022
Aero Corporation
ELECTRONICS
Fort Myers, Florida 3.0 20,000 Offices and manufacturing Owned
facilities of Crystek Crystals
Corporation
</TABLE>
The Company believes that its plants and other physical properties are
adequate for its intended operations. Aero has undertaken significant
renovations to the Lake City, Florida property in order to position itself to
attract additional commercial customers.
-3-
<PAGE> 5
ITEM 3. LEGAL PROCEEDINGS
On May 10, 1991, an action was filed in the District Court of Dallas County,
Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and
President of Whitehall, against the Company, each of its directors (other than
Mr. Webster) and Cambridge Capital Fund, L.P., alleging, among other things,
that (i) the defendants' actions, both individually and in concert, constituted
willful interference with Mr. Webster's employment relationship with the
Company and were the direct cause of Mr. Webster's termination as its President
and Chairman of the Board, and (ii) the defendants' actions forced Mr. Webster
into retirement without providing Mr. Webster with retirement benefits which
Mr. Webster was purportedly promised. On August 17, 1994, the defendants were
granted a partial summary judgment. On October 24, 1994, Mr. Webster filed a
third amended petition and alleged the following causes of action: tortious
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million. On January
12, 1995, the Court entered an abatement on one of the breach of oral contract
claims against the Company and entered a summary judgment in the defendants'
favor on all remaining claims alleged by Mr. Webster. On February 26, 1996,
the Court granted a summary judgment in favor of the defendants on Mr.
Webster's remaining claims and entered a take nothing final judgment which
dismissed all of Mr. Webster's claims with prejudice to refiling. On March
26, 1996, Mr. Webster appealed the final judgment to the Dallas, Texas Court of
Appeals. Management intends to vigorously defend the appeal.
On September 22, 1992, Mr. Webster filed an action in the District Court of
Dallas County, Texas, against First City, Texas-Dallas ("First City"), the
Company and a former employee of the Company. As receiver for First City, the
Federal Deposit Insurance Corporation has intervened and removed this case to
the U.S. District Court for the Northern District of Texas. The petition
alleged, among other things, that (i) the Company interfered with Mr. Webster's
existing and prospective contractual relationship with the former employee and
First City, a national banking institution; (ii) the Company has converted to
its own use the former employee's Company stock which allegedly was owned by Mr.
Webster; (iii) the Company, First City and the former employee conspired to
commit fraud against Mr. Webster; and (iv) the actions of the Company, First
City, and the former employee were intentionally done to cause Mr. Webster
emotional distress. The petition sought, among other things, not less than $1
million in compensatory damages, not less than $5 million in exemplary damages
and not less than $1 million as damages for emotional distress. By orders dated
June 2, 1994 and June 20, 1994, the Company was granted a summary judgment on
all claims alleged by Mr. Webster. On July 31, 1995, the Court entered a final
judgment disposing of all claims alleged against all parties. Mr. Webster has
appealed the final judgment to the United States Court of Appeals for the Fifth
Circuit. Management intends to vigorously defend the appeal.
The Company is also involved in certain legal proceedings in the normal
course of its business.
After consultation with counsel, management is of the opinion that the
outcome of the above-mentioned proceedings will not have a material effect on
the financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-4-
<PAGE> 6
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names and ages of all executive officers of the
Company, all positions and offices of the Company presently held by such
persons, the commencement of the period of continuous service as an executive
officer, and the business experience of each operating officer during the past
5 years.
<TABLE>
<CAPTION>
Name Age Offices with Company and Business Experience During Past 5 Years
---- --- -----------------------------------------------------------------
<S> <C> <C>
George F. Baker 56 Chairman of the Board and Chief Executive Officer of the Company since April
1991; President of the Company from October 1991 until April 1995; a Managing
Partner of Cambridge Capital Fund, L.P. since its formation in 1988; a
Managing Partner of Baker Nye Investments, L.P., since 1967.
John H. Wilson 53 President of the Company since May 1995; Director of the Company since July
1983. Served as interim President of the Company from April 1991 until
October 1991. Director of Capital Southwest Corporation, Encore Wire
Corporation, Norwood Promotional Products, Inc. and Palm Harbor Homes, Inc.
Has been President of U. S. Equity Corporation since 1983.
E. Forrest Campbell 39 Vice President and Treasurer of the Company since June 1990; Assistant
Treasurer of the Company since 1985; various other positions with the Company
since 1975.
Daniel R. Donham 42 Vice President and Controller of the Company since June 1990; Assistant
Controller of the Company since 1985; various other positions with the
Company since 1981.
Jerry L. Fortenberry 56 Vice President-General Manager of Hydroscience, Inc. since May 1995; Director
of Marketing for Hydroscience 1992 to May 1995; Director of Marketing for
Hermes 1986 to 1992.
Mark A. Owen 48 President of Aero Corporation since June 1994; President of Safety Signal
Systems 1993 to June 1994; CEO of Tramco 1991 to 1993; various Management
positions with BFGoodrich 1982 to 1991; aerospace engineer for Wright-
Patterson Air Force base 1971 to 1982.
Mark S. Stearns 61 Vice President-General Manager of Crystek Corporation since June 1995; General
Manager of Crystek 1991 to June 1995: Marketing Manager for Crystek 1986 to
1991.
</TABLE>
There are no family relationships between any of the executive
officers.
Executive officers of the Company are not elected for a fixed term but
serve subject to the earlier of their resignation or removal by the Board of
Directors and until their respective successors are elected and qualified.
-5-
<PAGE> 7
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $0.10 par value (the "Common Stock") is
listed on the New York Stock Exchange ("NYSE"), the principal market in which
these securities are traded. The Company's only listing agreement is with the
NYSE. At March 25, 1996, the Company had 650 stockholders of record.
The table below shows the high and low sales prices of the Common
Stock as reported for the NYSE Composite Transactions for each quarter during
the two most recent calendar years.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $24.250 $20.375 $33.125 $22.750 $39.000 $30.000 $39.750 $33.000
1994 $14.625 $12.625 $12.625 $11.000 $20.500 $10.750 $24.625 $17.250
</TABLE>
The Company has not paid any cash dividends on its Common Stock, and
its policy is to retain earnings for use in its business.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollar Amounts in Thousands Except Per Share Figures)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales $ 56,229 $ 32,098 $ 30,910 $ 25,612 $ 22,048
Cost of sales 48,385 27,586 26,455 22,474 22,886
Gross profit (loss) 7,844 4,512 4,455 3,138 (838)
Income (loss) before taxes 3,838 (1,224) (3,190) (2,276) (12,952)
Net income (loss) 2,949 (1,224) (1,868) (1,486) (10,152)
Net income (loss) per share 1.05 (0.45) (0.67) (0.49) (3.06)
Average shares outstanding 2,821,152 2,698,615 2,781,174 3,063,774 3,315,550
Cash flow from operations (1,802) 1,990 (2,001) 2,187 (1,433)
Capital expenditures 1,668 467 2,313 1,735 1,359
YEAR-END POSITION:
Total assets 41,182 32,213 32,863 37,858 43,559
Working capital 21,398 17,739 20,813 26,869 32,508
Current ratio 3.0 4.5 5.7 7.6 7.8
Property, plant and equipment -- net 6,869 6,384 7,099 6,209 5,178
Common shareholders' equity 30,099 26,989 28,239 33,548 38,719
Per share outstanding 11.07 9.97 10.44 11.49 12.16
YEAR-END STATISTICS:
Common shares outstanding 2,719,900 2,706,300 2,706,000 2,920,600 3,183,900
Number of shareholders 661 740 793 867 938
Number of employees 682 512 528 538 522
Backlog 65,800 21,874 3,938 6,630 9,576
Plant area (thousand sq. ft.) 725 767 846 846 846
</TABLE>
-6-
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS
Consolidated sales totaled $56,229,000 for 1995, an increase of 75%
over sales of $32,098,000 in 1994. Aircraft Maintenance segment sales
increased by $17,238,000 to $42,641,000 in 1995, primarily as a result of its
continued expansion into the third party commercial aircraft maintenance
market. Sales in the Ocean Systems segment increased by $6,126,000 to
$9,948,000 in 1995. Revenues in the Ocean Systems segment increased primarily
as a result of new product sales in the commercial geophysical market. Sales
in the Electronics segment increased by $767,000 to $3,640,000 in 1995.
Information about the Company's operations in each segment is summarized in
Note I on page 19.
Sales in 1994 increased by 4% over sales in 1993. As a result of
increased commercial aircraft maintenance business, the Aircraft Maintenance
segment's sales increased to $25,403,000 in 1994 from $22,182,000 in 1993.
Sales in the Ocean Systems segment declined to $3,822,000 in 1994 from
$5,527,000 in 1993 as a result of the decline in military business. Sales in
the Electronics segment decreased to $2,873,000 in 1994 from $3,201,000 in
1993.
The Company recorded income from operations of $2,875,000 in 1995
compared to an operating loss of $2,588,000 in 1994. This improvement resulted
from increased profitability (operating profit of $3,430,000 in 1995 compared
to operating profit of $743,000 in 1994) in the Aircraft Maintenance segment,
accomplished through stringent cost control measures coupled with the increase
in sales volume. The Ocean Systems segment's improvement (operating profit of
$419,000 in 1995 compared to an operating loss of $2,156,000 in 1994) resulted
from the increase in sales coupled with a reduction in research and development
spending. The Electronics segment's profitability improved (operating profit
of $796,000 in 1995 compared to operating profit of $580,000 in 1994) through
the increase in sales volume. Corporate office general and administrative
expenses totaled $2,128,000 in 1995 compared to $1,672,000 in 1994.
The Company recorded a loss from operations of $2,588,000 in 1994
compared to an operating loss of $4,140,000 in 1993. Primarily as a result of
an increase in sales volume, the Aircraft Maintenance segment reported an
operating profit of $743,000 in 1994 compared to an operating profit of
$506,000 in 1993. The Ocean Systems segment recorded a loss from operations of
$2,156,000 in 1994 compared to an operating loss of $2,589,000 in 1993. The
Ocean Systems segment's losses resulted from declining military revenues
coupled with research and development expenditures totaling $1,993,000 in 1994
and $1,936,000 in 1993. The Electronics segment reported an operating profit
of $580,000 in 1994 compared to an operating profit of $259,000 in 1993. The
increase in the Electronic segment's profitability resulted from improved
operating efficiencies. Corporate office general and administrative expenses
totaled $1,672,000 in 1994 compared to $2,137,000 in 1993.
Other income decreased to $963,000 in 1995 from $1,364,000 in 1994.
Other income includes gains on sales of fixed assets of $650,000 in 1995,
$512,000 in 1994, and $159,000 in 1993 as well as interest earned of $671,000
in 1995, $791,000 in 1994 and $610,000 in 1993.
The Company recorded net income tax expense of $889,000 for 1995. The
Company did not record a net income tax benefit related to the loss before
income taxes in 1994 since the Company had used all available loss carrybacks
and any tax benefits resulting from losses must now be carried forward. The
income tax benefit of $1,322,000 was recorded in 1993 since a carryback to
1990 was available. (See Note E on Page 16).
LIQUIDITY AND CAPITAL RESOURCES
During 1995, cash used in operating activities totaled $1,802,000
compared to cash provided by operating activities of $1,990,000 in 1994. The
accounts receivable balance of $17,397,000 at year end led to the deficit in
operating cash flow in 1995. Cash collected from recoverable income taxes of
$4,596,000 was the primary source of cash provided by operations in 1994.
Increases in prepaid expenses and operating losses contributed to the negative
cash flow in 1993.
The Company made capital expenditures during 1995 of approximately
$1,668,000 compared to $467,000 and $2,313,000 in 1994 and 1993, respectively.
The majority of the capital expenditures in 1995 and 1993 relate to the
Aircraft Maintenance segment and were made to renovate the Aero facility in
Lake City, Florida. The 1994 expenditures mainly relate to CenturyMux test
equipment in the Ocean Systems segment. The Company will make capital and
other expenditures during 1996 as conditions warrant. The Company believes its
cash balances and line of credit facility are sufficient to meet its short and
long-term capital requirements. Any future acquisitions may require additional
capital.
Cash and cash equivalents decreased from approximately $9,456,000 in
1994 to $7,382,000 in 1995. The decrease is primarily the result of capital
expenditures ($1,668,000) and cash used in operating activities ($1,802,000).
-7-
<PAGE> 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 9
Consolidated Balance Sheets at December 31, 1995 and 1994 10
Consolidated Statements of Operations and Retained Earnings for the Years Ended
December 31, 1995, 1994 and 1993 12
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 13
Notes to Consolidated Financial Statements 14
Schedule II -- Valuation and Qualifying Accounts 29
</TABLE>
-8-
<PAGE> 10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Whitehall Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Whitehall
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations and retained
earnings and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 financial position of Whitehall Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 21, 1996
-9-
<PAGE> 11
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
------------
1995 1994
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,382,000 $ 9,456,000
Accounts receivable, net 17,397,000 6,988,000
Inventories 7,137,000 6,304,000
Prepaid expenses and other 397,000 582,000
------------ ------------
TOTAL CURRENT ASSETS 32,313,000 23,330,000
PROPERTY, PLANT AND EQUIPMENT:
Land 399,000 499,000
Buildings 1,282,000 1,485,000
Machinery and equipment 16,723,000 18,148,000
Leasehold improvements 6,777,000 6,263,000
------------ ------------
25,181,000 26,395,000
Allowances for depreciation and amortization 18,312,000 20,012,000
------------ ------------
6,869,000 6,383,000
NOTES RECEIVABLE 2,000,000 2,500,000
------------ ------------
TOTAL ASSETS $ 41,182,000 $ 32,213,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-10-
<PAGE> 12
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
------------
1995 1994
-------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 9,104,000 $ 4,098,000
Accrued environmental costs 625,000 736,000
Federal income tax liability 1,186,000 200,000
------------ -------------
TOTAL CURRENT LIABILITIES 10,915,000 5,034,000
DEFERRED INCOME TAX LIABILITY - 190,000
OTHER NON-CURRENT LIABILITIES 168,000 -
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $5.00 par value:
Authorized 500,000 shares -- none issued - -
Common stock, $.10 par value:
Authorized 5,000,000 shares, issued 3,800,556 and 3,786,956
at December 31, 1995 and 1994 380,000 379,000
Additional paid-in capital 1,360,000 1,200,000
Retained earnings 44,504,000 41,555,000
------------ -------------
46,244,000 43,134,000
Less- treasury stock (1,080,656 shares at December 31, 1995
and 1994), at cost (16,145,000) (16,145,000)
------------ -------------
30,099,000 26,989,000
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 41,182,000 $ 32,213,000
============ =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
-11-
<PAGE> 13
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
December 31,
------------
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Net sales:
Products $ 13,588,000 $ 6,695,000 $ 8,729,000
Services 42,641,000 25,403,000 22,181,000
------------ ----------- ------------
56,229,000 32,098,000 30,910,000
Cost of sales:
Products 10,875,000 4,471,000 6,763,000
Services 37,510,000 23,115,000 19,691,000
------------ ----------- ------------
48,385,000 27,586,000 26,454,000
GROSS PROFIT 7,844,000 4,512,000 4,456,000
Selling, engineering and administrative 4,969,000 7,100,000 8,596,000
------------ ----------- ------------
INCOME (LOSS) FROM OPERATIONS 2,875,000 (2,588,000) (4,140,000)
Other income, net 963,000 1,364,000 950,000
------------ ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 3,838,000 (1,224,000) (3,190,000)
Income tax (expense) benefit (889,000) - 1,322,000
------------ ----------- ------------
NET INCOME (LOSS) 2,949,000 (1,224,000) (1,868,000)
Retained earnings at beginning of year 41,555,000 42,779,000 44,647,000
RETAINED EARNINGS AT END OF YEAR $ 44,504,000 $41,555,000 $ 42,779,000
============ =========== ============
Net income (loss) per share $ 1.05 $ (0.45) $ (0.67)
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-12-
<PAGE> 14
WHITEHALL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
------------
1995 1994 1993
-------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,949,000 $(1,224,000) $ (1,868,000)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities-
Depreciation and amortization 1,097,000 982,000 1,114,000
Gain on sale of fixed assets (650,000) (512,000) (159,000)
Changes in operating assets and liabilities--
Accounts receivable, net (10,409,000) (1,322,000) 352,000
Recoverable Federal income taxes - 3,910,000 (1,802,000)
Federal income tax liability 1,186,000 - -
Deferred income taxes (390,000) 77,000 1,216,000
Inventories (833,000) 1,601,000) 305,000
Prepaid expenses and other 185,000 1,157,000 (1,290,000)
Other non-current assets - - 156,000
Accounts payable and accrued liabilities 5,006,000 598,000 (13,000)
Other liabilities 57,000 (75,000) (12,000)
------------ ------------ -------------
Total adjustments (4,751,000) 3,214,000 (133,000)
------------ ------------ -------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,802,000) 1,990,000 (2,001,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities - 4,463,000 5,925,000
Capital expenditures (1,668,000) (467,000) (2,313,000)
Notes receivable 500,000 (2,541,000) -
Proceeds from sale of fixed assets 735,000 711,000 468,000
------------ ------------ -------------
CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (433,000) 2,166,000 4,080,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock from exercise of stock options 161,000 149,000 -
Purchases of treasury stock - (174,000) (3,441,000)
------------ ------------ -------------
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 161,000 (25,000) (3,441,000)
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents (2,074,000) 4,131,000 (1,362,000)
Cash and cash equivalents at beginning of period 9,456,000 5,325,000 6,687,000
------------ ------------ -------------
Cash and cash equivalents at end of period $ 7,382,000 $ 9,456,000 $ 5,325,000
============ ============ =============
SUPPLEMENTAL INFORMATION:
Cash received during the year for:
Income taxes $ 612,000 $ 4,596,000 $ 1,829,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
-13-
<PAGE> 15
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES AND PRACTICES
Consolidation: The consolidated financial statements of Whitehall Corporation
and subsidiaries (the "Company") include the accounts of all subsidiaries after
elimination of intercompany accounts and transactions.
Use of Estimates: Generally accepted accounting principles require management
to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications have been made to 1994 and 1993
amounts to conform with the 1995 presentation.
Long-Term Contracts: Revenue on long-term contracts is recognized using the
percentage of completion or unit of delivery method. On contracts where the
percentage of completion method is applied, revenue and income is accrued in
the proportion that costs incurred bear to management's estimate of total
contract costs. Any known or anticipated losses are provided for currently.
Concentration of Credit Risk: Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of temporary
cash investments and accounts receivable. The Company places its temporary
cash investments with creditworthy financial institutions and, thus, limits the
amount of credit exposure to any one entity. The Company's customer base is
comprised primarily of U.S. airlines and air transport companies.
Inventories: Inventories are carried at average cost, not in excess of market.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. Provisions for depreciation and amortization have been computed
generally using the straight-line method over the estimated useful lives of the
assets.
Research and Development: Research and development costs are included in
selling, engineering and administrative expenses and amounted to approximately
$45,000 in 1995, $1,993,000 in 1994 and $1,936,000 in 1993.
Federal Income Taxes: The Company accounts for income taxes using an asset and
liability approach for financial accounting and income tax reporting. Deferred
tax liabilities and assets are recognized for the estimated future tax effects
attributable to temporary differences and carryforwards and are adjusted
whenever tax rates or other provisions of income tax statutes change.
The Company and all subsidiaries file a consolidated Federal income tax return.
Deferred Federal income taxes have been provided for temporary differences
between tax and financial reporting resulting primarily from depreciation
provisions, allowances and expense accruals.
Per Share Amounts: Per share computations are based on the weighted average
number of common shares outstanding of 2,821,152 in 1995, 2,698,615 in 1994,
and 2,781,174 in 1993.
Joint Venture Investment: See Note M on page 24.
Future Accounting Changes: The Company plans to adopt Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of", effective
January 1, 1996. Under SFAS No. 121, impairment losses are recognized when
information indicates the carrying amount of long-lived assets will not be
recovered through future operations or sale. Impairment losses for assets to
be held or used in operations will be based on the excess of the carrying
amount of the asset over the asset's fair value. SFAS No. 121 will be applied
prospectively from the date of adoption and, based on current circumstances,
management does not believe the effect of adoption will be material.
The Company also plans to adopt Statement of Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based compensation" effective January
1, 1996. SFAS No. 123 requires the use of an option pricing model to calculate
the value of stock-based compensation transactions, but then allows for two
alternative methods of reporting the transactions. One method recognizes this
value as a cost of compensation and as an expense for the current period. The
alternative method permits footnote disclosure of the compensation cost,
without charging the amount against earnings. The Company intends to implement
the method which utilizes the footnote disclosure alternative and does not
expect the adoption of SFAS No. 123 to have a significant impact on
consolidated results of operations or financial position of the Company.
-14-
<PAGE> 16
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Cash Equivalents: Cash equivalents consist of highly liquid debt instruments
purchased with an original maturity of three months or less.
Treasury Shares: During 1991, the Board of Directors authorized the repurchase
of up to 500,000 shares of the Company's common stock. An additional
authorization of 250,000 shares was made by the Board of Directors in March
1993. As of December 31, 1994, a total of 628,900 shares had been purchased
under these authorizations. The Company did not acquire any treasury stock
during 1995. The Company acquired 12,900 and 214,600 shares of its common stock
in 1994 and 1993 at prices averaging $13.52 and $16.03 per share, respectively.
Other Income: Other income includes interest earned of $671,000 in 1995,
$791,000 in 1994, and $610,000 in 1993. Other income also includes gains on
sales of fixed assets of $650,000 in 1995, $512,000 in 1994, and $159,000 in
1993.
Employee Benefits
The Company offers no significant post-employment or post-retirement benefits.
NOTE B -- ACCOUNTS RECEIVABLE, NET
Accounts receivable were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
Commercial accounts:
Accrued sales not billed $ 6,607,000 $ 4,145,000
Billed 9,821,000 2,899,000
------------- ------------
16,428,000 7,044,000
Receivables from foreign governments 231,000 10,000
Receivables from U.S. Government 450,000 792,000
------------- ------------
681,000 802,000
Advance to joint venture (see Note M, page 24) 1,020,000 -
Less -- allowance for doubtful accounts 732,000 858,000
------------- ------------
$ 17,397,000 $ 6,988,000
============= ============
</TABLE>
Accrued sales not billed will be billed on the basis of contract terms and
deliveries. All accrued amounts at December 31, 1995, are expected to be
billed and collected in 1996.
-15-
<PAGE> 17
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
Finished goods $ 2,849,000 $ 966,000
Work in process 75,000 782,000
Raw materials 4,213,000 4,556,000
------------ -------------
$ 7,137,000 $ 6,304,000
============ =============
</TABLE>
Costs included in inventories include raw materials and related labor and
overhead costs.
NOTE D -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
---------------- --------------
<S> <C> <C>
Accounts payable $ 8,207,000 $ 3,488,000
Salaries, wages and payroll taxes 897,000 610,000
------------ ------------
$ 9,104,000 $ 4,098,000
============ ============
</TABLE>
NOTE E -- INCOME TAXES
Federal and state income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Current Deferred Current Deferred Current Deferred
----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Federal $ 1,279,000 $ (390,000) $ 62,000 $ (62,000) $ (2,845,000) $ 1,523,000
State - - - - - -
--------------- ------------ --------- ---------- ------------- -----------
$ 1,279,000 $ (390,000) $ 62,000 $ (62,000) $ (2,845,000) $ 1,523,000
=============== ============ ========= ========== ============= ===========
</TABLE>
The benefit for income taxes differs from the amount computed by applying the
Federal income tax rate to income before income taxes. The following table
summarizes the reasons for this difference:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1995 1994 1993
--------------- -------------- ---------------
<S> <C> <C> <C>
Income tax provision (benefit) at
statutory rate $ 1,315,000 $ (416,000) $(1,084,000)
Tax-exempt interest income - (4,000) (133,000)
Research and development tax credit - - (172,000)
Alternative minimum tax (12,000) 62,000 -
Change in deferred tax allowance (515,000) 343,000 164,000
Other items -- net 101,000 15,000 (97,000)
-------------- ----------- ------------
$ 889,000 $ - $(1,322,000)
============== =========== ============
</TABLE>
-16-
<PAGE> 18
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Short-term-
Uniform cost capitalization $ 19,000 $ 215,000
Expense accruals not deducted for tax purposes 596,000 403,000
---------- ----------
Total short-term 615,000 618,000
Long-term-
Other 37,000 239,000
---------- ----------
Total deferred tax assets 652,000 857,000
Less- Valuation allowance (342,000) (857,000)
---------- ----------
Net deferred tax asset $ 310,000 $ -
========== ==========
Deferred tax liabilities-
Short-term-
Costs deducted for tax purposes $ 56,000 $ 200,000
Long-term-
Difference for depreciation of property, plant,
and equipment 254,000 190,000
---------- ----------
Total deferred tax liability $ 310,000 $ 390,000
========== ==========
</TABLE>
-17-
<PAGE> 19
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- STOCK OPTION PLANS
In May 1992, the stockholders approved the Whitehall Corporation Incentive
Stock Option Plan ("Incentive Plan") and the Whitehall Corporation Non-Employee
Directors Stock Option Plan ("Directors Plan"). The Incentive Plan provides
for the grant of incentive stock options for up to 325,000 shares of Common
Stock to key employees. The Directors Plan provides for the grant of incentive
stock options for up to 65,000 shares of Common Stock to non-employee Directors
of the Company. Under the Plans, the exercise price for stock options will not
be less than the fair market value of the optioned stock at the date of grant.
The options granted generally become exercisable over a five-year period
beginning one year from the date of grant. At December 31, 1995, 98,100
options were exercisable. The option period under both Plans may not be more
than ten years from the date the option is granted. Transactions involving the
Plans are summarized as follows:
<TABLE>
<S> <C>
Options outstanding, January 1, 1993 272,000
Granted ($17.00 per share) 10,000
Canceled ($17.00 per share) (10,000)
Exercised -
---------
Options outstanding, December 31, 1993 272,000
Granted ($11.875-$12.625 per share) 50,000
Canceled ($11.25-$17.00 per share) (107,000)
Exercised ($11.25 per share) ( 13,000)
---------
Options outstanding, December 31, 1994 202,000
Granted ($28.25 per share) 10,000
Canceled -
Exercised ($11.25-$15.50 per share) (14,000)
---------
Options outstanding, December 31, 1995 198,000
</TABLE>
In 1995, the Company issued 13,600 shares of common stock in conjunction with
the exercise of employee stock options, resulting in a $1,000 increase in
common stock from $379,000 to $380,000 and a $160,000 increase in additional
paid-in-capital from $1,200,000 to $1,360,000.
NOTE G -- SAVINGS PLAN
The Company implemented a voluntary 401(k) savings plan for eligible employees
(as defined by the Plan document) effective September 1, 1992. The Company
contributed $50.00 per enrolling employee in 1995, 1994 and 1993. In 1995 the
Company also contributed $0.10 for every $1.00 contributed by each employee.
The Company may make future matching contributions at its discretion. Company
contributions totaled approximately $25,000 in 1995 and $1,300 in each year for
1994 and 1993. The Company's contributions vest over a six-year period.
-18-
<PAGE> 20
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H -- LEASES
Total rental expense amounted to approximately $105,000 in 1995, $219,000 in
1994, and $318,000 in 1993.
The aggregate future minimum rental commitments as of December 31, 1995, for
all noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1996 $ 53,000
1997 34,000
1998 30,000
1999 33,000
2000 30,000
Thereafter 1,862,000
----------
$2,042,000
==========
</TABLE>
NOTE I -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS
The Company operates in three segments: Ocean Systems, Aircraft Maintenance and
Electronics. The Ocean Systems segment manufactures and sells underwater
sensing systems used for naval surveillance and offshore geophysical surveys.
The Aircraft Maintenance segment rebuilds and modifies aircraft airframes and
electronic systems. The Electronics segment manufactures and markets quartz
crystals and oscillators.
Operating profit represents total revenue less operating expenses, excluding
general corporate expenses and interest expense. Total revenue for the
segments includes interest income earned by the segments of approximately
$12,000, $1,400, and $4,000 in 1995, 1994 and 1993, respectively. Identifiable
assets are those assets used in each segment. Corporate assets are principally
cash and prepaid items.
-19-
<PAGE> 21
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS (CONTINUED)
Information about the Company's operations in the different segments is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
-------------- -------------- ------------
(In thousands)
<S> <C> <C> <C>
Sales:
Ocean Systems $ 9,948 $ 3,822 $ 5,527
Aircraft Maintenance 42,641 25,403 22,182
Electronics 3,640 2,873 3,201
---------- ---------- -----------
$ 56,229 $ 32,098 $ 30,910
========== ========== ===========
Operating profit and income (loss) before taxes:
Ocean Systems $ 419 $ (2,156) $ (2,859)
Aircraft Maintenance 3,430 743 506
Electronics 796 580 259
---------- ---------- -----------
$ 4,645 $ (833) $ (2,094)
---------- ---------- -----------
Corporate:
Interest income $ 671 $ 791 $ 606
Gain on sale of assets 650 512 447
General and administrative expenses (2,128) (1,672) (2,137)
Interest expense - (22) (12)
---------- ---------- -----------
Income (loss) before taxes $ 3,838 $ (1,224) $ (3,190)
========== ========== ===========
Identifiable assets:
Ocean Systems $ 6,518 $ 4,934 $ 6,349
Aircraft Maintenance 24,078 14,520 10,120
Electronics 2,627 1,747 1,744
Corporate 7,959 11,012 14,650
---------- ---------- -----------
$ 41,182 $ 32,213 $ 32,863
========== ========== ===========
Depreciation and amortization:
Ocean Systems $ 219 $ 153 $ 72
Aircraft Maintenance 813 757 717
Electronics 27 33 262
Corporate 38 39 63
---------- ---------- -----------
$ 1,097 $ 982 $ 1,114
========== ========== ===========
</TABLE>
-20-
<PAGE> 22
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- INDUSTRY SEGMENTS AND MAJOR CUSTOMERS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
-------------- -------------- -----------
(In thousands)
<S> <C> <C> <C>
Capital expenditures:
Ocean Systems $ 181 $ 275 $ 617
Aircraft Maintenance 1,441 164 1,456
Electronics 46 28 25
Corporate - - 215
----------- --------- -----------
$ 1,668 $ 467 $ 2,313
=========== ========= ===========
</TABLE>
Sales to U.S. Government agencies were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Ocean Systems $ 1,218 $ 3,137 $ 3,355
Aircraft Maintenance - 7 1,124
Electronics - - -
------- ------- -------
$ 1,218 $ 3,144 $ 4,479
======= ======= =======
</TABLE>
The Company has two customers in the Aircraft Maintenance segment that account
for at least 10% of 1995 consolidated revenues: Valujet Airlines and
Continental Airlines. Valujet Airlines accounted for approximately 30% of
consolidated net sales in 1995 and 11% of consolidated net sales in 1994.
Continental Airlines accounted for 21% of consolidated net sales in 1995. The
United States Government accounted for approximately 2% of net sales in 1995,
10% of consolidated net sales in 1994 and 14% of consolidated net sales in
1993. Emery Worldwide accounted for 9% of consolidated net sales in 1995, 25%
of consolidated net sales in 1994 and 27% of consolidated net sales in 1993.
Southern Air Transport accounted for approximately 2% of consolidated net sales
in 1995, 18% of consolidated net sales in 1994 and 6% of consolidated net sales
in 1993. The Mexican Government accounted for approximately 1% of consolidated
net sales in 1995, 3% of consolidated net sales in 1994 and 13% of consolidated
net sales in 1993.
-21-
<PAGE> 23
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J -- SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-------------
Mar. 31 June 30 Sep. 30 Dec. 31 Total
------- ------- ------- ------- -----------
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
1995:
Net sales $14,299 $14,004 $12,705 $15,221 $56,229
Gross profit 1,828 2,131 1,925 1,960 7,844
Net income 568 674 836 871 2,949
Net income per
common share $0.21 $0.25 $0.29 $0.31 $1.05
1994:
Net sales $5,554 $9,233 $8,698 $8,613 $32,098
Gross profit 585 1,405 1,104 1,418 4,512
Net income (loss) (959) (284) (172) 191 (1,224)
Net income (loss) per common share $(0.36) $(0.11) $(0.06) $0.07 $(0.45)
</TABLE>
NOTE K -- COMMITMENTS AND CONTINGENCIES
On May 10, 1991, an action was filed in the District Court of Dallas
County, Texas, by Lee D. Webster, former Chairman, Chief Executive Officer and
President of Whitehall, against the Company, each of its directors (other than
Mr. Webster) and Cambridge Capital Fund, L.P., alleging, among other things,
that (i) the defendants' actions, both individually and in concert, constituted
willful interference with Mr. Webster's employment relationship with the
Company and were the direct cause of Mr. Webster's termination as its President
and Chairman of the Board, and (ii) the defendants' actions forced Mr. Webster
into retirement without providing Mr. Webster with retirement benefits which
Mr. Webster was purportedly promised. On August 17, 1994, the defendants were
granted a partial summary judgment. On October 24, 1994, Mr. Webster filed a
third amended petition and alleged the following causes of action: tortious
interference with contractual relations against Cambridge Capital Fund, L.P.,
and directors George F. Baker and John J. McAtee; intentional infliction of
emotional distress and breach of oral contracts. The third amended petition
sought compensatory and punitive damages in excess of $35 million. On January
12, 1995, the Court entered an abatement on one of the breach of oral contract
claims against the Company and entered a summary judgment in the defendants'
favor on all remaining claims alleged by Mr. Webster. On February 26, 1996,
the Court granted a summary judgment in favor of the defendants on Mr.
Webster's remaining claims and entered a take nothing final judgment which
dismissed all of Mr. Webster's claims with prejudice to refiling. On March 26,
1996, Mr. Webster appealed the final judgment to the Dallas, Texas Court of
Appeals. Management intends to vigorously defend the appeal.
On September 22, 1992, Mr. Webster filed an action in the District
Court of Dallas County, Texas, against First City, Texas-Dallas ("First City"),
the Company and a former employee of the Company. As receiver for First City,
the Federal Deposit Insurance Corporation has intervened and removed this case
to the U.S. District Court for the Northern District of Texas. The petition
alleged, among other things, that (i) the Company interfered with Mr. Webster's
existing and prospective contractual relationship with the former employee and
First City, a national banking institution; (ii) the Company has converted to
its own use the former employee's Company stock which allegedly was owned by Mr.
Webster; (iii) the Company, First City and the employee conspired to commit
fraud against Mr. Webster; and (iv) the actions of the Company, First City, and
the former employee were intentionally done to cause Mr. Webster emotional
distress. The petition sought, among other things, not less than $1 million in
compensatory damages, not less than $5 million in exemplary damages and not less
than $1 million as damages for emotional distress. By orders dated June 2, 1994
and June 20, 1994, the Company was granted a summary judgment on all claims
alleged by Mr. Webster. On July 31, 1995, the Court entered a final judgment
disposing of all claims alleged against all parties. Mr. Webster has appealed
the final judgment to the United States Court of Appeals for the Fifth Circuit.
Management intends to vigorously defend the appeal.
-22-
<PAGE> 24
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Aero is taking remedial action pursuant to Environmental Protection Agency
("EPA") regulations at the Lake City, Florida facility. The Company does not
anticipate any material direct effects upon the capital expenditures, earnings
and competitive position of the Company from compliance with present Federal,
State and local provisions which have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment. The Company does expect, however, that
compliance with such regulations will require, from time to time, both
increased operating costs and capital expenditures which may be substantial.
As of December 31, 1995 and 1994, the Company had reserved approximately
$625,000 and $736,000 respectively for anticipated environmental remediation
costs at the Aero facility. The decrease in accrued environmental remediation
costs was due to expenditures and additional information obtained relating to
the nature and extent of required remediation. The Company will install a clay
barrier over one section of the leased property and additional testing
determined another clay barrier will not be required over a second section of
the property. Other remaining costs to be incurred will include testing and
monitoring to be performed over a 20 to 30 year period. Actual costs to be
incurred in future periods may vary from the estimate, given the inherent
uncertainties in evaluating environmental exposures. These uncertainties
include the extent of required remediation based on testing and evaluation not
yet completed and the varying costs and effectiveness of remediation methods.
The Company is also involved in certain legal proceedings in the normal course
of its business.
After consultation with counsel, management is of the opinion that the outcome
of the above-mentioned proceedings will not have a material effect on the
financial position or results of operations of the Company.
To comply with the financial assurances required by the Florida Department of
Environmental Protection (FDEP), the Company requested and a bank issued a
$2,800,000 standby letter of credit in favor of the FDEP. This letter of
credit meets all conditions required by the FDEP.
In January 1996, the Company entered into a line of credit agreement with a
bank for a total availability of $8 million.
NOTE L -- RELATED PARTY TRANSACTIONS
On December 31, 1995, two officers of the Company were indebted to the Company
in the aggregate amount of approximately $363,000. This amount is classified
as accounts receivable and is fully reserved.
A company owned by an officer of the Company was paid $9,000 in 1994 and
$66,000 in 1993 for facilities and services provided in connection with Company
functions held for personnel and clients.
The Company paid $12,000 in 1995 and $18,400 in 1994 in consulting fees to a
member of the Board of Directors.
-23-
<PAGE> 25
WHITEHALL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M -- JOINT VENTURE INVESTMENT
During 1994, the Company obtained 40% ownership of a joint venture involved in
the development of aircraft-related technology for an investment of $1,000.
The Company obtained a promissory note for an advance of $2,000,000 to the
joint venture. The principal balance of the promissory note accrues interest
at a maximum rate of 5% per annum, and the principal balance with accrued
interest are due January 5, 1999. The note is secured by certain assets of the
joint venture. During 1995, the Company advanced an additional $1,020,000 to
the joint venture. This advance, due on demand, is included in accounts
receivable.
Summarized financial information for the joint venture as of December 31, 1994,
is as follows:
<TABLE>
<S> <C>
Current assets $8,137,000
Non-current assets 798,000
Current liabilities 4,073,000
Long-term debt 2,000,000
Partners' capital 2,862,000
</TABLE>
For the period of inception (January 5, 1994) through December 31, 1994:
<TABLE>
<S> <C>
Net sales $1,545,000
Cost and expenses 1,684,000
Net loss 139,000
</TABLE>
Based on the joint venture's size relative to the Company's operations, no
summary information is required for 1995.
-24-
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Executive Officers of the Registrant
is contained in Part I of this Annual Report under the caption "Executive
Officers of the Registrant." Information with respect to the Directors of the
Registrant is contained in the definitive proxy statement under the captions
"Election of Directors," "Nominees for Election as Directors," "Security
Ownership of Certain Beneficial Owners," "Security Ownership of Management" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" in the definitive proxy statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the definitive proxy statement are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Certain Relationships and Related Transactions" in the definitive
proxy statement are incorporated herein by reference.
-25-
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following consolidated financial statements of the Company
and its subsidiaries are included in Item 8:
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Income and Retained Earnings for
the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. The following consolidated financial statement schedule of the
Company and its subsidiaries is included herewith on page 29:
Schedule II -Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
-26-
<PAGE> 28
3. Exhibits
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference to Description
------- ---------------------------- -----------
<S> <C> <C>
(3) Form 10-K December 31, 1987 a. Restated Certificate of Incorporation
Form 10-K December 31, 1992 b. Restated bylaws
(10) MATERIAL CONTRACTS
Form 10-K December 31, 1987 a. Resolutions adopted by the Compensation Committee of the
Board of Directors of Whitehall Corporation on March 14,
1988, approved by the full Board of Directors on March
22, 1988, relating to benefits payable to survivors of
Mr. Lee D. Webster.
Form 10-K December 31, 1974 b. Whitehall Corporation Management Security Agreement
Form 10-K December 31, 1992 c. Whitehall Corporation Incentive Stock Option Plan
Form 10-K December 31, 1992 d. Whitehall Corporation Non-Employee Directors Stock Option
Plan, as amended by Amendment No. 1 thereto
Form 10-K December 31, 1992 e. Lease between Aero Corporation and City of Lake City,
Florida dated December 30, 1992
(21) -- SUBSIDIARIES OF THE REGISTRANT
(23) -- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(27) FINANCIAL DATA SCHEDULE
</TABLE>
The Registrant will furnish, upon request, a copy of any Exhibit upon
the payment of its reasonable expenses for duplicating and mailing
such Exhibit.
(b) Reports on Form 8-K
The Company has not filed a report on Form 8-K during the last quarter
of the period covered by this report.
-27-
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WHITEHALL CORPORATION
By / s / G.F. BAKER
-----------------------------
George F. Baker
Chairman of the Board
Date: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/ s / G.F. BAKER Chairman of the Board March 28, 1996
- ----------------------------------------- (Principal executive officer)
George F. Baker
/ s / JOHN H. WILSON President March 28, 1996
- ------------------------------------
John H. Wilson
/ s / E. F. CAMPBELL III Vice President and Treasurer March 28, 1996
- ------------------------------------- (Principal financial officer)
E. Forrest Campbell, III
/ s / DANIEL R. DONHAM Vice President and Controller March 28,1996
- ------------------------------- (Principal accounting officer)
Daniel R. Donham
/ s / BRUCE C. CONWAY Director March 28, 1996
- -------------------------------
Bruce C. Conway
/ s / ARTHUR H. HUTTON Director March 28, 1996
- -------------------------------
Arthur H. Hutton
/ s / JOHN J. MCATEE Director March 28, 1996
- ------------------------------------
John J. McAtee, Jr.
/ s / J.S. PARKER Director March 28, 1996
- --------------------------------
Jack S. Parker
/ s / LEWIS S. WHITE Director March 28, 1996
- --------------------------------
Lewis S. White
</TABLE>
-28-
<PAGE> 30
SCHEDULE II
WHITEHALL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
---------
Balance at Charges Charged to Balance at
Beginning to Costs and Other Accounts Deductions End of
Description of Period Expenses Describe Describe Period
----------- ----------- ------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1995:
Reserves and allowances deducted
from asset accounts-
Allowance for uncollectible
accounts $ 858,000 $ 748,000 $ - $ 874,000 (1) $ 732,000
Allowance for obsolete inventory - 300,000 - - 300,000
----------- ----------- ---------- ------------ ------------
Totals $ 858,000 $ 1,048,000 $ - $ 874,000 1,032,000
=========== =========== ========== ============ ============
Accrued environmental cost $ 736,000 $ 416,000 $ - $ 527,000 (3) $ 625,000
=========== =========== ========== ============ ============
YEAR ENDED
DECEMBER 31, 1994:
Reserves and allowances deducted
from asset accounts-
Allowance for uncollectible
accounts $ 828,000 $ 94,000 $ - $ 64,000 (1) $ 858,000
Allowance for obsolete inventory 30,000 - - 30,000 (4) -
----------- ----------- ---------- ------------ ------------
Totals $ 858,000 $ 94,000 $ - $ 94,000 $ 858,000
=========== =========== ========== ============ ===========
Accrued environmental cost $ 538,000 $ 416,000 $ - $ 218,000 (3) $ 736,000
=========== =========== ========== ============ ============
YEAR ENDED
DECEMBER 31, 1993:
Reserves and allowances deducted
from asset accounts-
Allowance for uncollectible
accounts $ 1,492,000 $ 128,000 $ - $ 792,000 (1) $ 828,000
Allowance for obsolete inventory 821,000 - - 791,000 (2) 30,000
----------- ----------- ---------- ------------ ------------
Totals $ 2,313,000 $ 128,000 $ - $ 1,583,000 $ 858,000
=========== =========== ========== ============ ============
Accrued environmental cost $ 887,000 $ - $ - $ 349,000 (3) $ 538,000
=========== =========== ========== ============ ============
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Disposal of inventory.
(3) Environmental clean-up costs incurred.
(4) Inventory cost adjustments
-29-
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
(21) -- SUBSIDIARIES OF THE REGISTRANT
(23) -- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(27) -- FINANCIAL DATA SCHEDULE
</TABLE>
<PAGE> 1
EXHIBIT (21)
WHITEHALL CORPORATION
ANNUAL REPORT ON FORM 10K
ITEM 14(A)3
(22) Subsidiaries of the Registrant
The following table lists the subsidiaries of the Registrant and the
jurisdiction of incorporation of each subsidiary:
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Aero Corporation Florida
Hydroscience, Inc. Texas
Crystek Corporation Florida
</TABLE>
Each of the subsidiaries conducts business only under its corporate
name.
<PAGE> 1
EXHIBIT (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10K into the Company's previously filed
Registration Statement on Form S-8 File No. 33-48215.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,382
<SECURITIES> 0
<RECEIVABLES> 18,129
<ALLOWANCES> 732
<INVENTORY> 7,137
<CURRENT-ASSETS> 32,313
<PP&E> 25,181
<DEPRECIATION> 18,312
<TOTAL-ASSETS> 41,182
<CURRENT-LIABILITIES> 10,915
<BONDS> 0
<COMMON> 380
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 41,182
<SALES> 56,229
<TOTAL-REVENUES> 56,229
<CGS> 48,385
<TOTAL-COSTS> 53,354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,838
<INCOME-TAX> 889
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,949
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
