<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 1-7695
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KUHLMAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 58-2058047
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
</TABLE>
1 SKIDAWAY VILLAGE WALK, SUITE 201, SAVANNAH, GEORGIA 31411
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (912) 598-7809
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------- ---------------------------------------------
Common Stock, $1.00 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
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. / /
As of March 1, 1995, 6,173,798 shares of Common Stock of the Registrant were
outstanding, and the aggregate market value of the shares of Common Stock as of
such date (based on the closing price on the New York Stock Exchange) of the
Registrant held by non-affiliates (including two officers) was approximately
$72,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Form 10-K:
Part II: Items 5-8 - Part of Annual Report to Shareholders of the Registrant
for the year ended December 31, 1994.
Part III: Items 10-12 - Part of definitive Proxy Statement/Prospectus of the
Registrant in connection with the 1995 Annual Meeting of
Stockholders.
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<PAGE>
PART 1.
ITEM 1. BUSINESS
GENERAL
Kuhlman Corporation (the "Registrant" or "Company"), a Delaware corporation
whose predecessor was founded in 1894, owns and manages a group of operating
companies. These companies are Kuhlman Electric Corporation, Coleman Holding
Company (whose principal direct subsidiary is Coleman Cable Systems, Inc.), and
Emtec Products Corporation, and each is a wholly-owned subsidiary of Kuhlman
Corporation. The Company's businesses operate in two principal segments,
electrical transformers and wire and cable, with the remaining operations
combined into a single segment referred to as other. In the electrical
transformer segment, the Company designs, manufactures and markets electrical
utility and industrial type transformers for various markets and industries
involved in electrical distribution systems. In the wire and cable segment, the
Company manufactures and distributes a wide variety of electrical and electronic
wire and cable products to a number of markets for commercial, industrial and
consumer uses. The Company also manufactures and distributes a variety of
springs and metal parts used by other manufacturers in their products or
production process. The executive office of the Company is located at 1
Skidaway Village Walk, Suite 201, Savannah, Georgia 31411. The telephone number
is (912) 598-7809.
RECENT DEVELOPMENTS
On February 25, 1995, the Company entered into an agreement to merge Schwitzer,
Inc. ("Schwitzer"), a New York Stock Exchange listed company, with a wholly
owned subsidiary of the Company. In the transaction, shares of Schwitzer
common stock will be converted into shares of the Company common stock using an
exchange ratio of 0.9615 share of the Company for each share of Schwitzer.
BUSINESS SEGMENTS
The Company is organized into three business segments: electrical transformers,
wire and cable, and other. The following discussion addresses the organization,
products and markets of the Company's three business segments. For financial
information relating to the business segments, see Note 13 of Notes to
Consolidated Financial Statements on page 26 of the Registrant's Annual Report
to Shareholders for the year ended December 31, 1994 which is incorporated
herein by reference.
ELECTRICAL TRANSFORMERS
Kuhlman Electric Corporation ("Kuhlman Electric") and its wholly-owned
subsidiary, Associated Engineering Company, manufacture and market electrical
utility and industrial-type transformers used in electrical distribution systems
serving residences and commercial
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and industrial buildings. These transformers range from small instrument
transformers used in the metering and switching of electricity and pole-mounted,
surface-mounted, or underground transformers serving from one to eight
residences, up to medium-size power transformers which are used in utility
substations or commercial-type electrical power centers serving shopping
centers, apartment complexes, factories and other users of electric power.
The principal market for Kuhlman Electric's transformer products is electric
utility companies throughout the United States.
The large majority of all distribution and power transformers manufactured by
Kuhlman Electric in 1994 were marketed directly, mostly through ten employee
sales engineers. The balance of such distribution and power transformers were
sold through sixteen independent commissioned sales organizations, which employ
approximately 50 salesmen and sales engineers. In addition, instrument
transformers are sold through nine of the above employee sales engineers as well
as through eleven additional independent commissioned sales organizations which
employ approximately 46 salesmen and sales engineers.
Kuhlman Electric Corporation, located in Versailles, Kentucky, is the
headquarters for the Electrical Transformer Segment. Kuhlman Electric is
managed by a president who is responsible for its operating activities including
all purchasing, manufacturing, marketing, accounting, personnel and
administrative functions.
WIRE AND CABLE
Coleman Holding Company was acquired by the Company on December 15, 1993.
Coleman Holding Company, through its wholly owned subsidiaries, including its
principal direct subsidiary, Coleman Cable Systems, Inc., ("Coleman")
manufactures and distributes a wide range of products, including bare copper and
aluminum wire for utilities; portable wiring systems for the construction
industry and original equipment manufacturer ("OEM") applications; wire for
security, heating, ventilating and air conditioning ("HVAC"), irrigation and
sound systems; and extension cords, trouble lights, booster cables and other
products for consumer, commercial and industrial markets. Coleman's products
are sold directly through twelve employee salespersons and a number of
manufacturers' representatives employing over 700 salespersons to electrical
and security distributors, utilities, mass merchandisers, and various
industrial and OEM users on a nationwide basis. Coleman is organized into five
business units which have been set up primarily along basic product or
distribution lines. Each business unit is managed by a president who is
responsible for its sales and marketing functions. Executive and administrative
functions, including general accounting and personnel for Coleman are conducted
at Coleman's principal office located in North Chicago, Illinois. Each business
unit president reports to Coleman's president who is responsible for all
operating activities including purchasing, manufacturing, general accounting and
management information systems.
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The following is a summary of the five business units that constitute Coleman:
CABLE AND WIRE DIVISION. Coleman's Cable and Wire Division provides a line of
flexible cords, power cables, control cables, robotics cables, diesel locomotive
cables and specialty cables used in the distribution of portable power for
construction, industrial and OEM applications. Coleman markets its products
under various trade names, including SEOPRENE[REGISTERED TRADEMARK], POLAR SOLAR
(stylized)[REGISTERED TRADEMARK], COLFLEX[REGISTERED TRADEMARK], and POLAR-RIG
125[REGISTERED TRADEMARK]. Coleman differentiates its product offering by
employing advanced compounding technologies which give its cables flexibility
and integrity at temperatures ranging generally from approximately minus 50
degrees C to approximately plus 105 degrees C while weighing approximately 1/3
less than ordinary portable cable, on the average. Coleman is a leader in the
use of thermoplastic elastomer ("TPE") compounds in the wire and cable industry
and has developed a proprietary insulation and jacketing material called
T*PRENE[REGISTERED TRADEMARK]. T*PRENE[REGISTERED TRADEMARK] is a
water-resistant insulation and jacketing material that repels oil, grease,
acids and solvents, and offers resistance to abrasion, ozone and other
environmental hazards. Coleman's cable and wire products are sold to
electrical distributors, wire and cable distributors, OEM's and government
agencies through its employee sales force and independent representatives.
CORD PRODUCTS DIVISION. Coleman's Cord Products Division manufactures and
distributes a line of cord sets, trouble lights, cube taps, battery booster
cables, power supply cords, temporary outdoor lighting and ground fault
interrupters for consumer, contractor and OEM applications. Its products are
used for both home and industrial electrical needs and are sold through mass
merchandisers, hardware wholesalers, automotive retailers, warehouse clubs, home
centers, hardware chains, contractor/industrial supply houses and electrical
distributors. Coleman's brand names include COILEX[REGISTERED TRADEMARK]
and COILITE[REGISTERED TRADEMARK]coiled cord products, QUADNECTOR[REGISTERED
TRADEMARK]extension cords, BOOSTER IN A BAG[REGISTERED TRADEMARK]booster cables,
READY/CLAD[REGISTERED TRADEMARK]conduit-on-a-reel, and TROUBLE FREE[TRADEMARK]
trouble lights. Also, Coleman's Cord Products Division is one of the leading
providers of extension cords to the contractor supply market.
SIGNAL DIVISION. Coleman's Signal Division is a leading manufacturer and
supplier of electronic wire and cable, shielded and unshielded low voltage
control cables, fire alarm cables, plenum cables, closed circuit television wire
and cables, and speaker cable for a multitude of applications used by burglar
alarm, fire alarm and sound system installers, electrical contractors, energy
management specialists and OEM's. Signal's primary market is the security
industry where it is one of the largest manufacturers of security cables in the
U.S. Signal Cable is a preferred brand by many end user installers and is a
market leader in providing wire and cable to security distributors which supply
over 60% of the total security wire used in the U.S. Signal's products are sold
to security and equipment distributors, sound contractors, wire and cable
distributors, electronic parts distributors, electrical distributors and OEM's
through its employee sales force and to a lesser extent independent sales
representatives.
BARON WIRE & CABLE CORP. Baron Wire & Cable Corp., founded in 1967, is a leading
producer of cables for energy management, irrigation and sprinkler systems.
Baron's products
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include thermostat cables, irrigation control cables, underground feeder cables,
submersible pump cables, instrumentation cables and machine tool wire. These
products are used in a variety of applications by HVAC installers, energy
management installers, golf course sprinkler installers, irrigation system
installers, OEM's, machine tool manufacturers and electrical contractors. In
addition, Baron is one of the largest producers of thermostat cable in the U.S.
Some of Baron's cables are sold under BAROSTAT-TM-and BAROPLEN-TM brand names.
Also, Baron's products are sold to the irrigation control business with
products such as BAROGATION-TM-control cables which are used in commercial,
residential, and golf course projects throughout the U.S. and Canada. Baron has
recently developed thermocouple extension cables for thermocouples capable of
monitoring temperatures from approximately minus 300 degrees F to approximately
plus 2300 degrees F in a variety of industrial applications. Baron's products
are sold by its employee sales force and independent sales representatives to
HVAC distributors, water equipment wholesalers, electrical distributors, wire
and cable distributors and OEM's.
NEHRING ELECTRICAL WORKS COMPANY. Nehring Electrical Works Company, founded in
1912, manufactures copper and aluminum wire for grounding, transmission, and
distribution of power. Nehring, which was acquired in 1980, is a leading
supplier of bare copper to the electrical utility industry and an approved
supplier to almost every utility, municipality and REA in the United States.
Nehring also manufactures and distributes aluminum building wire ground rods,
accessories, and 600 volt underground cable for various end users. Nehring
sells its products through key channels of distribution which consist primarily
of utility, electrical distribution, telecommunication, and welding
distribution, using an employee sales organization and separate representative
agencies specializing in each such market channel.
OTHER
The Company also manufactures and markets a variety of coiled and flat springs,
spring assemblies and stampings through its wholly owned subsidiary, Emtec
Products Corporation. During 1993, the Company reorganized its spring products
businesses, TRANS-PAK Spring Assembly Division and Empire Spring Division, as
well as its marine hardware business, Nautalloy Products Division, to all be
divisions of Emtec Products Corporation, formerly known as Emtec Inc. The
businesses of Emtec Products Corporation report to a president who has
responsibility for all operating activities, including sales and marketing,
manufacturing and all administrative functions. The products include various
types of coiled springs, formed flat springs and stampings used in automobiles,
business machines and appliances, spring sub-assemblies used in automobile
transmissions and brake systems and a spring sub-assembly used in cellular
phones. Most of these products are custom-designed to customer's requirements.
The principal market for the Company's springs, spring assembly products and
stampings is the automotive industry. These products are sold through three
employee salesmen and ten independent commissioned sales organizations. The
market area is predominately the midwest United States, although many of these
products are utilized nationally and in Canada.
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COMPETITION
The Company experiences substantial competition in each of its business
segments. The Company has numerous competitors, some of which have
substantially greater financial and technical resources than the Company and
include some of the largest business enterprises
operating in the United States. The Company believes that it competes primarily
on the basis of product quality, product innovation, service and price.
CUSTOMERS; SEASONALITY
The Company had no single customer that accounted for more than 10% of the
Company's net sales in 1994. The Company's net sales are not seasonal to any
significant extent; however, net sales are generally related to economic
activity.
RAW MATERIALS AND SUPPLIES
The principal raw materials required by the electrical transformer segment are
steel, copper and various insulating materials. In the wire and cable segment
the principal materials used are copper, aluminum and various polymer compounds
used for insulation. Copper, which is the Company's single largest raw
material, is generally purchased in either extruded or rod form from a number of
major domestic producers. Pricing is typically based upon announced prices of
the New York Commodity Exchange, Inc. ("COMEX") for high grade copper, plus a
negotiated premium.
Raw materials purchased by the Company are generally available from numerous
independent sources at competitive prices, and are obtained principally from
domestic suppliers. Management anticipates no significant difficulty in filling
its raw material requirements. However, it is possible, that because of the
Company's increasing focus on "lean manufacturing" which incorporates "just-in-
time" supplier-customer delivery methods, and which in turn could result in a
reduction in the number of suppliers utilized by Kuhlman, the risk of
difficulties in obtaining raw materials may increase from time to time.
PATENTS, TRADEMARKS AND LICENSES
The Company owns and/or licenses a number of patents and patent applications,
and registered and unregistered trademarks which are valuable to its business.
Such patents, licenses and trademarks are not considered material to the
business of the Company as a whole.
BACKLOG
Certain Kuhlman operations receive blanket purchase orders from customers,
including those in the electrical utility and automotive industries, that will
generally cover their annual requirements. Customers then provide the Company
with releases against such blanket orders
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based on their requirements, thereby establishing a firm order date. An order
is included as part of the Company's backlog once a firm order date has been
received from the customer. The Company does not include in its backlog orders
which do not have a firm delivery date or are expected to be shipped generally
within one week of the order date.
The following table sets forth backlog orders which the Company believes to be
firm as of the dates indicated:
At December 31
--------------
1994 1993
---- ----
(in thousands)
Electrical Transformers $20,155 $29,245
Wire and Cable 6,996 8,337
Other 1,624 1,051
------- -------
$28,775 $38,633
------- -------
------- -------
At December 31, 1994, substantially all of the Company's backlog orders were
expected to be completed by December 31, 1995, although orders generally may be
cancelled by customers without penalty.
RESEARCH AND DEVELOPMENT
Kuhlman Corporation is continually seeking to improve existing products and
applying and developing technologies for new products. Research and development
costs are expensed as incurred. Such costs charged to expense were $249,000,
$741,000, and $1,152,000 in 1994, 1993 and 1992 respectively.
ENVIRONMENTAL
To the best of the Company's knowledge, it is in substantial compliance with all
federal, state and local environmental protection provisions, and believes
these provisions should not materially affect capital expenditures, earnings
or the Company's competitive position.
EMPLOYEES
As of December 31, 1994 and 1993, the Company employed 1,235 and 1,290 persons,
respectively, approximately 864 of whom are currently subject to collective
bargaining agreements. The Company considers relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The Company operates ten manufacturing plants located in the states of
California, Illinois, Kentucky, Michigan, Mississippi and Ohio. Of these
manufacturing plants, four are owned and six are leased. The plant and
equipment of certain subsidiaries are encumbered by the
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security interest granted in connection with the issuance of certain long-term
debt obligations. The remaining plant and equipment is encumbered by the
interest granted to participating commercial banks under the Company's Credit
Agreement dated December 15, 1993. In the opinion of the Company, its
properties have been well maintained, are in sound operating
condition and contain all equipment and facilities necessary to operate at
present levels. A summary of floor space of the principal facilities by
business segment at December 31, 1994 is as follows:
<TABLE>
<CAPTION>
Manufacturing(1)(2) Office(2) Warehousing(3)
------------- ------ -----------
Owned Leased Leased Owned Leased Total
----- ------ ------ ----- ------ -----
(In Thousands of Square Feet)
<S> <C> <C> <C>
Electric Transformer 447 152 31 42 --- 672
Wire and Cable 62 418 36 15 249 780
Other 36 23 --- --- --- 59
Corporate --- --- 4 --- --- 4
------- ------- ---------- -------- ------- ------
545 593 71 57 249 1,515
------- ------- ---------- -------- ------- ------
------- ------- ----------
<FN>
(1) Excludes a 45,000 square foot building owned by the Registrant and leased to a third party.
(2) Includes a 110,000 square foot plant in North Carolina which was closed in 1994 and from which manufacturing operations were
consolidated into two other Kuhlman Electric facilities.
(3) Excludes minimal rental space in various geographical locations used in connection with the marketing of transformers.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is subject to legal claims and other matters
relating to the conduct of its business. In the opinion of management, the
ultimate disposition of such matters presently outstanding will not have a
materially adverse effect upon the Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive officers of
the Registrant:
<TABLE>
<CAPTION>
Officer of
Kuhlman
Name Age Since Position
- -------------------- --- ----- --------
<S> <C> <C> <C>
Robert S. Jepson, Jr. 52 1993 Chairman of the Board,
Chief Executive
Officer and Director
Curtis G. Anderson 53 1994 President, Chief
Operating Officer and
Director
Graham J. Beare 50 1993 President and Chief
Executive Officer of
Kuhlman Electric
Corporation
James H. Coleman 41 1993 President and Chief
Executive Officer of
Coleman Holding
Company and Coleman
Cable Systems, Inc.
Vernon J. Nagel 37 1993 Executive Vice
President of Finance,
Chief Financial
Officer and Treasurer
Richard A. Walker 43 1984 Executive Vice
President, Chief
Administrative
Officer, General
Counsel and Secretary
</TABLE>
Officers of the Registrant are elected each year at the Annual Meeting of the
Board of Directors to serve for the ensuing year or until their successors are
elected and qualified.
Mr. Jepson, who was elected President and Chief Executive Officer of the
Registrant on February 10, 1993, and Chairman of the Board on June 9, 1993,
founded and was Chairman and Chief Executive Officer of The Jepson Corporation
from 1983 until its sale in 1989. The Jepson Corporation was a diversified
manufacturing company listed on the New York Stock Exchange. Immediately
preceding his election as President and Chief Executive Officer of the
Registrant, Mr. Jepson was, and is currently, Chairman and Chief Executive
Officer of Jepson Associates, Inc., a private investment company.
Mr. Anderson, who was elected President and Chief Operating Officer of Kuhlman
on April 26, 1994, and a director on September 8, 1993, founded and has been,
since 1986, Chairman of Anderson Capital Corporation, a private investment
company. Prior thereto, he spent 19 years in corporate and investment banking,
including 14 years with Citibank and five years with The First National Bank of
Chicago where he served as Executive Vice President, Head of Financial Products
Department.
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Mr. Beare, who was named President and Chief Executive Officer of the Kuhlman
Electric Division of the Company on February 10, 1993, and was elected to his
current position on June 9, 1993, was President of the International Division of
Danaher Tool Group, an operating division of Danaher Corporation (diversified
manufacturing), from 1992 until 1993. From 1986 until 1992, Mr. Beare was the
President of Holo-Krome Company, a subsidiary of Danaher Corporation.
Mr. Coleman has served as President of Coleman Cable Systems, Inc. since 1990
and Vice President of Coleman Holding Company prior to the acquisition by the
Registrant. Prior thereto, Mr. Coleman served in various executive management
capacities with Coleman, its subsidiaries and their various business units.
Mr. Nagel joined the Company on April 5, 1993 and was elected Vice President of
Finance, Chief Financial Officer and Treasurer of the Company on June 9, 1993
and Executive Vice President of Finance on February 22, 1994. He was the Vice
President of Finance, Chief Financial Officer and Secretary of Stericycle, Inc.
(medical waste management) from 1990 until 1993. Prior thereto, Mr. Nagel
served as a Vice President of The Jepson Corporation from 1985 until 1990,
including Chief Financial Officer from 1989 until 1990 and Controller from 1986
until 1989.
Mr. Walker has served as an Executive Vice President or similar position with
the Company since 1991. From 1984 until 1991, Mr. Walker served as Vice
President, General Counsel and Secretary of the Company. Prior thereto, Mr.
Walker was a partner in the law firm of Harness, Dickey & Pierce.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
Information with respect to the principal market for the Registrant's common
stock, the high and low sales prices of such common stock and dividends paid
with respect thereto, and the approximate number of holders of record of such
common stock is incorporated herein by reference to the information contained
under the caption "Common Stock Price Ranges and Dividends" on page 2 of the
Registrant's Annual Report to Shareholders for the year ended December 31, 1994.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to selected financial data with respect to the
Registrant is incorporated herein by reference to information set forth under
the caption "Five-Year Selected Financial Data" on page 12 of the Registrant's
Annual Report to Shareholders for the year ended December 31, 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 13 through
15 of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1994 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained under the captions "Consolidated Statements of Income
(Loss)," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows,"
"Consolidated Statements of Shareholders' Equity," "Notes to Consolidated
Financial Statements," and "Report of Independent Public Accountants" on pages
16 through 27 of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1994, is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information with respect to the directors of the Registrant is incorporated
herein by reference to the information contained under the captions "Election of
Kuhlman Directors" and "Information Regarding Kuhlman Directors, Nominees for
Directors of Kuhlman, and Executive Officers" of the Registrant's definitive
Proxy Statement/Prospectus for the 1995 Annual Meeting of Shareholders which is
a part of the Registrant's Registration Statement on Form S-4, S.E.C.
Registration No. 33-58133.
Information with respect to executive officers of the Registrant is included in
Item 1, Part I hereof under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated herein by
reference to the information contained under the caption "Executive
Compensation" of the Registrant's definitive Proxy Statement/Prospectus for the
1995 Annual Meeting of Shareholders which is a part of the Registrant's
Registration Statement on Form S-4, S.E.C. Registration No. 33-58133.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners and
Management is incorporated herein by reference to the information contained
under the caption "Principal Stockholders and Beneficial Ownership of Management
of Kuhlman" of the Registrant's definitive Proxy Statement/Prospectus for the
1995 Annual Meeting of Shareholders which is a part of the Registrant's
Registration Statement on Form S-4, S.E.C. Registration No. 33-58133.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions is
incorporated herein by reference to the information contained under the caption
"Related Transactions" of the Registrant's definitive Proxy Statement/Prospectus
for the 1995 Annual Meeting of Shareholders which is a part of the Registrant's
Registration Statement on Form S-4, S.E.C. Registration No. 33-58133.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The following consolidated financial statements of Kuhlman
Corporation and subsidiaries included in the Kuhlman Corporation 1994
Annual Report to its shareholders for the year ended December 31,
1994, are incorporated herein by reference:
Consolidated Statements of Income(Loss) for each of the three
years in the period ended December 31, 1994.
Consolidated Balance Sheets - December 31, 1994 and 1993.
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1994.
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended December 31, 1994.
Notes to Consolidated Financial Statements.
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The following consolidated financial information for each of the
three years in the period ended December 31, 1994 is submitted
herewith together with the report and consent of independent
public accountants:
2. Supplemental Schedule to Consolidated Financial Statements.
The information required to be submitted in Schedule II is
included in the consolidated financial statements and notes and
supplemental schedules thereto. Schedules other than that referred to
above are omitted as not applicable or not required, or the required
information is shown in the financial statements or notes thereto.
3. Exhibits
3.1 Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 1 to the
Registrant's Form 10-Q for the quarter ended June 30,
1993).
3.2 By-laws of Registrant (incorporated by reference to
Exhibit 3b to the Registrant's Form 10-K for the year
ended December 31, 1993).
4.1 Credit Agreement dated December 15, 1993 by and among
the Registrant, NationsBank of Georgia, N.A. and The
Chase Manhattan Bank, N.A. (incorporated by reference
to Exhibit 10b to the Registrant's Form 8-K dated
December 15, 1993).
4.2 First Amendment to Credit Agreement dated March 29,
1994 among the Registrant, NationsBank of Georgia, N.A.
and The Chase Manhattan Bank, N.A. (incorporated by
reference to Exhibit 10.2 to Registration Statement No.
33-58133).
4.3 Second Amendment to Credit Agreement dated March 30,
1994 among the Registrant, NationsBank of Georgia, N.A.
and The Chase Manhattan Bank, N.A. as Managing Agents
(incorporated by reference to Exhibit 10.3 to
Registration Statement No. 33-58133).
4.4 Third Amendment to Credit Agreement dated December 31,
1994 among the Registrant, NationsBank of Georgia, N.A.
and The Chase Manhattan Bank, N.A. as Managing Agents
(incorporated by reference to Exhibit 10.4 to
Registration Statement No. 33-58133).
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10.1 1983 Incentive Stock Option Plan of the Registrant
(incorporated by reference to Exhibit 10b to the
Registrant's Form 10-K for the year ended December 31,
1983).
10.2 Form of Officer Agreements (incorporated by reference
to Exhibit 10c to the Registrant's Form 10-K for the
year ended December 31, 1991).
10.3 Amended 1986 Stock Option Plan.
10.4 Stock Option Plan for Non-Employee Diectors
(incorporated by reference to Exhibit 10e to the
Registrant's Form 10-K for the year ended
December 31, 1988).
10.5 Non-Employee Directors Stock Plan (incorporated by
reference to Exhibit 4 to the Registrant's Form 10-Q
for the quarter ended June 30, 1993).
10.6 1994 Stock Appreciation Rights Plan.
10.7 1994 Stock Option Plan (Incorporated by reference to
Exhibit 10.11 to Registration Statement No. 33-58133).
13.0 Annual Report to Shareholders of the Registrant for the
year ended December 31, 1994.
22.0 Subsidiaries of the Registrant.
23.0 Consent of Independent Public Accountants.
24.0 Power of Attorney.
27.0 Financial Data Schedule.
(b) No current reports on Form 8-K were filed during the quarter ended
December 31, 1994.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
-13-
<PAGE>
Report of Independent Public Accountants
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in the Kuhlman Corporation 1994
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 6, 1995, except with respect to
the planned Merger between the Company and Schwitzer, Inc. as discussed in Note
17 to the consolidated financial statements, as to which the date is February
25, 1995. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental schedule to consolidated
financial statements listed in the preceding index is the responsibility of the
Company's management and 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 audit 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
Louisville, Kentucky
February 6, 1995
(Except with respect to the matter discussed in Note 17, as to which the date is
February 25, 1995)
-14-
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at
Beginning Balance at
Description of Period Additions Write-offs, Net Other End of Period
----------- --------- --------- --------------- ----- -------------
<S> <C> <C> <C> <C>
VALUATION AND QUALIFYING ACCOUNTS FROM
ASSETS IN CONSOLIDATED BALANCE SHEETS -
DOUBTFUL ACCOUNTS-
Year Ended December 31, 1994 $ 354 169 (160) -- $ 363
Year Ended December 31, 1993 $ 385 32 (63) -- $ 354
Year Ended December 31, 1992 $ 369 90 (74) -- $ 385
</TABLE>
F-1
<PAGE>
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.
KUHLMAN CORPORATION
Date: March 27, 1995 By: /s/ Robert S. Jepson, Jr.
---------------- ---------------------------
Robert S. Jepson, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
ROBERT S. JEPSON, JR.* Chairman of the Board and )
Chief Executive Officer )
(Principal Executive )
Officer) and Director )
VERNON J. NAGEL* Executive Vice President )
of Finance and Treasurer )
(Principal Financial and )
Accounting Officer) )
CURTIS G. ANDERSON* President, Chief Operating )
Officer and Director ) March 27, 1995
WILLIAM E. BURCH* Director )
STEVE CENKO* Director )
ALEXANDER W. DREYFOOS, JR.* Director )
WILLIAM M. KEARNS, JR.* Director )
ROBERT D. KILPATRICK* Director )
JOHN L. MARCELLUS, JR.* Director )
GEORGE J. MICHEL, JR.* Director )
GENERAL H. NORMAN SCHWARZKOPF* Director )
</TABLE>
*By /s/ Robert S. Jepson, Jr. Individually and as
--------------------------
Robert S. Jepson, Jr. Attorney-in-Fact
<PAGE>
KUHLMAN CORPORATION
AMENDED 1986 STOCK OPTION PLAN
1. PURPOSE. The Kuhlman Corporation 1986 Stock Option Plan (the "Plan")
is intended as an incentive and to encourage ownership by certain key employees
of Kuhlman Corporation (the "Company") and its Subsidiaries (corporations of
which a majority of the stock is owned directly or indirectly by the Company) of
the Company's Common Stock (the "Stock") in order to increase their proprietary
interest in the Company's success and to assure their continuation as employees.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "Committee") consisting of not less than three directors of the
Company appointed by its Board of Directors. Members of the Committee shall
serve at the pleasure of, and vacancies occurring in the membership of the
Committee shall be filled through appointment by, the Board of Directors. No
person may be a member of the Committee if he or she has been, within one year
prior to his or her appointment to the Committee, or at any time during his or
her service on the Committee, allocated Stock or granted Stock options pursuant
to the Plan or any other plan of the Company or any of its Subsidiaries to the
extent such allocation or grant would cause such person to fail to be a
"disinterested person" under Rule 16b-3 under the Securities Exchange Act of
1934, as amended, as such Rule may be amended from time to time; provided,
however, that membership on the Committee shall not affect or impair any rights
of a member with respect to any Stock allocated or Stock options granted to him
or her when he or she was not a member of the Committee.
The Committee may make such rules and regulations and establish such
procedures for the administration of the Plan as it deems appropriate. The
interpretation and application of the Plan or of any term or condition of an
option granted under the Plan or of any rule, regulation or procedure, and any
other matter relating to or necessary to the administration of the Plan, shall
be determined by the Committee, and any such determination shall be final and
binding upon all persons. No member of the Committee shall be liable for any
action or determination made in good faith.
3. STOCK. Shares of Stock to be optioned or issued under the Plan may be
either authorized and unissued shares or issued shares which shall have been
reacquired by the Company, provided that the total amount of Stock on which
options may be granted or which may be issued under the Plan shall not exceed
860,625 shares. Such number of shares is subject to adjustment in accordance
with the provisions of Section 6 hereof. In the event that any outstanding
option or portion thereof expires or is terminated for any reason, the shares of
Stock allocable to the unexercised portion of such option may again be
subjected to an option and be issued under the Plan.
1
<PAGE>
4 AWARD OF OPTIONS. The Committee may grant options to purchase Stock
to officers and other key employees of the Company or its Subsidiaries,
including directors who are full time employees. The Committee shall have the
discretion, in accordance with the provisions of the Plan, to determine to whom
an option is granted, the number of shares of Stock optioned and the terms and
conditions of the option.
Options granted under the Plan shall be subject to and governed by the
provisions of the Plan and by the terms and conditions set forth in Section 5
hereof and by such other terms and conditions, not inconsistent with the Plan,
as shall be determined by the Committee or the Board of Directors.
The date on which an option shall be granted shall be the date that the
optionee, the number of shares of Stock optioned and the terms and conditions of
the option are determined by the Committee, provided, however, that if an option
or any term or condition of an option is rejected or not accepted by an optionee
or if an option is not granted in accordance with the provisions of the Plan,
such option shall be deemed to have not been granted and shall be of no effect.
Each option shall be evidenced by a Stock Option Agreement in such form as the
Board of Directors or the Committee may from time to time approve.
5. TERMS AND CONDITIONS OF OPTIONS.
A. OPTION PRICE. In the case of each option granted under the Plan,
the option price shall not be less than the Fair Market Value of the Stock on
the date of grant of such option. Fair Market Value for purposes of the Plan
shall be the closing price of the Stock on the New York Stock Exchange rounded,
if necessary, to the next full one cent, or, if there is no such price
published, then on the most recent preceding date on which such prices are
published.
B. PERIOD OF OPTION AND WHEN EXERCISABLE.
(i) An option granted under the Plan may not be exercised after the
earlier of (a) the date specified by the Committee, which shall be a maximum of
10 years from date of grant, or (b) the applicable time limit specified
in paragraph (ii) of this Section 5B. Any option not exercised within the
aforementioned time periods shall automatically terminate at the expiration of
such period.
(ii) An option may be exercised by an optionee only while such
optionee is in the employ of the Company or a Subsidiary or within three months
thereafter; provided, however, if termination of employment results from death
or total and permanent disability, such three-month period shall be extended to
twelve months.
(iii) In the event of the disability of an optionee, an option
which is otherwise exercisable may be exercised by the optionee's legal
representative or guardian. In the event of the death of the optionee, an
option which is otherwise exercisable may be
2
<PAGE>
exercised by the person or persons whom the optionee shall have designated in
writing on forms prescribed by and filed with the Committee or the Board of
Directors ("Beneficiaries"), or, if no such designation has been made, by the
person or persons to whom the optionee's rights shall have passed by Will or the
laws of descent and distribution ("Successors"). The Committee or the Board of
Directors may require an indemnity and/or such evidence or other assurances as
it may deem necessary in connection with an exercise by a legal representative,
guardian, Beneficiary or Successor.
(iv) Notwithstanding anything contained herein to the contrary, if it
is determined by the Board of Directors or the Committee (either before or after
cessation of employment of an optionee) that fraud, dishonesty, or similar acts
were committed by an optionee at any time while such optionee was in the employ
of the Company or a Subsidiary, all options and all rights with respect to all
options granted to such optionee shall immediately terminate and be null and
void.
C. EXERCISE AND PAYMENT. Subject to the provisions of
Section 5B, an option may be exercised by notice (in the form prescribed by the
Board of Directors or the Committee) to the Company specifying the number of
shares to be purchased. Payment for the number of shares of Stock purchased
upon the exercise of an option shall be made either (i) in United States dollars
in cash, or by certified check, bank draft or money order payable to the order
of the Company, or (ii) through the delivery of shares of the Stock already
owned by the optionee with a value equal to the option price, or (iii) by a
combination of (i) and (ii) above. The value of shares of the Stock delivered
shall be the Fair Market Value of the Stock as defined in Section 5A.
Notwithstanding the foregoing, the Committee may in its discretion permit the
issuance of Stock upon such other plan of payment as it deems reasonable,
provided that the then unpaid portion of the purchase price shall be evidenced
by a promissory note at such rate of interest and upon such other terms and
conditions as the Committee shall deem appropriate. In all cases where Stock is
issued for less than present full payment of the purchase price, there shall be
placed upon the certificate or certificates representing such Stock a legend
setting forth the amount paid at issuance and the amount remaining unpaid
thereon, and stating that the Stock is subject to call for the remainder and may
not be transferred by the holder until the balance due thereon shall be fully
paid.
D. NONTRANSFERABILITY. No option or any rights with
respect thereto shall be subject to any debts or liabilities of an optionee, nor
be assignable or transferable except by Will or the laws of descent and
distribution, nor be exercisable during the optionee's lifetime other than by
the optionee, nor shall Stock be issued to or in the name of one other than the
optionee; provided, however, that an option may after the death or disability of
an optionee be exercised pursuant to paragraph (iii) of Section 5B; and provided
further that any Stock issued to an optionee hereunder may at the request of
the optionee be issued in the name of the optionee and one other person, as
joint tenants with right of survivorship and not as tenants in common, or in the
name of a trust for the benefit of the optionee or for the benefit of the
optionee and others.
3
<PAGE>
E. EMPLOYMENT. No provision of the Plan, nor any term or
condition of any option, nor any action taken by the Board of Directors, the
Committee, the Company or a Subsidiary pursuant to the Plan, shall give or be
construed as giving an optionee any right to be retained in the employ of the
Company or of any Subsidiary, or affect or limit in any way the right of the
Company or any Subsidiary to terminate the employment of any optionee.
6. RECAPITALIZATION. The aggregate number of shares of
Stock on which options may be granted or which may be issued under the Plan, the
number of shares covered by each outstanding option, and the price per share in
each option, shall all be proportionately adjusted for any increase or decrease
in the number of issued shares of Stock of the Company resulting from a
subdivision or consolidation of shares or any other capital adjustment, the
payment of a stock dividend, or other increase or decrease in such shares
effected without receipt of consideration by the Company. Subject to any
required action by shareholders, if a new option is substituted for the option
granted hereunder, or an assumption of the option granted hereunder is made, by
reason of a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the option granted hereunder shall
pertain to and apply to the securities to which a holder of the number of
shares of Stock subject to the option would have been entitled.
7. TERM OF PLAN. No Stock option shall be granted under
the Plan after October 22, 1995. Options granted prior thereto, however, may
extend beyond such date and the provisions of the Plan shall continue to apply
thereto.
8. APPLICATION OF FUNDS. The proceeds received by the
Company from the sale of Stock pursuant to options granted under the Plan will
be used for general corporate purposes.
9. NO OBLIGATION TO EXERCISE OPTION. The granting or
acceptance of an option shall impose no obligation upon the optionee to exercise
such an option.
10. RIGHTS AS A SHAREHOLDER. An optionee shall have no
rights as a shareholder with respect to shares of Stock covered by an option
until the date of issuance to the optionee of a certificate evidencing such
shares of Stock after the exercise of such option and payment of the purchase
price. No adjustment will be made for dividends or other rights for which the
record date is prior to the date such certificate is issued.
11. AMENDMENTS. The Board of Directors of the Company may
from time to time alter, amend, suspend or discontinue the Plan, except that
shareholder approval is required with respect to any amendment which would (i)
increase the number of shares of Stock on which options may be granted or which
may be issued under the Plan, (ii) materially increase the benefits accruing to
optionees under the Plan, or (iii) materially modify the provisions of the Plan
relating to eligibility to be granted an option.
4
<PAGE>
The Plan, each option under the Plan and the grant and
exercise thereof, and the obligation of the Company to sell and issue shares
under the Plan shall be subject to all applicable laws, rules, regulations and
governmental and shareholder approvals, and the Board of Directors may make such
amendment or modification thereto as it shall deem necessary to comply with any
such laws, rules and regulations or to obtain any such approvals.
12. EFFECTIVENESS OF PLAN. The Plan was adopted by the
Board of Directors on October 23, 1985, subject to the approval at the Company's
1986 Annual Meeting of Shareholders of the holders of a majority of the Stock
entitled to vote at such meeting.
13. SEVERABILITY. If any provision of the Plan, or any
term or condition of any option granted or Stock Option Agreement or form
executed or to be executed thereunder, or any application thereof to any person
or circumstances is invalid, such provision, term, condition or application
shall to that extent be void (or, in the discretion of the Board of Directors,
such provision, term or condition may be amended so as to avoid such invalidity
or failure), and shall not affect other provisions, terms or conditions or
applications thereof, and to this extent such provisions, terms and conditions
are severable.
5
<PAGE>
KUHLMAN CORPORATION
1994 STOCK APPRECIATION RIGHTS PLAN
-----------------------------------
(As Adopted November 17, 1994, Effective November 16, 1994)
<PAGE>
INDEX OF DEFINITIONS AND PHRASES
Defined Term Page
- ------------ ----
Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Fair Market Value of a share of Kuhlman common stock . . . . . . . . . . . . . 2
Kuhlman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Stock Appreciation Right . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
<PAGE>
KUHLMAN CORPORATION
1994 STOCK APPRECIATION RIGHTS PLAN
(As Adopted November 17, 1994, Effective November 16, 1994)
1. EFFECTIVE DATE AND PURPOSE. Kuhlman Corporation, a Delaware
corporation ("KUHLMAN"), has established this KUHLMAN CORPORATION 1994 STOCK
APPRECIATION RIGHTS PLAN (the "PLAN"), effective as of November 16, 1994 (the
"EFFECTIVE DATE"). The purpose of the Plan is to promote the long-term
financial performance and goals of Kuhlman and its Subsidiaries by attracting,
retaining, and motivating key employees of Kuhlman and its Subsidiaries with
incentive compensation opportunities. For purposes of the Plan, the term
"SUBSIDIARY" means any corporation in which Kuhlman owns directly or indirectly,
through an unbroken chain of subsidiary corporations, stock possessing voting
power sufficient to elect a majority of the directors of that corporation.
2. PLAN ADMINISTRATION AND GOVERNING LAW. The Plan shall be administered
by the Committee (as described below). In addition to those rights, duties, and
powers vested in the Committee by other provisions of the Plan, the Committee
shall have sole authority to:
(a) interpret the provisions of the Plan;
(b) adopt, amend and rescind rules and regulations for the administration
of the Plan; and
(c) make all other determinations deemed by it to be necessary or
desirable for the administration of the Plan.
The Committee shall exercise its authority only by a majority vote of its
members at a meeting or by a writing signed by a majority of its members without
a meeting. The Committee may not exercise its authority under the Plan with
respect to any individual who is subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") at any time that it has
fewer than the minimum number of members required for "disinterested
administration" of the Plan with respect to that individual under then
applicable regulations issued under Section 16(a) or 16(b) of the Exchange Act.
At any date, the members of the Committee shall be the members of the
Compensation Committee of the Board of Directors of Kuhlman excluding any
Director whose current or prior eligibility for or who was granted any stock,
stock options, or stock appreciation rights under the Plan or any other plan of
Kuhlman or a Subsidiary, if such eligibility or grant would cause that Director
to fail to be considered a "disinterested administrator" or "disinterested
person" under then applicable regulations issued under Section 16(a) or 16(b) of
the Exchange Act.
Kuhlman Corporation 1994 Stock Appreciation Rights Plan
(As Adopted November 17, 1994, Effective November 16, 1994) Page 1
<PAGE>
The Plan shall be governed by, and administered and construed in accordance
with, the internal laws and court decisions of the State of Delaware.
3. GRANTS OF SARS. Stock Appreciation Rights may be granted under the
Plan to any key executive, managerial, supervisory, administrative, or
professional employee of Kuhlman or a Subsidiary, as determined by the Committee
(an "EMPLOYEE"). The Committee may, at any time, grant one or more Stock
Appreciation Rights to an Employee, whether or not the Employee has previously
received a grant under the Plan; provided, however, that no Employee may be
granted more than 50,000 SARs in any calendar year. For purposes of the Plan,
the term "STOCK APPRECIATION RIGHT" or "SAR" means a right to receive, subject
to the conditions and limitations of the Plan, as soon as practical after
exercise of the right, only cash in an amount equal to the excess, if any, of:
(a) the Fair Market Value of a share of Kuhlman common stock on the date
of exercise of the right; over
(b) the Fair Market Value of a share of Kuhlman common stock on the date
of grant of the right.
For purposes of the Plan, the phrase "FAIR MARKET VALUE OF A SHARE OF KUHLMAN
COMMON STOCK" means, at any date:
(c) the closing price of Kuhlman common stock, as reported in the New York
Stock Exchange Composite Transaction Table in THE WALL STREET JOURNAL
for the trading date coincident with or next preceding the date for
which the value is being determined rounded, if necessary, to the next
full one cent; or
(d) if such shares are not then listed on the New York Stock Exchange or
not so reported (or determined by the Committee to be improperly
reported), then as established by the Committee.
4. SARS AVAILABLE. The total number of Stock Appreciation Rights that
may be granted under the Plan over its term may not exceed 1,500,000. If an SAR
granted under the Plan expires or is terminated without having been exercised,
then that SAR shall not thereafter be considered in determining whether the
limitation described in the next preceding sentence has been exceeded. In the
event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split or other similar change in the corporate structure or
capitalization of Kuhlman which affects the outstanding Kuhlman common stock,
appropriate adjustment, as reasonably determined in good faith by the Board of
Directors of Kuhlman (or its successor), shall be made with respect to the (a)
number of SARs which may thereafter be granted under the Plan; (b) the affected
provisions of the Plan; and (c) the SARs previously granted under the Plan.
Kuhlman Corporation 1994 Stock Appreciation Rights Plan
(As Adopted November 17, 1994, Effective November 16, 1994) Page 2
<PAGE>
5. AUTOMATIC EXERCISE OF SARS. Each SAR granted under the Plan shall, if
not previously forfeited, be automatically exercised on the earliest to occur
of:
(a) the fifth anniversary of the date of grant of the SAR;
(b) the date of the grantee's death;
(c) the date that the grantee's employment with Kuhlman and all
Subsidiaries terminates by reason of the grantee's retirement on or
after age 65 (without remaining as a member of the Board of Directors
of Kuhlman or of any Subsidiary) or the grantee's Disability; or
(d) in the case of a grantee who remains as a member of the Board of
Directors of Kuhlman or of any Subsidiary when the grantee's
employment with Kuhlman and all Subsidiaries terminates, the first
date that the grantee is no longer a member of the Board of Directors
of Kuhlman or of any Subsidiary.
If the grantee's employment with Kuhlman and all Subsidiaries terminates for any
reason other than retirement, as described in (c) above (without remaining as a
member of the Board of Directors of Kuhlman or of any Subsidiary), death, or
Disability, then any outstanding SAR granted to that grantee shall be forfeited
and shall not be exercisable under the Plan; provided, however, that the
Committee may, in its sole discretion, waive the forfeiture of the grantee's
outstanding SARs and treat the grantee's employment termination date as the date
of exercise of those SARs.
For purposes of the Plan, the term "DISABILITY" means a mental or physical
condition which, in the opinion of a licensed physician selected by the
Committee, renders a Participant incapable of performing the regular duties
assigned to him by Kuhlman and the Subsidiaries.
6. FUNDING MEDIUM. All amounts payable under the Plan shall be paid
solely from the general assets of Kuhlman and the Subsidiaries. No Employee or
grantee shall have any right to payment under the Plan greater than that of a
general creditor of Kuhlman or a Subsidiary.
7. NO SHAREHOLDER OR EMPLOYMENT RIGHTS. A grantee shall not have any
rights of a stockholder of Kuhlman by reason of the grant or exercise of an SAR.
The Plan does not constitute a contract of employment. Eligibility to receive,
or receipt of, an SAR under the Plan does not give any individual the right to
become or remain an employee of Kuhlman or a Subsidiary and does not limit in
any way the right of Kuhlman or a Subsidiary to change the duties or
responsibilities of any Employee.
Kuhlman Corporation 1994 Stock Appreciation Rights Plan
(As Adopted November 17, 1994, Effective November 16, 1994) Page 3
<PAGE>
8. NON-TRANSFERABILITY. An SAR granted under the Plan may not be
transferred except by will or the laws of descent and distribution; provided,
however, that the grantee may designate a beneficiary or beneficiaries to
receive payment on exercise on account of the grantee's death. A beneficiary
must be designated on a form furnished by or acceptable to the Committee and
shall be effective only if a properly executed form is filed with the Committee
while the grantee is alive. An effective beneficiary designation shall cancel
all beneficiary designations previously filed.
9. WITHHOLDING TAXES ON EXERCISE. Kuhlman and each Subsidiary shall have
the right to deduct, from any payment on exercise of an SAR, the amount of any
tax that Kuhlman or the Subsidiary reasonably believes is required by law to be
so withheld.
10. TERM, AMENDMENT, AND TERMINATION OF PLAN. No SAR shall be granted
under the Plan after November 16, 1999. SARs granted prior thereto, however,
may extend beyond such date and the provisions of the Plan shall continue to
apply thereto. The Board of Directors of Kuhlman may amend or terminate the
Plan at any time; provided, however, that no amendment or termination of the
Plan shall affect, in any manner that is adverse to the grantee without the
consent of that grantee, the validity or terms of any SAR granted under the Plan
before the later of the effective date or adoption date of the amendment or
termination.
Kuhlman Corporation 1994 Stock Appreciation Rights Plan
(As Adopted November 17, 1994, Effective November 16, 1994) Page 4
<PAGE>
KUHLMAN
-------
KUHLMAN CORPORATION
1994 ANNUAL REPORT
<PAGE>
CONTENTS
- ------------------------
Financial Highlights 2
Letter to Our Shareholders 3
Kuhlman Electric Corporation 6
Coleman Cable Systems, Inc. 8
Emtec Products Corporation 10
Five-Year Selected Data 12
Management's Discussion and Analysis 13
Financial Review 16
Board of Directors and Officers 28
Shareholder Information 28
CORPORATE PROFILE
-------------------------
THIS YEAR, KUHLMAN CORPORATION IS OBSERVING ITS 101ST YEAR OF PROVIDING
TOP-QUALITY PRODUCTS TO ITS CUSTOMERS. KUHLMAN IS A HOLDING COMPANY ENGAGED IN
THE MANUFACTURING OF DISTRIBUTION, POWER AND INSTRUMENT TRANSFORMERS; ELECTRICAL
AND ELECTRONIC WIRE AND CABLE PRODUCTS; AND SPRING PRODUCTS.
KUHLMAN CORPORATION CONDUCTS ITS BUSINESS THROUGH THREE PRINCIPAL OPERATING
SUBSIDIARIES - KUHLMAN ELECTRIC CORPORATION, COLEMAN CABLE SYSTEMS, INC. AND
EMTEC PRODUCTS CORPORATION. THE COMPANY'S HEADQUARTERS IS IN SAVANNAH, GEORGIA,
AND ITS MANUFACTURING FACILITIES ARE LOCATED IN SIX STATES.
-------------------------
1
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
FOR THE YEAR 1994 1993 1992 NET SALES
- ------------------------------------------------------------------------------------------------- ---------------------------
IN THOUSANDS, WHERE APPLICABLE (IN MILLIONS)
<S> <C> <C> <C> <C>
Net Sales $242,846 $118,097 $121,734 $243
Operating Profit Before Restructuring Charge 6,265 1,851 7,460
Income From Operations* 1,617 3,595 6,224
Net Income(Loss) 1,617 (2,998) 6,224
Earnings Per Share:
Income From Operations* 0.27 0.61 1.05 $122
Net Income(Loss) 0.27 (0.51) 1.05 $118
Dividends Paid 3,640 3,530 3,452
Capital Expenditures 7,019 2,794 5,175
Depreciation and Amortization 5,575 2,768 2,756 92 93 94
Return On Average Shareholders' Equity* 3.3% 7.1% 12.1%
- -------------------------------------------------------------------------------------------------
<FN>
*INCOME FROM OPERATIONS IS NET INCOME BEFORE COST OF RESTRUCTURING AND THE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. THIS WAS USED TO
COMPUTE RETURN ON AVERAGE SHAREHOLDERS' EQUITY IN 1993.
</TABLE>
<TABLE>
<CAPTION>
At Year End 1994 1993 1992 NET INCOME (LOSS)
- ------------------------------------------------------------------------------------------------- ---------------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Working Capital $ 27,969 $ 41,960 $ 38,502
Current Ratio 1.7 to 1 1.9 to 1 3.3 to 1
Total Debt 62,228 74,569 9,052 $6.2
Total Debt/Total Capitalization 56.1% 60.4% 14.7%
Shareholders' Equity 48,672 48,914 52,690
Net Book Value Per Share 7.92 8.12 9.15
Total Assets 146,563 164,042 78,030
Number of Employees 1,235 1,290 861
- ------------------------------------------------------------------------------------------------- $1.6
92 93 94
</TABLE>
COMMON STOCK PRICE RANGES AND DIVIDENDS
- -------------------------
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------------------------------------------ [$3.0]
Quarters High Low Close Dividend High Low Close Dividend
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st 19 3/8 15 16 3/4 $0.15 16 1/2 13 1/4 15 5/8 $0.15
2nd 18 3/8 14 3/4 14 3/4 $0.15 16 1/8 13 1/2 13 7/8 $0.15
3rd 15 3/8 14 1/8 14 3/4 $0.15 14 7/8 13 5/8 14 1/2 $0.15
4th 16 11 12 1/8 $0.15 17 1/4 14 3/8 15 7/8 $0.15
- ------------------------------------------------------------------------------------------------------
</TABLE>
THE COMMON STOCK OF KUHLMAN CORPORATION (KUH) IS LISTED ON THE NEW YORK
STOCK EXCHANGE AND IS QUOTED DAILY BY THE EXCHANGE IN MOST MAJOR NEWSPAPERS. THE
TABLE ABOVE SHOWS THE PRICE RANGE PER SHARE AND THE DIVIDENDS DECLARED PER SHARE
FOR THE LAST TWO YEARS. AT DECEMBER 31, 1994, THERE WERE 6,146,162 SHARES OF
COMMON STOCK OUTSTANDING AND 4,281 SHAREHOLDERS OF RECORD. IT IS ESTIMATED THERE
ARE APPROXIMATELY 8,500 SHAREHOLDERS IN TOTAL, INCLUDING THOSE HOLDING STOCK IN
"NOMINEE" OR "STREET" NAME.
THE DECLARATION AND PAYMENT OF DIVIDENDS IS, SUBJECT TO APPLICABLE LAW, IN
THE DISCRETION OF THE KUHLMAN BOARD OF DIRECTORS, WHICH CONSIDERS NUMEROUS
FACTORS IN DETERMINING WHETHER OR NOT TO PAY A DIVIDEND AND THE AMOUNT OF ANY
SUCH DIVIDEND. SEE ALSO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (LIQUIDITY AND CAPITAL RESOURCES) AND NOTE 3
TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTAINED HEREIN.
A DIVIDEND INVESTMENT PROGRAM IS MAINTAINED FOR KUHLMAN SHAREHOLDERS OF
RECORD. ADDITIONAL SHARES OF STOCK MAY BE PURCHASED WITH DIVIDENDS PAID ON
KUHLMAN STOCK AND/OR WITH CASH PAYMENTS OF $10 TO $3,000 PER CALENDAR QUARTER.
THE COMPANY PAYS ALL BROKERAGE FEES AND ADMINISTRATIVE COSTS ON THESE STOCK
PURCHASES. THE PLAN IS ADMINISTERED FOR THE COMPANY BY ITS TRANSFER AGENT,
HARRIS TRUST AND SAVINGS BANK. INQUIRIES CONCERNING THE PLAN SHOULD BE DIRECTED
TO THE BANK.
- -------------------------
2
<PAGE>
LETTER TO OUR SHAREHOLDERS
-------------------------
OUR CORPORATION'S FUTURE SUCCESS WILL BE DETERMINED BY HOW WELL WE MANAGE THE
CHALLENGES CREATED BY THE DEMANDS OF CHANGE TODAY.
Kuhlman Corporation celebrated 100 years of service to its shareholders,
its employees and its customers in 1994. Only a small percentage of the
publicly traded corporations in America can boast of a century of longevity and
continuous operations during the most rapidly changing times in human history.
While Kuhlman's successes through ten decades are significant, they serve
only as a prologue for its future. Our Corporation's future success will be
determined by how well we manage the challenges created by the demands of change
today. In 1993, as we looked to the future, your management, your Board of
Directors and employees alike, stated that our foremost goal was the creation
and enhancement of shareholder value and the management of our Corporation for
long-term success. In that our goals are long-term, it is important that we
periodically review our ambitions and our progress.
From a financial perspective, our Corporation showed significant progress
in 1994, but nonetheless did not meet our expectations. The Corporation had
record sales of $242,846,000, a gain of more than 100% over the previous year's
sales of $118,097,000. The Corporation reported net earnings for 1994 of
$1,617,000, or 27CENTS per share. This compared with a net loss in 1993 of
$2,998,000, or 51CENTS per share. While net earnings for the year were
disappointing, they were largely affected by management's decisions which,
though painful in the short-term, were deemed necessary to position the company
for long-term success.
KUHLMAN ELECTRIC, our transformer manufacturing subsidiary, was
restructured and streamlined in 1993 to improve its competitiveness in a market
laden with excess manufacturing capacity. Kuhlman Electric's problems in 1993
followed us into 1994, and additional steps were taken during the year that we
believe will ensure our viability for years into the future.
Specifically, we closed the Instrument Transformer Division's
110,000-square-foot plant in Indian Trail, North Carolina, and moved the
manufacturing operations to existing plants in Versailles, Kentucky, and Crystal
Springs, Mississippi. This move eliminated the overhead costs attendant with
the North Carolina plant. Further, we streamlined our Distribution Transformer
Division, headquartered at our Versailles plant, in an effort to increase
efficiency and cut costs. Our actions resulted in lower manufacturing costs and
included the elimination of more than one hundred jobs at the Kentucky plant.
The Power Transformer Division, located in Crystal Springs, Mississippi,
benefited from the management decision to improve the quality and design of our
power transformers. We are confident that the Power Transformer Division will
continue to be a source of strength for Kuhlman Electric in the future.
We believe our actions in 1994 positioned Kuhlman Electric as an effective
competitor in all three of its product areas - distribution, instrument and
power transformers. By focusing on the needs of our select
-------------------------
3
<PAGE>
customers, we are able to provide them with better products at more competitive
prices. In 1994 we paid a significant price to further improve Kuhlman
Electric, and in 1995 we believe we will see positive results stemming from our
efforts.
COLEMAN CABLE SYSTEMS became part of the Kuhlman family in December of
1993. It was the first step of an acquisition program designed to diversify the
activities of our Corporation and to provide us with additional investment
opportunity. I am pleased to report that in 1994, its first full year as a
member of the Kuhlman organization, Coleman Cable enjoyed the highest sales and
earnings in its history. In recognition of its long-term potential, we
facilitated its continued expansion by investing in plant and state-of-the-art
manufacturing equipment. We believe that through our initial and continued
investment in Coleman Cable Systems, we are providing our shareholders
opportunities for long-term growth.
EMTEC PRODUCTS CORPORATION, the smallest of our operating subsidiaries,
serving mainly the automotive industry with stamped metal products and
specialized spring assemblies, posted another year of above-average return on
equity. For some time, Emtec has been looking for additional opportunities to
manufacture products outside the automotive industry. In 1994 Emtec signed a
significant, and one of its largest ever, non-automotive contracts for the
manufacture of a spring sub-assembly used in antennas for hand-held cellular
telephones. We are all pleased with this contract and with the progress we have
made in seeking new markets and product adaptations.
We continue to believe that Kuhlman Corporation will best serve its
shareholders with the strategy of constantly improving its existing operating
companies and through the execution of a carefully planned and implemented
acquisition program.
In this regard, we are pleased with the announcement on February 27, 1995
that the Boards of Directors of Kuhlman Corporation and Schwitzer, Inc. had
approved the merger of the two companies. Both organizations have signed a
definitive agreement stipulating the terms of the merger, and the shareholders
of Kuhlman and Schwitzer are being asked to approve the merger at their Annual
Shareholders Meetings this year.
Schwitzer, Inc. is a manufacturer of turbochargers, fans, fan drives and
engine dampers made for engine manufacturers serving the trucking, construction,
boating, heavy equipment and commercial products
[PHOTO]
Robert S. Jepson, Jr., (left)
Chairman of the Board and
Chief Executive Officer,
and Curtis G. Anderson,
President and Chief
Operating Officer.
- -------------------------
4
<PAGE>
industries. Schwitzer will be a significant addition to our Corporation and will
afford us the opportunity to materially strengthen the smallest of our
manufacturing bases, industrial products. Schwitzer's global manufacturing and
sales activities in Brazil and the United Kingdom will open for us new and
exciting markets both in Europe and in South America. Further, we believe the
two companies, when combined, will be financially better equipped to meet the
competitive challenges that we are certain to face in the future.
No review of 1994 would be complete without mentioning a significant
addition to our management team. In April of last year, Curtis G. Anderson
joined Kuhlman as President and Chief Operating Officer. Mr. Anderson brings to
the position talent and a diversity of experience which should assist the
Corporation in its quest for long-term success.
In today's world, everyone associated with our organization - shareholders,
directors, employees and customers alike - enjoys choices. Shareholders have a
wide range of investment opportunities from which to choose, and qualified
directors are afforded numerous opportunities to serve fine American
corporations. Capable employees are today a sought-after resource who, now more
than ever, couple their futures only with those companies offering challenge and
opportunity, both short and long-term. Our customers who, with their choices,
determine our success or failure, demand the highest quality of services and
products.
To all of those shareholders, directors, employees and customers who have
chosen Kuhlman in past years, my sincere thanks. You have our pledge that we
will constantly seek self-improvement and thus qualify for your continued
support in the future.
/s/ Robert S. Jepson, Jr.
Robert S. Jepson, Jr.
Chairman and Chief Executive Officer
-------------------------
5
<PAGE>
KUHLMAN ELECTRIC CONTINUES TO RESPOND TO INDUSTRY CHALLENGES
- -------------------------
Kuhlman Electric Corporation manufactures a broad array of transformers that are
used in electrical distribution systems serving residences and commercial and
industrial buildings. These products include small instrument transformers used
in metering and relaying electricity; pole-mounted, surface-mounted, or
underground transformers serving from one to eight residences; and medium-size
power transformers used in utility substations or commercial-type electrical
power centers for shopping centers, apartment complexes, factories and other
users of electrical power.
Electric utility companies are the principal market for Kuhlman Electric's
products. However, industrial and commercial customers are playing an increasing
role as the electrical generation, transmission and distribution industries
continue to change.
DISTRIBUTION TRANSFORMERS Distribution transformers reduce high voltages
transmitted on electrical transmission lines to usable levels (120 and 240
volts) for homes, offices and industrial users. Such transformers may be mounted
on a utility pole, placed at ground level on a pad, or in underground vaults.
Kuhlman Electric is committed to providing energy-efficient transformers
that meet specific needs of customers. Kuhlman Electric's top priority is
optimizing customer satisfaction through high quality, good service and on-time
deliveries. To achieve this, Kuhlman Electric employs some of the latest in
transformer technology and quality control procedures to produce transformers
designed to meet the user's performance evaluation formulas and other
requirements. Kuhlman Electric currently manufactures distribution transformers
in Versailles, Kentucky, and Salinas, California.
POWER TRANSFORMERS Power transformers are designed for utility and industrial
customers for installation in their substation networks. Kuhlman Electric's
power transformer product line includes a variety of transformers in electrical
power ranges from 2.5 MVA to 50 MVA. Units are supplied either with or without
load tap changing (LTC) capability.
Recent investments at its Crystal Springs, Mississippi, facility have
resulted in improved lead times and on-time delivery performance, resulting in
what Kuhlman Electric believes is the shortest design-and-build cycle capability
in the industry. As an addi-
Below: Assembly of a
control panel on a power transformer. Right: Assembly of a transformer.
[PHOTO]
- -------------------------
6
<PAGE>
Kuhlman Electric's top priority is optimizing
customer satisfaction through high quality,
good service and
on-time deliveries.
[PHOTO]
tional service to customers, on-site delivery and installation of power
transformers is available. This is an important service offering as customers
downsize their in-house capabilities.
INSTRUMENT TRANSFORMERS Instrument transformers are high-accuracy
transformers used within an electrical distribution network for revenue
metering, relaying and system protection applications.
As electrical power generation, transmission and distribution practices
continue to change, it is expected that Kuhlman Electric products will be
in greater demand as electric power is transferred between sellers and buyers.
Kuhlman Electric manufactures its instrument transformer products at its
facilities in Versailles, Kentucky, and Crystal Springs, Mississippi.
During 1994, Kuhlman Electric continued its strategy of streamlining its
organization and focusing on customer needs. Working in harmony with a
deregulated electrical utility industry, our strategy calls for a
manufacturing-focused organization uniquely capable of meeting these competitive
challenges.
With a central foundation of outstanding people and customer-focused plans,
and supported by specifically-directed capital investments, the company's
operating philosophy is based on a strategy of CONTINUOUS IMPROVEMENT in all
segments of the organization. A strategic target is to eliminate waste from all
areas of its business, thereby delivering a competitive and sustainable
advantage.
The primary goal of Kuhlman Electric's management is to produce the highest
quality transformers at a price that meets the requirements of its customers and
generates an acceptable return for our shareholders. To do this, Kuhlman
Electric works hard to find the most cost-efficient methods to bring its
products to the marketplace. This will involve taking advantage of the best
practices in all phases of its business and effectively utilizing the skills of
its employees.
In addition, Kuhlman Electric continues to be in touch with its customers
and other industry experts to be certain its products exceed expectations. The
challenges are many and, in some cases, daunting, but Kuhlman Electric is
dedicated to turning these challenges into opportunities
for the company and its customers.
Kuhlman Electric believes its response to the drive by its customers to
establish a competitive position within a deregulated industry will lead to
longer-term trading relationships and a diminishing of the current bid process.
Kuhlman Electric's mission is to ensure that its product-delivery system,
founded on its manufacturing philosophy, effectively interfaces with the unique
processes, needs and applications of its key customers. Kuhlman Electric
Corporation believes this will enable it to earn "Supplier of Choice" status
within the most progressive segment of its customer base.
-------------------------
7
<PAGE>
COLEMAN CABLE SYSTEMS CONTINUES TO GROW
- -------------------------
Coleman Cable Systems, Inc., manufactures and distributes a broad variety of
electrical and electronic wire and cable products serving many industries. To
ensure customer needs are being met and to optimize operating performance,
Coleman is organized into five business units, each with resources focused on
specific niche markets and products.
These operating units and their customers are linked by a sophisticated
computer network, giving each unit the flexibility and responsiveness of a small
independent company, while providing access to research and development
capabilities and other resources of a larger corporation. Customers enter orders
directly into Coleman's system, which recognizes the product demand immediately,
and production and/or shipment commences automatically.
Coleman believes that its commitment to quality and service gives it a
competitive edge, and its philosophy of CONTINUOUS IMPROVEMENT drives each
element of
[PHOTO]
[PHOTO]
Left: Testing of extension cords. Above: Cabling equipment used for
multi-conductor cable. Right: Bar-code inventory control of copper wire.
the company's business. This focus has reduced cycle times in all areas of the
business from order entry through shipping, which Coleman believes
differentiates it from its competitors by providing a higher level of product
quality and service to customers.
COLEMAN CABLE & WIRE COMPANY Coleman Cable & Wire Company provides a wide range
of flexible power and control cable to industrial and construction markets,
marketing its products under trade names that it feels are widely recognized for
their quality and high-performance standards.
Coleman believes this unit has been successful in locating niche markets
and designing unique products to meet customer needs. For example, Coleman, with
Underwriters Laboratories, led the way in developing and designing
specifications for stage and lighting cable and was the first company to
introduce this product into the market. Coleman's design and engineering
capabilities also played a key role in supplying portable power supply cables
for robotics equipment used in automotive assembly plants.
COLEMAN CORD PRODUCTS Coleman's Cord Products Division produces a wide range of
wire and cable products for both home and industrial electrical needs.
- -------------------------
8
<PAGE>
TO ENSURE CUSTOMER NEEDS ARE BEING MET AND TO OPTIMIZE OPERATING
PERFORMANCE, COLEMAN IS ORGANIZED INTO FIVE BUSINESS UNITS, EACH WITH DEDICATED
RESOURCES FOCUSED ON SPECIFIC NICHE MARKETS AND PRODUCTS.
Its history of responsiveness to market needs includes the development of
products such as COILEX[REGISTERED TRADEMARK] and COILITE[REGISTERED TRADEMARK]
coiled cord products, QUADNECTOR[REGISTERED TRADEMARK] extension cords,
BOOSTER IN A BAG[REGISTERED TRADEMARK] booster cables, READY/CLAD[REGISTERED
TRADEMARK] conduit-on-a-reel and TROUBLE FREE[TRADEMARK] fully molded
trouble lights. Coleman believes that professionals recognize Coleman's product
as a brand-preferred extension cord due to Coleman's ability to supply high
quality and quick service to this area of distribution. In addition, Coleman is
a leading supplier of battery booster cables to several nationally recognized
retailers.
SIGNAL CABLE As a leading manufacturer of security cables in North America,
Coleman's Signal Division provides electronic wire and cable for markets as
diverse as construction and robotics. These cables also are used extensively by
burglar alarm, fire alarm, smoke detector and closed circuit television (CCTV)
companies. With the country becoming more urbanized and insurance companies
offering discounts to businesses and individuals with security/fire/smoke
systems, often mandated by government agencies, Coleman believes that the market
for its cables is growing dramatically. Signal is the specified source for
several leading security system installation firms.
BARON WIRE & CABLE CORP. Baron Wire & Cable Corp. produces cables for
energy management systems and for irrigation and sprinkler systems and is one of
the largest producers of thermostat cable in the U.S. While Baron's products are
recognized for their quality standard throughout the heating, ventilating and
air conditioning industry, management believes that Baron has earned a solid
reputation as a low-cost cable producer because of its patented in-line robotic
equipment. Baron's customers include a number of nationally recognized
companies.
[PHOTO]
NEHRING ELECTRICAL WORKS Nehring Electrical Works manufactures copper and
aluminum wire for grounding, transmission and distribution of power. Nehring,
founded in 1912 and acquired by Coleman Cable Systems in 1980, is a leading
supplier of bare copper to the utility industry and is an approved supplier to
almost every utility, municipality and rural electric cooperative in the United
States. New products, such as ground rods, accessories and 600-volt underground
cable, have been progressively introduced.
Nehring sells its products through key distribution channels, consisting
primarily of utility, electrical distribution, telecommunication and welding.
Nehring's growth has been a result of market penetration and product
development. Also fueling this growth has been a focus on quality products and
customer service. Through CONTINUOUS IMPROVEMENT efforts in all functional areas
of the business, increases in both sales revenue and earnings are expected.
-------------------------
9
<PAGE>
EMTEC PRODUCTS: DIVERSIFICATION OPENS NEW MARKETS
RECENT INITIATIVES EXPANDED THE DIVISION'S MARKET TO INCLUDE COMPONENTS FOR
NON-AUTOMOTIVE PRODUCTS SUCH AS OFF-HIGHWAY VEHICLES AND CELLULAR PHONES.
Emtec Products Corporation manufactures a variety of spring and spring assembly
products, as well as a limited offering of marine products. It consists of two
primary business units: Spring Operations and Marine Products. Emtec is
headquartered in Coldwater, Michigan, with operating facilities in Coldwater and
Elyria, Ohio.
SPRING OPERATIONS Kuhlman Corporation, through its subsidiaries and divisions,
has been in the spring business for almost 30 years. The spring industry, which
is approaching $2 billion in sales, consists mainly of small companies with
annual sales of $5 million or less. Emtec is one of the largest companies in the
industry. Emtec's spring operations comprise
[PHOTO]
two divisions, the TRANS-PAK Spring Assembly Division and the Empire Spring
Division.
The TRANS-PAK Spring Assembly Division, located in Coldwater, Michigan,
produces springs and spring assemblies for various applications. Its focus on
quality has earned it many awards, including Ford Motor Company's "Q-1" award,
J.I. Case's "Qualified Supplier" award, and Saturn Corporation's 1993 and 1994
"Outstanding Achievement Recognition Award" and "Quality Recognition Award."
Until recently, the division was primarily automotive-oriented with General
Motor's Powertrain Division and Saturn Corporation as its major customers.
Recent initiatives expanded the division's market to include components for
non-automotive products such as off-highway vehicles and cellular phones.
Kuhlman introduced the TRANS-PAK[REGISTERED TRADEMARK] spring assembly in
1971. This assembly eliminated the costly and difficult operation of manually
assembling clutch springs in automotive automatic transmissions. These
assemblies have gained worldwide acceptance and are now used by most automotive
manufacturers.
Emtec believes that the introduction of a new sandwich-type clutch return
spring assembly by Emtec in 1991 was well received by engineers at a major U.S.
automotive company. This spring assembly is expected to gain interest with other
major automotive manufacturers. Production of this new TRANS-PAK[REGISTERED
TRADEMARK] spring assembly began in 1993 and resulted in major savings for the
customer.
In 1994, the TRANS-PAK Spring Assembly Division introduced a simplified
one-piece version of a clutch return spring assembly with a capability not
attainable by existing assemblies. It is expected that many new transmissions
will require this type of capability.
These recent innovations should increase the
- -------------------------
10
<PAGE>
[PHOTO]
Left: Inspection of a spring used in a cellular phone.
Right: TRANS-PAK[REGISTERED TRADEMARK] spring assemblies for off-highway vehicle
brake systems.
TRANS-PAK Spring Assembly Division's share of the automotive market and help
penetrate other markets. During 1994, for example, the TRANS-PAK Spring Assembly
Division was awarded a contract for a spring sub-assembly used in cellular
phones. This is indicative of the division's continuing search for innovative
opportunities to diversify into new markets and develop new product lines.
The Empire Spring Division, located in Elyria, Ohio, specializes in
stampings, wire forms and other precision components using a variety of metals.
The appliance industry, with about 40% of this division's sales, is one of the
major markets for Empire's products, with the automotive and electronics
industries representing more than 30% of the division's sales.
MARINE PRODUCTS The Nautalloy Division, founded in 1950 and acquired by Kuhlman
Corporation in 1973, also is located in Elyria, Ohio. Nautalloy is
a supplier of marine hardware and accessories with roughly 75% of its total
sales (primarily manufactured rails) to major recreational boat manufacturers.
The balance of the division's sales is to the consumer-accessory aftermarket
with a wide variety of products under the NAUTALLOY[REGISTERED TRADEMARK] brand
name. Recent initiatives have begun which will take the division into the
medical, large-truck and recreational vehicle markets.
--------------------------
11
<PAGE>
FIVE-YEAR SELECTED FINANCIAL DATA
- -----------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $242,846 $118,097 $121,734 $126,181 $142,195
Sales, continuing operations 242,846 118,097 121,734 126,181 117,578
Gross profit (% of sales, continuing operations) 16.7% 15.2% 19.9% 21.3% 22.0%
Operating expenses (% of sales, continuing operations) 14.1% 13.6% 13.7% 13.4% 12.2%
Restructuring costs - 8,650 - - -
Operating profit (loss) 6,265 (6,799) 7,460 9,967 11,486
Interest income (expense), net (4,051) (312) 266 302 (826)
Other income (expense) 709 2,010 2,597 2,068 (155)
Income (loss) from continuing operations, before taxes and cumulative
effect of change in accounting principle 2,923 (5,101) 10,323 12,337 10,505
Taxes (benefit) on income (loss) 1,306 (3,392) 4,099 5,145 4,698
Income (loss) from continuing operations before cumulative effect of
change in accounting principle 1,617 (1,709) 6,224 7,192 5,807
Discontinued operations, net of tax - - - - 3,625
Cumulative effect of change in accounting principle, net of tax - (1,289) - - -
Net income (loss) 1,617 (2,998) 6,224 7,192 9,432
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share
Income (loss) before discontinued operations and cumulative
effect of change in accounting principle 0.27 (0.29) 1.05 1.21 1.03
Discontinued operations - - - - 0.64
Cumulative effect of change in accounting principle - (0.22) - - -
Net income (loss) 0.27 (0.51) 1.05 1.21 1.67
- -----------------------------------------------------------------------------------------------------------------------------
As of December 31, 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS
BALANCE SHEET DATA
Cash and cash equivalents $ 622 $ 16,555 $ 21,572 $ 18,568 $ 15,132
Working capital 27,969 41,960 38,502 38,626 37,937
Net plant and equipment 34,449 31,870 21,331 18,987 15,972
Total assets 146,563 164,042 78,030 74,585 75,374
Total debt 62,228 74,569 9,052 9,614 10,008
Shareholders' equity 48,672 48,914 52,690 49,804 46,009
- -----------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, WHERE APPLICABLE
OTHER DATA
IBITDA* $ 12,549 $ 6,629 $ 12,813 $ 15,389 $ 15,896
Cash flow from operations 4,258 6,368 11,939 8,711 3,408
Capital expenditures 7,019 2,794 5,175 6,460 5,213
Depreciation and amortization 5,575 2,768 2,756 3,354 4,565
Net book value per share 7.92 8.12 9.15 8.71 8.06
Return on net sales 0.7% (2.5%) 5.1% 5.7% 6.6%
Return on average shareholders' equity 3.3% (5.9%) 12.1% 15.0% 22.2%
Total debt as a percentage of total capitalization 56.1% 60.4% 14.7% 16.2% 17.9%
Inventory turns 7.7 7.2 5.9 5.6 4.9
Days sales outstanding 52.3 47.9 44.4 49.8 52.8
Number of employees 1,235 1,290 861 889 828
Shares outstanding 6,146 6,023 5,757 5,721 5,706
Number of record shareholders 4,281 3,958 3,463 3,288 3,001
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
*INCOME BEFORE INTEREST AND TAXES PLUS DEPRECIATION AND AMORTIZATION, EXCLUDING RESTRUCTURING COSTS.
</TABLE>
- -------------------------
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------
The purpose of this discussion and analysis is to aid in the understanding and
evaluation of financial condition and results of operations of the Company for
the years ended December 31, 1994, 1993 and 1992. This discussion and analysis
is intended to complement the audited financial statements and footnotes and
other financial data appearing elsewhere in this report, and should be read in
conjunction therewith.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position. Management
believes that the Company's current liquidity and forecasted cash flows from
operations, together with its available borrowing capacity and the potential for
debt or equity offerings, are more than adequate to support its continued growth
through both internal expansion and potential acquisitions.
A primary financial objective of the Company is to enhance long-term
shareholder value. Toward that goal, the Company invested an aggregate of
approximately $7,019,000 in 1994 in its operating subsidiaries to enhance their
competitive position and to improve their future operating performance. The
capital invested was for both additions to the Company's fixed asset base as
well as funds to complete the Company's restructuring program which began in
1993. At Kuhlman Electric, the Company made investments to streamline its
operations, improve its manufacturing capabilities and lower its cost structure.
At Coleman Holding Company ("Coleman"), the Company made expenditures to expand
its distribution capabilities and increase operating efficiencies to better meet
the customer service demands of its growing business. Similarly, at Emtec, the
Company invested in new machinery and equipment to expand its manufacturing
capabilities to appeal to broader markets.
In addition to the capital investment noted above, the Company continued
with its program, which began in 1993, to streamline and improve the operations
of its Kuhlman Electric subsidiary. This resulted in cash outflows for final
payments made as part of the 1993 restructuring charge as well as lower cash
inflow generated from earnings due to temporary inefficiencies caused by the
consolidation of its instrument transformer operation and the downsizing of its
distribution transformer unit. The total cash outflow in 1994 related to the
1993 restructuring charge was $3,282,000 which was primarily for severance and
expenses associated with the consolidation of Kuhlman Electric's instrument
transformer division. Also, in the fourth quarter of 1994, the Company took
further actions to downsize and refocus Kuhlman Electric's distribution
transformer division. The short-term impact of these actions lowered pretax
earnings in the fourth quarter of 1994 by approximately $2,000,000 due to
temporary excess labor costs and the recognition of postemployment benefits,
substantially all of which were paid in 1994. Though the costs of these actions
were significant in 1994, management believes that its Kuhlman Electric
subsidiary is now much better positioned to respond profitably to the challenges
of its competitive environment.
In order to fund the activities noted above, meet its 1994 operating needs,
reduce its debt levels and pay dividends declared, the Company used cash plus
the cash flow generated from its operations. In 1994, the Company generated
$4,258,000 in cash flow from operations compared to $6,368,000 generated in
1993. The decline in operating cash flow in 1994 was primarily due to the
funding of higher working capital requirements.
Working capital, excluding cash and cash equivalents, increased $3,742,000
(16%) to $27,347,000 at December 31, 1994, compared to $23,605,000 at December
31, 1993. The increase was primarily due to growth in accounts receivable at
the end of 1994 generated by higher sales of wire and cable products, primarily
booster cables and the timing of collections for certain transformer products.
Except for the growth in accounts receivable, the Company made progress on
managing components of working capital in 1994. For example, inventories
declined $4,472,000 (16%) to $24,067,000 at the end of 1994 compared to the end
of 1993. The decline occurred equally at Coleman and at Kuhlman Electric,
where, for the second year in a row, inventory turnover improved. The improved
performance in inventory management was attributable to benefits derived from
the Company's capital investments and other programs implemented by the Company
to improve manufacturing efficiencies, shorten product delivery schedules and
enhance customer service. Prepaid expenses and other current assets and future
income tax benefits increased by $239,000 to $7,996,000 at December 31, 1994
from the end of 1993. Though the total change in these asset categories was
minor, changes between categories have been significant because of the
utilization of future income tax benefits and the recognition of income tax
receivables where appropriate. Accounts payable increased by $2,044,000 (12%)
to $19,331,000 at December 31, 1994 when compared to $17,287,000 at the end of
1993. The increase was due to better payment terms to vendors and the impact of
rising raw material prices, particularly copper, at the end of 1994. Accrued
expenses declined $6,940,000 (33%) to $14,146,000 at the end of 1994 from the
end of 1993. The decline was due primarily to the payment of $3,282,000 for the
remaining 1993 restructuring charge, the payment in 1994 of certain expenses
related to the acquisition of Coleman and the payment of other miscellaneous
accruals.
The Company's consolidated cash position was $622,000 at December 31, 1994
compared to $18,355,000 (including restricted cash of $1,800,000) at December
31, 1993. The Company, which no longer has restricted funds, used cash and cash
flow from operations to reduce total debt by $12,641,000 in 1994 including the
repayment of approximately $4,950,000 of borrowings under its revolving credit
facility. Although no payments are required to be made under the revolving
credit facility until December 31, 1999, and amounts can be reborrowed at any
time subject to certain limitations, the Company decided to reduce its
borrowings at this time to lower its overall interest expense. As part of the
plant consolidation for instrument transformers (described in further detail
below), the Company repaid an industrial revenue bond associated with the Indian
Trail, North Carolina facility for approximately $3,400,000. Funds to repay
this debt were drawn from the Company's revolving credit facility. Total debt
outstanding was $62,228,000 at December 31, 1994 compared to $74,569,000 at
December 31, 1993. At December 31, 1994, the Company had unused availability
under the credit agreement of approximately $13,866,000. In addition, under the
most restrictive warranties and covenants contained in the credit agreement, the
Company had approximately $1,757,000 of consolidated retained earnings at
December 31, 1994 free of any restriction as to the payment of dividends.
SEGMENT INFORMATION
Prior to the acquisition of Coleman on December 15, 1993, the Company
reported its operations as a single line of business, electrical apparatus.
Coleman has its principal operations outside the electrical apparatus industry.
Under the definitions contained in Statement of Financial Accounting Standards
(SFAS) No. 14, "Financial Reporting for Segments of a Business Enterprise,"
Coleman meets the criteria to be considered a reportable segment in 1993 because
of the identifiable assets associated with its primary industry, wire and cable
products. See Note 13 to the Notes To Consolidated Financial Statements for
Business Segment Information. Net sales,
--------------------------
13
<PAGE>
gross profits and operating profits since the date of acquisition to December
31,1993, for Coleman were $4,171,000, $864,000 and $140,000, respectively.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Consolidated net sales and operating profit were substantially higher in
1994 compared to 1993 primarily due to the addition of Coleman, which recorded
the highest annual net sales and operating profit in its history. In 1994, the
Company reported net income of $1,617,000 ($0.27 per share) compared to a net
loss of $2,998,000 ($0.51 per share) in 1993. The net loss in 1993 was due to
one-time charges for restructuring and the recognition of a change in
accounting method.
Consolidated net sales were $242,846,000 in 1994 compared to $118,097,000
reported in 1993. The increase in net sales was due to the inclusion of
Coleman as noted above, partially offset by declines in the electrical segment
and spring products. Net sales in 1994 were enhanced by strong demand for
products in the wire and cable segment, particularly booster cables. Net sales
in the electrical segment declined in 1994 compared to 1993 due to weak demand
for distribution transformers, particularly in the second half of the year,
lower shipments of instrument transformers and the impact of actions taken by
the Company to further streamline the operations of its Kuhlman Electric
subsidiary. The drop in demand for pole type distribution transformers was due
to the cool summer experienced in many parts of the country, which resulted in a
significant decline in incoming orders late in the third quarter and throughout
the fourth quarter. A large portion of the pole type distribution transformers
manufactured in today's marketplace is used by the electrical utility industry
to replace aged or non-performing units. Factors such as outdoor temperature
and electrical usage can have an impact on the useful life of a distribution
transformer and, therefore, have an influence on the ultimate demand by a
utility customer for such a product. Also, unit sales of distribution
transformers were adversely impacted by production difficulties caused by a
labor strike at a key steel supplier throughout the second quarter of 1994. In
anticipation of a continued softening of demand for replacement distribution
transformers caused by the cool summer, management took several actions in the
fourth quarter of 1994 to further reduce its operating cost and improve future
efficiencies. These actions included reassigning and eliminating personnel,
reducing overhead costs and eliminating certain unprofitable product lines
which resulted in lower shipments of distribution and instrument transformers in
the fourth quarter. Shipments of instrument transformers also declined in 1994
because of manufacturing difficulties caused by a plant consolidation which was
completed at the end of the second quarter of 1994. The consolidation of the
manufacturing operations for instrument transformers into two existing
facilities of Kuhlman Electric resulted in the closure of a plant in Indian
Trail, North Carolina and was done as part of the Company's 1993 restructuring
program to reduce costs and improve efficiencies. Also, sales of automotive
products (included in the other segment) in 1994 were down when compared to
1993 primarily due to the completion of a contract with an automotive customer.
Operating profit for 1994 was $6,265,000 compared to an operating loss of
$6,799,000 reported in 1993. The operating loss for 1993 included a charge for
restructuring of $8,650,000 for actions implemented by the Company to lower its
fixed costs and improve its operating efficiencies primarily at its Kuhlman
Electric subsidiary. Operating profit in 1993 without the restructuring charge
was $1,851,000. The increase in operating profit in 1994 compared to 1993 was
due primarily to the addition of Coleman, partially offset by a decline in
operating profit in the electrical segment. Operating profit in the electrical
segment was adversely impacted by the sales declines noted above, lower margins
for medium power transformers and the costs associated with the consolidation
and streamlining activities for the distribution and instrument transformers
divisions. Margins on medium power transformers declined in 1994 when compared
to 1993 primarily because of weak demand in the first half of 1994 resulting
in significant price competition for available orders. Operating margins
throughout the Company in 1994 were also adversely impacted by rising raw
material costs, particularly copper, which rose approximately 75% in 1994. In
1993 and 1992, increases in the cost of certain raw materials, labor and other
manufacturing and operating costs due to inflation and normal business
factors were nominal. However, in 1994, the Company began to see a rise in many
of its key raw material costs as the general domestic economy began to
strengthen. Though the Company attempted to pass along the cost increases in
the form of higher prices to its customers, particularly in the wire and cable
segment which uses copper in a significant portion of its products, competitive
pressures made this increasingly difficult resulting in lower operating margins.
Operating expenses for Kuhlman Corporation for 1994 were $34,218,000 or 14.1% of
sales compared to $16,096,000 or 13.6% of sales in 1993. Operating expenses
increased primarily due to the addition of Coleman, partially offset by cost
containment programs throughout the Company. Interest expense, net of interest
income was $4,051,000 and $312,000 in 1994 and 1993, respectively. Interest
expense increased in 1994 due to the additional debt assumed in connection with
the Coleman acquisition.
The Company generated other income of $709,000 and $2,010,000 in 1994 and
1993, respectively. Other, net consists primarily of income generated by
non-operating activities such as a covenant not to compete and royalties offset
by non-operating expenses, if any. The covenant not to compete was part of the
consideration received when the Company sold substantially all of the assets of
its blow molded plastics operations effective June 30, 1990. The original
amount of the covenant was $6,250,000 payable ratably over five years. The
Company also received royalties on certain intellectual property rights related
to spring assemblies. The decline in other, net in 1994 when compared to 1993
was due primarily to the recognition of approximately $530,000 in expenses
associated with an attempted merger, a drop in rental income on a building sold
in late 1993 and an increase in miscellaneous expenses associated with
non-operating activities and asset disposals in 1994.
The effective income tax rate of 44.7% reported by the Company in 1994 was
above the U.S. federal statutory rate primarily due to the non-deductibility of
goodwill amortization associated with the Coleman acquisition and the inclusion
of state income taxes, offset by the utilization of foreign tax credits. In
1993, the Company recorded an income tax benefit of $3,392,000 principally for
the 1993 net loss and approximately $1,400,000 from a favorable settlement of
certain open income tax audits. Excluding the favorable settlements in 1993,
the income tax rate for 1993 approximated the U.S. federal statutory rate in
effect, adjusted for the inclusion of state income taxes.
Net income for 1994 was $1,617,000 ($0.27 per share) compared to a loss of
$2,998,000 ($0.51 per share) in 1993. The net loss in 1993 included an
after-tax charge of $5,304,000 ($0.90 per share) for restructuring and the
adoption of SFAS No. 106, Accounting for Postretirement Benefits Other Than
Pensions, of $1,289,000 ($0.22 per share). Earnings before the
- -------------------------
14
<PAGE>
restructuring charge and the cumulative effect of change in accounting method
for 1993 were $3,595,000 ($0.61 per share). The decline in operating net
income was due to the shortfall in earnings in the electrical segment and the
decline in other, net, both described above.
1993 COMPARED TO 1992
Consolidated net sales were $118,097,000 in 1993 compared to $121,734,000
in 1992, a decrease of $3,637,000 (3%). Excluding the impact of Coleman, net
sales decreased approximately 6% in 1993 compared to 1992. The decline in net
sales was due primarily to a sluggish economy, which resulted in lower unit
sales volume, changes in product mix and more stringent price competition along
substantially all product lines at Kuhlman Electric. Net sales for spring and
metal products declined $2,437,000 (22%) in 1993 compared to 1992 due to the
expiration of a contract with an automotive customer, partially offset by an
increase in shipments to non-automotive customers.
The Company reported an operating loss of $6,799,000 in 1993 compared to an
operating profit of $7,460,000 for 1992. The operating loss in 1993 included a
charge for restructuring of $8,650,000. The restructuring charge was for
actions implemented by the Company to lower its fixed costs and improve its
operating efficiencies, primarily at its Kuhlman Electric subsidiary. The
charge was primarily for severance related to the reduction of approximately
200 salaried and hourly employees, the elimination of certain unprofitable
product lines and the implementation of programs designed to streamline Kuhlman
Electric's operations. Operating profit for 1993 without the restructuring
charge was $1,851,000. The decline in operating profit when compared to 1992
was due to lower gross profit caused by the drop in net sales, lower absorption
of manufacturing costs due to the significant reduction of inventories and
pricing pressures and product mix changes caused by the economic weakness in
certain electrical utility markets. Generally, increases in the cost of
certain raw materials, labor and other manufacturing and operating costs due to
inflation and normal business factors were nominal in 1993 and 1992. Operating
expenses for 1993 were $16,096,000 compared to $16,728,000 in 1992, a decline
of $632,000 (4%). The decline was due to the lower sales activity noted above,
partially offset by certain costs associated with the Company's acquisition
activities. Operating expenses as a percentage of net sales were essentially
the same at 13.6% and 13.7% for 1993 and 1992, respectively.
Interest income was $700,000 and $795,000 in 1993 and 1992, respectively.
The decline was due to the lower interest rates available for cash investments,
partially offset by the higher cash available throughout most of the year.
Interest expense was $1,012,000 and $529,000 in 1993 and 1992, respectively.
Interest expense increased due to additional debt assumed and subsequently
refinanced as part of the acquisition of Coleman and interest penalties
incurred for the refinancing of Kuhlman Electric's bank debt.
The Company generated other income of $2,010,000 and $2,597,000 in 1993 and
1992, respectively. Other, net was negatively impacted in 1993 by the loss of
$1,400,000 recorded on the sale of plant and equipment, the write-off of a
technology agreement and other related non-operating assets, partially offset
by a $1,000,000 gain principally for the settlement of certain outstanding
tax-related issues.
The Company recorded an income tax benefit in 1993 of $3,392,000
principally for the net loss recorded in the period and approximately $1,400,000
for the favorable settlement of certain open income tax audits. Excluding the
impact of the favorable income tax settlements in 1993, the income tax rates for
1993 and 1992 reflect the U.S. federal statutory rate in effect, adjusted for
the inclusion of state income taxes.
The Company recorded a net loss in 1993 of $2,998,000 ($0.51 per share)
compared to net income of $6,224,000 ($1.05 per share) in 1992. The net loss in
1993 included an after-tax charge of $5,304,000 ($0.90 per share) for
restructuring and the adoption of SFAS No. 106, Accounting For Postretirement
Benefits Other Than Pensions, of $1,289,000 ($0.22 per share). Earnings before
the restructuring charge and the cumulative effect of change in accounting
method for 1993 were $3,595,000 ($0.61 per share), compared to $6,224,000 ($1.05
per share) for 1992.
SUBSEQUENT EVENT
On February 25, 1995, Kuhlman Corporation entered into an agreement to
merge Schwitzer, Inc. ("Schwitzer"), a New York Stock Exchange listed company,
with a wholly-owned subsidiary of Kuhlman. In the transaction, shares of
Schwitzer common stock will be converted into shares of Kuhlman common stock
using an exchange ratio of 0.9615 share of Kuhlman for each share of Schwitzer.
The merger is subject to certain closing conditions, including the approval of
the shareholders of both companies. It is anticipated that this transaction
will be consummated in the second quarter of 1995 following approval by
shareholders of both companies at their respective annual meetings of
shareholders. Management believes that the merger of Kuhlman and Schwitzer will
benefit the shareholders of both companies by making the resulting company
better equipped to meet the competitive challenges that it is certain to face in
the future.
Schwitzer designs, manufactures and markets turbochargers, fan drives,
cooling fans and crankshaft vibration dampers for enhancing the efficiency of
diesel and gasoline engines. Sales and net income for its fiscal year ended
January 1, 1995 were approximately $153,271,000 and $8,930,000, respectively.
Schwitzer had approximately 7.2 million shares outstanding as of February 25,
1995.
OUTLOOK FOR 1995
Over the past two years, Kuhlman Corporation has taken significant actions
to strengthen and diversify the organization in order to provide greater and
more consistent growth in long-term shareholder value. These actions have
included programs designed to streamline its Kuhlman Electric subsidiary,
capital investments to improve operating efficiencies and the acquisition of
Coleman. As Kuhlman enters 1995, management believes that the results of those
actions will have a positive effect on the Company's financial performance in
1995 and beyond.
A key objective in 1995 is to further enhance shareholder value by building
a larger, more focused manufacturing organization. Management believes that the
addition of Schwitzer, which is expected to be completed by the end of the
second quarter of 1995, will serve to strengthen the Company by expanding its
product offering and the number of markets in which it participates and provide
future income and growth opportunities, as well. Further, management remains
optimistic that its acquisition program will continue to provide future growth
opportunities. As a consequence of the above actions, management remains
cautiously optimistic about the Company's near-term prospects and confident
about its long-term future.
--------------------------
15
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
- -------------------------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
- --------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C>
Net sales $242,846 $118,097 $121,734
Cost of goods sold 202,363 100,150 97,546
- --------------------------------------------------------------------------------
GROSS PROFIT 40,483 17,947 24,188
- --------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, general and administrative 34,218 16,096 16,728
Cost of restructuring -- 8,650 --
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 34,218 24,746 16,728
- --------------------------------------------------------------------------------
OPERATING PROFIT (LOSS) 6,265 (6,799) 7,460
OTHER INCOME (EXPENSE):
Interest expense (4,229) (1,012) (529)
Interest income 178 700 795
Other, net 709 2,010 2,597
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE), NET (3,342) 1,698 2,863
- --------------------------------------------------------------------------------
Income (loss) before taxes (benefit) 2,923 (5,101) 10,323
Taxes (benefit) on income (loss) 1,306 (3,392) 4,099
- --------------------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting change 1,617 (1,709) 6,224
Cumulative effect of accounting change
related to post-retirement benefits
(net of tax effect of $811) -- (1,289) --
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,617 $ (2,998) $ 6,224
- --------------------------------------------------------------------------------
PER SHARE AMOUNTS:
Income (loss) before effect of
accounting change $ 0.27 $ (0.29) $ 1.05
Accounting change -- (0.22) --
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ 0.27 $ (0.51) $ 1.05
- --------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING 6,097 5,926 5,940
- --------------------------------------------------------------------------------
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
- -------------------------
16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
-----------------------------
KUHLMAN CORPORATION
AT DECEMBER 31, 1994 1993
- --------------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 622 $16,555
Restricted cash -- 1,800
Accounts receivable, less reserves of $363 and $354 36,004 32,893
at December 31, 1994 and 1993, respectively
Inventories 24,067 28,539
Prepaid expenses and other current assets 4,125 1,137
Future income tax benefit 3,871 6,620
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 68,689 87,544
- -------------------------------------------------------------------------------
PLANT AND EQUIPMENT
Land 1,098 648
Buildings and leasehold improvements 19,699 18,179
Machinery and equipment 38,847 36,406
Construction in progress 1,607 837
- --------------------------------------------------------------------------------
61,251 56,070
Less - accumulated depreciation and amortization (26,802) (24,200)
- --------------------------------------------------------------------------------
PLANT AND EQUIPMENT - NET 34,449 31,870
- --------------------------------------------------------------------------------
Intangible assets, net of amortization of $1,382 and $55
at December 31, 1994 and 1993 39,216 40,543
Other assets 4,209 4,085
- --------------------------------------------------------------------------------
$146,563 $164,042
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $2,000 $2,700
Current portion of long-term debt 5,243 4,511
Accounts payable 19,331 17,287
Accrued liabilities 14,146 21,086
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 40,720 45,584
- --------------------------------------------------------------------------------
LONG-TERM DEBT
Bank debt 51,750 61,000
Other long-term debt 3,235 6,358
- --------------------------------------------------------------------------------
Total long-term debt 54,985 67,358
- --------------------------------------------------------------------------------
Accrued postretirement benefits 2,186 2,186
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 97,891 115,128
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00, authorized 2,000
shares, none issued;
Junior participating preferred
stock, Series A, no par value, authorized 150
shares, none issued -- --
Common stock, par value $1.00, authorized 10,000 shares,
issued and outstanding 6,146 and 6,023 shares at
December 31, 1994 and 1993, respectively 6,146 6,023
Additional paid-in capital 12,506 11,028
Retained earnings 30,063 32,108
Minimum pension liability (43) (245)
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 48,672 48,914
- --------------------------------------------------------------------------------
$146,563 $164,042
- --------------------------------------------------------------------------------
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE BALANCE SHEETS.
--------------------------
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
- --------------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,617 $ (2,998) $ 6,224
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 5,575 2,768 2,756
Deferred income taxes -- -- (360)
Provision for losses on accounts
receivable 169 32 90
(Gain) loss on sale of plant and
equipment 92 473 (11)
Other, net 78 (391) 218
Cost of restructuring -- 8,650 --
Cumulative effect of change in
accounting principle for
postretirement benefits -- 2,100 --
Changes in operating assets and
liabilities:(1)
Accounts receivable (3,120) (425) 879
Inventories 4,472 6,160 2,006
Prepaid expenses and other
current assets (2,836) 1,281 216
Future tax benefit 2,749 (2,837) (156)
Accounts payable and accrued
liabilities (4,538) (8,445) 77
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 4,258 6,368 11,939
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,019) (2,794) (5,175)
Acquisition of business, net of cash
acquired -- (5,493) --
Proceeds from sales of plant and
equipment 100 2,443 136
- --------------------------------------------------------------------------------
NET CASH USED FOR INVESTING
ACTIVITIES (6,919) (5,844) (5,039)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving loan facility (4,950) -- --
Proceeds from issuance of long-term
debt 300 68,700 --
Repayment of long-term debt (7,691) (67,843) (562)
Dividends paid (3,640) (3,530) (3,452)
Stock options exercised 909 1,814 525
Repurchase of common stock -- -- (407)
Restricted cash 1,800 (1,800) --
Payments related to the issuance of debt -- (2,882) --
- --------------------------------------------------------------------------------
NET CASH USED FOR FINANCING
ACTIVITIES (13,272) (5,541) (3,896)
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (15,933) (5,017) 3,004
Cash and cash equivalents, beginning
of year 16,555 21,572 18,568
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 622 $16,555 $21,572
- --------------------------------------------------------------------------------
<FN>
(1) NET OF THE EFFECTS OF ACQUISITION AND THE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLE.
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
SEE NOTE 11 FOR INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES.
- -------------------------
18
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
COMMON SHARES
Additional Minimum
For the years ended Paid-in Retained Pension
December 31, 1994, 1993 and 1992 Shares Amount Capital Earnings Liability Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT SHARES
BALANCE - DECEMBER 31,1991 5,721,226 $5,721 $8,180 $35,903 $ -- $49,804
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 6,224 -- 6,224
Cash dividends declared ($0.60 per share) -- -- -- (3,456) -- (3,456)
Exercise of stock options 67,367 67 458 -- -- 525
Repurchase of common stock (31,500) (31) (376) -- -- (407)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1992 5,757,093 $5,757 $8,262 $38,671 $ -- $52,690
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- (2,998) -- (2,998)
Cash dividends declared ($0.60 per share) -- -- -- (3,565) -- (3,565)
Exercise of stock options 185,037 185 1,629 -- -- 1,814
Issuance of common stock 80,632 81 1,137 -- -- 1,218
Minimum pension liability -- -- -- -- (245) (245)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1993 6,022,762 $6,023 $11,028 $32,108 $(245) $48,914
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 1,617 -- 1,617
Cash dividends declared ($0.60 per share) -- -- -- (3,662) -- (3,662)
Exercise of stock options 84,415 84 825 -- -- 909
Issuance of common stock 38,985 39 653 -- -- 692
Minimum pension liability -- -- -- -- 202 202
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1994 6,146,162 $6,146 $12,506 $30,063 $ (43) $48,672
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------
To the Shareholders of Kuhlman Corporation:
We have audited the accompanying consolidated balance sheets of Kuhlman
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income (loss),
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kuhlman Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 7 and 9 to the consolidated financial statements,
effective January 1, 1993, the Company changed its methods of accounting for
income taxes and postretirement benefits other than pensions.
Arthur Andersen LLP
Louisville, Kentucky
February 6, 1995
(Except with respect to the matter discussed in Note 17, as to which the date
is February 25, 1995) --------------------------
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------
KUHLMAN CORPORATION
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Kuhlman
Corporation and all majority-owned subsidiaries (the "Company"). Investments of
50% or less in affiliated companies are accounted for under the equity method.
All significant intercompany transactions have been eliminated. Certain amounts
in the 1993 and 1992 financial statements have been reclassified to conform with
the 1994 presentation.
RESTRICTED CASH
In 1993, the Company placed $1,800,000 in a restricted bank account as
partial collateral for a letter of credit issued by a bank to guarantee the
Company's performance required by an industrial revenue bond indenture. In
1994, the Company replaced the 1993 letter of credit with another letter of
credit issued as part of its credit agreement with a group of banks. At the
time of replacement, the restriction on the account was removed.
INVENTORIES
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) method for certain qualifying inventories and the first-in,
first-out (FIFO) method for others. Approximately 50% and 61% of the
inventories at December 31, 1994 and 1993, respectively, were determined using
the LIFO method. Inventory costs include material, labor and manufacturing
overhead.
PLANT AND EQUIPMENT
Plant and equipment are carried at cost and are depreciated over the
estimated useful lives of the related assets using primarily the straight-line
method for financial reporting purposes. Plant and equipment obtained through
the acquisition of a company are recorded at estimated fair value as of the date
of acquisition. All additions subsequent to the acquisition date are recorded
at cost.
The following estimated useful lives are used:
Building and leasehold improvements 14 to 40 years
Machinery and equipment 3 to 12 years
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill related to the acquisition
of a business. Goodwill is being amortized on a straight-line basis over forty
years. The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related business
segment's undiscounted net income over the remaining life of the goodwill in
measuring whether the goodwill is recoverable. Other intangible assets are
amortized to expense using the straight-line method over six years.
INCOME TAXES
In 1994 and 1993, the Company determined income tax expense and other
deferred tax information in compliance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Prior years have not
been restated and accordingly reflect the procedures required by Statement of
Financial Accounting Standards (SFAS) No. 96, "Accounting for Income Taxes."
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and totaled
approximately $249,000, $741,000 and $1,152,000 in 1994, 1993 and 1992,
respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The new standard requires that the expected cost of retiree health
benefits be charged to expense during the years that the employees render
service. Previously, the Company recognized these costs as incurred.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposures. Liabilities are recognized for remedial
activities when the cleanup is probable and the cost can be reasonably
estimated. Environmental compliance costs include maintenance and operating
costs with respect to pollution control equipment, cost of ongoing monitoring
programs and similar costs. Such costs are expensed as incurred.
PER SHARE INFORMATION
Earnings (loss) per share are based on the weighted average number of
common shares outstanding during each year, as adjusted for any materially
dilutive common stock equivalent shares. Shares used in the per share
calculation in 1994 and 1993 were 6,097,312 and 5,926,366, respectively.
Outstanding common stock options did not have a materially dilutive effect on
earnings per share in 1994 or 1993. Shares used in the per share calculations
in 1992 were 5,939,755 which included 186,775 shares that resulted from the
primary dilutive effects of outstanding common stock options in 1992.
- -------------------------
20
<PAGE>
NOTE 2. ACQUISITION
On December 15, 1993, the Company acquired all of the outstanding stock of
Coleman Holding Company ("Coleman") for $8,993,000. The acquisition was funded
by cash of the Company. Coleman is a fully integrated manufacturer and
distributor of a broad range of electrical and electronic wire and cable
products to diverse markets principally in the United States. Coleman's
manufacturing plants are located in Illinois.
The acquisition has been accounted for by the purchase method of accounting
and accordingly, the net assets and results of operations for Coleman are
included in the Company's Consolidated Financial Statements from the date of
acquisition. The fair value of the assets acquired, including goodwill, was
$97,863,000, with liabilities assumed of $92,370,000. Cash paid for the
acquisition, net of cash acquired, was $5,493,000. The purchase price has been
allocated to the assets and liabilities of Coleman based on estimated fair
values. The purchase price and expenses associated with the acquisition
exceeded the fair value of Coleman's net assets by approximately $38,398,000
which has been assigned to goodwill. Amortization of the excess purchase price
is made over a period not to exceed forty years. Subsequent to the acquisition,
the Company refinanced approximately $63,363,000 of Coleman's outstanding debt
and certain related fees through bank borrowings. See Note 3 of the Notes To
Consolidated Financial Statements.
The following unaudited pro forma information combines the consolidated
results of operations of the Company and Coleman as if the acquisition had
occurred on January 1, 1992:
<TABLE>
<CAPTION>
In thousands 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C>
Net sales $230,119 $232,838
Net income (loss) $ (815) $ 4,444
Net income (loss) per share $ (0.14) $ 0.75
</TABLE>
The pro forma operating results include each company's results of
operations for the indicated years with the adjusted depreciation and
amortization on plant and equipment, amortization of goodwill, along with other
relevant adjustments to reflect fair market value required using the purchase
method of accounting. Interest expense on Coleman's outstanding indebtedness
was adjusted to reflect the improved creditworthiness of the Company.
The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the operations were
combined during the periods presented and is not intended to be a projection of
future results or trends.
NOTE 3. SHORT-TERM AND LONG-TERM DEBT
On December 15, 1993, the Company entered into a credit agreement with a
group of banks which replaced substantially all existing bank debt including
approximately $61,260,000 outstanding at Coleman. Pursuant to the credit
agreement, the Company obtained a $38,000,000 term loan and a revolving loan
facility which mature on December 31, 1999. The revolving loan facility allows
the Company to borrow up to $40,000,000 subject to certain availability
requirements. The Company must pay a commitment fee at an annual rate of 3/8
of 1% on the average daily unused portion of the revolving loan facility.
Interest rates on amounts borrowed vary and are based on either a Eurodollar
(LIBOR) rate plus 2.0% or a Prime (base) rate plus .75% option selected by the
Company at the time of borrowing.
The credit agreement contains various warranties and covenants pertaining
to the maintenance of net worth, compliance with certain financial ratios and
limitations on the payment of dividends, capital expenditures and the incurrence
of additional indebtedness by the Company. Under the most restrictive of these
provisions, $1,757,000 of consolidated retained earnings at December 31, 1994,
was free of any restriction as to the payment of dividends. Borrowings under
the credit agreement are generally secured by substantially all of the assets of
the Company, except for specific assets related to certain industrial revenue
bonds and capital lease obligations.
At December 31, 1994, the Company borrowed approximately $24,750,000 under
the revolving loan facility at an average interest rate of 8.2%. The Company is
not required to repay any borrowings under the revolving credit agreement before
December 31, 1999. However, the Company has classified $2,000,000 of debt
outstanding under this agreement which is expected to be repaid within one year
as notes payable. The notes payable balance could fluctuate according to the
working capital requirements of the Company. All other debt under this
agreement is classified as long-term bank debt which at December 31,1994,
carried an average interest rate of 7.7%. Short-term borrowings were $2,700,000
at December 31, 1993. At December 31, 1994, the Company had unused availability
under the credit agreement of approximately $13,866,000.
At December 31, 1994 and 1993, long-term debt consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt supported by revolving and
term loan agreement with banks,
due December 31, 1999 $58,750 $ 67,700
Industrial revenue and job development
authority bonds, interest rates ranging
from .85% to 3.55%, payable in various
amounts through 1996 48 3,478
Obligations under capital leases, interest rates
ranging from 8% to 19%
(See Note 4) 2,231 2,339
Miscellaneous other long-term debt, rates ranging
from 10.25% to 12.05%, payable in various
amounts through 2011 1,199 1,052
- -------------------------------------------------------------------------------
62,228 74,569
Less-current portion (7,243) (7,211)
- -------------------------------------------------------------------------------
$54,985 $ 67,358
- -------------------------------------------------------------------------------
</TABLE>
The minimum scheduled principal payments on long-term debt outstanding at
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
In thousands
- -------------------------------------------------------------------------------
<S> <C>
1995 $ 7,243
1996 6,712
1997 7,168
1998 7,672
1999 30,850
Thereafter 2,583
- -------------------------------------------------------------------------------
Total minimum scheduled principal payments $62,228
- -------------------------------------------------------------------------------
</TABLE>
--------------------------
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------
KUHLMAN CORPORATION
NOTE 4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases various manufacturing, office and warehouse properties,
office equipment and motor vehicles under operating lease agreements which
expire at various dates over the next eight years.
The following is a summary of rent expense under all operating leases:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $2,158 $658 $703
- --------------------------------------------------------------------------
</TABLE>
Minimum future rental payments under noncancelable operating leases for
each of the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
In thousands
- --------------------------------------------------------------------------
<S> <C>
1995 $1,854
1996 1,388
1997 1,056
1998 844
1999 796
Subsequent to 1999 1,173
- --------------------------------------------------------------------------
Total minimum rental payments $7,111
- --------------------------------------------------------------------------
</TABLE>
CAPITAL LEASES
The Company leases various manufacturing, office and warehouse properties
and office equipment under capital leases which expire at various dates through
2009. The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
assets. The assets are depreciated over the shorter of their related lease
terms or their estimated productive lives. Depreciation of assets under capital
leases is included in depreciation expense.
At December 31, 1994 and 1993, property under capital leases included with
plant and equipment in the accompanying consolidated balance sheets is as
follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $2,360 $2,360
Machinery and equipment 384 384
- --------------------------------------------------------------------------
2,744 2,744
Less-accumulated depreciation (879) (702)
- --------------------------------------------------------------------------
Plant and equipment, net $1,865 $2,042
- --------------------------------------------------------------------------
</TABLE>
Minimum future lease payments under capital leases as of December 31, 1994, are
as follows:
<TABLE>
<CAPTION>
In thousands
- --------------------------------------------------------------------------
<S> <C>
1995 $ 464
1996 410
1997 424
1998 424
1999 414
Subsequent to 1999 3,604
- --------------------------------------------------------------------------
Total minimum lease payments $5,740
Less-amounts representing interest (3,509)
- --------------------------------------------------------------------------
Present value of net minimum lease payments 2,231
Less-current portion (118)
- --------------------------------------------------------------------------
Long-term obligations under capital leases $2,113
- --------------------------------------------------------------------------
</TABLE>
Certain capital leases provide for purchase options. Generally, purchase
options are at prices representing the expected fair value of the property at
the expiration of the lease term.
SEVERANCE AGREEMENTS
The Company instituted a severance policy in 1994 applicable to certain
executive officers designated by its Board of Directors. The severance policy
provides that if an executive officer's employment is terminated, the
executive's base pay, medical and dental coverage, health and accident insurance
and disability and group life insurance will be continued for a period of
twenty-four months, subject to certain conditions. The aggregate commitment
under the executive severance policy should all six covered employees be
terminated is approximately $3,300,000.
LEGAL MATTERS
The Company is involved in several legal matters. In the opinion of
management and outside legal counsel, the outcome of current matters will not
have a materially adverse effect on the financial position or results of
operations of the Company.
NOTE 5. INVENTORIES
Inventories at December 31, 1994 and 1993, consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
FIFO cost:
Raw materials $11,006 $10,193
Work-in-progress 2,595 4,090
Finished products 13,532 14,256
- --------------------------------------------------------------------------
27,133 28,539
Excess of FIFO over LIFO cost (3,066) -
- --------------------------------------------------------------------------
$24,067 $28,539
- --------------------------------------------------------------------------
</TABLE>
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1994 and 1993, consisted of the
following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Salaries, wages and employee benefits $ 6,426 $ 7,442
Dividends payable 922 900
Warranty related accruals 1,145 1,487
Taxes other than income 417 431
Restructuring - 3,282
Other 5,236 7,544
- --------------------------------------------------------------------------
$14,146 $21,086
- --------------------------------------------------------------------------
</TABLE>
NOTE 7. INCOME TAXES
The Company reported income before taxes of $2,923,000 in 1994, a loss
before taxes and cumulative effect of accounting change of $5,101,000 in 1993
and income before taxes of $10,323,000 in 1992.
- -------------------------
22
<PAGE>
--------------------------
Income taxes are deferred as a result of differences in the timing of the
recognition of income and expenses for income tax and financial reporting
purposes. The provision (benefit) for income taxes and significant components
of the deferred income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable (refundable)
Federal $(1,194) $ (640) $3,372
State & local (29) (306) 747
Deferred-
Excess book over
tax depreciation (184) (32) (193)
Employee benefit plans,
deferred compensation
and pensions (49) (92) (187)
Reserves for interest - 423 14
Inventory reserves 395 - -
Intangible asset amortization 753 - -
Deferred warranty income 121 (127) (79)
Restructuring costs 1,352 (1,285) -
Additional taxes provided - (1,418) 284
Bad debt reserves 191 120 -
Other (50) (35) 141
- --------------------------------------------------------------------------
$1,306 $(3,392) $4,099
- --------------------------------------------------------------------------
</TABLE>
The effective income tax provision (benefit) differs from the amount
calculated using the statutory United States federal income tax rate,
principally due to the following:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
of income of income of income
Amount before taxes Amount before taxes Amount before taxes
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory United States
federal income tax $ 994 34.0% $(1,734) (34.0%) $3,510 34.0%
State income taxes, net of
federal income tax effect 169 5.8 (202) (3.9) 456 4.4
Additional taxes provided - - (1,418) (27.8) 284 2.8
Amortization of goodwill 326 11.2 - - - -
Effect of stock options (64) (2.2) (248) (4.9) (170) (1.6)
Foreign tax credit (200) (6.8) - - - -
Other 81 2.7 210 4.1 19 .1
- --------------------------------------------------------------------------------------------------
$1,306 44.7% $(3,392) (66.5%) $4,099 39.7%
- --------------------------------------------------------------------------------------------------
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 106,
the cumulative effect of the change in accounting principle to recognize the
cost of postretirement benefits has been presented in the consolidated
statements of income (loss), net of income taxes. Therefore, the income tax
provision (benefit) does not reflect a separate deferred tax benefit for these
expenses.
The net deferred tax asset recognized in the consolidated balance sheets as
of December 31, 1994 and 1993, consists of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Total deferred tax assets $7,451 $10,580
Total deferred tax liabilities (1,580) (1,960)
- --------------------------------------------------------------------------
$5,871 $ 8,620
- --------------------------------------------------------------------------
</TABLE>
The tax effect of each temporary difference and carryforward that gives
rise to significant deferred tax assets and deferred tax liabilities as of
December 31, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated tax depreciation of
property and equipment in excess
of accumulated book depreciation $(1,385) $(1,840)
Net operating loss carryforwards 2,061 2,000
Inventory reserves 638 700
Deferred warranty income 282 465
Accrued restructuring costs 926 3,386
Postretirement benefits 844 874
Bad debt reserves 138 346
Accrued employee benefits 1,565 1,634
Miscellaneous accruals 802 1,055
- --------------------------------------------------------------------------
$ 5,871 $ 8,620
- --------------------------------------------------------------------------
</TABLE>
One of the Company's wholly-owned subsidiaries has available net operating
losses which expire as follows:
<TABLE>
<CAPTION>
In thousands
- --------------------------------------------------------------------------
<S> <C>
2004 $ 1,600
2005 3,400
2006 425
- --------------------------------------------------------------------------
$ 5,425
- --------------------------------------------------------------------------
</TABLE>
Based upon anticipated reversals of temporary differences and other
projected taxable income for future periods, management believes that a
valuation allowance for the net deferred tax asset is not necessary.
NOTE 8. EMPLOYEE RETIREMENT PLANS
The Company has various employee retirement plans which provide pension
benefits to substantially all of its employees. Defined benefit plans covering
the hourly employees provide benefits of stated amounts based on an employee's
years of service. Plans covering salaried employees provide benefits that are
based on an employee's years of service and compensation during that period.
The total expense under these plans amounted to $473,000 in 1994,
$1,263,000 in 1993 and $328,000 in 1992. Pension expense for the defined
benefit plans in 1994, 1993 and 1992 is comprised of the following elements:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current service cost $ 713 $ 901 $ 1,009
Interest on projected benefit
obligations 1,253 1,444 1,386
Actual return on assets 835 (645) (1,045)
Gain due to curtailment (138) - -
Net amortization and deferral (2,190) (437) (1,022)
- --------------------------------------------------------------------------
$ 473 $ 1,263 $ 328
- --------------------------------------------------------------------------
</TABLE>
--------------------------
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------
KUHLMAN CORPORATION
The Company's funding policy is to make annual contributions required by
applicable regulations, which may, from time to time, exceed the Internal
Revenue Service deductibility limits by immaterial amounts. The Company
annually contributes to the defined benefit plans amounts which are actuarially
determined to provide the plans with sufficient assets to meet future benefit
payment requirements. Plan assets are comprised primarily of stocks, U.S.
Government securities and corporate bonds.
The following table summarizes the funded status of the Company's defined
benefit pension plans and the related amounts recognized in the Company's
consolidated balance sheets as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
In thousands 1994 1993
- ------------------------------------------------------------------------------------------
Underfunded Overfunded Underfunded Overfunded
Plans Plans Plans Plans
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations-
Vested $11,413 $ 2,851 $12,763 $ 2,952
Nonvested 567 162 834 327
- ------------------------------------------------------------------------------------------
Accumulated benefit obligations 11,980 3,013 13,597 3,279
Effects of salary progression 217 - 269 -
- ------------------------------------------------------------------------------------------
Projected benefit obligations 12,197 3,013 13,866 3,279
Plan assets at fair value 10,972 3,552 12,508 3,586
- ------------------------------------------------------------------------------------------
Plan assets over/(under) projected
benefit obligations $(1,225) $539 $(1,358) $ 307
- ------------------------------------------------------------------------------------------
Pension benefit recognized in the
consolidated balance sheets $ (758) $ 1,085 $ (863) $ 938
Amounts not recognized:
Net asset upon transition to
new accounting standard 477 263 549 292
Net loss (869) (534) (1,359) (514)
Prior service cost (75) (439) 315 (547)
Additional liability - 164 - 138
- ------------------------------------------------------------------------------------------
Total $(1,225) $ 539 $(1,358) $ 307
Additional liability $ 614 - $749 -
Intangible asset $ (543) - $ (340) -
Pre-tax reduction to
shareholders' equity $ 71 - $ 409 -
</TABLE>
The assumptions used as of December 31, 1994 and 1993, in determining
pension expense and funded status information shown above are as follows:
<TABLE>
<CAPTION>
1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.7% 7.2%
Rate of salary progression 4.2% 4.2%
Long-term rate of return on assets 9.7% 9.7%
</TABLE>
The Company eliminated its interest in the Quality Spring/Togo joint
venture in 1993. Prerequisite to this action was the split-out of hourly
employees under a joint plan. The Company transferred $1,584,000 from its
Master Trust Account to the new entity's plan based on actuarial assumptions.
Pursuant to the Company's Plan, salaried personnel's pension benefits for
Quality Spring/Togo were frozen at September 30, 1993, and will remain part of
the Company's Plan.
In 1993, the Company amended certain of its plans to provide improved
benefits to retirees. The effect of the amendment was an increase of
approximately $690,000 in the projected benefit obligation.
For pension plans with accumulated benefits in excess of assets at December
31, 1994, the accompanying balance sheet reflects an additional long-term
pension liability of $614,000, a long-term intangible asset of $543,000 and a
reduction to shareholders' equity of $43,000 net of deferred tax benefits,
representing the excess of additional long-term pension liability over
unrecognized prior service cost. Similar balance sheet recognition is not
required for pension plans with assets in excess of accumulated benefits.
In addition to providing pension benefits, the Company and its operating
subsidiaries provide savings plans for certain employees. The plans provide for
matching contributions based on the terms of such plans to the accounts of plan
participants. The Company and its operating subsidiaries expensed $138,000,
$127,000 and $231,000 for these plans in the years ended December 31, 1994, 1993
and 1992, respectively.
NOTE 9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted SFAS No. 106, "Accounting
for Postretirement Benefits Other Than Pensions." This statement requires the
Company to accrue the cost of providing postretirement benefits during the
active service period of the employee. Employees retiring from the Company on
or after their 55th birthday, who have rendered specific years of service, are
entitled to postretirement health care and medical coverage, subject to
deductibles, co-payments and other limitations. At the time of election, the
Company recognized an accumulated liability, which resulted in an after-tax
charge of $1,289,000 in the first quarter of 1993. Prior to 1993, the Company
recognized these expenses as they were incurred.
Net periodic postretirement benefit cost for 1994 and 1993 included the
following components:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits attributed to service
during the period $ 43 $ 42
Interest cost on accumulated postretirement
benefit obligation 148 150
- --------------------------------------------------------------------------
Net periodic postretirement benefit cost $191 $192
- --------------------------------------------------------------------------
</TABLE>
The amounts recognized in the Company's consolidated balance sheets at
December 31, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $1,320 $1,268
Fully eligible active plan participants 134 263
- --------------------------------------------------------------------------
Fully eligible 1,454 1,531
Other active plan participants 470 601
- --------------------------------------------------------------------------
Accumulated benefit obligation 1,924 2,132
Unrecognized net gain 325 102
- --------------------------------------------------------------------------
Postretirement liability recognized in
financial statements $2,249 $2,234
- --------------------------------------------------------------------------
</TABLE>
- -------------------------
24
<PAGE>
The accumulated postretirement benefit obligation was determined using an
8.7% discount rate. A 14.5% increase in the per capita claims cost was assumed
for years 1995 and 1996. The assumption provides for this rate to decline by
1.5% every other year through 2008 and then remain constant at 4% thereafter.
A 1% increase in the health care cost trend rate would increase the
estimated accumulated postretirement benefit obligation as of December 31, 1994,
by approximately $38,000. The impact on net periodic cost is minimal. No
funding has been established by the Company for postretirement benefits.
NOTE 10. RESTRUCTURING CHARGE
In the first quarter of 1993, the Company recorded a restructuring charge
of $8,650,000 ($5,304,000 net of tax benefits or $0.90 per share). The
restructuring charge was for actions implemented by the Company to reduce its
cost structure and to improve its operating efficiencies, primarily at its
Kuhlman Electric subsidiary. The charge included $5,281,000 for severance,
pension and other personnel costs primarily related to reductions in the
salaried and hourly workforce, $1,468,000 for the writedown and disposal of
operating assets due to the elimination of unprofitable product lines,
$1,735,000 for the implementation of programs to streamline operations and
$166,000 for other writeoffs. In 1994, the Company made cash outlays of
$3,282,000 related to the restructuring program. In 1993, the Company made cash
outlays of $4,143,000 and recognized asset writedowns of $1,225,000 related to
the restructuring program.
NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the consolidated statements of cash flows, the Company
considers all investments with original maturities of three months or less as
cash equivalents.
Cash payments for interest and net cash payments (refunds) for income taxes
are as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $4,300 $1,127 $ 707
Income taxes, net of refunds $(120) $(1,928) $4,633
</TABLE>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCIAL ACTIVITIES
During 1994, the Company issued 28,169 shares of its common stock to an
executive in a non-cash transaction. The shares would have to be returned to
the Company in the event the executive left the Company within one year from the
time of this issuance. The fair market value of the stock at the time of
issuance was approximately $500,000 and approximately $375,000 of this amount
was charged to expense during 1994.
During 1994, the Company sold and disposed of certain non-operating assets
generating $100,000 in cash. The Company, which recorded a loss of $92,000 on
these transactions, reduced plant and equipment and accumulated depreciation by
$1,838,000 and $1,646,000, respectively, in 1994.
During 1993, the Company issued 50,000 shares of its common stock to an
executive in a non-cash transaction. The fair market value of the stock at the
time of issuance was $750,000, and this amount was charged to expense during
1993.
During 1993, the Company issued 19,047 shares of its common stock to an
executive in lieu of a cash bonus. The fair market value of the stock at the
time of issuance was approximately $300,000, and this amount was charged to
expense during 1993.
During 1993, the Company sold an idle building and disposed of certain
non-operating assets generating $2,443,000 in cash. The Company, which recorded
a cumulative loss on these transactions of $1,071,000, reduced plant and
equipment, accumulated depreciation and certain other assets by $4,498,000,
$1,609,000 and $604,000, respectively, in 1993.
See Note 2. Acquisition and Note 10. Restructuring Charge to the Notes to
Consolidated Financial Statements for additional supplemental information on
non-cash investing and financing activities.
NOTE 12. STOCK PURCHASE RIGHTS AND OPTION PLANS
PREFERRED STOCK PURCHASE RIGHTS
The Company has distributed one preferred stock purchase right for each
outstanding share of common stock. Each right entitles the holder to purchase
one one-hundredth (1/100) of a share of newly authorized Junior Participating
Preferred Stock at a price of $55 per right. The rights, which do not have
voting rights, will be exercisable only if a person or group acquires 20% or
more of the Company's common stock without the Company's prior consent or
announces a tender offer which would result in such ownership of 30% or more of
the common stock. In the event the rights become exercisable and thereafter the
Company is acquired in a merger or other business combination, each right will
entitle its holder to purchase, at the right's then-current exercise price,
common stock of the acquiring Company having a value of twice the exercise price
of the right.
The rights expire on April 30, 1997, and may be redeemed by the Company at
a price of $0.01 per right at any time prior to 10 days after a 20% position has
been acquired and under certain circumstances thereafter.
COMMON STOCK OPTIONS
The Company maintains two employee stock option plans, a 1983 Plan and a
1986 Plan. The 1983 Plan expired in 1993, except to the extent that options
were outstanding. The 1986 Plan provides for the granting of options to
officers and key employees of the Company. All options under this plan may be
granted at prices equal to the market value at the date of grant and may be
exercised up to ten years from that date. As of December 31, 1994, no options
were available for grants under the 1986 Plan.
In 1993, the Board of Directors adopted, and the shareholders approved, the
1993 Non-Employee Director's Stock Plan ("New Director's Plan"). Pursuant to
the New Director's Plan, each non-employee
--------------------------
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------
KUHLMAN CORPORATION
director receives annually a number of shares equal to an aggregate fair market
value of $24,000 concurrent with the meeting of the Board of Directors held each
year following the Annual Meeting of Shareholders. A total of 52,599 shares
were available for grants as of December 31, 1994. With the adoption of the
1993 New Director's Plan, the 1988 Stock Option Plan for Non-Employee Directors
was terminated, except to the extent that options were outstanding.
The following table summarizes the transactions pursuant to the Company's
stock option plans for the three-year period ended December 31, 1994:
<TABLE>
<CAPTION>
Number of Option
In thousands, except option prices Shares Prices
- -----------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at
January 1, 1992 786 $ 5.44 to $16.90
- -----------------------------------------------------------------------------
Granted 83 $15.63
Exercised (71) $ 5.44 to $12.58
Expired or terminated (17) $ 9.13 to $16.90
- -----------------------------------------------------------------------------
Options outstanding at
December 31, 1992 781 $ 5.44 to $16.90
- -----------------------------------------------------------------------------
Granted 294 $ 14.50 to $16.13
Exercised (201) $ 5.44 to $15.63
Expired or terminated (33) $ 12.32 to $16.90
- -----------------------------------------------------------------------------
Options outstanding at
December 31, 1993 841 $ 7.06 to $16.90
- -----------------------------------------------------------------------------
Granted 344 $ 17.00 to $17.75
Exercised (86) $ 7.06 to $16.90
Expired or terminated (19) $ 7.06 to $16.90
- -----------------------------------------------------------------------------
Options outstanding at
December 31, 1994 1,080 $ 7.38 to $17.75
- -----------------------------------------------------------------------------
Exercisable at December 31, 1994 1,080
- -----------------------------------------------------------------------------
</TABLE>
In 1994, the Company adopted the Kuhlman Corporation 1994 Stock
Appreciation Rights Plan (the "SAR Plan"). The SAR Plan provides for
discretionary grants to key employees of cash-only stock appreciation rights
based on shares of the Company's common stock. Each Stock Appreciation Right
("SAR") measures the change in value of a share of the Company's common stock
from the date of grant to the date of exercise. A total of 1.5 million SAR's
are authorized to be granted under the Plan. As of December 31, 1994, 151,000
SAR's with a basis of $13.875 per SAR had been awarded and were outstanding
under the SAR Plan.
NOTE 13. BUSINESS SEGMENT INFORMATION
The Company's lines of business are described on pages 6 to 11 of this
report. Net sales represent shipments to unaffiliated customers. Operating
profit for each segment includes all costs and expenses directly related to the
segment before financing charges or corporate allocations. Corporate items
principally represent general and administrative costs. The Company's
manufacturing operations are located in the United States. The Company sells
its products primarily throughout the United States. The Company's export sales
were less than 1% of net sales for each of the years ended December 31, 1994,
1993 and 1992.
Identifiable assets are those used in the operations of each business
segment. Corporate assets consist primarily of cash and cash equivalents.
Prior to the acquisition of Coleman on December 15, 1993, the Company
operated principally in a single segment, electrical apparatus. Therefore,
segment information below is not meaningful for years prior to 1993 and,
accordingly, has been omitted.
The Company's segment information for the years ended December 31, 1994 and
1993, is as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
NET SALES
Wire and Cable $138,994 $ 4,171
Electrical 96,280 105,287
Other 7,572 8,639
- --------------------------------------------------------------------------
$242,846 $118,097
- --------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES AND ACCOUNTING CHANGE
Wire and Cable $ 9,437 $ 140
Electrical 62 2,154
Other 621 543
Corporate (1) (3,855) (986)
Restructuring Charge (2) - (8,650)
- --------------------------------------------------------------------------
Operating Profit (Loss) 6,265 (6,799)
Interest Income(Expense), Net (4,051) (312)
Unallocated 709 2,010
- --------------------------------------------------------------------------
$ 2,923 $ (5,101)
- --------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Wire and Cable $ 96,831 $ 95,876
Electrical 45,359 52,930
Other 2,825 2,316
Corporate/Unallocated 1,548 12,920
- --------------------------------------------------------------------------
$146,563 $164,042
- --------------------------------------------------------------------------
CAPITAL EXPENDITURES
Wire and Cable $ 3,869 $ 59
Electrical 2,414 2,370
Other 182 224
Corporate/Unallocated 554 141
- --------------------------------------------------------------------------
$ 7,019 $ 2,794
- --------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Wire and Cable $ 3,161 $ 126
Electrical 2,245 2,509
Other 139 123
Corporate/Unallocated 30 10
- --------------------------------------------------------------------------
$ 5,575 $ 2,768
- --------------------------------------------------------------------------
<FN>
(1) REPRESENTS EXPENSES ASSOCIATED WITH THE COMPANY'S HEADQUARTERS SINCE ITS
DATE OF REINCORPORATION IN 1993.
(2) RESTRUCTURING CHARGE OF $8,650 RELATES SUBSTANTIALLY TO THE ELECTRICAL
SEGMENT.
</TABLE>
NOTE 14. FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
The Company enters into contracts and options hedging future commodity
purchases, principally copper, for periods consistent with the terms of the
underlying transactions. The Company does not engage in speculation. While the
commodity hedging contracts and options affect the Company's results of
operations, they do so only in connection with the underlying transactions. As
a result, they do not subject the Company to risk from commodity price
movements, because gains and losses on these contracts offset losses and gains
on the transactions being hedged. At December 31, 1994 and 1993, the Company
had $5,990,000 and
- -------------------------
26
<PAGE>
--------------------------
$753,000 of commodity hedging contracts and options outstanding, substantially
all of which were for copper. The hedging contracts generally have maturities
that do not exceed twelve months. At December 31, 1994, the unrealized gains on
hedging contracts and options were immaterial.
CONCENTRATIONS OF CREDIT RISK
As of December 31, 1994, the Company had approximately $11,686,000 in
receivables from electrical utility customers involved in the generation,
transmission or distribution of electricity. At December 31, 1994, there were
no other significant group concentrations of credit risk.
FAIR VALUE OF FINANCIAL INVESTMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and debt instruments. The book
values of cash and cash equivalents, trade receivables and trade payables are
considered to be representative of their respective fair values. The Company
had approximately $62,228,000 of debt instruments at December 31, 1994, for
which the fair value approximated the book value.
GUARANTEES
The Company has guaranteed the payment obligations for certain leases of
its subsidiaries. These guarantees amounted to $1,483,000 at December 31, 1994.
As of December 31, 1994, a subsidiary has guaranteed up to $2,000,000 of bank
debt financing of an unconsolidated affiliate under a joint venture agreement.
The Company is of the opinion that its subsidiaries and the unconsolidated
affiliate will be able to perform under their respective obligations and that no
payments will be required and no losses will be incurred under such guarantees.
LETTERS OF CREDIT AND SURETY BONDS
At December 31, 1994, the Company had letters of credit and surety bonds
outstanding totaling $1,946,000 which guarantee various activities, including
performance of the Company's obligations under certain self-insured workers'
compensation insurance programs. The Company is of the opinion that no losses
will be incurred due to non-performance of these obligations.
NOTE 15. OTHER INCOME (EXPENSE)
Other income (expense) for the years ended December 31, 1994, 1993 and
1992, consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Covenant not to compete $1,250 $1,250 $1,250
Royalty income 846 874 868
Gain on tax-related settlement - 800 -
Rental income 30 299 375
Loss on disposal of equipment (92) (1,037) -
Carrying costs of non-operating assets (534) - -
Expenses of terminated merger (530) - -
Other, net (261) (176) 104
- --------------------------------------------------------------------------
$709 $2,010 $2,597
- --------------------------------------------------------------------------
</TABLE>
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's quarterly results are summarized below for the years ended
December 31, 1994 and 1993.
<TABLE>
<CAPTION>
In thousands, except per share data Quarter
- --------------------------------------------------------------------------
1994 First Second Third Fourth Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $62,416 $56,990 $64,133 $59,307 $242,846
Gross profit $11,010 $ 9,822 $10,855 $ 8,796 $ 40,483
Operating profit $ 2,306 $ 1,350 $ 2,553 $ 56 $ 6,265
Net income (loss) $ 1,136 $ 296 $ 1,286 $(1,101) $ 1,617
Net income (loss)
per share $ 0.19 $ 0.05 $ 0.21 $ (0.18) $ 0.27
</TABLE>
<TABLE>
<CAPTION>
In thousands, except per share data Quarter
- --------------------------------------------------------------------------
1993 First Second Third Fourth Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $27,243 $28,946 $29,992 $31,916 $118,097
Gross profit $ 4,363 $ 4,330 $ 4,412 $ 4,842 $ 17,947
Operating
profit (loss) $(8,545) $ 739 $ 418 $ 589 $(6,799)
Net income (loss) $(5,962) $ 781 $ 1,268 $ 915 $(2,998)
Net income (loss)
per share $ (1.02) $ 0.13 $ 0.21 $ 0.15 $ (0.51)
</TABLE>
NOTE 17. SUBSEQUENT EVENT
On February 25, 1995, Kuhlman Corporation entered into an agreement to
merge Schwitzer, Inc. ("Schwitzer"), a New York Stock Exchange listed company,
with a wholly-owned subsidiary of Kuhlman. In the transaction, shares of
Schwitzer common stock will be converted into shares of Kuhlman common stock
using an exchange ratio of 0.9615 share of Kuhlman for each outstanding share of
Schwitzer. The merger is subject to certain closing conditions, including the
approval of the shareholders of both companies. It is anticipated that this
transaction will be consummated in the second quarter of 1995 following approval
by shareholders of both companies at their respective annual meetings of
shareholders.
Schwitzer designs, manufactures and markets turbochargers, fan drives,
cooling fans and crankshaft vibration dampers for enhancing the efficiency of
diesel and gasoline engines. Sales and net income for its fiscal year ended
January 1, 1995 were approximately $153,271,000 and $8,930,000, respectively.
Schwitzer had approximately 7.2 million shares outstanding as of February 25,
1995.
--------------------------
27
<PAGE>
BOARD OF DIRECTORS
- -----------------------------------
CURTIS G. ANDERSON
President and Chief Operating Officer
WILLIAM E. BURCH
Consultant. Former President and Chief Executive Officer of Fred S. James
& Co.
STEVE CENKO
Consultant. Former President of Lamb Systems Group
ALEXANDER W. DREYFOOS, JR.
Chairman of the Board, Photo Electronics Corporation and
WPEC TV (Palm Beach, Florida)
ROBERT S. JEPSON, JR.
Chairman of the Board and Chief Executive Officer
WILLIAM M. KEARNS, JR.
President, W.M. Kearns & Co., Inc. (Private Investment Company)
ROBERT D. KILPATRICK
Retired. Former Chairman of the Board and Chief Executive Officer of
CIGNA Corporation
JOHN L. MARCELLUS, JR.
Retired. Former Chairman, President and Chief Executive Officer of Oneida
Ltd.
GEORGE J. MICHEL, JR.
Private Investor and Consultant. Chairman of Windstar International, Inc.
(Management Consulting). Former Chairman and Chief Executive Officer of
Stanadyne, Inc.
GENERAL H. NORMAN SCHWARZKOPF
General, U.S. Army, Retired. Author, Lecturer, TV Consultant
AUDIT COMMITTEE
William E. Burch, Chairman
Alexander W. Dreyfoos, Jr.
John L. Marcellus, Jr.
COMPENSATION COMMITTEE
Robert D. Kilpatrick, Chairman
Steve Cenko
Gen. H. Norman Schwarzkopf
FINANCE COMMITTEE
George J. Michel, Jr., Chairman
Curtis G. Anderson
William M. Kearns, Jr.
OFFICERS
- ------------------------
ROBERT S. JEPSON, JR.
Chairman of the Board and Chief Executive Officer
CURTIS G. ANDERSON
President and Chief Operating Officer
VERNON J. NAGEL
Executive Vice President of Finance, Chief Financial Officer and
Treasurer
RICHARD A. WALKER
Executive Vice President, Chief Administrative Officer, General Counsel
and Secretary
OPERATING COMPANIES AND PRESIDENTS
- -------------------------
KUHLMAN ELECTRIC CORPORATION
101 Kuhlman Boulevard
Versailles, Kentucky 40383
(Operating facilities in Crystal Springs, Mississippi; Salinas, California;
and Versailles, Kentucky)
GRAHAM J. BEARE, PRESIDENT AND CHIEF EXECUTIVE OFFICER
COLEMAN CABLE SYSTEMS, INC.
2500 Commonwealth Avenue
North Chicago, Illinois 60064
(Operating facilities in Dekalb, Illinois; North Chicago, Illinois; and
Waukegan, Illinois)
JAMES H. COLEMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
EMTEC PRODUCTS CORPORATION
200 Jay Street
Coldwater, Michigan 49036
(Operating facilities in Coldwater, Michigan, and Elyria, Ohio)
HENRY ORLOWSKI, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SHAREHOLDER INFORMATION
- -------------------------
CORPORATE HEADQUARTERS
1 Skidaway Village Walk, Suite 201
Savannah, Georgia 31411
Tel: (912) 598-7809 Fax: (912) 598-0737
STOCK LISTING
The Common Stock of Kuhlman Corporation
is listed on the New York Stock Exchange
(NYSE:KUH).
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank
311 West Monroe, 14th Floor
P.O. Box 755
Chicago, Illinois 60690
Tel: (312) 461-3597 Fax: (312) 765-8052
- -C- 1995 Kuhlman Corporation
- ------------------------
28
<PAGE>
KUHLMAN CORPORATION
1 SKIDAWAY VILLAGE WALK, SUITE 201
SAVANNAH, GA 31411
<PAGE>
SUBSIDIARIES OF KUHLMAN CORPORATION
Jurisdiction
of
Name Incorporation
---- -------------
Kuhlman Electric Corporation Delaware
Coleman Holding Company Delaware
Emtec Products Corporation Ohio
<PAGE>
Consent Of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report dated February 6, 1995, except with respect to the planned Merger between
the Company and Schwitzer, Inc. as discussed in Note 17 to the consolidated
financial statements as to which the date is February 25, 1995, on the
consolidated financial statements of Kuhlman Corporation as of December 31,
1994, included in the Company's 1994 Annual Report to Shareholders incorporated
by reference in this Form 10-K and of our report dated February 6, 1995, except
with respect to the planned Merger between the Company and Schwitzer, Inc. as
discussed in Note 17 to the consolidated financial statements as to which the
date is February 25, 1995, on the schedule included in this Form 10-K, into the
Company's previously filed Registration Statement File Nos. 2-77396, 33-20184,
33-64544, 33-82718 and 33-58133.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
March 23, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of KUHLMAN CORPORATION, a Delaware corporation
(the "Company"), does hereby constitute and appoint ROBERT S. JEPSON, JR.,
CURTIS G. ANDERSON, VERNON J. NAGEL, AND RICHARD A. WALKER, with full power to
each of them to act alone, as the true and lawful attorneys and agents of the
undersigned, with full power of substitution and resubstitution to each of said
attorneys, to execute, file or deliver any and all instruments and to do any and
all acts and things which said attorneys and agents, or any of them, deem
advisable to enable the Company to comply with the Securities Exchange Act of
1934, as amended, and any requirements of the Securities and Exchange Commission
in respect thereto, relating to annual reports on Form 10-K, including
specifically, but without limitation of the general authority hereby granted,
the power and authority to sign his name as director or officer, or both, of the
Corporation, as indicated below opposite his signature, to annual reports on
Form 10-K or any amendments or papers supplemental thereto; and each of the
undersigned does hereby fully ratify and confirm all that said attorneys and
agents, or any of them, or the substitute of any of them, shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents,
this 22nd day of February 1995.
/s/ Robert S. Jepson, Jr. /s/ Alexander W. Dreyfoos, Jr.
- ------------------------------------ -------------------------------
Robert S. Jepson, Jr., Chairman of the Alexander W. Dreyfoos, Jr., Director
Board and Chief Executive Officer
(Principal Executive Officer) and
Director
/s/ William M. Kearns, Jr.
------------------------------
William M. Kearns, Jr., Director
/s/ Vernon J. Nagel
- ------------------------------------
Vernon J. Nagel, Executive Vice President
of Finance and Treasurer
(Principal Financial and Accounting /s/ Robert D. Kilpatrick
Officer) ------------------------------
Robert D. Kilpatrick, Director
/s/ Curtis G. Anderson /s/ John L. Marcellus, Jr.
- ------------------------------------ -------------------------------
Curtis G. Anderson, President, John L. Marcellus, Jr., Director
Chief Operating Officer and Director
/s/ George J. Michel, Jr.
--------------------------------
/s/ William E. Burch George J. Michel, Jr., Director
- ------------------------------------
William E. Burch, Director
/s/ General H. Norman Schwarzkopf
--------------------------------
/s/ Steve Cenko General H. Norman Schwarzkopf,
- ------------------------------------
Steve Cenko, Director Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
KUHLMAN 1994 CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME (LOSS)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 622
<SECURITIES> 0
<RECEIVABLES> 36,367
<ALLOWANCES> 363
<INVENTORY> 24,067
<CURRENT-ASSETS> 68,689
<PP&E> 61,251
<DEPRECIATION> 26,802
<TOTAL-ASSETS> 146,563
<CURRENT-LIABILITIES> 40,720
<BONDS> 54,985
<COMMON> 6,146
0
0
<OTHER-SE> 42,526
<TOTAL-LIABILITY-AND-EQUITY> 146,563
<SALES> 242,846
<TOTAL-REVENUES> 242,846
<CGS> 202,363
<TOTAL-COSTS> 202,363
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 169
<INTEREST-EXPENSE> 4,229
<INCOME-PRETAX> 2,923
<INCOME-TAX> 1,306
<INCOME-CONTINUING> 1,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,617
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
