SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1996, or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-7695
KUHLMAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-2058047
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
3 SKIDAWAY VILLAGE SQUARE, 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:
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
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. |X|
As of March 1, 1997, 13,753,367 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 executive officers) was
approximately $313,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into this
Form 10-K:
Part II: Annual Report to Shareholders of the Registrant for the year ended
December 31, 1996. Part III: Definitive Proxy Statement of the Registrant in
connection with the 1997 Annual Meeting of Stockholders.
<PAGE>
PART I.
ITEM 1. BUSINESS
GENERAL
Kuhlman Corporation (the "Registrant" or "Company"), a Delaware
corporation whose predecessor company was founded in 1894, is an industrial
manufacturing company that owns and manages a group of operating businesses.
These companies include, among others, Kuhlman Electric Corporation ("Kuhlman
Electric"), Coleman Cable Systems, Inc. ("Coleman Cable"), Schwitzer, Inc.
("Schwitzer"), and Emtec Products Corporation ("Emtec"), and they are organized
into two business segments, Electrical Products and Industrial Products. In the
Electrical Products Segment, the Company designs, manufactures and markets
electrical utility and industrial type transformers for various markets and
industries involved in electrical distribution systems; and manufactures and
markets electronic and electrical wire and cable products for numerous
commercial, industrial and consumer uses. In the Industrial Products Segment,
the Company designs, manufactures and markets turbochargers, engine cooling
fans, fan drives and crankshaft vibration dampers used in diesel and gasoline
engines for truck, agricultural, construction and other industrial and
commercial applications; and spring products and metal stampings used by other
manufacturers in their products or production process. The executive office of
the Company is located at 3 Skidaway Village Square, Savannah, Georgia 31411.
The telephone number is (912) 598-7809.
MERGER
On May 31, 1995, a wholly-owned subsidiary of the Company merged with
and into Schwitzer. In the transaction, shares of Schwitzer common stock were
converted into shares of the Company's common stock using an exchange ratio of
0.9615 share of the Company's common stock for each share of Schwitzer's common
stock. The Company issued 6,980,000 shares of its common stock to effect the
merger with Schwitzer. The merger was accounted for under the pooling of
interests method of accounting, and accordingly, the Company's financial
statements have been restated for all periods prior to the merger to include the
results of Schwitzer.
RECENT DEVELOPMENT
On March 10, 1997, the Company, through a wholly-owned subsidiary,
purchased certain assets of the Transportation Products Group ("TPG") of Kysor
Industrial Corporation, a Michigan Corporation traded on the New York Stock
Exchange. The purchase price for TPG was $86,000,000 in cash plus the assumption
of certain liabilities in the amount of approximately $20,000,000. The
purchase of TPG was financed from borrowings under the Company's credit
facility.
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TPG designs and manufactures proprietary products consisting of polymer
fans and fan clutches, various engine monitoring devices, truck fuel tanks,
marine instruments, and heating, ventilating and air conditioning systems for
commercial and industrial vehicles. The principal markets for TPG's products are
original equipment manufacturers ("OEMs") of light-, medium- and heavy-duty
trucks, buses, off-highway equipment and the marine industry. In 1996, net sales
for TPG were approximately $137,700,000.
BUSINESS SEGMENTS
The Company is organized into two business segments: Electrical
Products and Industrial Products. The following discussion addresses the
products, markets and organization of each of the Company's segments. For
financial information relating to the Company's business segments and domestic
and international operations, see Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 21 through 24 and Note 13
of Notes to Consolidated Financial Statements on page 38 of the Registrant's
Annual Report to Shareholders for the year ended December 31, 1996, which is
incorporated herein by reference.
ELECTRICAL PRODUCTS SEGMENT
The Electrical Products Segment is comprised of Kuhlman Electric and
Coleman Cable. Demand and profitability for the segment are generally affected
by the level of domestic economic activity in the consumer, commercial and
industrial markets served. Housing starts, commercial and industrial
construction, maintenance and upgrading of established electrical systems, and
electrical usage are key indicators of demand for the segment's various
electrical products.
KUHLMAN ELECTRIC
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 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. Generally, Kuhlman Electric's products are designed and built to
the requirements specified by the customer and agreed to at the time the order
is placed. Executive and administrative functions for Kuhlman Electric are
located in Versailles, Kentucky.
The principal market for Kuhlman Electric's transformer products is
electric utility companies throughout the United States. A significant portion
of the distribution, power, and instrument transformers manufactured by Kuhlman
Electric in 1996 were marketed directly
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through twelve sales professionals and sales engineers. The balance was sold
through nineteen independent commissioned sales organizations, which employ
approximately sixty salespersons and sales engineers.
COLEMAN CABLE
Coleman Cable was acquired by the Company on December 15, 1993. Coleman
Cable manufactures and distributes a wide range of electrical and electronic
wire and cable products for consumer, commercial and industrial markets. Coleman
Cable's products are sold directly through seventeen employee salespersons and
numerous manufacturers' representatives employing over 700 salespersons to
electrical and commercial contractors, security distributors, mass merchandisers
and specialty retailers, and various industrial and OEM users on a nationwide
basis. Executive and administrative functions for Coleman Cable are conducted
at its principal office located in North Chicago, Illinois.
Coleman Cable is organized into the following three business units
which have been set up primarily along basic product or distribution lines:
COLEMAN/CCI WIRE AND CABLE COMPANY. Coleman/CCI Wire and Cable Company
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. Through the
acquisition of Communication Cable, Inc. in 1996, the business enhanced its
product offering to include coaxial, multiconductor and "category" cables used
for various electronic applications including data, voice and video
communications. Coleman Cable's cable and wire products are sold to electrical
distributors, wire and cable distributors, OEMs and government agencies through
its employee sales force and independent representatives.
CORD PRODUCTS DIVISION. Coleman Cable'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 commercial 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. Also, Coleman Cable believes that its Cord
Products Division is one of the leading providers of extension cords and battery
booster cables to the contractor supply market and nationally recognized
retailers, respectively. Through the acquisition of substantially all of the
assets of Web Wire Products, Inc. in 1996, the Cord Products Division
enhanced its product offering to include battery cables, ignition wire sets
and related products for use by consumers through specialty automotive
retailers. Products of the Cord Products Division are sold through its
internal sales force and independent distributors.
ELECTRONIC WIRE AND CABLE DIVISION. Coleman Cable's Electronic Wire and
Cable Division manufactures electronic wire and cable, shielded and unshielded
low voltage control cables, fire alarm cables, plenum cables, closed circuit
television wire and speaker cable for a multitude of applications used by
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burglar alarm, fire alarm and sound system installers, electrical
contractors, energy management specialists and OEMs. The primary market for
"Signal" trade name products is the security industry where the Company
believes that it is one of the leading manufacturers and suppliers
of security cables in the United States. Signal products are sold to security
and equipment distributors, sound contractors, wire and cable distributors,
electronic parts distributors, electrical distributors and OEMs through its
employee sales force and to a lesser extent independent sales representatives.
In addition, the Electronic Wire and Cable Division manufactures cables
for energy management, irrigation and sprinkler systems which are marketed under
its "Baron" trade name. Baron products 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, OEMs, machine tool
manufacturers and electrical contractors.
INDUSTRIAL SEGMENT
The Industrial Products Segment is comprised of Schwitzer and Emtec.
Demand and profitability in this segment are affected by economic conditions in
industrialized and developing regions of the world. Capital expenditures for
light-, medium- and heavy-duty trucks, construction and agricultural equipment
and other industrial transportation equipment are indirect indicators of demand
for the segment's products.
SCHWITZER
Schwitzer designs, manufactures and markets technically advanced
components, including turbochargers, fan drives, cooling fans and crankshaft
vibration dampers, for enhancing the efficiency of non-passenger car diesel and
gasoline engines. These components improve engine performance in terms of
horsepower output, fuel efficiency, emissions and durability and are custom
designed to meet the specific engine applications of each customer. Engines
incorporating the Company's products are used in light-, medium- and heavy-duty
trucks, in agricultural and construction equipment, and in other industrial and
commercial applications. Sales of turbochargers accounted for approximately 25
percent, 26 percent and 25 percent of the consolidated net sales of the Company
during 1996, 1995 and 1994, respectively. Schwitzer believes that it is one of
the leading independent suppliers of turbochargers to the non-passenger car
market in the world.
Schwitzer's primary customers are the world's leading engine builders,
located primarily in North America, Western Europe, South America and Japan.
Schwitzer sells its products to OEMs and aftermarket customers through its
internal sales force and through approximately 200 independent distributors to
customers in more than 60 countries throughout the world. Schwitzer's executive
office is located in Indianapolis, Indiana and its manufacturing locations
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include operations in the United States, England and Brazil.
EMTEC
Emtec manufactures and markets a variety of coiled and flat springs,
spring assemblies 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 Emtec's springs, spring assembly products and stampings is the automotive
industry. These products are sold through two employee salesmen and eleven
independent commissioned sales organizations. The market area is predominately
the Midwest United States, although many of these products are utilized
nationally and in Canada. Emtec's principal office is located in Coldwater,
Michigan.
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 world's largest business enterprises. The Company believes that it competes
primarily on the basis of product quality, product innovation, service and
price.
CUSTOMERS; SEASONALITY
During 1996, 1995 and 1994, various purchasing units of Caterpillar,
Inc. accounted for 9%, 10% and 11%, respectively, of the consolidated net sales
of the Company. 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 Products Segment
are steel, copper, aluminum, various insulating materials and polymers. Copper,
which is the Electrical Products Segment'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. The principal raw materials used in the Industrial Products Segment are
nickel, aluminum, cast iron and steel. Although castings used in the manufacture
of specialized turbines for turbochargers are available from only a few
suppliers worldwide, the Company has experienced no difficulties in obtaining
adequate supplies to meet its manufacturing needs.
Raw materials purchased by the Company are generally available from
numerous independent sources at competitive prices, and are obtained principally
from domestic suppliers.
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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 with fewer suppliers, 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
An order is included as part of the Company's backlog once a firm
delivery date has been received from the customer. The Company does not include
in its backlog orders which do not have a firm delivery date.
The following table sets forth backlog orders which the Company
believes to be firm as of the dates indicated, although orders generally may be
canceled by customers without penalty:
At December 31
1996 1995
(in thousands)
Electrical Products Segment $ 51,266 $ 40,891
Industrial Products Segment 67,715 60,409
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$ 118,981 $ 101,300
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At December 31, 1996 substantially all of the Company's backlog orders
were expected to be completed by December 31, 1997
ENGINEERING AND PRODUCT DEVELOPMENT
Kuhlman Corporation is continually seeking to improve existing products
and apply and enhance technologies for new products. Engineering expenses
include activities associated with product development, the application of
products to specific customer needs, and ongoing efforts to refine and enhance
existing products. These costs are expensed as incurred and totaled
approximately $7,009,000, $6,745,000 and $7,574,000 in 1996, 1995 and 1994,
respectively.
ENVIRONMENTAL
In 1994, the Company recorded a charge of $1,400,000 for voluntary
environmental remediation activities at Schwitzer's Rolla, Missouri facility
which was closed in 1992. During 1995, the Company completed the environmental
remediation program and sold the Rolla,
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Missouri facility in the second quarter.
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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. However, legal and regulatory
requirements in those areas have been increasing, and there can be no assurance
that significant costs and liabilities will not be incurred for currently
unknown or future exposures or new regulatory developments.
EMPLOYEES
As of December 31, 1996 and 1995, the Company employed 2,782 and 2,284
persons, respectively, approximately 944 of whom are currently subject to
collective bargaining agreements. The Company considers relations with its
employees to be satisfactory.
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ITEM 2. PROPERTIES
As of December 31, 1996, the Company operated sixteen manufacturing
plants, including two foreign plants. Of these manufacturing plants, ten are
owned, five are leased, and one is partially owned and partially leased. The
fourteen domestic plants are located in the states of Arkansas, California,
Florida, Georgia, Illinois, Kentucky, Michigan, Mississippi, North Carolina and
Ohio. The Company's Industrial Products Segment operates two foreign
manufacturing plants, both of which are owned and located in England and Brazil.
A subsidiary in the Industrial Products Segment also operates a research and
development facility in Indianapolis, Indiana. In the opinion of the Company,
its properties have been well maintained and are in the proper condition
necessary to operate at present levels. A summary of floor space of the
principal facilities by business segment at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Manufacturing(1)(2) Office(1) Warehousing
Owned Leased Owned Leased Owned Leased Total
----- ------ ----- ------ ----- ------ -----
(In Thousands of Square Feet)
<S> <C> <C> <C> <C> <C> <C> <C>
Electrical 912 423 52 37 15 220 1,659
Industrial 402 132 88 21 --- 17 660
Corporate --- --- 16 --- --- --- 16
--------- -------- -------- --------- --------- --------- ---------
1,314 555 156 58 15 237 2,335
========= ======== ======== ========= ========= ========= =========
</TABLE>
(1) Includes 64,000 and 63,000 square foot plants in England and Brazil,
respectively.
(2) Excludes a 110,000 square foot plant in North Carolina and a 25,000
square foot plant in Michigan which are not currently being utilized.
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 or
results of operations.
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. 54 1993 Chairman of the Board, Chief Executive
Officer and Director
Curtis G. Anderson 55 1994 President, Chief Operating Officer
and Director
Gary G. Dillon 62 1995 Chairman, President and Chief
Executive Officer of Schwitzer, Inc.
and Director
Vernon J. Nagel 39 1993 Executive Vice President of Finance,
Chief Financial Officer and Treasurer
Richard A. Walker 45 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
the Company 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. Dillon has served as Director since June 1, 1995. Mr. Dillon has
served as Chairman, President and Chief Executive Officer of Schwitzer, Inc.
since June, 1991, and served as President and Chief Executive Officer since
April 1989. Prior thereto, he served as President and Chief Executive Officer of
Household Manufacturing, Inc.
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, as well as General Counsel and Secretary, since 1991.
He has served as Chief Administrative Officer since 1994. From 1984
until 1991, he 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 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 "-Note 4. Debt" on page
32 and "Common Stock Price Ranges" on page 42 of the Registrant's Annual Report
to Shareholders for the year ended December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to selected financial data for the Registrant
is incorporated herein by reference to information set forth under the caption
"Five-Year Selected Financial Data" on page 20 of the Registrant's Annual Report
to Shareholders for the year ended December 31, 1996.
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 pages 21
through 24 of the Registrant's
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Annual Report to Shareholders for the year ended December 31, 1996 is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained under the captions "Consolidated Statements
of Income," "Consolidated Balance Sheets," "Consolidated Statements of Cash
Flows," "Consolidated Statements of Shareholders' Equity," "Report of
Independent Public Accountants," and "Notes to Consolidated Financial
Statements" on pages 25 through 40 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1996, 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 THE REGISTRANT
Information with respect to the directors of the Registrant is
incorporated herein by reference to the information contained under the caption
"Information Regarding Kuhlman Directors, Nominees for Directors of Kuhlman and
Executive Officers" on pages 3 through 5 of the Registrant's definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders.
Information with respect to executive officers of the Registrant is
included herein 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 "Compensation
of Directors," "Executive Compensation," "Savings and Pension Plans," and
"Option/SAR Grants During 1996" of the Registrant's definitive Proxy Statement
for the 1997 Annual Meeting of Shareholders and under the caption "New Plan
Benefits" of such Proxy Statement.
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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 for the
1997 Annual Meeting of Shareholders.
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 for the 1997 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS 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 1996 Annual Report to its shareholders for the
year ended December 31, 1996, are incorporated herein by
reference:
Consolidated Statements of Income for each of the
three years in the period ended December 31, 1996.
Consolidated Balance Sheets - December 31, 1996 and
1995.
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1996.
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended December
31, 1996.
Notes to Consolidated Financial Statements.
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The financial statement schedule listed below for each of the
three years in the period ended December 31, 1996 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
2.1 Agreement and Plan of Merger by and between
Kuhlman Corporation, Spinner Acquisition
Corp. and Schwitzer, Inc. (incorporated by
reference to Exhibit 2.1 to Registration
Statement No. 33-58133).
2.2 Tender Offer Statement by the Registrant
regarding Communication Cable, Inc.
(incorporated by reference to Schedule
14D-1 filed by the Registrant on November
29, 1995).
2.3 Supplement dated February 1, 1996 to Offer
to Purchase dated November 29, 1995 by
Kuhlman Acquisition Corp. (incorporated by
reference to Exhibit (a)(15) to Amendment
No. 4 to Schedule 14D-1 of Kuhlman
Acquisition Corp. and Kuhlman Corporation
regarding Communication Cable, Inc. dated
February 1, 1996).
2.4 Letter of Transmittal to Tender Shares of
Common Stock of Communication Cable, Inc.
(incorporated by reference to Exhibit
(a)(2) to Schedule 14D-1 of Kuhlman
Acquisition Corp. and Kuhlman Corporation
regarding Communication Cable, Inc. dated
November 29, 1995).
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 Certificate of Amendment of Certificate of
Incorporation of the Registrant dated May
31, 1995 (incorporated by reference to
Exhibit 3.1 to Registration Statement No.
33-58133).
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3.3 Certificate of the Voting Powers,
Designations, Preferences, and Relative,
Participating, Optional, or Other Special
Rights, and the Qualifications, Limitations,
or Other Restrictions thereof of the Junior
Participating Preferred Stock, Series A of
Kuhlman Corporation dated May 31, 1995
(incorporated by reference to Exhibit 3.3
to the Registrant's Form 10-K for the year
ended December 31, 1995).
3.4 By-laws of Registrant (incorporated by
reference to Exhibit 3b to the Registrant's
Form 10-K for the year ended December 31,
1993).
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 Amended 1986 Stock Option Plan of the
Registrant (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-K
for the year ended December 31, 1994).
10.3 Stock Option Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10e to
the Registrant's Form 10-K for the year
ended December 31, 1988).
10.4 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).
10.5 1994 Stock Appreciation Rights Plan
(incorporated by reference to Exhibit 10.6
to the Registrant's Form 10-K for the year
ended December 31, 1994).
10.6 Amended 1994 Stock Option Plan of the
Registrant.
10.7 Schwitzer, Inc. Long-Term Executive
Incentive Compensation Plan, as amended
(Incorporated by reference to Exhibit 4.3
to Registration Statement No. 33-61255).
10.8 Sixth Amendment to Credit Agreement dated
July 1, 1996 among the Registrant, The Chase
Manhattan Bank, N.A. as Administrative Agent
and the participating lenders (incorporated
by reference to Exhibit 10.1 to the
Registrant's Form 10-Q for the quarter ended
September 30, 1996).
13.0 Portions of Annual Report to Shareholders of
the Registrant for the
-15-
<PAGE>
year ended December 31, 1996
appearing under the captions "Five-
Year Selected Financial Data," "Management's
Discussion and Analysis of Financial
Condition and Results of Operations,"
"Consolidated Statements of Income,"
"Consolidated Balance Sheets," "Consolidated
Statements of Cash Flows," "Consolidated
Statements of Shareholders' Equity," "Report
of Independent Public Accountants," "Notes
to Consolidated Financial Statements" and
"Common Stock Price Ranges."
21.0 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, 1996.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
-16-
<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 1996
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 3, 1997 (except with respect to
the matter discussed in Note 17 to the consolidated financial statements, as to
which the date is March 10, 1997). 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.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Louisville, Kentucky
February 3, 1997 (Except with respect to the matter discussed in Note 17 to the
consolidated financial statements, as to which the date is March 10, 1997.)
<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
- ----------------------------------------------------- ------------- ------------- ------------ ----------
Balance at
Beginning Balance at
Description of Period Additions Write-offs, Net End of Period
<S> <C> <C> <C> <C>
VALUATION AND QUALIFYING ACCOUNTS FROM
ASSETS IN CONSOLIDATED BALANCE SHEETS -
DOUBTFUL ACCOUNTS-
Year Ended December 31, 1996 (1) $ 1,442 1,093 (191) $ 2,344
Year Ended December 31, 1995 $ 990 1,211 (759) $ 1,442
Year Ended December 31, 1994 $ 900 250 (160) $ 990
</TABLE>
(1) Additions and year-end balance reflect amounts related to the
acquisitions of CCI and Web Wire.
<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.
Date: March 26, 1997
KUHLMAN CORPORATION
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 persons on behalf of the
registrant and in the capacities and on the dates indicated.
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
ROBERT S. JEPSON, JR.* Chairman of the Board and ) March 26, 1997
Chief Executive Officer (Principal )
Executive Officer and Director) )
VERNON J. NAGEL* Executive Vice President of ) March 26, 1997
Finance, Chief Financial Officer )
and Treasurer (Principal Financial )
and Accounting Officer) )
CURTIS G. ANDERSON* President, Chief Operating Officer March 26, 1997
and Director )
WILLIAM E. BURCH* Director ) March 26, 1997
STEVE CENKO* Director ) March 26, 1997
GARY G. DILLON* Director ) March 26, 1997
ALEXANDER W. DREYFOOS, JR.* Director ) March 26, 1997
WILLIAM M. KEARNS, JR.* Director ) March 26, 1997
GEORGE J. MICHEL, JR.* Director ) March 26, 1997
GENERAL H. NORMAN SCHWARZKOPF* Director ) March 26, 1997
*By /s/ ROBERT S. JEPSON, JR. Individually and as ) March 26, 1997
--------------------------- Attorney-in-Fact
Robert S. Jepson, Jr.
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE*
2.1 Agreement and Plan of Merger by and between
Kuhlman Corporation, Spinner Acquisition Corp. and
Schwitzer, Inc. (incorporated by reference to Exhibit
2.1 to Registration Statement No. 33-58133).
2.2 Tender Offer Statement by the Registrant regarding
Communication Cable, Inc. (incorporated by
reference to Schedule 14D-1 filed by the Registrant
on November 29, 1995).
2.3 Supplement dated February 1, 1996 to Offer to
Purchase dated November 29, 1995 by Kuhlman
Acquisition Corp. (incorporated by reference to
Exhibit (a)(15) to Amendment No. 4 to Schedule
14D-1 of Kuhlman Acquisition Corp. and Kuhlman
Corporation regarding Communication Cable, Inc.
dated February 1, 1996).
2.4 Letter of Transmittal to Tender Shares of Common
Stock of Communication Cable, Inc. (incorporated
by reference to Exhibit (a)(2) to Schedule 14D-1 of
Kuhlman Acquisition Corp. and Kuhlman
Corporation regarding Communication Cable, Inc.
dated November 29, 1995).
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 Certificate of Amendment of Certificate of
Incorporation of the Registrant dated May 31, 1995
(incorporated by reference to Exhibit 3.1 to
Registration Statement No. 33-58133).
- ----------------------------
* Included only in manually-signed original.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE*
3.3 Certificate of the Voting Powers, Designations,
Preferences, and Relative, Participating, Optional, or
Other Special Rights, and the Qualifications,
Limitations, or Other Restrictions thereof of the
Junior Participating Preferred Stock, Series A of
Kuhlman Corporation dated May 31, 1995 (incorporated
by reference to Exhibit 3.3 to the Registrant's Form
10-K for the year ended December 31, 1995).
3.4 By-laws of Registrant (incorporated by reference to
Exhibit 3b to the Registrant's Form 10-K for the year
ended December 31, 1993).
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 Amended 1986 Stock Option Plan of the Registrant
(incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-K for the year ended December
31, 1994).
10.3 Stock Option Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10e to the
Registrant's Form 10-K for the year ended December
31, 1988).
10.4 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).
10.5 1994 Stock Appreciation Rights Plan (incorporated
by reference to Exhibit 10.6 to the Registrant's Form
10-K for the year ended December 31, 1994).
10.6 Amended 1994 Stock Option Plan of the Registrant.
- ----------------------------
* Included only in manually-signed original.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE*
10.7 Schwitzer, Inc. Long-Term Executive Incentive
Compensation Plan, as amended (Incorporated by
reference to Exhibit 4.3 to Registration Statement
No. 33-61255).
10.8 Sixth Amendment to Credit Agreement dated July 1,
1996 among the Registrant, The Chase Manhattan
Bank, N.A. as Administrative Agent and the
participating lenders (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q for the
quarter ended September 30, 1996).
13.0 Portions of Annual Report to Shareholders of the
Registrant for the year ended December 31, 1996
appearing under the captions "Five-Year Selected
Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of
Operations," "Consolidated Statements of Income,"
"Consolidated Balance Sheets," "Consolidated
Statements of Cash Flows," "Consolidated
Statements of Shareholders' Equity," "Report of
Independent Public Accountants," "Notes to
Consolidated Financial Statements" and "Common
Stock Price Ranges."
21.0 Subsidiaries of the Registrant.
23.0 Consent of Independent Public Accountants.
24.0 Power of Attorney.
27.0 Financial Data Schedule.
- ----------------------------
* Included only in manually-signed original.
<PAGE>
KUHLMAN CORPORATION
1994 Stock Option Plan, As Amended
1. PURPOSE. The Kuhlman Corporation 1994 Stock Option Plan (the "Plan")
is intended as an incentive and to encourage ownership of the Company's Common
Stock (the "Stock") by certain key employees of Kuhlman Corporation (the
"Company") and its Subsidiaries (corporation of which a majority of its stock
is owned directly or indirectly by the Company) 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 net 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 ("Rule 16b-3"): 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 shall keep minutes of its meetings. A majority of the
Committee shall constitute a quorum thereof and the acts of a majority of the
members present at any meeting of the Committee at which a quorum is present,
or acts approved in writing by the entire Committee, shall be the acts 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
800,000 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 cancelled, surrendered or terminated
for any reason, the shares of Stock allocable to the unexercised portion of
such option may again be subjected to an option to be issued under the Plan.
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. However, no officer or key
employee shall be granted options in any year to purchase more than 100,000
shares of the Stock. 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. In making such determinations, the Committee shall consider the
position and responsibilities of the employee, the nature and value to the
Company of his or her services an accomplishments, his or her present and
potential contribution to the success of the Company, and such other factors
as the Committee may deem relevant.
Each option granted under the Plan shall be designated by the Committee at
the time of grant as either an incentive stock option (an "Incentive" option).
An Incentive option is intended to meet the requirements of Section 422 of the
<PAGE>
Internal Revenue Code of 1986, as amended (the "Code"). The aggregate Fair
Market Value (determined at the time the option is granted) of the Stock
as to which Incentive options are exercisable for the first time by the
optionee during any calendar year shall not exceed $100,000 (as determined in
accordance with the rules set forth in Section 422 of the Code).
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.
The date on which an option shall be granted shall be the date that the
optionee, the number of shares of Stock optioned in 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 i 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 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 deemed to be the closing price on the date in question rounded, if necessary,
to the next full one cent, or in the next preceding day on which there were
such sales of Stock if no such sales shall have been made on the date in
question, as reported on the New York Stock Exchange Composite Transactions
reporting system.
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, shall have designated
in writing on forms prescribed by and filed with the Committee
("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 ("Successor"). The Committee 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, all rights
with respect to all options of an optionee are subject to the conditions that
the optionee not engage or have engaged (a) in fraud, dishonesty, conduct in
violation of Company policy or similar acts at any time while in the employ
of the Company or a Subsidiary, or (b) in an activity directly or indirectly
in competition with any business of the Company or a Subsidiary, or in other
conduct detrimental to the best interests of the Company or a Subsidiary,
following the optionee's termination of employment. If it is determined by
the Committee in its sole discretion or the Committee's designee (which
determination of such designee shall be subject to ratification by the
Committee), either before or after termination of employment of an optionee,
that there has been a failure of any such condition, all options and all rights
with respect to all options granted to such optionee shall immediately
terminate and be null and void.
<PAGE>
C. EXERCISE AND PAYMENT.
(i) Subject to the provisions of Section 5B, an option may be exercised by
notice (in the form prescribed by 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 in full at the price
provided for in the applicable Stock Option Agreement. Such purchase price
shall be paid by the delivery to the Company of cash (including check or
similar draft) in United States dollars or whole shares of Stock that have
been held by the optionee for at least six months prior to the date
the option is exercised, or a combination thereof. Shares of Stock used in
payment of the purchase price shall be valued at their Fair Market Value
as of the date notice of exercise is received by the Company. Any shares
of Stock delivered to the Company shall be in such form as is acceptable
to the Company.
(ii) The Company may defer making payment or delivery of Stock under the
Plan until satisfactory arrangements have been made for the payment of any tax
attributable to exercise of the option. The Committee may, in its sole
discretion, permit an optionee to elect, in such form and at such time as
the Committee may prescribe, to pay all or a portion of all taxes arising in
connection with the exercise of an option by electing to (a) have the Company
withhold whole shares of Stock, or (b) deliver other whole shares of Stock
previously owned by the optionee having a Fair Market Value not greater than
the among to be withheld; provided, however, that the amount to be withheld
shall not exceed the optionee's estimated total Federal, State and local tax
obligations associated with the transaction.
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 him or her, nor shall
Stock be issued 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 the 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.
Notwithstanding the foregoing provisions as to nontransferability, the
Committee may, in its sole discretion, permit an optionee to transfer a
Non-Qualified option to members of the optionee's immediate family, including
trusts for the benefit of such family members and partnerships in which
such family members are the only partners; provided, however, in no event may
the Committee permit any transfers which would cause the Plan to fail to
satisfy the applicable requirements of Rule 16b-3 under the Securities Exchange
Act of 1934 ("Act") or would cause any optionee to fail to be entitled to the
benefits of Rule 16b-3 or other exemptive rule under Section 16 of the Act or
be subject to liability thereunder. The transferee of an option shall agree to
comply with and be bound by all the terms and conditions contained in the Plan.
For purposes of Section 5B hereof, a transferred option may be exercised by the
transferee only to be extent that the optionee of such option would have been
entitled to exercise the option had the option not been transferred.
E. EMPLOYMENT. No provision of the Plan, nor any term or condition of any
option, nor any action taken by 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.
F. TERMINATION OF OPTION BY OPTIONEE. An optionee may at any time elect,
in a written notice filed with the Committee, to terminate a Non-Qualified
option with respect to any number of shares as to which such option shall not
have been exercised.
6. ADJUSTMENTS. If there is any change in the number of shares of Stock
through the declaration of stock dividends, or recapitalization resulting in
stock splits, or combinations or exchanges of
<PAGE>
such shares or similar corporate transactions, or if the Committee otherwise
determines that, as a result of a corporate transaction involving a change in
the Company's capitalization, it is appropriate to effect the adjustments
described in this section, the aggregate number of shares of Stock on which
options may be granted or which be issued under the Plan, the number of shares
covered by each outstanding option, and the price per share in each option,
shall be proportionately adjusted by the Committee; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated. Subject
to any required action by stockholders, 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
July 28, 2004. 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
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 STOCKHOLDER. An optionee shall have no rights as a
stockholder with respect to shares of Stock covered by his or her option until
the date of issuance to him or her of a certificate evidencing such shares
of Stock after the exercise of such option and payment in full 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; provided, however, that no
amendment which requires stockholder approval in order for the exemptions
available under Rule 16b-3 to be applicable to the Plan shall be effective
unless the amendment shall be approved by the stockholders of the Company
entitled to vote thereon. Any such amendment may be effective in respect
of all past and future options granted hereunder in the sole discretion of
the Board of Directors of the Company.
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 stockholder approvals, and the Committee 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, which was adopted by the Board of
Directors on July 29, 1994, is subject to approval by the stockholders of the
Company at the 1995 Annual Meeting of Stockholders or at an earlier Special
Meeting of the Stockholders if the Board of Directors so determines.
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 circumstance
is invalid or would result in an Incentive option failing to meet the
requirements of Section 422 of the Code, such provision, term, condition
or application shall to that extent be void, (or, in the sole discretion
of the Committee, 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
provision, term of condition is severable.
<PAGE>
Exhibit 13
<PAGE>
FIVE-YEAR SELECTED FINANCIAL DATA
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA
INCOME STATEMENT DATA
Net sales $456,465 $425,384 $396,117 $242,221 $231,426
Gross profit (%) 22.1% 19.8% 19.2% 17.9% 20.2%
Operating expenses (%) 13.7% 12.9% 13.3% 13.2% 14.2%
Operating profit before restructuring costs 38,411 29,161 23,284 11,429 14,001
Restructuring costs -- -- -- 8,650 1,650
Interest expense, net (6,981) (7,066) (6,969) (4,523) (3,985)
Merger expenses -- (4,510) -- -- --
Other, net (2,087) 493 (712) 178 1,470
Income (loss) before taxes, extraordinary item and cumulative effect of
change in accounting principles 29,343 18,078 15,603 (1,566) 9,836
Taxes (benefit) on income (loss) 12,007 8,034 5,633 (1,876) 4,972
Income before extraordinary item and cumulative effect of change in
accounting principles 17,336 10,044 9,970 310 4,864
Extraordinary item, net of tax -- (1,861) -- -- --
Cumulative effect of change in accounting principles, net of tax -- -- -- -- (10,111)
Net income (loss) 17,336 8,183 9,970 310 (5,247)
Earnings per share (fully diluted):
Income before extraordinary item and cumulative effect of change in
accounting principles $ 1.21 $ 0.76 $ 0.73 $ 0.02 $ 0.38
Extraordinary item, net of tax -- (0.14) -- -- --
Cumulative effect of change in accounting principles -- -- -- -- (0.80)
Net income (loss) 1.21 0.62 0.73 0.02 (0.42)
<CAPTION>
As of December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
IN THOUSANDS
BALANCE SHEET DATA
Working capital $ 54,592 $ 39,182 $ 49,501 $ 63,397 $ 54,845
Net plant and equipment 77,864 66,249 64,750 61,161 53,187
Total assets 277,416 214,902 229,185 242,921 156,930
Total debt 94,597 74,175 84,773 106,130 41,814
Shareholders' equity 91,574 74,232 73,216 64,187 64,842
<CAPTION>
For the years ended December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
IN THOUSANDS, WHERE APPLICABLE
OTHER DATA
IBITDA(1) $ 48,794 $ 40,974 $ 33,779 $ 20,209 $ 24,449
Cash flow from operations $ 37,683 $ 28,131 $ 18,881 $ 10,518 $ 12,094
Capital expenditures $ 10,980 $ 15,200 $ 13,048 $ 6,091 $ 8,887
Depreciation and amortization $ 12,470 $ 11,320 $ 11,207 $ 8,602 $ 8,978
Dividends paid $ 7,967 $ 5,814 $ 3,640 $ 3,530 $ 3,452
Net book value per share $ 6.67 $ 5.64 $ 5.59 $ 4.97 $ 5.13
Current ratio 1.7 1.6 1.7 1.9 2.3
Return on average investment(2) 11.9% 11.7% 9.2% 7.0% 8.8%
Return on average equity(3) 21.3% 18.0% 14.5% 8.4% 7.8%
Total debt as a percentage of total capitalization 50.8% 50.0% 53.7% 62.3% 39.2%
Inventory turns 7.0 7.6 7.0 6.3 5.1
Days sales outstanding 53.8 52.3 53.7 52.4 50.4
Number of employees 2,782 2,284 2,375 2,364 1,883
Shares outstanding at year-end 13,731 13,167 13,100 12,914 12,634
</TABLE>
(1) INCOME BEFORE INTEREST AND TAXES PLUS DEPRECIATION AND AMORTIZATION,
EXCLUDING RESTRUCTURING COSTS AND MERGER EXPENSES.
(2) INCOME IS DEFINED AS NET INCOME PLUS THE NET OF TAX IMPACT OF INTEREST
EXPENSE, RESTRUCTURING COSTS, ACCOUNTING CHANGES AND MERGER EXPENSES.
AVERAGE INVESTMENT IS THE SUM OF TOTAL DEBT AND EQUITY PLUS THE EQUITY
EFFECT OF RESTRUCTURING COSTS, ACCOUNTING CHANGES AND MERGER EXPENSES, LESS
CASH.
(3) INCOME IS DEFINED AS NET INCOME PLUS THE NET OF TAX IMPACT OF RESTRUCTURING
COSTS, ACCOUNTING CHANGES AND MERGER EXPENSES. AVERAGE EQUITY IS ADJUSTED
FOR THE EFFECT OF RESTRUCTURING COSTS, ACCOUNTING CHANGES AND MERGER
EXPENSES.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
OVERVIEW
A primary objective of Kuhlman Corporation ("Kuhlman" or the "Company") is to
be a larger, more diversified manufacturing organization focused on the creation
of long-term shareholder value. During 1996, the Company continued to expand its
operations both through internal growth and by acquiring businesses that
participate in key strategic markets. The two companies acquired in 1996,
Communication Cable, Inc. ("CCI") and Web Wire Products, Inc. ("Web Wire"),
expanded Kuhlman's participation in the faster growing areas of the wire and
cable industry. Since 1993, Kuhlman has acquired three businesses and merged
with another and in the process, significantly broadened its operations both in
terms of industry focus and geographical distribution. As a result, consolidated
net sales in 1996 exceeded $456 million, a substantial change from the $118
million reported in 1993 by the original Kuhlman before giving effect to the
merger with Schwitzer, Inc. ("Schwitzer"). Similarly, net income exceeded $17
million in 1996 compared to a net loss of $3 million reported in 1993 by the
original Kuhlman.
Kuhlman's business units operate in two product segments based on the
distinct markets and customers served: Electrical and Industrial. The Electrical
Products Segment manufactures and sells primarily electrical equipment and wire
and cable products for consumer, commercial and industrial uses, while the
Industrial Products Segment manufactures and sells proprietary products for use
in commercial and industrial engines and other applications.
The purpose of this discussion and analysis is to enhance the understanding
and evaluation of the Company's results of operations as well as its financial
position, cash flows, indebtedness and other key financial information for the
years ended December 31, 1996, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company continues to generate substantial cash flow from operations and
remains in a strong financial position. Management believes that the Company's
liquidity and financial flexibility are more than adequate to support its
continued growth through both internal expansion and potential acquisitions.
Overall, Kuhlman generated record cash flow from operations of $37,683,000 in
1996, compared to $28,131,000 and $18,881,000 in 1995 and 1994, respectively.
This represents an increase in cash flow from operations of 34%, 49% and 80% in
1996, 1995 and 1994, respectively, over the prior year. Improved operating
earnings in each segment and strong working capital management were the primary
contributors to the Company's continued growth in cash flow from operations.
Consolidated working capital at December 31, 1996 was $54,592,000 compared to
$39,182,000 at December 31, 1995, an increase of $15,410,000. The increase was
due primarily to the change in classification of the Company's revolving debt
resulting from a modification in the terms of its Credit Agreement. Operating
working capital (defined as accounts receivable and inventory less accounts
payable and accrued expenses) increased 6.6% to $43,366,000 at December 31, 1996
from $40,687,000 at December 31, 1995. The increase in operating working capital
was primarily due to the impact of the acquisitions in 1996, partially offset by
higher accrued expenses which occurred because of the timing of payments for
certain expenses. Operating working capital as a percentage of net sales at the
end of 1996 was 9.5% compared to 10.6% (adjusted for the sale of Nehring
Electrical Works) and 10.7% at December 31, 1995 and 1994, respectively. The
Company's consolidated cash position was $2,209,000 at December 31, 1996
compared to $581,000 at December 31, 1995. The increase was primarily in
additional cash at foreign locations which the Company expects to reinvest in
those operations in the near future. At December 31, 1996, the current ratio was
1.7 compared to 1.6 at the end of 1995.
The Company believes that achieving the proper returns on its invested
capital is a key factor in driving shareholder value. Toward that objective,
management continued to focus its efforts in 1996 on improving the returns
earned on its invested capital by redeploying underperforming, non-core assets
and making additional capital investments in areas where the Company can
maximize its earnings potential. This includes expenditures on machinery and
equipment for internal expansion as well as on acquisitions for businesses in
strategic markets. As part of this effort, the Company spent $10,980,000 in 1996
for new machinery and equipment. Over the last three years, the Company has
invested a total of $39,228,000 for new plant and equipment primarily to improve
productivity, product quality and durability, increase manufacturing capacity
and enhance its customer service capabilities in each segment. The Company
believes these investments, which have exceeded depreciation expense by 22% in
the three year period ended December 31, 1996, have played a key role in
improving operating profit margins and will enhance its operations and financial
performance in 1997 and beyond.
Acquisitions continued to play a key role in Kuhlman's expansion efforts in
1996. The Company invested approximately $39,863,000, net of cash, plus the
assumption of certain liabilities in 1996 to acquire CCI and Web Wire in
February and October of 1996, respectively. Both acquisitions were accounted for
as purchases and accordingly their results of operations have been included in
the Company's consolidated results since the respective dates of acquisition. In
order to fund the acquisitions, the Company borrowed approximately $39,000,000
and issued approximately 329,000 shares of its common stock. (See Note 3 of the
Notes to Consolidated Financial Statements for additional information.) Proceeds
from the sale of assets in 1996 were a modest $126,000 compared to $7,248,000 in
1995. In 1995, the Company sold Nehring Electrical Works, a subsidiary of
Coleman Cable Systems, Inc. and other non-core assets to generate cash for
reinvestment in areas with greater earnings potential.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
Dividends were a record $7,967,000 in 1996 compared with $5,814,000 in 1995
and $3,640,000 in 1994. The dividend amounted to $0.60 per share in each of the
last three years. The increase in the actual dividends paid in 1996 over the
previous two years was primarily due to the issuance of 6,980,000 new shares of
common stock on May 31, 1995, in conjunction with the Schwitzer merger. These
shares were eligible to receive dividends commencing on their issuance date.
CAPITALIZATION
Total debt increased to $94,597,000 at December 31, 1996 from $74,175,000 at
December 31, 1995. The increase was due primarily to the acquisitions of CCI and
Web Wire, partially offset by the Company's record cash flow in 1996. In July
1996, the Company amended and restated its Credit Agreement with its banks which
significantly lowered its cost of borrowed funds and improved its financial
flexibility. The amended and restated Credit Agreement consists of two
components. The first component is a $125,000,000 revolving credit facility to
be used for general corporate purposes and is due July 1, 2001. Borrowings under
this facility at December 31, 1996 were $87,500,000. The second component is a
364-day, $125,000,000 facility primarily to fund future acquisitions and related
working capital requirements. Amounts drawn under this facility would convert to
a 4-year term loan. At December 31, 1996, there were no borrowings against this
facility (See SUBSEQUENT EVENT in Management's Discussion and Analysis for
related information). Total availability under the Company's domestic and
foreign revolving credit agreements was $40,400,000 at December 31, 1996,
excluding the 364-day facility. Under the most restrictive warranties and
covenants contained in the credit agreements, the Company had approximately
$16,600,000 of consolidated retained earnings at December 31, 1996 free of any
restrictions as to the payment of dividends.
The Company's debt to total capital ratio was 51% at December 31, 1996
compared to 50% at the end of 1995. The debt to total capital ratio remained
virtually unchanged because the Company's record cash flow in 1996 helped offset
the impact of additional indebtedness from the acquisitions of CCI and Web Wire.
In addition, shareholders' equity grew 23.4% to $91,574,000 at December 31, 1996
from $74,232,000 at the end of 1995 reflecting the record earnings in 1996 and
the additional shares issued to acquire Web Wire. Return on average
shareholders' equity advanced to 21.3% in 1996 from 18.0% in 1995, reflecting
the Company's record earnings performance in 1996.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
In 1996, the Company sold more products, earned more income and generated
more cash flow from operations than in any year in its 103-year history. 1996
was the third consecutive year in which the company achieved record sales.
Consolidated net sales were $456,465,000 in 1996 compared with $425,384,000 and
$396,117,000 reported in 1995 and 1994, respectively. For the year ended
December 31, 1996, the Company reported net income of $17,336,000 compared to
$13,783,000 (before expenses associated with the Schwitzer merger) and
$9,970,000 in 1995 and 1994, respectively. Earnings per share (fully diluted)
were $1.21 in 1996 compared to $1.05 (before expenses associated with the
Schwitzer merger) and $0.73 in 1995 and 1994, respectively. Net income and
earnings per share in 1995 were $8,183,000 and $0.62, respectively, after giving
effect to the merger expenses. Please refer to Note 2 of the Notes to
Consolidated Financial Statements, which more fully describes the merger with
Schwitzer.
Kuhlman's net sales increased 7% in 1996 over 1995. The strength of both the
Electrical and Industrial Products Segments contributed to the record sales in
1996. Within the Electrical Products Segment, sales were benefitted by strong
shipments of medium power transformers to utilities and the addition of CCI,
which significantly broadened the Company's wire and cable operations. Sales
within the Industrial Products Segment benefitted from robust demand
domestically for various engine component products. Kuhlman's consolidated net
sales in 1995 were 7% higher than those reported in 1994 primarily due to strong
worldwide demand for turbochargers and other engine components and certain wire
and cable products, partially offset by lower shipments of distribution
transformers due to the downsizing of that product line.
Kuhlman posted record operating profit in 1996 due to the strong earnings
performance of each business segment. Consolidated operating profit advanced 32%
in 1996 to $38,411,000 (8.4% of net sales) from $29,161,000 (6.9% of net sales)
reported in 1995. Operating profit in 1994 was $23,284,000 (5.9% of net sales).
The growth in operating profit in 1996 was primarily due to the increased sales
volume noted above and improved gross profit margins in each segment.
Consolidated gross profit margins increased to 22.1% of net sales in 1996 from
19.8% and 19.2% in 1995 and 1994, respectively. Gross profit margins improved in
the Electrical Products Segment because of favorable changes in sales mix,
particularly for transformer products, the addition of CCI with its higher
margin product offering and the disposal of Nehring Electrical Works, which
generally carried lower margins. Margin improvement in the Industrial Segment
was driven by strong domestic demand coupled with better manufacturing
efficiencies. Operating expenses for Kuhlman in 1996 were $62,524,000 or 13.7%
of sales compared to $54,946,000 or 12.9% of sales in 1995 and $52,601,000 or
13.3% of sales in 1994. Operating expenses increased in both 1996 and 1995 from
the previous year primarily due to the higher net sales noted above, partially
offset by cost containment programs throughout the Company.
Other income (expense) for Kuhlman is made up primarily of interest expense
and other miscellaneous non-operating activity including foreign currency
translation adjustments. Interest expense, net of the Company was $6,981,000,
$7,066,000 and
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
$6,969,000 in 1996, 1995 and 1994, respectively. Interest expense, net was down
slightly in 1996 compared to 1995 primarily because the Company's lower cost of
borrowed funds offset the higher debt levels attributable to the acquisitions.
Interest expense, net was up in 1995 over 1994 because much of the decrease in
outstanding debt in 1995 did not occur until late in the fourth quarter. In
1996, other, net was an expense of $2,087,000 compared to income of $493,000 in
1995 and an expense of $712,000 in 1994. In 1995, other, net was benefitted by
$1,251,000 (net of tax) or $0.10 per share primarily associated with a covenant
not to compete, which expired in June of 1995, and the favorable settlement of
certain liabilities. Foreign currency translation adjustments related to the
Company's Brazilian operations resulted in income of $193,000 in 1996, income of
$75,000 in 1995 and expense of $847,000 in 1994. Fluctuations associated with
foreign currency translation adjustments due to the hyperinflationary economy of
Brazil may continue in the future.
The effective tax rate reported by the Company was 40.9%, 44.4% and 36.1% in
1996, 1995 and 1994, respectively. The reasons for the difference between these
rates and the statutory federal income tax rate for those three years is
detailed in Note 8 of the Notes to Consolidated Financial Statements.
ELECTRICAL PRODUCTS SEGMENT
The Electrical Products Segment is comprised of Kuhlman Electric Corporation
("Kuhlman Electric") and Coleman Cable Systems, Inc ("Coleman Cable"). In
addition, CCI and Web Wire, acquired in 1996, were added to the operations of
Coleman Cable. Sales and operating earnings for the Electrical Products Segment
are generally affected by the level of domestic economic activity in the
consumer, commercial and industrial markets served. Housing starts, commercial
and industrial construction, and electrical usage are key indicators of demand
for the segment's various electrical products. Additionally, the maintenance and
upgrading of established electrical systems creates demand for the segment's
transformer products.
In 1996, the Electrical Products Segment reported record sales and operating
earnings for the second consecutive year. Net sales increased to $268,846,000 in
1996 from $243,761,000 reported in 1995 and $235,274,000 in 1994. Operating
earnings of the Electrical Products Segment were $20,103,000 in 1996 compared to
$13,639,000 and $8,611,000 in 1995 and 1994, respectively. In 1996, net sales
and operating earnings for the Electrical Products Segment increased 10% and
47%, respectively, over 1995 primarily due to the continued improvement in the
operating performance at Kuhlman Electric and the addition of CCI. In 1995,
sales improved only modestly over the 1994 period primarily because of the
downsizing of the distribution transformer product line while operating earnings
increased dramatically due to the improved operating performance of Kuhlman
Electric.
The improvement in the financial results reported by the Electrical Products
Segment in 1996 was driven by the Company's objective of focusing on providing
its customer base with higher value-added products. The result of this effort
was to change the mix of sales to higher margin products and services. This
process had a dramatic impact on the results of Kuhlman Electric which increased
sales and operating earnings 18% and 94%, respectively, over the 1995 period.
Within Kuhlman Electric, the Company has emphasized its medium power and
instrument transformer lines which generally carry higher margins compared to
other product lines. For example, net sales of medium power transformers have
increased 38% and 26% in 1996 and 1995, respectively, over the previous year. As
a result of this shift in product focus coupled with the Company's continued
programs to improve manufacturing efficiencies and productivity over the last
three years, Kuhlman Electric has posted solid annual gains in operating
performance since 1993.
Net sales and operating earnings for wire and cable products within the
Electrical Products Segment reached record highs for the second consecutive year
in 1996. Net sales increased 6% in 1996 compared to 1995 and 16% in 1995 over
1994. Net sales in 1996 included the results of CCI from February 21, 1996, its
date of acquisition, excluded the activity of Nehring, which was disposed of on
December 29, 1995, and was negatively impacted by the decline in the price of
copper. The average price of copper, a principal raw material for wire and cable
products, declined approximately 15.7% in 1996 from 1995. The impact of this
drop led to lower selling prices for certain products due to lower raw material
costs and improved gross profit margins as a percentage of sales. In addition,
operating margins were benefitted by the addition of CCI which sells products
that generally generate higher margins, more than offsetting the loss in margin
on products sold by Nehring Electrical Works.
INDUSTRIAL PRODUCTS SEGMENT
The Industrial Products Segment is comprised of Schwitzer and Emtec Products
Corporation. Profitability in this segment is affected by economic conditions in
industrialized and developing regions of the world. Capital expenditures for
light-, medium-and heavy-duty trucks, construction and agricultural equipment
and other industrial transportation equipment are indirect indicators of demand
of the segment's products.
Net sales and operating earnings in the Industrial Products Segment reached
record highs again in 1996. Net sales were $187,619,000 in 1996 compared to
$181,623,000 and $160,843,000 in 1995 and 1994, respectively. Operating earnings
for the Industrial Products Segment increased to $22,386,000 in 1996 from
$19,541,000 and $17,096,000 in 1995 and 1994, respectively. Operating earnings
as a percentage of sales advanced to 11.9% in 1996 from 10.8% and 10.6% in the
previous two years, respectively. Sales to domestic customers as a percentage of
total Industrial Products Segment sales were 70%, 66% and 70% in 1996, 1995 and
1994, respectively.
Sales and operating earnings increased 3% and 15%, respectively, in 1996
compared to 1995. The improvement was
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
primarily the result of continued robust demand for turbochargers and other
engine components. The surge in demand came primarily from original equipment
manufacturers (OEMs) in the United States as low interest rates continued to
support growth in many key end markets. Sales to domestic based customers grew
8% in 1996 from 1995 while international sales remained flat in the same period.
Operating earnings grew $2,845,000 or 14.6% in 1996 over 1995 while profit
margins in 1996 showed strong gains over 1995. The increase in operating margins
was primarily due to improved operating efficiencies, the impact of higher sales
volume and lower operating expenses as a percentage of sales.
In 1995, sales and operating earnings for the Industrial Products Segment
grew 13% and 14%, respectively, over the results reported in 1994. The growth in
sales volume was due primarily to greater demand from OEM customers as market
conditions in many parts of the world continued to improve. Domestic sales
increased approximately 7% in 1995 compared to 1994 primarily due to improved
market conditions for medium- and heavy-duty trucks and agricultural and
construction equipment. International sales increased 27% in 1995 compared to
1994 as demand for the Company's products increased dramatically due to
strengthening worldwide economies, primarily in Europe and South America, and
greater market penetration by the Company's industrial products. The improvement
in operating margins was driven by the higher sales volume resulting in better
utilization of production capacity.
EFFECTS OF INFLATION
The Company uses numerous raw materials in its products, including copper,
aluminum, steel and plastics. Prices for many of these materials started to rise
in 1994 as worldwide economies began to strengthen and continued to rise
throughout much of 1995. Though the Company attempted to pass along these
increases in the form of higher prices to its customers, competition made this
increasingly difficult which resulted in pressure on operating margins for
certain products. In 1995 and 1994, the Company was able to mitigate some of the
impact of these higher costs by exercising tight cost control measures and
improving its operating efficiencies. In 1996, pricing pressure for certain of
these materials began to abate somewhat, resulting in more stable margins.
SUBSEQUENT EVENT
On March 10, 1997, the Company purchased certain assets of the Transportation
Products Group ("TPG") of Kysor Industrial Corporation, a Michigan corporation
traded on the New York Stock Exchange. The purchase price for TPG was
$86,000,000 in cash plus the assumption of certain liabilities. The purchase of
TPG was financed from borrowings under the Company's 364-day credit facility.
TPG designs and manufactures proprietary products including polymer fans and
fan clutches, various engine monitoring devices, truck fuel tanks, marine
instruments and heating, ventilating and air conditioning systems for commercial
vehicles. The principal markets for its products are original equipment
manufacturers of light-, medium- and heavy-duty trucks, buses, off-highway
equipment and the marine industry. For the year ended December 31, 1996, TPG's
net sales were approximately $137,700,000.
OUTLOOK FOR 1997
In 1996, Kuhlman Corporation made significant progress toward its objective
of becoming a larger, more diversified organization. Through diversification and
size, management believes that Kuhlman will be less dependent on the business
cycles of a single economy, industry or product and thus able to provide more
consistent and sustainable growth in earnings and cash flow on which to build
the Company in the future. Actions such as the acquisitions made in the last
three years, coupled with a significant capital expenditure program, have made
Kuhlman Corporation a larger and more diversified company with greater financial
resources. As Kuhlman enters 1997, management believes that the Company is
positioned to grow and prosper in its many markets.
A key objective in 1997 will continue to be to further enhance long-term
shareholder value by building a larger, more focused manufacturing organization.
Management believes that the addition of the Transportation Products Group of
Kysor will serve to strengthen the Company by expanding its product offering in
a very important segment of its business. 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.
SAFE HARBOR STATEMENT
The statements contained under the caption "Outlook For 1997" and certain
other information contained in this report, which can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "continue,"
"remains," "intend," "aim," "should," and "prospects," or the negative thereof
or other variations thereon or comparable terminology, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the safe harbors created thereby. These
statements should be considered as subject to the many risks and uncertainties
that exist in the Company's operations and business environment. Such risks and
uncertainties could cause actual results to differ materially from those
projected. These uncertainties include, but are not limited to, economic
conditions, market demand and pricing, competitive and cost factors, raw
material prices, global interest rates, foreign exchange rates, and other risk
factors.
24
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
NET SALES $456,465 $425,384 $396,117
Cost of goods sold 355,530 341,277 320,232
Gross profit 100,935 84,107 75,885
Selling, engineering, general and administrative expenses 62,524 54,946 52,601
OPERATING PROFIT 38,411 29,161 23,284
Other income (expense):
Interest expense, net (6,981) (7,066) (6,969)
Merger expenses -- (4,510) --
Other, net (2,087) 493 (712)
Total other income (expense), net (9,068) (11,083) (7,681)
Income before taxes and extraordinary item 29,343 18,078 15,603
Taxes on income 12,007 8,034 5,633
Income before extraordinary item 17,336 10,044 9,970
Extraordinary item (net of tax effect of $1,175) -- (1,861) --
NET INCOME $ 17,336 $ 8,183 $ 9,970
PER SHARE AMOUNTS:
Primary:
Income before extraordinary item $ 1.26 $ 0.76 $ 0.73
Extraordinary item -- (0.14) --
NET INCOME $ 1.26 $ 0.62 $ 0.73
Fully diluted:
Income before extraordinary item $ 1.21 $ 0.76 $ 0.73
Extraordinary item, net of tax -- (0.14) --
NET INCOME $ 1.21 $ 0.62 $ 0.73
Average shares outstanding:
Primary 13,760 13,178 13,647
Fully diluted 14,384 13,178 13,647
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C> <C>
IN THOUSANDS
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,209 $ 581
Accounts receivable, less reserves of $2,344 and $1,442 at December 31, 1996 and 1995, respectively 70,079 55,753
Inventories 52,530 41,833
Deferred income taxes 7,810 4,901
Prepaid expenses and other current assets 3,502 3,535
TOTAL CURRENT ASSETS 136,130 106,603
PLANT AND EQUIPMENT
Land 3,075 2,275
Buildings and leasehold improvements 39,138 34,802
Machinery, fixtures and equipment 122,655 111,175
Construction in progress 2,825 2,241
167,693 150,493
Less -- accumulated depreciation and amortization (89,829) (84,244)
PLANT AND EQUIPMENT -- NET 77,864 66,249
Intangible assets, net of amortization of $4,441 and $2,672 at December 31, 1996 and 1995,
respectively 58,326 37,201
Other assets 5,096 4,849
$277,416 $214,902
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 2,295 $ 10,522
Accounts payable 35,410 28,542
Accrued liabilities 43,833 28,357
TOTAL CURRENT LIABILITIES 81,538 67,421
LONG-TERM DEBT
Bank debt 87,764 60,217
Other long-term debt 4,538 3,436
TOTAL LONG-TERM DEBT 92,302 63,653
Accrued postretirement benefits 8,859 8,462
Other long-term liabilities 3,143 1,134
TOTAL LIABILITIES 185,842 140,670
SHAREHOLDERS' EQUITY
Preferred stock, par value, $1.00, 2,000 shares authorized, none issued; Junior participating
preferred stock, Series A, no par value, 200 shares authorized, none issued -- --
Common stock, par value $1.00, 20,000 shares authorized, 13,803 and 13,240 shares issued at December
31, 1996 and 1995, respectively 13,803 13,240
Additional paid-in capital 32,749 26,217
Retained earnings 47,272 37,988
Foreign currency translation adjustments (640) (1,911)
Minimum pension liability (690) (382)
92,494 75,152
Less -- treasury stock at cost (72 shares in 1996 and 1995) (920) (920)
TOTAL SHAREHOLDERS' EQUITY 91,574 74,232
$277,416 $214,902
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE BALANCE SHEETS.
26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
IN THOUSANDS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,336 $ 8,183 $ 9,970
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary item, net -- 1,861 --
Merger expenses -- 4,510 --
Depreciation and amortization 12,470 11,320 11,207
Deferred income taxes (25) 3,501 2,435
Provision for losses on accounts receivable 685 1,211 250
Other, net (217) 67 558
Changes in operating assets and liabilities:(1)
Accounts receivable (4,780) (885) (4,885)
Inventories (1,300) (2,057) 3,719
Prepaid expenses and other current assets 274 2,240 (3,536)
Accounts payable 3,915 1,049 4,708
Accrued liabilities 9,325 (2,869) (5,545)
NET CASH PROVIDED BY OPERATING ACTIVITIES 37,683 28,131 18,881
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,980) (15,200) (13,048)
Acquisition of businesses, net of cash acquired (39,863) -- --
Proceeds from sales of assets 126 7,248 346
NET CASH USED FOR INVESTING ACTIVITIES (50,717) (7,952) (12,702)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving loan facility (21,572) (4,160) (13,941)
Proceeds from issuance of long-term debt 39,439 25,016 685
Repayment of long-term debt (1,850) (32,108) (8,259)
Dividends paid (7,967) (5,814) (3,640)
Stock options exercised 2,000 933 1,176
Payments for merger and related expenses -- (5,612) --
Issuance of common stock 4,905 -- --
Repurchase of common stock -- (920) --
Restricted cash -- -- 1,800
Other (534) (23) --
NET CASH PROVIDED (USED) FOR FINANCING ACTIVITIES 14,421 (22,688) (22,179)
Effect of exchange rate changes on cash and cash equivalents 241 54 42
Increase (decrease) in cash and cash equivalents 1,628 (2,455) (15,958)
Cash and cash equivalents, beginning of year 581 3,036 18,994
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,209 $ 581 $ 3,036
</TABLE>
(1) NET OF THE EFFECTS OF ACQUISITIONS AND FOREIGN CURRENCY TRANSLATION, WHERE
APPLICABLE.
SEE NOTE 15 FOR INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES.
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
27
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Foreign
Additional Currency Minimum
For the years ended December 31, 1996, Common Paid-in Retained Translation Pension Treasury
1995 and 1994 Stock(1) Capital Earnings Adjustment Liability Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS
BALANCE -- DECEMBER 31, 1993 $ 12,914 $ 23,513 $30,364 $(2,359) $(245) $ -- $64,187
Net income -- -- 9,970 -- -- -- 9,970
Cash dividends declared
($0.60 per share)(2) -- -- (3,662) -- -- -- (3,662)
Exercise of stock options 134 1,042 -- -- -- -- 1,176
Issuance of common stock 52 745 -- -- -- -- 797
Minimum pension liability -- -- -- -- 202 -- 202
Currency translation adjustment -- -- -- 546 -- -- 546
BALANCE -- DECEMBER 31, 1994 $ 13,100 $ 25,300 $36,672 $(1,813) $ (43) $ -- $73,216
Net income -- -- 8,183 -- -- -- 8,183
Cash dividends declared
($0.60 per share)(2) -- -- (6,867) -- -- -- (6,867)
Exercise of stock options 127 806 -- -- -- -- 933
Issuance of common stock 16 176 -- -- -- -- 192
Repurchase of common stock -- -- -- -- -- (920) (920)
Minimum pension liability -- -- -- -- (339) -- (339)
Currency translation adjustment -- -- -- (98) -- -- (98)
Other (3) (65) -- -- -- -- (68)
BALANCE -- DECEMBER 31, 1995 $ 13,240 $ 26,217 $37,988 $(1,911) $(382) $ (920) $74,232
Net income -- -- 17,336 -- -- -- 17,336
Cash dividends declared
($0.60 per share) -- -- (8,052) -- -- -- (8,052)
Exercise of stock options 223 1,777 -- -- -- -- 2,000
Issuance of common stock 340 4,755 -- -- -- -- 5,095
Minimum pension liability -- -- -- -- (308) -- (308)
Currency translation adjustment -- -- -- 1,271 -- -- 1,271
BALANCE -- DECEMBER 31, 1996 $ 13,803 $ 32,749 $47,272 $ (640) $(690) $ (920) $91,574
</TABLE>
(1) SHARES OUTSTANDING WERE 13,731 AND 13,167, NET OF 72 TREASURY SHARES, AT
DECEMBER 31, 1996 AND 1995.
(2) DIVIDENDS PER SHARE HAVE NOT BEEN RESTATED TO REFLECT THE SCHWITZER MERGER.
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
KUHLMAN CORPORATION AND SUBSIDIARIES
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, 1996
and 1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kuhlman Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Louisville, Kentucky
February 3, 1997 (except with respect to the matter discussed in Note 17, as
to which the date is March 10, 1997)
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
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. The consolidated
statements of income include the results of acquired businesses accounted for
under the purchase method of accounting from the date of acquisition. Further
information pertaining to the acquisitions is presented in Note 3, "Acquisitions
and Divestiture."
On May 31, 1995, the Company merged Schwitzer, Inc. ("Schwitzer") with a
wholly-owned subsidiary of the Company. The merger was accounted for as a
pooling of interests. The consolidated financial statements for all periods
prior to the merger have been restated to present the combined balance sheets
and results of operations of both companies as if the merger had been in effect
for all periods presented. The consolidated statements of shareholders' equity
reflect the accounts of the Company as if the additional common stock had been
issued during all periods presented. Certain amounts in the 1994 Schwitzer
financial statements were reclassified to conform with the presentation used by
the Company. Further information pertaining to the merger is presented in Note
2, "Merger."
Certain amounts in the Company's 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates as changes in
estimates do and will continue to occur due to changes in available relevant
data and consummation of the events and transactions.
REVENUE RECOGNITION
The Company recognizes sales of its products when the products are shipped to
customers.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments with an original maturity of
three months or less to be cash equivalents, which are reflected at their
approximate fair value.
INVENTORIES
Inventories are stated at the lower of cost or market and are determined by
either the last-in, first-out (LIFO) or first-in, first-out (FIFO) method for
domestic inventories. Inventories of foreign operations are determined
principally by the first-in, first-out (FIFO) method. Approximately 62% and 50%
of the inventories at December 31, 1996 and 1995, 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 their
estimated useful lives, ranging from 3 to 40 years, using principally the
straight-line method for financial reporting purposes and accelerated methods
for tax 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.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill related to the acquisition of
businesses. Goodwill is being amortized on a straight-line basis over a period
not to exceed forty years. In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("SFAS No. 109") adjustments
relating to preacquisition income tax contingencies will result in corresponding
adjustments to goodwill. During 1995, the Company reduced goodwill by $725,000
as a result of changes in the status of certain tax contingencies. When factors
indicate that goodwill should be evaluated for possible impairment, the Company
uses an estimate of the related operation's discounted cash flows over the
remaining life of goodwill in measuring whether or not the goodwill is
recoverable. Other intangible assets are amortized to expense using the
straight-line method over three to six years.
LONG-LIVED ASSETS
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of " ("SFAS No. 121"). The new standard, under
certain circumstances, requires the business to recognize an impairment. SFAS
No. 121 requires that an impairment for long-lived assets and long-lived assets
to be disposed of be based on the fair value of the asset or the fair value less
the cost to sell, respectively. Application of this standard did not impact the
financial position or results of operations of the Company.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
ENGINEERING
Engineering expenses include activities associated with product development,
the application of products to specific customer needs, and ongoing efforts to
refine and enhance existing products. These costs are expensed as incurred and
totaled approximately $7,009,000, $6,745,000 and $7,574,000 in 1996, 1995 and
1994, respectively.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
Environmental liabilities for remediation costs are accrued based on
estimates of known environmental remediation exposures. The measurement of
environmental liabilities is based on an evaluation of currently available facts
with respect to each individual site and considers factors such as existing
technology, presently enacted laws and regulations, and prior experience in
remediation of contaminated sites. Liabilities are recognized for remedial
activities when they can be reasonably estimated. Environmental compliance
costs, which include maintenance and operating costs with respect to pollution
control equipment, cost of ongoing monitoring programs and similar costs are
expensed as incurred. Environmental costs are capitalized if the costs increase
the value of the property and/or mitigate or prevent contamination from future
operations.
FOREIGN CURRENCY TRANSLATION
A subsidiary of the Company has foreign subsidiaries located in the United
Kingdom (U.K.) and Brazil. Financial data of the U.K. subsidiary is translated
into U.S. dollars at current exchange rates and translation adjustments are
accumulated as a separate component of shareholders' equity. Foreign currency
transaction gains and losses of the U.K. subsidiary are credited or charged to
income as they occur. The Brazilian subsidiary operates in a hyperinflationary
economy. Accordingly, financial data stated in Brazilian currencies are
remeasured into U.S. dollars at both current (monetary items) and approximate
historical (non-monetary items) exchange rates and the resulting transaction
adjustments are charged or credited to income. Transaction adjustments for the
Brazilian subsidiary included in other, net on the consolidated statements of
income were income of $193,000 and $75,000 in 1996 and 1995 and a loss of
$847,000 in 1994, respectively. The transaction adjustments for 1996, 1995 and
1994 are stated net of imputed interest income (expense) of $194,000, $390,000
and $(589,000), respectively, realized on net monetary assets and liabilities.
INCOME TAXES
The provision for income taxes includes Federal, state and foreign income
taxes currently payable and those deferred or prepaid because of temporary
differences between financial statement and tax bases of assets and liabilities.
The Company records income taxes under the liability method. Under this method,
deferred income taxes are recognized for the estimated future tax effects of
differences between the tax bases of assets and liabilities and their financial
reporting amounts based on enacted tax laws. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
FINANCIAL INSTRUMENTS AND HEDGING
Certain financial instruments are used to hedge risk caused by fluctuating
commodity prices, foreign currencies and interest rates. The Company enters into
futures or option contracts to hedge price fluctuations for commodities used in
the manufacture of its products and in currencies to hedge certain import or
export transactions. The terms of the contracts are consistent with the terms of
the underlying transaction they are designed to hedge. As a result, gains or
losses on the transactions included in the Company's results of operations
offset losses and gains of the underlying transactions being hedged.
In addition, the Company uses interest rate swap agreements to manage
interest costs and risks associated with changing interest rates. The
differential to be paid or received under these agreements is accrued as
interest rates change and is recognized in interest expense consistent with the
terms of the agreements. The counterparty to the interest rate swap agreements
is a major financial institution. The possibility of credit loss from
counterparty non-performance is remote and not anticipated.
STOCK BASED COMPENSATION
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company
has applied APB Opinion No. 25 and related interpretations in accounting for its
stock-based compensation plans, and has adopted the disclosure option related to
SFAS No. 123. See Note 11, "Stock Based Compensation Plans," for related
disclosures.
PER SHARE INFORMATION
Earnings per share amounts are based on the weighted average number of common
shares outstanding during each year, as adjusted for all materially dilutive
common equivalent shares. Common equivalent shares, which include stock options
and warrants, were determined under the treasury stock method. Primary and fully
dilutive shares used in the per share calculation in 1996 included 371,000 and
653,000 shares, respectively, resulting from the dilutive effects of common
stock equivalents. There was no materially dilutive effect of common stock
equivalents in 1995. Primary and fully dilutive shares used in the per share
calculation in 1994 included 638,000 shares resulting from the dilutive effects
of common stock equivalents.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 2. MERGER
On May 31, 1995, the Company merged Schwitzer, a New York Stock Exchange
listed company, with a wholly-owned subsidiary of the Company. The merger was
accounted for under the pooling of interests method of accounting. As provided
for in the merger agreement, each share of Schwitzer common stock was converted
into 0.9615 share of the Company's common stock, resulting in the Company
issuing approximately 6,980,000 shares of stock. Transaction expenses and other
charges related to the merger totaled approximately $5,600,000 net of tax ($0.43
per share), including $1,861,000 related to the refinancing of substantially all
of Schwitzer's domestic debt ("Merger Expenses"). These costs were charged to
expense in the quarter ended June 30, 1995.
In accordance with the pooling of interests method of accounting, the
Company's financial statements have been restated for all periods presented to
include the results of Schwitzer. Operating results for the Company and
Schwitzer for the year ended December 31, 1994 prior to restatement, is
presented as the following:
<TABLE>
<CAPTION>
Year ended
IN THOUSANDS December 31, 1994
<S> <C>
Net sales:
Kuhlman $ 242,846
Schwitzer 153,271
Combined $ 396,117
Net income:
Kuhlman $ 1,617
Schwitzer 8,930
Adjustment to valuation
allowance(1) (577)
Combined $ 9,970
</TABLE>
(1) THE TAX PROVISION IN 1994 FOR THE COMBINED COMPANY WAS ADJUSTED TO REFLECT
CHANGES IN THE VALUATION ALLOWANCE UNDER SFAS NO. 109 AS IF THE COMPANIES
HAD BEEN COMBINED DURING THE PERIOD.
NOTE 3. ACQUISITIONS AND DIVESTITURE
ACQUISITION OF
COMMUNICATION CABLE, INC.
On February 16, 1996, the Company, through a wholly-owned subsidiary,
completed a tender offer for the outstanding shares of Communication Cable, Inc.
("CCI"), a North Carolina corporation, at $14.00 per share in cash. The purchase
of the tendered shares, which was consummated on February 21, 1996, along with
subsequent actions resulted in CCI becoming a wholly-owned subsidiary of the
Company as of June 28, 1996. The aggregate total cost of the acquisition of the
outstanding shares of CCI, which was primarily funded through bank debt, was
approximately $43,800,000. CCI engineers, designs and manufactures a wide
variety of low voltage electronic wire and cable products.
The transaction has been accounted for as a purchase and the excess purchase
price over the fair market value of the assets is being amortized over 40 years.
The results of operations of CCI are included in the consolidated financial
statements of the Company subsequent to February 21, 1996.
The following unaudited pro forma information for the periods shown below
gives effect to the acquisition of CCI as if it had occurred at the beginning of
each period.
<TABLE>
<CAPTION>
Year Ended
IN THOUSANDS, December 31,
EXCEPT PER SHARE DATA 1996 1995
<S> <C> <C>
Net sales $465,700 $479,610
Net income before extraordinary item $ 17,358 $ 10,237
Net income $ 17,358 $ 8,376
Fully diluted per share amounts:
Net income before extraordinary item $ 1.21 $ 0.78
Net income $ 1.21 $ 0.64
</TABLE>
The unaudited pro forma information assumes that the Company owned the
outstanding shares of CCI at the beginning of the periods presented, and
accordingly, includes adjustments for goodwill amortization, interest expense,
certain administrative costs and income taxes. The unaudited pro forma financial
data is presented for information purposes only and is not necessarily
indicative of the results of operations that actually would have been achieved
had the acquisition of CCI been consummated at the beginning of these periods,
and is not intended to be a projection of future results of trends.
ACQUISITION OF WEB WIRE
On October 8, 1996, a subsidiary of the Company acquired substantially all of
the assets of Web Wire Products, Inc. ("Web Wire") in exchange for approximately
329,000 shares of the Company's common stock. Web Wire is a manufacturer of
battery cables, ignition wire sets and related accessories for the automotive
aftermarket. Net sales of Web Wire for the twelve months ended December 31, 1996
were approximately $6,300,000. The impact on operations of this acquisition was
not significant for any of the periods presented, and therefore, pro forma
amounts were not presented giving effect to the transaction.
DIVESTITURE OF NEHRING
In the fourth quarter of 1995, Coleman Cable Systems, Inc. ("Coleman") sold
the net assets of its subsidiary, Nehring Electrical Works Company ("Nehring"),
for approximately book value. Coleman received approximately $6,509,000 in cash
plus a $1,500,000 note for the net assets of Nehring. In 1995, Nehring had sales
of approximately $41,800,000, minimal operating earnings, and total assets of
approximately $10,500,000.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 4. DEBT
On July 1, 1996, the Company amended and restated its bank credit agreement.
The amended and restated credit agreement has two components. The first
component is a $125,000,000 revolving credit facility which is to be used for
general corporate purposes and is due on July 1, 2001. The second component is a
364-day, $125,000,000 facility that is available primarily to finance future
acquisitions, and any amounts drawn would convert to a four-year term loan
commencing on July 1, 1997 with equal quarterly installments. There were no
borrowings at December 31, 1996 under the 364-day facility. Interest rates on
amounts borrowed under each facility are based principally on the London Inter-
bank Offered Rate (LIBOR) plus an applicable margin factor. The Company also
pays a commitment fee on the unused portion of each facility. The margin factor
and the commitment fee rate are determined based on the Company's leverage ratio
(as defined). The credit facility is subject to various covenants, including
financial covenants relating to minimum levels of net worth, interest coverage
and the leverage ratio. Under the most restrictive covenant (minimum net worth)
contained in the bank credit facility, the Company had approximately $16,600,000
of consolidated retained earnings at December 31, 1996 free of any restrictions
as to the payment of dividends. The average interest rate as of December 31,
1996 under the Company's bank credit facility was 6.8 %.
At December 31, 1996, the Company had unused availability under its domestic
and foreign revolving credit facilities of approximately $40,400,000, excluding
the 364-day facility.
At December 31, 1996 and 1995, long-term debt consisted of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995
<S> <C> <C>
Variable rate notes supported by revolving
credit agreement with banks, maturing
through 2001 $87,500 $67,900
Miscellaneous other long-term debt, rates
up to 18%, payable through 2011 7,097 6,275
94,597 74,175
Less -- current portion (2,295) (10,522)
$92,302 $63,653
</TABLE>
The minimum scheduled principal payments on long-term debt outstanding at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
1997 $ 2,295
1998 927
1999 681
2000 523
2001 87,730
Thereafter 2,441
Total minimum scheduled principal payments $94,597
</TABLE>
NOTE 5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain of its buildings, machinery and equipment under
operating lease agreements which expire at various dates over the next six
years.
The following is a summary of rent expense under all operating leases:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
Minimum rentals $3,248 $3,171 $3,229
</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>
1997 $ 3,040
1998 2,471
1999 2,234
2000 2,038
2001 1,303
Subsequent to 2001 408
Total minimum rental payments $11,494
</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.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
At December 31, 1996 and 1995, property under capital leases included with
plant and equipment in the accompanying consolidated balance sheet is as
follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995
<S> <C> <C>
Building and improvements $2,360 $2,360
Machinery and equipment 391 247
2,751 2,607
Less -- accumulated depreciation (964) (964)
Plant and equipment, net $1,787 $1,643
</TABLE>
Minimum future lease payments under capital leases as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
1997 $ 442
1998 439
1999 434
2000 509
2001 384
Subsequent to 2001 2,638
Total minimum lease payments $ 4,846
Less -- amounts representing interest (2,434)
Present value of net minimum lease payments 2,412
Less -- current portion (125)
Long-term obligations under capital leases $ 2,287
</TABLE>
Obligations under capital leases are included with debt in the accompanying
consolidated balance sheet. 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.
ENVIRONMENTAL MATTERS
The Company has accrued for certain investigatory and non-capital
environmental remediation costs consistent with the policy set forth in Note 1.
These costs are accrued on the balance sheet and are not significant. Based on
the information currently available, management does not expect that any sums
that may have to be paid in connection with these environmental matters would
have a material effect on the consolidated financial position or results of
operations of the Company.
LEGAL MATTERS
The Company is involved in various legal matters. In the opinion of
management, the outcome of these current matters will not have a material effect
on the consolidated financial position or results of operations of the Company.
SEVERANCE AND CONTROL AGREEMENTS
The Company maintains a severance policy applicable to certain of its
executive officers. 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 up to twenty-four months, subject to certain
conditions. The aggregate maximum commitment under the executive severance
policy should all four covered employees be terminated is up to approximately
$3,000,000.
The Company modified its existing severance policy for its executive officers
during 1996 to include change of control agreements ("Control Agreements").
Under the Control Agreements, upon a change of control, as defined, each such
officer would be entitled to receive, among other things, three times his
current annual pay, three times his highest cash bonus in the past three years,
and the payment of the value of any stock options and stock appreciation rights.
Each of the aforementioned would be adjusted for any resulting income or excise
tax liabilities to the officer. These Control Agreements are subject to
amendment or waiver by the Company's Board of Directors prior to any change in
control, as defined. Although the aggregate commitment of the Company pursuant
to the Control Agreements cannot be specifically determined until the occurrence
of such change of control event, such payments could have a material effect on
the consolidated financial position and results of operations of the Company.
The Control Agreements are designed to encourage the continuity of management in
view of the possibility of a change of control. The Control Agreements were not
entered into in response to any specific action to acquire control of the
Company, and the Company is not aware of any such action.
NOTE 6. INVENTORIES
Inventories at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995
<S> <C> <C>
FIFO cost:
Raw materials $24,648 $20,630
Work-in-progress 9,790 7,359
Finished products 19,440 16,276
53,878 44,265
Excess of FIFO over LIFO cost (1,348) (2,432)
$52,530 $41,833
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
IN THOUSANDS 1996 1995
Salaries, wages and employee benefits $19,791 $13,891
Accrued income taxes 3,173 998
Warranty related accruals 2,965 2,554
Dividends payable 2,060 1,975
Other 15,844 8,939
$43,833 $28,357
</TABLE>
NOTE 8. INCOME TAXES
Income before taxes and extraordinary item was as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
Domestic $26,190 $13,270 $11,270
Foreign 3,153 4,808 4,333
$29,343 $18,078 $15,603
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 8,938 $3,784 $1,388
State 1,460 630 280
Foreign 1,252 1,680 1,750
$11,650 $6,094 $3,418
Deferred:
Federal $ 439 $1,738 $2,393
State 136 204 305
Foreign (218) (2) (483)
357 1,940 2,215
Total $12,007 $8,034 $5,633
</TABLE>
The significant components of the provision for deferred income taxes,
resulting from differences in the timing of recognition of income and expenses
for income tax and financial reporting purposes, consist of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
Net operating loss carryforwards $ (177) $ 425 $ 67
Restructuring costs -- (326) 1,342
Depreciation (304) 47 (540)
Employee compensation and benefits 1,025 566 (407)
Additional taxes provided -- -- 490
Postretirement benefits 53 217 309
Other (240) 1,011 954
Total $ 357 $1,940 $2,215
</TABLE>
The effective income tax provision differs from the amount calculated using
the statutory United States Federal income tax rate, principally due to the
following:
<TABLE>
<CAPTION>
1996 1995 1994
PERCENTAGE Percentage Percentage
OF INCOME of income of income
BEFORE before before
IN THOUSANDS AMOUNT TAXES Amount taxes Amount taxes
<S> <C> <C> <C> <C> <C> <C>
Statutory United
States Federal income
tax $10,271 35.0% $6,147 34.0% $5,305 34.0%
State income taxes,
net of Federal income
tax effect 1,037 3.5 550 3.0 359 2.3
Amortization of
goodwill 479 1.6 332 1.8 326 2.1
Effect of foreign
subsidiaries (70) (.2) 75 0.4 (403) (2.6)
Merger costs -- -- 949 5.3 -- --
Other 290 1.0 (19) (0.1) 46 0.3
$12,007 40.9% $8,034 44.4% $5,633 36.1%
</TABLE>
The net deferred tax asset recognized in the consolidated statements of
financial position as of December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,469 $ 1,729
Postretirement benefits 3,984 3,830
Employee compensation and benefits 4,144 2,053
Other 3,383 3,441
Total deferred tax assets 12,980 11,053
Deferred tax liabilities:
Depreciation (6,975) (3,755)
Prepaid expenses and other (1,037) (2,217)
Total deferred tax liabilities (8,012) (5,972)
Net deferred tax asset $ 4,968 $ 5,081
</TABLE>
One of the Company's wholly-owned subsidiaries has available net operating
losses which expire as follows (in thousands):
<TABLE>
<S> <C>
2005 $4,095
2006 31
$4,126
</TABLE>
The application of these net operating loss carryforwards against future
taxable income is limited under the provisions of Internal Revenue Code Section
382 to $455,000 per taxable period. Management expects that the full amount of
these carryforwards will be utilized over the next ten years.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
Undistributed earnings of the Company's foreign subsidiaries are considered
to be indefinitely reinvested and, accordingly, no provision for United States
Federal and state income taxes has been provided thereon. If distribution of
those earnings in the form of dividends or otherwise were to occur, the Company
may be subject to both United States income taxes and withholding taxes payable
to the various foreign countries. Determination of the amount of unrecognized
deferred United States income tax liability is not reasonably determinable until
such distribution actually occurs because of the variability of factors
associated with the tax liability calculation, including reductions associated
with any foreign tax credits.
NOTE 9. EMPLOYEE BENEFIT PLANS
EMPLOYEE RETIREMENT PLANS
The Company has various employee retirement plans which provide pension
benefits to substantially all of its employees. Defined benefit plans provide
benefits of stated amounts based on an employee's years of service and for
certain plans, compensation for a specified period of time before retirement.
The total expense under these plans amounted to $1,767,000, $1,556,000 and
$1,686,000 in 1996, 1995 and 1994, respectively. Pension expense for the defined
benefit plans in 1996, 1995 and 1994 is comprised of the following elements:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
Current service cost $ 1,803 $ 1,576 $ 1,669
Interest on projected benefit
obligations 2,167 2,008 1,878
(Return) loss on assets (3,322) (3,151) 933
Gain due to curtailment -- -- (138)
Net amortization and deferral 1,119 1,123 (2,656)
$ 1,767 $ 1,556 $ 1,686
</TABLE>
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 consist substantially of investments in pooled
funds which are comprised primarily of equity securities, U.S. Government
securities, corporate bonds and investments in short-term investment funds.
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, 1996 and 1995:
<TABLE>
<CAPTION> 1996 1995
IN THOUSANDS ASSETS ACCUMULATED Assets Accumulated
EXCEED BENEFITS Exceed Benefits
ACCUMULATED EXCEED Accumulated Exceed
BENEFITS ASSETS Benefits Assets
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested $19,115 $ 3,839 $17,578 $ 3,216
Non-vested 1,760 817 1,138 707
Accumulated benefit
obligations 20,875 4,656 18,716 3,923
Effects of salary
progression 6,963 -- 5,879 --
Projected benefit
obligations 27,838 4,656 24,595 3,923
Plan assets at fair
value 26,599 3,276 22,649 2,889
Plan assets under
projected benefit
obligations (1,239) (1,380) (1,946) (1,034)
Unrecognized transition
(asset) liability (124) (66) 319 (76)
Unrecognized net loss 1,895 1,161 1,852 551
Unrecognized prior
service cost 599 510 669 580
Adjustment to recognize
minimum liability -- (1,605) -- (1,130)
(Accrued) prepaid
pension expense $ 1,131 $(1,380) $ 894 $(1,109)
Intangible asset $ -- $ 460 $ -- $ 498
Pre-tax reduction to
shareholders' equity $ -- $ 1,145 $ -- $ 632
</TABLE>
The assumptions used as of December 31, 1996, 1995 and 1994 in determining
pension expense and funded status information shown above are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5-8.7%
Rate of salary progression 4.2% 4.2% 4.2-5.0%
Long-term rate of return on assets 9.7% 9.7% 8.0-9.7%
</TABLE>
In addition to providing pension benefits, the Company and certain operating
subsidiaries provide savings plans for management and other 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 $831,000, $664,000 and $377,000 in the years ended December 31, 1996,
1995 and 1994, respectively, related to these savings plans.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS
The Company charges the cost of postretirement benefits other than pensions
to earnings during the active service period of its employees.
Net periodic postretirement benefit cost for 1996, 1995 and 1994 included the
following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits attributed to
service during the period $ 126 $ 80 $ 94
Interest cost on accumulated
postretirement benefit obligation 929 968 894
Net deferral and amortization 133 26 28
Net periodic postretirement benefit
cost $1,188 $1,074 $1,016
</TABLE>
The amounts recognized in the Company's consolidated balance sheet at
December 31, 1996 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $10,492 $11,326
Fully eligible active plan participants 446 442
Fully eligible 10,938 11,768
Other active plan participants 1,215 1,481
Accumulated benefit obligation 12,153 13,249
Unrecognized net loss (1,877) (3,019)
Postretirement liability recognized in
financial statements 10,276 10,230
Less: current portion (1,417) (1,768)
$ 8,859 $ 8,462
</TABLE>
The accumulated postretirement obligation was determined using a discount
rate of approximately 7.5%. An increase of approximately 9% in per capita claims
cost was assumed for 1997. The assumption provides for this rate to decline by
approximately 1% per year through 2000 and then remain constant at 5.5%
thereafter.
A 1% increase in the health care cost trend rate would increase the estimated
accumulated postretirement benefit obligation as of December 31, 1996 by
approximately $1,024,000. The impact on net periodic cost is minimal. The
Company's post-retirement benefit plans are unfunded.
NOTE 10. STOCK RELATED INFORMATION
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 ten days after a 20% position has
been acquired and under certain circumstances thereafter.
STOCK REPURCHASE
In August 1995, the Board of Directors authorized the repurchase of up to
$1,000,000 of the Company's "odd-lot" common shares on the open market; odd-lots
are defined as blocks of less than 100 shares of the Company's stock held by a
single individual, trust or institution. The program was instituted to reduce
the Company's administrative costs related to the odd-lot shares. The repurchase
of shares was accounted for under the cost method. In the fourth quarter of
1995, the Company repurchased 72,388 of its common shares at an aggregate cost
of $920,000, including expenses of the program.
WARRANTS
The Company issued detachable warrants in 1992 to a former lender of
Schwitzer. The warrants give the holder the right to purchase 480,750 shares, in
the aggregate, of the Company's common stock at an exercise price of $8.32 per
share, subject to certain conditions. The Company has the right, subject to
certain conditions, to repurchase the warrants, which expire on April 15, 2002.
The warrants were exercisable at December 31, 1996.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 11. STOCK BASED COMPENSATION PLANS
NON-EMPLOYEE DIRECTOR'S STOCK 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 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
Stockholders. A total of 25,863 shares were available for grant as of December
31, 1996.
STOCK APPRECIATION RIGHTS PLAN
In 1994, the Company adopted the 1994 Stock Appreciation Rights Plan (the
"SAR Plan"). The SAR Plan provides for discretionary grants to key employees of
cash-only stock appreciation rights in 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. All
SARs vest and are exercisable five years after the award date. Unearned
compensation, representing changes in the estimated market value of the SAR, has
been charged to income in the period incurred. A total of 1,500,000 SARs are
authorized to be granted under the SAR Plan. As of December 31, 1996, 131,000
SARs with a basis of $13.88 per SAR had been awarded and were outstanding under
the SAR Plan.
STOCK OPTION PLANS
The Company has four employee stock option plans -- 1983, 1986, 1989 and
1994, and the 1988 stock option plan for non-employee directors. The 1994 Plan
provides for the granting of up to 800,000 options to purchase common shares of
the Company. All options under the 1994 Plan are granted at prices equal to the
market value at the date of grant, fully vest six months after the date of
grant, and may be exercised up to ten years from the grant date. As of December
31, 1996, there were 210,663 options available for grant under the 1994 Plan.
The 1983, 1986, 1988 and 1989 stock option plans have been terminated except to
the extent that options remain outstanding.
The following is a summary of options outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
Weighted
Average Average
Exercise Options Exercise Remaining
Price (000's) Price Life
<S> <C> <C> <C>
$4.81-$7.20 170 $ 5.78 4.3 yrs.
$7.20-$10.80 211 8.78 4.8 yrs.
$10.80-$16.20 880 13.83 7.5 yrs.
$16.20-$17.75 260 17.20 7.1 yrs.
1,521
</TABLE>
STOCK BASED COMPENSATION
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates for awards under those plans,
consistent with the guidelines of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts listed
below:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1996 1995
<S> <C> <C>
Net income
As reported $17,336 $8,183
Pro forma $17,068 $8,038
Primary earnings per share
As reported $ 1.26 $ 0.62
Pro forma $ 1.24 $ 0.61
Fully diluted earnings per share
As reported $ 1.21 $ 0.62
Pro forma $ 1.19 $ 0.61
</TABLE>
Because the method of accounting required by SFAS No. 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
In accordance with SFAS No. 123, the Company measures compensation cost for
disclosure purposes using the Black-Scholes model with the following assumptions
for 1995 and 1996: dividend yield of 3.7%; an expected life of 4 to 6 years;
expected volatility of approximately 32%; and risk-free interest rates ranging
from approximately 5.9% to 7.5%.
The following table summarizes the transactions pursuant to the Company's
stock option plans for the three-year period ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
WEIGHTED Weighted Weighted
AVG. Avg. Avg.
SHARES EXERCISE Shares Exercise Shares Exercise
(000'S) PRICE (000's) Price (000's) Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 1,572 $12.08 1,549 $12.09 1,343 $10.51
Granted 310 14.14 382 12.21 383 16.39
Exercised (308) 9.82 (134) 7.70 (137) 8.87
Forfeited (24) 16.16 (219) 14.88 (39) 11.11
Expired (29) 16.90 (6) 12.32 (1) 7.06
Outstanding at end of year 1,521 $12.81 1,572 $12.08 1,549 $12.09
Exercisable at end of year 1,434 $13.03 1,420 $12.43 1,411 $12.55
Weighted average fair value
of options granted $ 3.97 $ 3.99
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 12. OTHER, NET
Other, net for the years ended December 31, 1996, 1995 and 1994 consisted of
the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
Non-operating postretirement
benefits $(1,065) $ (815) $ (826)
Covenant not to compete -- 624 1,250
Settlement of certain liabilities -- 1,586 --
Foreign currency translation
adjustments 193 75 (847)
Expenses of terminated merger -- -- (530)
Miscellaneous (1,215) (977) 241
$(2,087) $ 493 $ (712)
</TABLE>
NOTE 13. BUSINESS AND GEOGRAPHICAL SEGMENT INFORMATION
The Company's operations are organized into two business segments which are
defined as Electrical Products and Industrial Products. The Electrical Products
Segment manufactures and markets distribution, power and instrument transformers
for domestic electrical utilities and certain industrial users; and electrical
and electronic wire and cable products to consumer, commercial and industrial
users in North America. The Industrial Products Segment designs, produces and
markets various industrial products, including turbochargers, fan drives,
cooling fans and crankshaft vibration dampers for enhancing the efficiency of
diesel and gasoline engines used in light-, medium- and heavy-duty trucks, as
well as agricultural, construction and other industrial applications. In
addition, operations in this segment manufacture and distribute a variety of
springs and metal parts used by other manufacturers in their products or
production processes. Approximately two-thirds of the Industrial Products
Segments' sales are made to domestic customers with the balance sold throughout
the world.
Net sales represent shipments to unaffiliated customers. Operating earnings
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. Identifiable assets are those used
in the operations of each business or geographic segment. Corporate assets
consist primarily of property, plant and equipment.
The Company's operations by business segment and geographic area for the
years ended December 31, 1996, 1995 and 1994, are as follows:
FINANCIAL DATA BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
NET SALES(1)
Electrical $268,846 $243,761 $235,274
Industrial 187,619 181,623 160,843
$456,465 $425,384 $396,117
INCOME BEFORE TAXES AND
EXTRAORDINARY ITEM
Electrical $ 20,103 $ 13,639 $ 8,611
Industrial 22,386 19,541 17,096
Operating earnings(2) 42,489 33,180 25,707
Corporate (6,165) (4,156) (3,855)
Interest expense, net (6,981) (7,066) (6,969)
Merger expenses -- (4,510) --
Unallocated -- 630 720
$ 29,343 $ 18,078 $ 15,603
IDENTIFIABLE ASSETS
Electrical $182,468 $127,760 $142,190
Industrial 91,353 84,145 85,447
Corporate/unallocated 3,595 2,997 1,548
$277,416 $214,902 $229,185
CAPITAL EXPENDITURES
Electrical $ 5,134 $ 4,287 $ 6,283
Industrial 5,615 9,183 6,211
Corporate/unallocated 231 1,730 554
$ 10,980 $ 15,200 $ 13,048
DEPRECIATION AND AMORTIZATION
Electrical $ 6,643 $ 5,667 $ 5,406
Industrial 5,633 5,606 5,771
Corporate/unallocated 194 47 30
$ 12,470 $ 11,320 $ 11,207
</TABLE>
(1) IN 1996, 1995 AND 1994, SALES TO A LONG-TIME CUSTOMER OF THE COMPANY'S
INDUSTRIAL PRODUCTS SEGMENT REPRESENTED 9%, 10% AND 11%, RESPECTIVELY, OF
THE COMPANY'S NET SALES. NO OTHER CUSTOMER REPRESENTS MORE THAN 5% OF THE
COMPANY'S NET SALES.
(2) OPERATING EARNINGS IS DEFINED AS OPERATING PROFIT PLUS OTHER, NET DIRECTLY
ATTRIBUTABLE TO EACH SEGMENT.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
FINANCIAL DATA BY GEOGRAPHIC SEGMENT
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
NET SALES
United States $397,393 $363,050 $347,173
Europe 50,757 50,632 38,630
Other 8,315 11,702 10,314
$456,465 $425,384 $396,117
INCOME BEFORE TAXES AND
EXTRAORDINARY ITEM
United States $ 39,077 $ 28,256 $ 20,854
Europe 3,045 4,601 3,304
Other 367 323 1,549
Operating earnings 42,489 33,180 25,707
Corporate (6,165) (4,156) (3,855)
Interest expense, net (6,981) (7,066) (6,969)
Merger expenses -- (4,510) --
Unallocated -- 630 720
$ 29,343 $ 18,078 $ 15,603
IDENTIFIABLE ASSETS
United States $236,441 $178,702 $194,933
Europe 30,544 26,308 23,925
Other 6,836 6,895 8,779
Corporate 3,595 2,997 1,548
$277,416 $214,902 $229,185
</TABLE>
NOTE 14. FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
The Company has only limited involvement with derivative financial
instruments and does not use them for speculation or trading purposes. The
Company hedges the effects of fluctuations in commodity prices, principally
copper, through commodity futures contracts, currency fluctuations for certain
international transactions and interest rates through interest rate swap
agreements.
At December 31, 1996 and 1995, the Company had $26,000 and $1,328,000,
respectively, of commodity hedging futures contracts outstanding, substantially
all of which were for copper. The hedging contracts have maturities that do not
exceed four months.
At December 31, 1996, the Company had $750,000 of currency hedging futures
contracts outstanding for the British Pound. The hedging contracts have
maturities that do not exceed four months.
As of December 31, 1996, the Company had entered into four interest rate swap
agreements to reduce the risk of movements in
interest rates on a portion of its variable rate debt. The terms of the
agreements, which have a combined notional principal amount of $75,000,000 allow
the Company to receive or make payments on the difference between the stated
LIBOR rate and current market rates. The LIBOR rates are fixed and range from
5.40% to 6.35%. The agreements commenced on various dates starting on June 30,
1995 and mature on various dates, the latest of which is July, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash and cash equivalents, trade receivables and trade
payables are considered to be representative of their respective fair values
because of the immediate or short-term maturity of these financial instruments.
The fair value of the Company's debt instruments approximated the book value
because a substantial portion of the underlying instruments are variable rate
notes which re-price frequently.
The fair value of the Company's futures contracts are estimated based on
current settlement values. The fair value of the interest rate swaps are based
on valuations from a financial institution. The fair value of the futures and
swap agreements approximate the unrealized gain or loss on these instruments.
Realized gains or losses during 1996 and unrealized gains or losses at December
31, 1996 on the commodity and currency futures contracts and interest rate swaps
were minimal.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade accounts receivable.
The risk is limited due to the large number of entities comprising the Company's
customer base and their dispersion across many different industries and
geographies. At December 31, 1996, the Company had no significant concentrations
of credit risk.
GUARANTEES
The Company has guaranteed the payment obligations for certain leases and
certain payment commitments of its subsidiaries. These guarantees amounted to
$1,600,000 at December 31, 1996. The Company is of the opinion that its
subsidiaries 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, 1996, the Company had letters of credit and surety bonds
outstanding totaling $3,350,000 which guarantee certain of the Company's
activities, primarily 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.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and net cash payments for income taxes are as
follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1996 1995 1994
<S> <C> <C> <C>
Interest $6,419 $6,743 $7,642
Income taxes, net of refunds $9,758 $1,726 $3,600
</TABLE>
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING ACTIVITIES
In 1994, the Company issued 28,169 shares of its common stock to an executive
in a non-cash transaction. The shares vested over a one-year period. 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 and the
balance in 1995.
In 1996, 1995, and 1994, the Company issued 10,736, 16,000 and 10,816 shares
of its common stock, respectively, under the 1993 Non-Employee Director's Stock
Plan in non-cash transactions. The fair market value of the stock at the time of
issuance was approximately $192,000 in each year, and this amount was amortized
to expense over the one-year term of the grants.
See Note 3, "Acquisitions and Divestiture" for additional supplemental
information on non-cash investing and financing activities.
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's quarterly results are summarized below for the years ended
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA
QUARTER
1996 FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
NET SALES $103,457 $112,200 $119,198 $121,610 $456,465
GROSS PROFIT 21,464 23,724 27,264 28,483 100,935
OPERATING PROFIT 7,742 8,502 11,241 10,926 38,411
NET INCOME 3,418 3,732 5,129 5,057 17,336
EARNINGS PER SHARE:
NET INCOME -- PRIMARY 0.26 0.27 0.37 0.36 1.26
NET INCOME -- FULLY
DILUTIVE 0.25 0.27 0.37 0.35 1.21
</TABLE>
<TABLE>
<CAPTION>
Quarter
1995 First Second(1) Third Fourth Total
<S> <C> <C> <C> <C> <C>
Net sales $106,926 $ 102,814 $108,561 $107,083 $425,384
Gross profit 20,713 19,391 22,061 21,942 84,107
Operating profit 7,191 6,000 7,911 8,059 29,161
Income before extraordinary
item 3,548 (725) 3,393 3,828 10,044
Extraordinary item, net -- (1,861) -- -- (1,861)
Net income 3,548 (2,586) 3,393 3,828 8,183
Earnings per share (primary
and fully dilutive):
Income before
extraordinary item 0.27 (0.06) 0.26 0.29 0.76
Extraordinary item, net -- (0.14) -- -- (0.14)
Net income 0.27 (0.20) 0.26 0.29 0.62
</TABLE>
(1) NET INCOME FOR THE SECOND QUARTER AND FULL YEAR OF 1995 INCLUDES
APPROXIMATELY $5,600 OR $0.43 PER SHARE FOR MERGER EXPENSES.
NOTE 17. SUBSEQUENT EVENT
On March 10, 1997, the Company purchased certain assets of the Transportation
Products Group ("TPG") of Kysor Industrial Corporation, a Michigan corporation
traded on the New York Stock Exchange. The purchase price for TPG was
$86,000,000 in cash plus the assumption of certain liabilities. The purchase of
TPG was financed from borrowings under the Company's 364-day credit facility.
Net sales of TPG for its fiscal year ended December 31, 1996 were approximately
$137,700,000.
40
Common Stock Price Ranges
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995
Quarters High Low Close Dividend High Low Close Dividend(a)
1st 15 5/8 11 7/8 15 $0.15 13 1/2 10 3/4 11 5/8 $0.15
2nd 18 1/2 15 1/8 17 3/8 0.15 12 3/8 10 3/8 11 1/4 0.15
3rd 17 1/2 13 3/4 14 5/8 0.15 13 10 7/8 12 1/8 0.15
4th 19 3/8 14 1/8 19 3/8 0.15 13 3/8 10 7/8 12 1/2 0.15
</TABLE>
(a) Dividends per share not restated to reflect the merger with Schwitzer.
The Common Stock of Kuhlman (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, 1996, there were 13,730,976
shares of Common Stock outstanding and 6,024 shareholders of record. It is
estimated that there are approximately 16,500 shareholders in total, including
those holding stock in "nominee" or "street" name.
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.
42
<PAGE>
EXHIBIT 21.0
SUBSIDIARIES OF KUHLMAN CORPORATION
Jurisdiction
of
Name Incorporation
Kuhlman Electric Corporation Delaware
Coleman Cable Systems, Inc. Delaware
Communication Cable, Inc. North Carolina
Schwitzer, Inc. Delaware
<PAGE>
EXHIBIT 23.0
Consent Of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report dated February 3, 1997 (except with respect to the matter discussed in
Note 17 to the consolidated financial statements as to which the date is March
10, 1997) on the consolidated financial statements of Kuhlman Corporation as of
December 31, 1996, included in the Company's 1996 Annual Report to Shareholders
incorporated by reference in this Form 10-K and of our report dated February 3,
1997 (except with respect to the matter discussed in Note 17 to the consolidated
financial statements as to which the date is March 10, 1997) 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, 33-58133, 33-61255
and 333-12687.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
March 26, 1997
<PAGE>
EXHIBIT 24.0
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 the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1996, 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 Company, 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 18th day of February, 1997.
<TABLE>
<S> <C>
/s/ Robert S. Jepson, Jr. /s/ Gary G. Dillon
Robert S. Jepson, Jr., Chairman of the Gary G. Dillon, Director
Board and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ Alexander W. Dreyfoos, Jr.
Alexander W. Dreyfoos, Jr., Director
/s/ Vernon J. Nagel
Vernon J. Nagel, Executive Vice President
of Finance, Chief Financial Officer /s/ William M. Kearns, Jr.
and Treasurer (Principal Financial William M. Kearns, Jr., Director
and Accounting Officer)
/s/ Curtis G. Anderson /s/ George J. Michel, Jr.
Curtis G. Anderson, President, Chief George J. Michel, Jr., Director
Operating Officer and Director
/s/ General H. Norman Schwarzkopf
/s/ William E. Burch General H. Norman Schwarzkopf, Director
William E. Burch, Director
/s/ Steve Cenko
Steve Cenko, Director
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE KUHLMAN
1996 CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME (LOSS) AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,209
<SECURITIES> 0
<RECEIVABLES> 72,423
<ALLOWANCES> 2,344
<INVENTORY> 52,530
<CURRENT-ASSETS> 136,130
<PP&E> 167,693
<DEPRECIATION> 89,829
<TOTAL-ASSETS> 277,416
<CURRENT-LIABILITIES> 81,538
<BONDS> 92,302
0
0
<COMMON> 13,803
<OTHER-SE> 77,771
<TOTAL-LIABILITY-AND-EQUITY> 277,416
<SALES> 456,465
<TOTAL-REVENUES> 456,465
<CGS> 355,530
<TOTAL-COSTS> 355,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 685
<INTEREST-EXPENSE> 7,378
<INCOME-PRETAX> 29,343
<INCOME-TAX> 12,007
<INCOME-CONTINUING> 17,336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,336
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.21
</TABLE>
