THIS REPORT HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION VIA EDGAR
- ----------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-7695
KUHLMAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-2058047
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Skidaway Village Square
Savannah, Georgia 31411
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code -- (912) 598-7809
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 27, 1998
----- -----------------------------
Common Stock, $1.00 Par Value 16,752,817
- ------------------------------------------------------------------------------
<PAGE>
ITEM 1.
KUHLMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
--------- ---------
(Unaudited)
(In thousands, except per share data)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . $ 184,102 $ 134,148
Cost of goods sold . . . . . . . . . . . . . . . . 142,015 104,406
--------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . 42,087 29,742
--------- ---------
Operating expenses:
Selling, engineering, general and
administrative expenses . . . . . . . . . . . 24,460 17,933
Intangible amortization . . . . . . . . . . . . . 905 558
--------- ---------
Total operating expenses . . . . . . . . . . 25,365 18,491
--------- ---------
Operating profit . . . . . . . . . . . . . . . . . 16,722 11,251
--------- ---------
Other income(expense):
Interest expense, net. . . . . . . . . . . . . . (1,850) (1,938)
Other, net . . . . . . . . . . . . . . . . . . . (381) (315)
--------- ---------
Total other income(expense), net . . . . . . . . (2,231) (2,253)
--------- ---------
Income before taxes . . . . . . . . . . . . . . . . 14,491 8,998
Taxes on income . . . . . . . . . . . . . . . . . . 5,674 3,716
--------- ---------
Net income . . . . . . . . . . . . . . . . . . . . $ 8,817 $ 5,282
========= =========
Per share amounts:
Net income - basic . . . . . . . . . . . . . . . $ 0.53 $ 0.38
========= =========
Net income - diluted . . . . . . . . . . . . . . $ 0.51 $ 0.36
========= =========
Average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . 16,567 13,746
========= =========
Diluted . . . . . . . . . . . . . . . . . . . . . 17,419 14,479
========= =========
</TABLE>
The Notes To Consolidated Financial Statements
should be read in conjunction with these statements.
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 8,210 $ 6,529
Accounts receivable, less reserves of $3,637
and $3,726 at March 31, 1998 and December
31, 1997, respectively 108,369 104,190
Inventories . . . . . . . . . . . . . . . . . 74,155 71,282
Deferred income taxes. . . . . . . . . . . . . 14,363 13,540
Prepaid expenses and other current assets. . . 4,560 4,726
--------- ---------
Total current assets . . . . . . . . . . . . . 209,657 200,267
--------- ---------
Plant and equipment, at cost:
Land, buildings and leasehold improvements . . 53,530 51,874
Machinery and equipment . . . . . . . . . . . 172,372 173,300
Construction in progress . . . . . . . . . . . 7,686 5,720
--------- ---------
233,588 230,894
Less - accumulated depreciation . . . . . . . (108,800) (105,368)
--------- ---------
124,788 125,526
--------- ---------
Intangible assets, net of amortization of $8,350
and $7,445 at March 31, 1998 and December 31,
1997, respectively 122,712 123,616
--------- ---------
Other assets . . . . . . . . . . . . . . . . . . . 11,744 11,909
--------- ---------
$ 468,901 $ 461,318
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . $ 2,153 $ 1,475
Accounts payable . . . . . . . . . . . . . . . 57,761 50,913
Accrued liabilities . . . . . . . . . . . . . 82,633 87,814
--------- ---------
Total current liabilities . . . . . . . . . . 142,547 140,202
--------- ---------
Long-term debt . . . . . . . . . . . . . . . . . . 112,519 116,257
--------- ---------
Accrued postretirement benefits . . . . . . . . . 19,844 19,573
--------- ---------
Other long-term liabilities. . . . . . . . . . . . 11,509 10,833
--------- ---------
Total liabilities . . . . . . . . . . . . . . 286,419 286,865
--------- ---------
Shareholders' equity:
Preferred stock, par value $1.00, authorized
2,000 shares, none issued; Junior
participating preferred stock, series A,
no par value, authorized 200 shares, none
issued . . . . . . . . . . . . . . . . . . . . --- ---
Common stock, par value $1.00, authorized
20,000 shares, issued 16,690 shares at
March 31, 1998 and 16,601 at December 31,
1997, respectively . . . . . . . . . . . . . . 16,690 16,601
Additional paid-in capital . . . . . . . . . . . 105,348 103,543
Retained earnings . . . . . . . . . . . . . . . 64,103 57,777
Accumulated other comprehensive income . . . . . (2,739) (2,548)
--------- ---------
183,402 175,373
Less - treasury shares at cost (72 shares at
March 31, 1998 and December 31, 1997). . . . . (920) (920)
--------- ---------
Total shareholders' equity . . . . . . . . . . 182,482 174,453
--------- ---------
$ 468,901 $ 461,318
========= =========
</TABLE>
The Notes to Consolidated Financial Statements
should be read in conjunction with these statements.
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
--------- ---------
(Unaudited)
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . $ 8,817 $ 5,282
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . 6,321 3,988
Deferred income taxes, net . . . . . . . . . . (3) (539)
Provision for losses on accounts receivable . . 121 121
Non-cash charges and other, net . . . . . . . . 1,509 55
Changes in operating assets and liabilities: (1)
Accounts receivable . . . . . . . . . . . . . . (4,568) (4,216)
Inventories . . . . . . . . . . . . . . . . . . (2,853) (3,077)
Prepaid expenses and other current assets . . . 170 56
Accounts payable . . . . . . . . . . . . . . . 6,923 4,009
Accrued liabilities . . . . . . . . . . . . . . (5,036) 3,449
--------- ---------
Net cash provided by operating activities . . 11,401 9,128
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . (5,198) (2,606)
Acquisitions, net of cash acquired . . . . . . -- (85,375)
Proceeds from the sale of assets . . . . . . . 402 52
--------- ---------
Net cash used by investing activities . . . . (4,796) (87,929)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving loan facility . . . . . (2,808) (4,319)
Proceeds from issuance of long-term debt . . . 51 90,000
Repayments of long-term debt . . . . . . . . . (322) (754)
Dividends paid . . . . . . . . . . . . . . . . (2,479) (2,060)
Stock options exercised and other . . . . . . . 736 443
--------- ---------
Net cash provided (used for) by financing
activities . . . . . . . . . . . . . . (4,822) 83,310
--------- ---------
Effect of exchange rate changes on cash . . . . . (102) 63
--------- ---------
Net increase in cash and cash equivalents . . . . 1,681 4,572
Cash and cash equivalents at beginning of period . 6,529 2,209
--------- ---------
Cash and cash equivalents at end of period . . $ 8,210 $ 6,781
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . $ 2,636 $ 2,076
========= =========
Income taxes, net of refunds . . . . . . . . . $ 1,905 $ 581
========= =========
</TABLE>
(1)Net of the effects of acquisitions, where applicable.
The Notes To Consolidated Financial Statements
should be read in conjunction with these statements.
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For The Three Months Ended March 31, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
--------------------
Foreign
Additional Currency Minimum Compre-
Common Paid-in Retained Translation Pension Treasury hensive
Stock Capital Earnings Adjustment Liability Stock Total Income
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December
31, 1997.... $16,601 $103,543 $57,777 $(1,364) $(1,184) $(920) $174,453
------- -------- ------- ------- ------- ----- --------
Net income... --- --- 8,817 --- --- --- 8,817 $8,817
Cash
dividends
declared
($0.15
per share).. --- --- (2,491) --- --- --- (2,491)
Foreign
currency
translation
adjustment.. --- --- --- (191) --- --- (191) (191)
Issuance of
common
stock....... 44 1,114 --- --- --- --- 1,158
Stock
options
exercised
and other... 45 691 --- --- --- --- 736
------- -------- ------- ------- ------- ----- -------- ------
Balance at
March 31,
1997........ $16,690 $105,348 $64,103 $(1,555) $(1,184) $(920) $182,482
======= ======== ======= ======= ======= ===== ========
Total Comprehensive Income for the
three months ended March 31, 1998 $8,626
======
</TABLE>
The Notes To Consolidated Financial Statements
should be read in conjunction with these statements.
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1998
(Unaudited)
1. Consolidated Financial Statements
The consolidated balance sheet at March 31, 1998 and the related
consolidated statements of income, cash flows and shareholders' equity for the
three months ended March 31, 1998 and 1997, have been prepared by Kuhlman
Corporation (the "Company") without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position of the Company at March 31, 1998 and the
results of operations, cash flows and shareholders' equity for three months
ended March 31, 1998 and 1997, have been made. Certain amounts in the 1997
consolidated financial statements have been reclassified to conform with the
1998 presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted from the accompanying financial statements.
These consolidated financial statements, including the notes thereto, should
be read in conjunction with the Company's audited consolidated financial
statements as of and for the three years in the period ended December 31, 1997
included in the Company's annual report on Form 10-K.
The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the full year
1998.
2. Acquisitions
Kysor Transportation Products Group
On March 10, 1997, the Company purchased certain assets of the
Transportation Products Group ("Kysor") of Kysor Industrial Corporation, a
Michigan Corporation traded on the New York Stock Exchange. The purchase
price for Kysor was $86,000,000 in cash plus the assumption of approximately
$722,000 of debt. The purchase of Kysor was financed from borrowings under
the Company's existing credit facilities.
The transaction was accounted for as a purchase, and the goodwill
associated with the transaction is being amortized over 40 years. The purchase
price has been allocated to the assets based on their estimated fair market
value. The excess of the purchase price over the fair value of assets was
approximately $52,909,000. The results of operations for Kysor are included
in the consolidated financial statements of the Company from the date of
acquisition.
The following unaudited pro forma information for the periods shown
below gives effect to the Kysor acquisition as if it had occurred as of the
beginning of the period.
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1997
----------------
<S> <C>
In thousands, except per share data
Net sales $ 160,957
Net income $ 6,107
Diluted per share amounts:
Net income $ 0.42
</TABLE>
The unaudited pro forma information assumes the acquisition of the net
assets at the beginning of the period 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 been consummated at the beginning of the period presented.
Snyder Tank Corporation
On November 14, 1997, a subsidiary of the Company acquired all of the
outstanding stock of Snyder Tank Corp. ("Snyder Tank") for approximately
$20,000,000 in cash plus the assumption of approximately $1,200,000 of debt.
Snyder Tank is a manufacturer of steel and aluminum fuel and air tanks for
medium and heavy-duty trucks, and metal tanks for liquified natural gas fuel
systems. Net sales of Snyder Tank for their fiscal year ended August 31, 1997
were approximately $45,700,000. The impact on operations of this acquisition
was not significant for any of the periods presented and, therefore, pro forma
amounts are not presented giving effect to the transaction.
3. Earnings and Dividends Per Share
Basic earnings per share are computed by dividing net income by the
weighted average shares outstanding for the period. Diluted earnings per
share includes the dilutive effects of common stock equivalents in the
weighted average shares outstanding. Dilutive shares used in the per share
calculation for the three months ended March 31, 1998 and 1997 included
approximately 852,000 and 733,000 shares, respectively, resulting from the
dilutive effects of common stock equivalents.
A cash dividend of $0.15 per share was declared during each of the first
quarters of 1998 and 1997.
4. Inventories
Inventories consisted of the following, in thousands:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
FIFO cost:
Raw materials $ 31,475 $ 32,904
Work-in-process 18,999 17,270
Finished goods 23,739 21,662
--------- ---------
Total 74,213 71,836
Excess of FIFO
over LIFO cost (58) (554)
--------- ---------
Net inventories $ 74,155 $ 71,282
========= =========
</TABLE>
5. Long-Term Incentive Plan
On October 21, 1997 and March 6, 1998 under awards granted pursuant to
the Company's Long-Term Incentive Plan, the Company achieved the $36 and $42
thresholds, respectively. The total pre-tax cost of such awards are expected
to be approximately $8,900,000, the majority of which will be expensed in 1998.
The awards consist of two-thirds Kuhlman stock and one-third cash with the
value of award varying by participant. The payout to the eligible participants
pursuant to such awards will be made in four quarterly installments subject to
certain vesting requirements and other factors. The related compensation
expense will be recorded as the awards vest over the defined service period.
In February 1998, the Board of Directors approved additional award
levels whereby certain key employees would receive a payout if certain
stock price targets are achieved within a specified period, and certain
other requirements are met. The stock price thresholds approved were
$48 and $56 per share. Pursuant to such awards, the total pre-tax cost of
such awards would be approximately $8,800,000, with approximately $4,400,000
to be paid after the attainment of each of the price thresholds. The awards
would be paid to the eligible participants in the same manner and subject
to the same requirements as previous awards under the Long-Term
Incentive Plan.
6. Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130"). This statement establishes standards for reporting and displaying of
comprehensive income and its components in the financial statements. The
requirements of SFAS No. 130 are incorporated in the Company's Consolidated
Balance Sheets and Statements of Shareholders' Equity.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $11,401,000 in cash flow from operations in the
first quarter of 1998 compared to $9,128,000 for the same period in 1997, an
increase of $2,273,000 (25%). The increase was due primarily to the record
earnings reported in the first quarter of 1998, partially offset by higher
working capital requirements. Working capital (net of cash) was $58,900,000
at March 31, 1998 compared to $53,536,000 at December 31, 1997, an increase of
$5,364,000 (10%). The increase in working capital was due primarily to
additional working capital assets required to support the Company's record
volume and the payment of certain accrued liabilities. Cash and cash
equivalents increased to $8,210,000 at March 31, 1998 from $6,529,000 at
December 31, 1997 due to the timing of certain payments. Accounts receivable,
net was $108,369,000 at March 31, 1998 compared to $104,190,000 at December
31, 1997, an increase of $4,179,000 (4%). The increase was due primarily to
the Company's record sales volume in the first quarter of 1998. Similarly,
inventories increased $2,873,000 (4%) to $74,155,000 at March 31, 1998 from
December 31, 1997 primarily to support higher anticipated sales activity.
Deferred taxes and prepaid expenses and other current assets increased
$657,000 (4%) to $18,923,000 at March 31, 1998 from the end of 1997 primarily
because of adjustments for certain tax attributes associated with the
acquisition of Kysor. Accounts payable and accrued liabilities were
$140,394,000 at March 31, 1998 compared to $138,727,000 at December 31, 1997,
an increase of $1,667,000 (1%). The increase was because of higher accounts
payable to vendors caused by the greater level of inventories, partially
offset by lower accrued expenses due to the payment of certain items accrued
throughout 1997 and paid in the first quarter of 1998.
Total debt outstanding at March 31, 1998 was $114,672,000, down
$3,060,000 (3%) from the end of 1997. The decrease was due to the repayment
of revolving bank debt from the excess cash flow generated by the Company in
the first quarter of 1998. At March 31, 1998, shareholders' equity was
$182,482,000, an increase of $8,029,000 (5%) from the end of 1997. The
increase was primarily due to the record earnings in the first quarter of
1998, partially offset by the payment of dividends. Total dividends paid in
each of the first quarters of 1998 and 1997 were $0.15 per share, or
$2,479,000 and $2,060,000, respectively. Total debt to capitalization fell to
38.6% at March 31, 1998 from 40.3% at the end of 1997 due to the reduction in
debt and the increase in equity.
Capital expenditures for the first three months of 1998 were $5,198,000
compared to $2,606,000 reported in the same period last year. Expenditures in
the first quarter of 1998 were primarily for normal replacements and additions
to machinery and equipment.
Management believes that the Company's liquidity, forecasted cash flows,
available borrowing capacity and other financial resources are adequate to
support the anticipated operations, to finance future capital expenditures as
previously planned and to service all existing debt requirements.
RESULTS OF OPERATIONS
The following table summarizes net sales and operating earnings by
segment, in thousands:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
Net sales:
Electrical $ 70,843 $ 72,483
Industrial 113,259 61,665
--------- ---------
$ 184,102 $ 134,148
========= =========
Income before taxes:
Electrical $ 5,716 $ 4,170
Industrial 14,711 8,843
--------- ---------
Operating earnings(1) 20,427 13,013
Corporate (4,086) (2,077)
Interest expense, net (1,850) (1,938)
--------- ---------
$ 14,491 $ 8,998
========= =========
</TABLE>
(1) Operating earnings is defined as operating profit plus other, net
directly attributable to each segment.
Three Months Ended March 31, 1998 and 1997
Consolidated Results
The Company reported record quarterly results in the first quarter of
1998 in several key financial areas, including net sales, operating profit,
net income and earnings per share. Net income and earnings per share advanced
67% and 42%, respectively, in the first quarter of 1998 when compared to the
same period in 1997. These increases were attributable to the positive
operating performance reported in each of the Company's two segments and the
beneficial impact of acquisitions completed in 1997.
Net sales in the first quarter of 1998 were a record high of
$184,102,000 compared to $134,148,000 reported in the same period in 1997, an
increase of $49,954,000 (37%). The increase in net sales was due primarily to
robust demand in the Industrial Products Segment and to the full period impact
in 1998 of the Kysor and Snyder Tank acquisitions.
Operating profit for the first quarter of 1998 reached a record high of
$16,722,000 compared to $11,251,000 reported for the same period in 1997, an
increase of $5,471,000 (49%). Consolidated operating profit margins in the
first quarter of 1998 advanced to 9.1% of net sales from 8.4% reported in the
year-ago period. The increase in consolidated operating profit and operating
profit margins were due to the record sales volume and improved gross profit
margins for certain products. Gross profit margins in the first quarter of
1998 advanced to 22.9% from 22.2% reported in the year-ago period. Overall,
operating expenses increased $6,874,000 (37%) to $25,365,000, or 13.8% of net
sales, in the first quarter of 1998 compared to $18,491,000, or 13.8% of net
sales reported in the year-ago period. The increase in operating expenses was
due primarily to the higher sales noted above, greater corporate expenses due
to the $1,755,000 pre-tax charge for the Company's Long-Term Incentive Plan
("LTIP") and the acquisitions noted above. Operating expenses, excluding the
LTIP, in the first quarter of 1998 were 12.8% of net sales compared to 13.8%
reported in the year-ago period.
Interest expense, net was $1,850,000 in the first quarter of 1998
compared to $1,938,000 for the same period in 1997, a decrease of $88,000
(5%). The decrease was due to lower levels of debt outstanding throughout the
1998 period compared to the first quarter of 1997. Other, net was an expense
of $381,000 in the first quarter of 1998 compared to a $315,000 expense
reported in the same period in 1997, an increase of $66,000 (21%). The
increase was due to higher miscellaneous, non-operating expenses, none of
which were significant, in the first quarter of 1998 compared to the year-ago
period.
Net income for the first quarter of 1998 was a record $8,817,000
compared to $5,282,000 reported in the same period in 1997, an increase of
$3,535,000 (67%). Earnings per share (diluted) in the first quarter of 1998
were $0.51 compared to $0.36 for the first quarter of 1997, an increase of
42%. The increase in earnings per share was due to the higher net income
noted above, partially offset by more shares outstanding throughout the
period. The increase in the number of shares outstanding for the earnings per
share calculation was due to higher common stock equivalents as a result of an
increase in the Company's stock price and the impact of additional common
stock issued primarily in June 1997. The Company's effective tax rate for the
first quarter of 1998 and 1997 was 39.2% and 41.3%, respectively. The
difference in rates was due primarily to the impact of higher pre-tax earnings
which lessened the impact of non-deductible goodwill and a change in the
source of earnings between various taxing authorities.
The Company's consolidated backlog was $159,835,000 at March 31, 1998
compared to $170,970,000 and $153,782,000 at December 31, 1997 and March 31,
1997, respectively. The decline in the backlog from the end of 1997 was due
primarily to lower orders for certain electrical products, including medium
power transformers, while the increase from the prior year was due to the
addition of Snyder Tank, partially offset by the beneficial impact of improved
delivery times.
Electrical Products Segment
In the Electrical Products Segment, net sales in the first quarter of
1998 were $70,843,000 compared to $72,483,000 compared to the year-ago period,
a decrease of $1,640,000 (2%). The decrease was due primarily to lower
shipments of security wire because of increased competition and lower sales of
battery booster cables caused by the mild winter experienced in much of the
United States. This was partially offset by higher shipments of certain
electrical and electronic wire products due to improved market penetration and
record sales of medium power transformers.
Operating earnings in the Electrical Products Segment increased
$1,546,000 (37%) to $5,716,000 in the first quarter of 1998 over the same
period in 1997. The increase was due to strong gains in both transformers and
wire and cable products. Kuhlman Electric reported the highest operating
earnings in its history as net sales advanced over the year-ago period on
higher operating margins. Operating earnings at Coleman Cable advanced 41% in
the first quarter of 1998 compared to that reported in the first quarter of
1997. The increase was due primarily to improved gross profit margins
resulting from a better sales mix and greater manufacturing efficiencies due
to programs implemented in 1997.
Industrial Products Segment
Net sales for the Industrial Products Segment in the first quarter of
1998 were a record $113,259,000 compared to $61,665,000 reported in the same
period in 1997, an increase of $51,594,000 (84%). The increase was due
primarily to record sales of engine components and fuel tanks and the full
period impact of the acquisitions of Kysor and Snyder Tank, which occurred in
March and November 1997, respectively. The record level of sales in the
quarter were due primarily to continued robust demand domestically for
turbochargers, fuel tanks and other engine components from original equipment
manufacturers.
Operating earnings in the Industrial Products Segment improved
$5,868,000 (66%) to a record $14,711,000 in the first quarter of 1998 when
compared to the same period in 1997. The increase was due primarily to the
record shipments of engine component products and fuel tanks, improved
operating efficiencies, and the acquisitions noted above.
OTHER MATTERS
Kuhlman is currently working to resolve the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 issue is the result of
computer programs being written using two digits, rather than four, to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Based on
preliminary information, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's
financial position, results of operations, cash flows, liquidity or capital
resources in future periods. However, if the Company, its customers or
vendors are unable to resolve such processing issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant year 2000 issues in
a timely manner. While the Company does not expect expenditures associated
with year 2000 compliance to be material, necessary cash outlays will be
funded through the Company's operating cash flow.
OUTLOOK FOR 1998
Management believes that the results in the first quarter support its
view that the Company is positioned to prosper in 1998. However, management's
optimism about the future continues to be tempered somewhat by matters
including, but not limited to the potential impact of fluctuating raw material
costs, an uncertain economic environment in certain key markets and the
potential for rising interest rates. Management will continue to focus on
these variables very carefully.
SAFE HARBOR STATEMENT
The statements contained under the caption "Outlook For 1998" and
certain other information contained in this report, which can be identified by
the use of forward-looking terminology such as "believes," 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 Exhibits
(a) Exhibits
10.1 Amended Kuhlman Corporation Long-Term Incentive Plan.
27.0 Financial Data Schedule for the three month period
ended March 31, 1998.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Kuhlman Corporation
---------------------------------
(Registrant)
/s/ Robert S. Jepson, Jr.
---------------------------------
Robert S. Jepson, Jr.
Chairman and Chief Executive Officer
/s/ Vernon J. Nagel
---------------------------------
Vernon J. Nagel
Executive Vice President of Finance,
Chief Financial Officer and Treasurer
Date: May 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE KUHLMAN MARCH 1998 CONSOLIDATED BALANCE SHEET AND THE STATEMENT OF
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 8,210
<SECURITIES> 0
<RECEIVABLES> 112,006
<ALLOWANCES> 3,637
<INVENTORY> 74,155
<CURRENT-ASSETS> 209,657
<PP&E> 233,588
<DEPRECIATION> 108,800
<TOTAL-ASSETS> 468,901
<CURRENT-LIABILITIES> 142,547
<BONDS> 112,519
<COMMON> 16,690
0
0
<OTHER-SE> 165,792
<TOTAL-LIABILITY-AND-EQUITY> 468,901
<SALES> 184,102
<TOTAL-REVENUES> 184,102
<CGS> 142,015
<TOTAL-COSTS> 142,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 121
<INTEREST-EXPENSE> 2,003
<INCOME-PRETAX> 14,491
<INCOME-TAX> 5,674
<INCOME-CONTINUING> 8,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,817
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.51
</TABLE>
ANNEX I
Kuhlman Corporation
Long-Term Incentive Plan
Effective August 8, 1996, and As Amended January 1, 1998
<PAGE>
Contents Page
- -------- ----
Article 1.Establishment, Objectives, and Duration . . . . . . 1
Article 2.Definitions . . . . . . . . . . . . . . . . . . . . 1
Article 3.Administration. . . . . . . . . . . . . . . . . . . 5
Article 4.Shares Subject to the Plan and Maximum Awards . . . 5
Article 5.Eligibility and Participation . . . . . . . . . . . 6
Article 6.Employee Stock Options. . . . . . . . . . . . . . . 7
Article 7.Nonemployee Director Stock Options. . . . . . . . . 8
Article 8.Stock Appreciation Rights . . . . . . . . . . . . . 10
Article 9.Restricted Stock. . . . . . . . . . . . . . . . . . 11
Article 10.Performance Units and Performance Shares . . . . . 12
Article 11.Performance Measures . . . . . . . . . . . . . . . 14
Article 12.Beneficiary Designation. . . . . . . . . . . . . . 14
Article 13.Deferrals. . . . . . . . . . . . . . . . . . . . . 14
Article 14.Rights of Employees. . . . . . . . . . . . . . . . 15
Article 15.Change in Control. . . . . . . . . . . . . . . . . 15
Article 16.Amendment, Modification, and Termination . . . . . 15
Article 17.Withholding. . . . . . . . . . . . . . . . . . . . 16
Article 18.Indemnification. . . . . . . . . . . . . . . . . . 17
Article 19.Successors and Assigns . . . . . . . . . . . . . . 17
Article 20.Legal Construction . . . . . . . . . . . . . . . . 17
i
<PAGE>
Kuhlman Corporation Long-Term Incentive Plan
Article 1.Establishment, Objectives, and Duration
1.1.Establishment of the Plan. Kuhlman Corporation, a
Delaware corporation (hereinafter referred to as the Company ),
hereby establishes, subject to approval by the Company's
stockholders at the Company's 1997 annual meeting of stockholders,
an incentive compensation plan to be known as the Kuhlman
Corporation Long-Term Incentive Plan (hereinafter referred to as
the Plan ), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, Stock Appreciation Rights, Restricted
Stock, Performance Shares and Performance Units.
The Plan shall become effective as of August 8, 1996 (the
Effective Date ), as amended January 1, 1998, which amendment is
effective as of August 8, 1996, and shall remain in effect as
provided in Section 1.3 hereof.
1.2.Objectives of the Plan. The objectives of the Plan are
to optimize the profitability and growth of the Company through
incentives which are consistent with the Company's goals and which
link the personal interests of Participants to those of the
Company's stockholders; to provide Participants with an incentive
for excellence in individual performance; and to promote teamwork
among Participants. The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract, and
retain the services of Participants who make significant
contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3.Duration of the Plan. The Plan shall commence on the
Effective Date, as described in Section 1.1 hereof, and shall
remain in effect, subject to the right of the Board of Directors to
amend or terminate the Plan at any time pursuant to Article 15
hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after August 7, 2006.
Article 2.Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below, and when the meaning is intended, the
initial letter of the word shall be capitalized:
2.1.Affiliate means any person who is, at the Effective Date,
controlling or controlled by, or under common control with, the
Company.
<PAGE>
2.2.Award means, individually or collectively, a grant under
this Plan of Nonqualified Stock Options, Incentive Stock Options,
Stock Appreciation Rights, Restricted Stock, Performance Shares or
Performance Units.
2.3.Award Agreement means an agreement entered into by the
Company and each Participant setting forth the terms and provisions
applicable to Awards granted under this Plan.
2.4.Beneficial Owner or Beneficial Ownership shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules
and Regulations under the Exchange Act.
2.5.Board or Board of Directors means the Board of Directors
of the Company.
2.6.A Change in Control of the Company shall have occurred
if, after the Effective Date: (a) Any Person (within the meaning
of Section 13(d) of the Exchange Act) other than the Company or an
Affiliate shall become the Beneficial Owner, directly or
indirectly, of twenty percent (20%) or more of the outstanding
Voting Stock (such Person's beneficial ownership to be determined,
in the case of rights to acquire Voting Stock, pursuant to
paragraph (d) of Rule 13d-3 under the Exchange Act); or (b) The
stockholders of the Company shall approve: (i) the dissolution of
the Company; or (ii) any sale, lease, exchange, or other transfer
of all or substantially all of the assets of the Company to any
Person other than an Affiliate; or (iii) a merger or consolidation
of the Company with or into any Person other than an Affiliate.
2.7.Code means the Internal Revenue Code of 1986, as amended
from time to time.
2.8.Committee means the Compensation Committee of the Board,
as specified in Article 3 herein, or such other committee appointed
by the Board to administer the Plan with respect to grants of
Awards. Where appropriate to qualify Awards for the
Performance-Based Exception, the Committee shall have a minimum of
two (2) directors and shall consist solely of outside directors, as
required by Code Section 162(m).
2.9.Company means Kuhlman Corporation, a Delaware
corporation, and any successor or assign thereto as provided in
Article 19 herein.
2.10.Director means any individual who is a member of the
Board of Directors of Kuhlman Corporation.
2.11.Disability shall have the meaning ascribed to such
term in the discretion of the Committee.
2.12.Effective Date shall have the meaning ascribed to
such term in Section 1.1 hereof.
2
<PAGE>
2.13.Employee means any employee of the Company or its
Subsidiaries. Directors who are not employed by the Company shall
not be considered Employees under this Plan.
2.14.Exchange Act means the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
2.15.Fair Market Value shall be determined on the basis
of the closing sale price, rounded, if necessary, the next full
$.01 of the closing price, on the New York Stock Exchange Composite
Tape, or if not listed on such exchange, any other national
exchange on which the Shares are listed or included for quotation,
if applicable, on which the Shares are traded or, if there is no
such sale on the relevant date, then on the last previous day on
which a sale was reported.
2.16.Freestanding SAR means an SAR that is granted
independently of any Options, as described in Article 8 herein.
2.17.Incentive Stock Option or ISO means an option to
purchase Shares granted under Article 6 herein and which is
designated as an Incentive Stock Option and which is intended to
meet the requirements of Code Section 422.
2.18.Insider shall mean an individual who is, on the
relevant date, an officer, director or ten percent (10%) beneficial
owner of any class of the Company's equity securities that is
registered pursuant to Section 12 of the Exchange Act, all as
defined under Section 16 of the Exchange Act.
2.19.Named Executive Officer means a Participant who, as
of the date of vesting and/or payout of an Award, as applicable, is
one of the group of covered employees, as defined in the
regulations promulgated under Code Section 162(m), or any successor
statute.
2.20.Nonemployee Director means an individual who is a
member of the Board of Directors of the Company but who is not an
Employee of the Company.
2.21.Nonqualified Stock Option or NQSO means an option to
purchase Shares granted under Articles 6 or 7 herein and which is
not intended to meet the requirements of Code Section 422.
2.22.Option means an Incentive Stock Option or a
Nonqualified Stock Option, as described in Articles 6 or 7 herein.
2.23.Option Price means the price at which a Share may be
purchased by a Participant pursuant to an Option.
2.24.Participant means an Employee or Director who has
outstanding an Award granted under the Plan.
3
<PAGE>
2.25.Performance-Based Exception means the
performance-based exception from the tax deductibility limitations
of Code Section 162(m).
2.26.Performance Share means an Award granted to an
Employee, as described in Article 10 herein.
2.27.Performance Unit means an Award granted to an
Employee, as described in Article 10 herein.
2.28.Period of Restriction means the period during which
the transfer of Shares of Restricted Stock is limited in some way
(based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by the
Committee, at its discretion), and the Shares are subject to a
substantial risk of forfeiture, as provided in Article 8 herein.
2.29.Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
limited partnership, limited liability company, trust,
unincorporated organization, government or agency or political
subdivision of any government. When the context of this Plan so
indicates, such term also has the meaning assigned to it in Section
13(d) of the Exchange Act.
2.30.Restricted Stock means an Award granted to an
Employee pursuant to Article 9 herein.
2.31.Retirement shall have the meaning ascribed to such
term in the discretion of the Committee.
2.32.Shares means the shares of the Company's common
stock, par value $1.00 per share.
2.33.Stock Appreciation Right or SAR means an Award,
granted alone or in connection with a related Option, designated as
an SAR, pursuant to the terms of Article 8 herein.
2.34.Subsidiary means any corporation in which the
Company owns directly, or indirectly through subsidiaries, at least
fifty percent (50%) of the total combined voting power of all
classes of stock, or any other entity (including, but not limited
to, partnerships and joint ventures) in which the Company owns at
least fifty percent (50%) of the combined equity thereof.
2.35.Tandem SAR means an SAR that is granted in
connection with a related Option pursuant to Article 8 herein, the
exercise of which shall require forfeiture of the right to purchase
a Share under the related Option (and when a Share is purchased
under the Option, the Tandem SAR shall similarly be canceled).
4
<PAGE>
2.36.Voting Stock means shares of capital stock of the
Company the holders of which are entitled to vote for the election
of directors of the Company, but excluding shares entitled to vote
only upon the occurrence of a contingency unless that contingency
shall have occurred.
Article 3.Administration
3.1.The Committee. The Plan shall be administered by the
Committee, or for Awards that are not intended to comply with Code
Section 162(m) by any other committee appointed by the Board to
administer the Plan with respect to the grant of Awards. The
members of the committee shall be appointed from time to time by,
and shall serve at the discretion of, the Board of Directors.
3.2.Authority of the Committee. Except as limited by law or
by the Certificate of Incorporation or Bylaws of the Company, and
subject to the provisions herein, the Committee shall have full
power to select Employees and Nonemployee Directors who shall
participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent
with the Plan; construe and interpret the Plan and any agreement or
instrument entered into under the Plan as they apply to Employees;
establish, amend, or waive rules and regulations for the Plan's
administration as they apply to Employees; and (subject to the
provisions of Article 15 herein) amend the terms and conditions of
any outstanding Award to the extent such terms and conditions are
within the discretion of the Committee as provided in the Plan.
Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan,
as the Plan applies to Employees and Nonemployee Directors. As
permitted by law, the Committee may delegate its authority as
identified herein.
3.3.Decisions Binding. All determinations and decisions made
by the Committee pursuant to the provisions of the Plan and all
related orders and resolutions of the Board shall be final,
conclusive and binding on all persons, including the Company, its
stockholders, Directors, Employees, Participants, and their estates
and beneficiaries.
Article 4.Shares Subject to the Plan and Maximum Awards
4.1.Number of Shares Available for Grants. Subject to
adjustment as provided in Section 4.2 herein, there is hereby
reserved for issuance under the Plan in each calendar year,
commencing in calendar year 1997 through calendar year 1999, two
and one-half percent (2.5%) of the outstanding Shares as of the
first business day of each calendar year for Awards granted under
Articles 6, 8, 9, and 10. The Shares available for grants of
Awards under Articles 6, 8, 9, and 10 in any year shall be
increased by the number of Shares available under the Plan in
previous years but not covered by Awards granted under the Plan in
those years, as well as any Shares as to which Awards granted under
the Plan have lapsed, expired, terminated, or been canceled.
Subject to adjustment as provided in Section 4.2 herein, there is
hereby reserved for issuance, in addition to the Shares reserved
for issuance above, one hundred thousand (100,000) and three
hundred thousand (300,000) Shares under Articles 7 and 10 of the
Plan, respectively. Subject to the authorizations set forth
5
<PAGE>
above,the number of Shares which may be granted to Employees under the
Plan in the form of ISOs shall be limited to seven hundred fifty
thousand (750,000) and the number of Shares which may be granted
under the Plan in the form of Restricted Stock shall be limited to
two hundred fifty thousand (250,000). The Committee shall
determine the appropriate methodology for calculating the number of
shares issued pursuant to the Plan.
The following rules shall apply to grants of such Awards under
the Plan:
(a)Stock Options: The maximum aggregate number of Shares
that may be granted in the form of Stock Options, pursuant to any
Award granted in any one fiscal year to any one single Participant
shall be one hundred thousand (100,000).
(b)SARs: The maximum aggregate number of Shares that may be
granted in the form of Stock Appreciation Rights, pursuant to any
Award granted in any one fiscal year to any one single Participant
shall be fifty thousand (50,000).
(c)Restricted Stock: The maximum aggregate grant with
respect to Awards of Restricted Stock granted in any one fiscal
year to any one Participant shall be fifty thousand (50,000)
Shares.
(d)Performance Shares/Performance Units: The maximum
aggregate payout with respect to Awards of Performance Shares or
Performance Units granted in any one fiscal year to any one
Participant shall be the value of one hundred thousand (100,000)
Shares at the beginning of the Performance Period.
4.2.Adjustments in Authorized Shares. In the event of any
change in corporate capitalization, such as a stock split, reverse
stock split, or a corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the
definition of such term in Code Section 368) of the Company, such
adjustment shall be made in the number and class of Shares which
may be delivered under Section 4.1, in the number and class of
and/or price of Shares subject to outstanding Awards granted under
the Plan, and in the Award limits set forth in subsections 4.1(a)
and 4.1(b), as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number.
Article 5.Eligibility and Participation
5.1.Eligibility. Persons eligible to participate in this
Plan include all Employees, including Employees who are members of
the Board, and all Directors.
6
<PAGE>
5.2.Actual Participation. Subject to the provisions of the
Plan, the Committee may, from time to time, select from all
eligible Employees and Directors, those to whom Awards shall be
granted and shall determine the nature and amount of each Award.
Article 6.Employee Stock Options
6.1.Grant of Options. Subject to the terms and provisions of
the Plan, Options may be granted to Employees in such number, and
upon such terms, and at any time and from time to time as shall be
determined by the Committee.
6.2.Award Agreement. Each Option grant under this Article 6
shall be evidenced by an Award Agreement that shall specify the
Option Price, the duration of the Option, the number of Shares to
which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify
whether the Option is intended to be an ISO within the meaning of
Code Section 422, or an NQSO whose grant is intended not to fall
under the provisions of Code Section 422.
6.3.Option Price. The Option Price for each grant of an
Option under this Article 6 shall be at least equal to one hundred
percent (100%) of the Fair Market Value of a Share on the date the
Option is granted.
6.4.Duration of Options. Each Option granted to an Employee
shall expire at such time as the Committee shall determine at the
time of grant; provided, however, that no ISO shall be exercisable
later than the tenth (10th) anniversary date of its grant.
6.5.Exercise of Options. Options granted under this Article
6 shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for each grant or for each
Employee.
6.6.Payment. Options granted under this Article 6 shall be
exercised by the delivery of a written notice of exercise to the
Company, setting forth the number of Shares with respect to which
the Option is to be exercised, accompanied by full payment for the
Shares. The Option Price upon exercise of any Option shall be
payable to the Company in full either: (a) in cash or its
equivalent, or (b) by tendering previously acquired Shares having
an aggregate Fair Market Value at the time of exercise equal to the
total Option Price, or (c) by a combination of (a) and (b). The
Committee also may allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable
securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and
applicable law. Subject to any governing rules or regulations, as
soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the
Employee, in the Employee's name, Share certificates in an
appropriate amount based upon the number of Shares purchased under
the Option(s).
7
<PAGE>
6.7.Restrictions on Share Transferability. The Committee may
impose such restrictions on any Shares acquired pursuant to the
exercise of an Option granted under this Article 6 as it may deem
advisable, including, without limitation, restrictions under
applicable federal securities laws, under the requirements of any
stock exchange or market upon which such Shares are then listed
and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8.Termination of Employment. Each Employee's Option Award
Agreement shall set forth the extent to which the Employee shall
have the right to exercise the Option following termination of the
Employee's employment with the Company. Such provisions shall be
determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with each Employee,
need not be uniform among all Options issued pursuant to this
Article 6, and may reflect distinctions based on the reasons for
termination of employment.
6.9.Nontransferability of Options.
(a)Incentive Stock Options. No ISO granted under the Plan
may be sold, or as otherwise determined by the Committee,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to an Employee under the
Plan shall be exercisable during his or her lifetime only by such
Employee or by the Employee's guardian or legal representative.
(b)Nonqualified Stock Options. Except as otherwise provided
in an Employee's Award Agreement, no NQSO granted under this
Article 6 may be sold, or as otherwise determined by the Committee,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in an
Employee's Award Agreement, all NQSOs granted to an Employee under
this Article 6 shall be exercisable during his or her lifetime only
by such Employee or by the Employee's guardian or legal
representative.
Article 7.Nonemployee Director Stock Options
7.1.Grant of Options. Subject to the terms and provisions of
the Plan, each Nonemployee Director of the Company on August 9,
1996 shall receive a grant of NQSOs to acquire 2,000 shares as of
such date, subject to approval of the Plan by stockholders. In
addition, each Nonemployee Director shall receive annually NQSOs to
acquire 2,000 Shares concurrent with the Board of Directors meeting
following the Company's annual meeting of stockholders. If a
Nonemployee Director begins service other than in connection with
an annual meeting of stockholders, such Nonemployee Director shall
receive a grant of NQSOs to acquire 2,000 Shares, which grant shall
be prorated based on the length of time until the next annual
meeting of stockholders.
8
<PAGE>
7.2.Award Agreement. Each NQSO grant under this Article 7
shall be evidenced by an Award Agreement that shall specify the
Option Price, the duration of the NQSO, the number of Shares to
which the Option pertains, and such other provisions as the
Committee shall determine.
7.3.Option Price. The Option Price for each grant of an NQSO
under this Article 7 shall be equal to one hundred percent (100%)
of the Fair Market Value of a Share on the date the NQSO is
granted.
7.4.Duration of Options. Each NQSO granted to a Nonemployee
Director shall expire on the tenth (10th) anniversary date of its
grant.
7.5.Exercise of Options. NQSOs granted under this Article 7
shall become exercisable six (6) months from the date of grant and
be subject to such restrictions and conditions as the Committee
shall in each instance approve, which need not be the same for each
grant or for each Nonemployee Director.
7.6.Payment. Options granted under this Article 7 shall be
exercised by the delivery of a written notice of exercise to the
Company, setting forth the number of Shares with respect to which
the NQSO is to be exercised, accompanied by full payment for the
Shares. The Option Price upon exercise of any NQSO shall be
payable to the Company in full either: (a) in cash or its
equivalent, or (b) by tendering previously acquired Shares having
an aggregate Fair Market Value at the time of exercise equal to the
total Option Price, or (c) by a combination of (a) and (b). The
Committee also may allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable
securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and
applicable law. Subject to any governing rules or regulations, as
soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the
Nonemployee Director, in the Nonemployee Director's name, Share
certificates in an appropriate amount based upon the number of
Shares purchased under the NQSO(s).
7.7.Restrictions on Share Transferability. The Committee may
impose such restrictions on any Shares acquired pursuant to the
exercise of an Option granted under this Article 7 as it may deem
advisable, including, without limitation, restrictions under
applicable federal securities laws, under the requirements of any
stock exchange or market upon which such Shares are then listed
and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
7.8.Termination of Service. Each Nonemployee Director's
Option Award Agreement shall set forth the extent to which the
Nonemployee Director shall have the right to exercise the Option
following termination of the Nonemployee Director's service with
the Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award
Agreement entered into with each Nonemployee Director, need not be
uniform among all Options issued pursuant to this Article 7, and
may reflect distinctions based on the reasons for termination of
service.
9
<PAGE>
7.9.Nontransferability of Options. No NQSO granted under
this Article 7 may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Notwithstanding the foregoing,
the Committee may, in its sole discretion, permit a Nonemployee
Director to transfer an NQSO to members of the Nonemployee
Director's immediate family, including trusts for the benefit of
such family members and partnerships in which such family members
are the only partners, or to other persons or entities which are
approved in advance by the Committee. Further, except as otherwise
provided in a Nonemployee Director's Award Agreement, all NQSOs
granted to a Nonemployee Director under this Article 7 shall be
exercisable during his or her lifetime only by such Nonemployee
Director.
Article 8.Stock Appreciation Rights
8.1.Grant of SARs. Subject to the terms and conditions of
the Plan, SARs may be granted to Employees at any time and from
time to time as shall be determined by the Committee. The
Committee may grant Freestanding SARs, Tandem SARs, or any
combination of these forms of SAR. The Committee shall have
complete discretion in determining the number of SARs granted to
each Employee (subject to Article 4 herein) and, consistent with
the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs.
The grant price of a Freestanding SAR shall equal the Fair
Market Value of a Share on the date of grant of the SAR. The grant
price of Tandem SARs shall equal the Option Price of the related
Option.
8.2.Exercise of Tandem SARs. Tandem SARs may be exercised
for all or part of the Shares subject to the related Option upon
the surrender of the right to exercise the equivalent portion of
the related Option. A Tandem SAR may be exercised only with
respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the
contrary, with respect to a Tandem SAR granted in connection with
an ISO: (i) the Tandem SAR will expire no later than the
expiration of the underlying ISO; (ii) the value of the payout with
respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to
the underlying ISO at the time the Tandem SAR is exercised; and
(iii) the Tandem SAR may be exercised only when the Fair Market
Value of the Shares subject to the ISO exceeds the Option Price of
the ISO.
8.3.Exercise of Freestanding SARs. Freestanding SARs may be
exercised upon whatever terms and conditions the Committee, in its
sole discretion, imposes upon them.
8.4.SAR Agreement. Each SAR grant shall be evidenced by an
Award Agreement that shall specify the grant price, the term of the
SAR, and such other provisions as the Committee shall determine.
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8.5.Term of SARs. The term of an SAR granted under the Plan
shall be determined by the Committee, in its sole discretion;
provided, however, that such term shall not exceed ten (10) years.
8.6.Payment of SAR Amount. Upon exercise of an SAR, an
Employee shall be entitled to receive payment from the Company in
an amount determined by multiplying: (a) The difference between
the Fair Market Value of a Share on the date of exercise over the
grant price; by (b) The number of Shares with respect to which the
SAR is exercised. At the discretion of the Committee, the payment
upon SAR exercise may be in cash, in Shares of equivalent value, or
in some combination thereof.
8.7.Termination of Employment. Each SAR Award Agreement
shall set forth the extent to which the Employee shall have the
right to exercise the SAR following termination of the Employee's
employment with the Company and/or its subsidiaries. Such
provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into
with Employees, need not be uniform among all SARs issued pursuant
to the Plan, and may reflect distinctions based on the reasons for
termination of employment.
8.8.Nontransferability of SARs. Except as otherwise provided
in an Employee's Award Agreement, no SAR granted under the Plan may
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in an
Employee's Award Agreement, all SARs granted to an Employee under
the Plan shall be exercisable during his or her lifetime only by
such Employee.
Article 9.Restricted Stock
9.1.Grant of Restricted Stock. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time to
time, may grant Shares of Restricted Stock to Employees in such
amounts as the Committee shall determine.
9.2.Restricted Stock Agreement. Each Restricted Stock grant
shall be evidenced by a Restricted Stock Award Agreement that shall
specify the Period(s) of Restriction, the number of Shares of
Restricted Stock granted, and such other provisions as the
Committee shall determine.
9.3.Transferability. Except as provided in this Article 9,
the Shares of Restricted Stock granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Period of Restriction
established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion
and set forth in the Restricted Stock Award Agreement. All rights
with respect to the Restricted Stock granted to an Employee under
the Plan shall be available during his or her lifetime only to such
Employee.
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9.4.Other Restrictions. Subject to Article 11 herein, the
Committee shall impose such other conditions and/or restrictions on
any Shares of Restricted Stock granted pursuant to the Plan as it
may deem advisable including, without limitation, a requirement
that Employees pay a stipulated purchase price for each Share of
Restricted Stock, restrictions based upon the achievement of
specific performance goals (Company-wide, divisional, and/or
individual), time-based restrictions on vesting following the
attainment of the performance goals, and/or restrictions under
applicable federal or state securities laws. The Company shall
retain the certificates representing Shares of Restricted Stock in
the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied. Except
as otherwise provided in this Article 9, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall
become freely transferable by the Employee after the last day of
the applicable Period of Restriction.
9.5.Voting Rights. During the Period of Restriction,
Employees holding Shares of Restricted Stock granted hereunder may
exercise full voting rights with respect to those Shares.
9.6.Dividends and Other Distributions. During the Period of
Restriction, Employees holding Shares of Restricted Stock granted
hereunder may be credited with regular cash dividends paid with
respect to the underlying Shares while they are so held. The
Committee may apply any restrictions to the dividends that the
Committee deems appropriate. Without limiting the generality of
the preceding sentence, if the grant or vesting of Restricted
Shares granted to a Named Executive Officer is designed to comply
with the requirements of the Performance-Based Exception, the
Committee may apply any restrictions it deems appropriate to the
payment of dividends declared with respect to such Restricted
Shares, such that the dividends and/or the Restricted Shares
maintain eligibility for the Performance-Based Exception.
9.7.Termination of Employment. Each Restricted Stock Award
Agreement shall set forth the extent to which the Employee shall
have the right to receive unvested Restricted Shares following
termination of the Employee's employment with the Company. Such
provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into
with each Employee, need not be uniform among all Shares of
Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment;
provided, however that, except in the cases of terminations
connected with a Change in Control and terminations by reason of
death or Disability, the vesting of Shares of Restricted Stock
which qualify for the Performance-Based Exception and which are
held by Named Executive Officers shall occur at the time they
otherwise would have, but for the employment termination.
Article 10.Performance Units and Performance Shares
10.1.Grant of Performance Units/Shares. Subject to the
terms of the Plan, Performance Units and/or Performance Shares may
be granted to Employees in such amounts and upon such terms, and at
any time and from time to time, as shall be determined by the
Committee.
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10.2.Value of Performance Units/Shares. Each Performance
Unit shall have an initial value that is established by the
Committee at the time of grant. Each Performance Share shall have
an initial value equal to the Fair Market Value of a Share on the
date of grant. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met,
will determine the number and/or value of Performance Units/Shares
that will be paid out to the Employee. For purposes of this
Article 10, the time period during which the performance goals must
be met shall be called a Performance Period.
10.3.Earning of Performance Units/Shares. Subject to the
terms of this Plan, after the applicable Performance Period has
ended, the holder of Performance Units/Shares shall be entitled to
receive payout on the number and value of Performance Units/Shares
earned by the Employee over the Performance Period, to be
determined as a function of the extent to which the corresponding
performance goals have been achieved.
10.4.Form and Timing of Payment of Performance
Units/Shares. Unless otherwise determined by the Committee,
payment of earned Performance Units/Shares shall be made in a
single lump sum following the close of the applicable Performance
Period. Subject to the terms of this Plan, the Committee, in its
sole discretion, may pay earned Performance Units/Shares in the
form of cash or in Shares (or in a combination thereof) which have
an aggregate Fair Market Value equal to the value of the earned
Performance Units/Shares at the close of the applicable Performance
Period. Such Shares may be granted subject to any restrictions
deemed appropriate by the Committee. At the discretion of the
Committee, Employees may be entitled to receive any dividends
declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance
Shares which have been earned, but not yet distributed to Employees
(such dividends shall be subject to the same accrual, forfeiture,
and payout restrictions as apply to dividends earned with respect
to Shares of Restricted Stock, as set forth in Section 9.6 herein).
In addition, Employees may, at the discretion of the Committee, be
entitled to exercise their voting rights with respect to such
Shares.
10.5.Termination of Employment. Unless determined
otherwise by the Committee, in the event the employment of an
Employee is terminated, all Performance Units/Shares shall be
forfeited by the Employee to the Company.
10.6.Nontransferability. Except as otherwise provided in
an Employee's Award Agreement, Performance Units/Shares may not be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in an
Employee's Award Agreement, an Employee's rights under the Plan
shall be exercisable during the Employee's lifetime only by the
Employee or the Employee's legal representative.
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Article 11.Performance Measures
Unless and until the Committee proposes for shareholder vote
and shareholders approve a change in the general performance
measures set forth in this Article 11, the attainment of which may
determine the degree of payout and/or vesting with respect to
Awards to Named Executive Officers which are designed to qualify
for the Performance-Based Exception, the performance measure(s) to
be used for purposes of such grants shall be chosen from among
earnings per share, economic value added, market share, net income,
operating profit, return on assets, return on equity, return on
investment, revenue, share price, stock price growth, total
stockholder return, debt reduction, cash flow, working capital
management, or customer service.
The Committee shall have the discretion to adjust the
determinations of the degree of attainment of the preestablished
performance goals; provided, however, that Awards which are
designed to qualify for the Performance-Based Exception, and which
are held by Named Executive Officers, may not be increased (the
Committee shall retain the discretion to modify or cancel such
Awards at any time). In the event that applicable tax and/or
securities laws change to permit Committee discretion to alter the
governing performance measures for the Performance-Based Exception
without obtaining shareholder approval of such changes, the
Committee shall have sole discretion to make such changes without
obtaining shareholder approval. In addition, in the event that the
Committee determines that it is advisable to grant Awards which
shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements
of Code Section 162(m).
Article 12.Beneficiary Designation
Each Participant under the Plan may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in
case of his or her death before he or she receives any or all of
such benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed
by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's
lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
Article 13.Deferrals
The Committee may permit or require a Participant to defer
such Participant's receipt of the payment of cash or the delivery
of Shares that would otherwise be due to such Participant by virtue
of the exercise of an Option or SAR, the lapse or waiver of
restrictions with respect to Restricted Stock, or the satisfaction
of any requirements or goals with respect to Performance
Units/Shares. If any such deferral election is required or
permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
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Article 14.Rights of Employees
14.1.Employment. Nothing in the Plan shall interfere
with or limit in any way the right of the Company to terminate any
Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company.
14.2.Participation. No Employee shall have the right to
be selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
Article 15.Change in Control
15.1.Treatment of Outstanding Awards. Upon the
occurrence of a Change in Control, unless otherwise specifically
prohibited under applicable laws, or by the rules and regulations
of any governing governmental agencies or national securities
exchanges:
(a)Any and all Options and SARs granted hereunder shall
become immediately exercisable, and shall remain exercisable
throughout their entire term;
(b)Any restriction periods and restrictions imposed on
Restricted Shares shall lapse;
(c)Unless otherwise provided in the Award Agreement, the
target payout opportunities attainable under all outstanding Awards
of Restricted Stock, Performance Units and Performance Shares shall
be deemed to have been fully earned for the entire Performance
Period(s) as of the effective date of the Change in Control. The
vesting of all Awards denominated in Shares shall be accelerated as
of the effective date of the Change in Control, and there shall be
distributed to Participants not more than thirty (30) days
following the effective date of the Change in Control a pro rata
number of Shares based upon an assumed achievement of all relevant
performance goals.
15.2.Termination, Amendment, and Modifications of
Change-in-Control Provisions. Notwithstanding any other provision
of this Plan or any Award Agreement provision, the provisions of
this Article 15 may not be terminated, amended, or modified on or
after the date of a Change in Control to affect adversely any Award
theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's
outstanding Awards; provided, however, the Board of Directors, upon
recommendation of the Committee, may terminate, amend, or modify
this Article 15 at any time and from time to time prior to the date
of a Change in Control.
Article 16.Amendment, Modification, and Termination
16.1.Amendment, Modification, and Termination. The Board
may at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part; provided, however, that no
amendment which requires shareholder approval in order for the Plan
to continue to comply with Rule 16b-3 under the Exchange Act,
including any successor to such Rule, shall be effective unless
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such amendment shall be approved by the requisite vote of
shareholders of the Company entitled to vote thereon.
The Plan, each Award 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.
16.2.Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee may make adjustments
in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4.2 hereof)
affecting the Company or the financial statements of the Company or
of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments
are appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under
the Plan; provided that no such adjustment shall be authorized to
the extent that such authority would be inconsistent with
requirements of Section 162(m) of the Code.
16.3.Awards Previously Granted. No termination,
amendment, or modification of the Plan shall adversely affect in
any material way any Award previously granted under the Plan,
without the written consent of the Participant holding such Award.
16.4.Compliance with Code Section 162(m). At all times
when Code Section 162(m) is applicable, all Awards to Named
Executive Officers granted under this Plan shall comply with the
requirements of Code Section 162(m). However, in the event the
Committee determines that such compliance is not desired with
respect to any Award or Awards available for grant under the Plan,
then compliance with Code Section 162(m) will not be required,
except that an Award that is intended to comply with the
requirements of Code Section 162(m) may not be amended in a manner
inconsistent with the requirements of Code Section 162(m). In
addition, in the event that changes are made to Code Section 162(m)
to permit greater flexibility with respect to, and prior to the
issuance of, any Award or Awards available under the Plan, the
Committee may, subject to this Article 16, make any adjustments it
deems appropriate.
Article 17.Withholding
17.1.Tax Withholding. The Company shall have the power
and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy federal,
state, and local taxes, domestic or foreign, required by law or
regulation to be withheld with respect to any taxable event arising
as a result of this Plan.
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17.2.Share Withholding. With respect to withholding
required upon the exercise of Options or SARs, upon the lapse of
restrictions on Restricted Stock, or upon any other taxable event
arising as a result of Awards granted hereunder, Participants may
elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is
to be determined equal to the minimum statutory total tax which
could be imposed on the transaction. All such elections shall be
irrevocable, made in writing, signed by the Participant, and shall
be subject to any restrictions or limitations that the Committee,
in its sole discretion, deems appropriate.
Article 18.Indemnification
Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit,
or proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him
or her in settlement thereof, with the Company's approval, or paid
by him or her in satisfaction of any judgment in any such action,
suit, or proceeding against him or her, provided he or she shall
give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it
on his or her own behalf. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Articles of
Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them
harmless.
Article 19.Successors and Assigns
All obligations of the Company under the Plan with respect to
Awards granted hereunder shall be binding on any successor to the
Company or the Company's assigns, whether the existence of such
successor or assign is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
Article 20.Legal Construction
20.1.Gender and Number. Except where otherwise indicated
by the context, any masculine term used herein also shall include
the feminine; the plural shall include the singular and the
singular shall include the plural.
20.2.Severability. In the event any provision of the
Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of
the Plan, and the Plan shall be construed and enforced as if the
illegal or invalid provision had not been included.
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20.3.Requirements of Law. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all
applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may
be required.
20.4.Securities Law Compliance. With respect to
Insiders, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the
1934 Act. To the extent any provision of the plan or action by the
Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Committee.
20.5.Governing Law. To the extent not preempted by
federal law, the Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the state
of Delaware.
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