SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1997, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
COMMISSION FILE NUMBER 1-7695
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, 1998, 16,605,991 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 $713,000,000.
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, 1997.
Part III: Definitive Proxy Statement of the Registrant in connection with
the 1998 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 a growth-oriented,
diversified industrial manufacturing company that owns and manages a group of
operating businesses. The Company currently operates in two product segments
based on the distinct markets and customers served: Electrical and Industrial
Products. The Electrical Products Segment is comprised of Kuhlman Electric
Corporation ("Kuhlman Electric") and Coleman Cable Systems, Inc. ("Coleman
Cable"). Kuhlman Electric is a leading manufacturer of transformers and other
products for electrical utilities and industrial users. Coleman Cable is a
nationally-recognized manufacturer of electrical and electronic wire and cable
products such as electronic voice and data cable, cord sets, battery booster
cables, industrial power cords and security wire for use in consumer, commercial
and industrial applications. The Industrial Products Segment is comprised
primarily of the Schwitzer Group, a combination of Schwitzer, Inc.
("Schwitzer"), Kysor Transportation Products Group ("Kysor") and Snyder Tank
Corp. ("Snyder Tank"). Schwitzer Group is a leading worldwide manufacturer of
proprietary engine components, fuel tanks and other products used on light,
medium and heavy-duty trucks, and construction, agricultural, mining, power
generation and marine equipment. Schwitzer Group's products include, among
others, turbochargers, fans and fan drives that enhance engine performance, as
well as fuel tanks, instrumentation components, and HVAC systems for commercial
and industrial transportation applications. 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.
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
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Analysis of Financial Condition and Results of Operations on pages 22 through 26
and Note 14 of Notes to Consolidated Financial Statements on page 42 of the
Registrant's Annual Report to Shareholders for the year ended December 31, 1997,
which is incorporated herein by reference.
ELECTRICAL PRODUCTS SEGMENT
The Electrical Products Segment is comprised of Kuhlman Electric, which
is based in Versailles, Kentucky, and Coleman Cable, which is based in North
Chicago, Illinois. 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
PRODUCTS. Established in 1894, Kuhlman Electric designs, manufactures
and markets a broad range of electric power transformers for electrical
distribution systems serving residential, commercial and industrial customers.
These products include distribution transformers, medium-size power transformers
and instrument transformers. Distribution transformers reduce high voltages
transmitted on electrical transmission lines to usable levels (120 and 240
volts) for homes, offices and factories. Distribution transformers may be
mounted on a utility pole, placed at ground level on a pad or in underground
vaults. Power transformers are designed for utility and industrial customers to
be installed in substations or commercial electric power centers for apartment
complexes, shopping centers, factories and other users of electrical power.
Kuhlman Electric's power transformer product line includes a variety of
transformers in electrical power ranges from 5 MVA (mega-volt amperes) to 50
MVA. Instrument transformers are high-accuracy transformers that reduce high
current and voltage to lower levels within an electrical distribution network
for revenue metering, relaying and system protection applications. As electrical
power generation, transmission and distribution practices continue to change in
a deregulated environment, the Company expects instrument transformers to be in
greater demand as more electric power is transferred between sellers and buyers.
SALES AND MARKETING. A significant portion of the distribution, power
and instrument transformers manufactured by Kuhlman Electric in 1997 were
marketed directly through 11 employee sales professionals. The balance was sold
through 23 independent commissioned sales organizations, which employ
approximately 80 salespersons and sales engineers.
CUSTOMERS. Kuhlman Electric's transformer products are sold principally
to electric utility companies throughout the United States. In addition, direct
sales to commercial and industrial users of electric power are increasing as
changes occur in the electrical generation, transmission and distribution
industry. Original equipment manufacturers ("OEMs") of electric power generation
equipment are also significant customers of Kuhlman Electric.
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COLEMAN CABLE
PRODUCTS. Coleman Cable, acquired by the Company on December 15, 1993,
manufactures and distributes a wide range of electrical and electronic wire and
cable products for consumer, commercial and industrial markets including voice,
data and telecommunication cables for the high-tech data transmission industry.
Coleman Cable is noted for its innovative and specialty products designed for
use in unique power cables, robotics cables, cables used in the distribution of
portable power for construction and industrial uses, as well as demanding OEM
applications. Coleman Cable is also a leading supplier of cord sets, battery
booster cables and other wire products for consumer uses. The acquisition of
Communication Cable, Inc. in 1996 significantly expanded Coleman Cable's
capability in the rapidly growing data transmission and telecommunications
industries. The acquisition of Web Wire, also in 1996, provided the Company with
a broad line of battery cables, ignition wire sets and related products to
augment Coleman Cable's well-known line of products for the automotive
aftermarket.
Coleman Cable is also a leading provider of electronic wire and cable
for diversified consumer and commercial markets for low voltage requirements,
some of which are marketed under the "Signal" brand name. The "Signal" brand of
cables is also used extensively by burglar alarm, fire alarm, smoke detector and
closed circuit television (CCTV) installation and contracting companies. Coleman
Cable also produces cables for energy management systems and for irrigation and
sprinkler systems, and it is one of the largest producers of thermostat cable in
the U.S. These products are marketed under the "Baron" brand name. Products
marketed under the "Baron" brand name are used in a variety of applications by
HVAC installers, energy management installers, irrigation system installers,
OEMs, machine tool manufacturers and electrical contractors.
SALES AND MARKETING. Coleman Cable's products are sold directly through
17 employee salespersons, and numerous manufacturers' representatives employing
over 700 salespersons, to commercial contractors, electrical and security
distributors, mass merchandisers, hardware wholesalers, automotive retailers,
warehouse clubs, home centers, hardware chains, contractor/industrial supply
houses, specialty retailers, and various industrial and OEM users on a
nationwide basis. Coleman Cable's flexible power and control cable products are
marketed to electrical distributors and industrial and construction customers.
"Signal" brand products are sold to security and equipment distributors, wire
and cable distributors, electronic parts distributors, electrical distributors
and OEMs through its employee sales force and, to a lesser extent, independent
sales representatives.
CUSTOMERS. Coleman Cable's wire and cable products are sold to numerous
distributors operating in various industries, OEMs and government agencies
primarily in North America. Coleman Cable believes that it is one of the leading
providers of wire and cable products to electrical distributors, extension cords
to the contractor supply market and battery booster cables to nationally
recognized retailers.
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INDUSTRIAL PRODUCTS SEGMENT
The Industrial Products Segment is comprised principally of the
Schwitzer Group, which consists of Schwitzer, Kysor (acquired in March 1997)
and Snyder Tank (acquired in November 1997). Schwitzer Group is based in
Indianapolis, Indiana. Demand and profitability in this segment are affected by
economic conditions in industrialized and developing regions of the world.
Expenditures for light, medium and heavy-duty trucks, construction and
agricultural equipment, marine applications and other commercial and industrial
transportation equipment may affect demand for the segment's products.
PRODUCTS. Schwitzer Group is a leading worldwide manufacturer of
proprietary engine components, fuel tanks and other products used on light,
medium and heavy-duty trucks, as well as for construction, agricultural, mining,
power generation and marine equipment. Schwitzer Group designs, manufactures and
markets technically advanced components, including turbochargers, fan drives,
cooling fans and crankshaft vibration dampers, for enhancing the efficiency of
commercial and industrial diesel and gasoline engines. These components improve
engine performance by enhancing horsepower output, fuel efficiency and
durability while lowering emissions, and are engineered to meet the specific
engine applications of each customer. Engines incorporating Schwitzer Group's
products are used in light, medium and heavy-duty trucks, in agricultural and
construction equipment, and in other industrial and commercial applications.
Turbochargers use the energy from engine exhaust to provide pressurized
air to the engine, thus increasing power and reducing exhaust emissions, and are
expected to play a significant role in engine designs capable of complying with
increasingly stringent exhaust emission regulations worldwide. Turbochargers are
fitted to engines for on-road vehicles (such as delivery trucks and
semi-tractors) and off-road vehicles (such as farm and construction equipment).
Sales of turbochargers accounted for approximately 20 percent, 25 percent and 26
percent of the consolidated net sales of the Company during 1997, 1996 and 1995,
respectively.
Fans manufactured by Schwitzer Group cool engines and protect them from
overheating. Fan drives produced by Schwitzer Group are designed to sense engine
temperature and engage and disengage engine cooling fans, either automatically
or with driver assistance. This increases power while reducing fuel consumption
and engine noise. With the addition of Kysor in March 1997, the Company believes
that Schwitzer Group is one of the world's leading designers and manufacturers
of fans and fan drives, producing a complete line of metal and polymer fans and
viscous and friction fan drives used in commercial and industrial transportation
applications. Schwitzer Group's vibration dampers reduce engine vibrations and
enhance engine performance and durability while reducing noise.
Schwitzer Group is a leading provider of fuel tanks and air tanks for
commercial and industrial transportation equipment, including medium and
heavy-duty trucks. These fuel tanks are marketed under the "Kysor Michigan
Fleet" and "Snyder Tank" brand names.
In addition, Schwitzer Group manufactures and markets other proprietary
components for commercial and
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industrial transportation applications, including various engine monitoring
devices and marine instruments under the "Kysor Medallion" brand name and HVAC
systems for commercial and industrial vehicles and trailer supports under the
"Kysor Westran" brand name.
The Industrial Products Segment also includes Emtec Products
Corporation ("Emtec"), which designs, manufactures and markets a variety of
spring and spring assembly products and stampings for the transportation,
appliance and electronics markets.
SALES AND MARKETING. Schwitzer Group sells its products to OEMs, fleet
operators and aftermarket customers through its employee sales force and through
approximately 200 independent distributors to customers in more than 60
countries throughout the world. In addition, because many of the products
offered by the Schwitzer Group are custom-designed to meet the specific engine
applications of each OEM and fleet customer, the research and development
personnel of the Schwitzer Group work closely with OEMs during their design and
development of an engine or product.
CUSTOMERS. Schwitzer Group believes that it is one of the leading
independent suppliers in the world of turbochargers and fans and fan drives to
the non-passenger car market. Schwitzer Group's primary customers are the
world's leading engine builders and fleet operators, located primarily in North
America, Western Europe, South America and Japan. In addition, Schwitzer Group
markets its products to some of the world's largest manufacturers of light,
medium and heavy-duty trucks, buses, off-highway equipment, portable power
generators and certain marine products.
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 generally competes against
divisions or subsidiaries of such large business enterprises, as well as against
numerous other smaller competitors in the various markets in which it
participates. The Company believes that it competes primarily on the basis of
product quality, product innovation, service and price.
CUSTOMERS; SEASONALITY
During 1997, 1996 and 1995, various purchasing units of a long-time
customer accounted for 8%, 9% and 10%, 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 primarily aluminum, copper, steel, various insulating materials and
polymers. Copper, which is the
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Electrical Products Segment's single largest raw material, is generally
purchased in either wire 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.
While the Company may engage in hedging activities under certain
circumstances to mitigate the impact of price fluctuations in certain commodity
prices, the Company could experience rapid increases in the price of its
principal raw materials. As a consequence, the Company's financial condition or
results of operations may be adversely affected by such increases in raw
material costs to the extent the Company is unable to pass on such higher costs
to customers.
Raw materials purchased by the Company are generally available from
numerous independent sources at competitive prices, and are obtained principally
from domestic suppliers. Management anticipates no significant difficulty in
filling its raw material requirements. However, it is possible that because of
the Company's increasing focus on "lean manufacturing," which incorporates
"just-in-time" supplier-customer delivery methods 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 following table sets
forth backlog, which the Company believes to be firm as of the dates indicated:
At December 31
1997 1996
(in thousands)
Electrical Products Segment $ 52,879 $ 51,266
Industrial Products Segment 118,091 67,715
----------- -----------
$ 170,970 $ 118,981
=========== ===========
At December 31, 1997 substantially all of the Company's backlog orders
were expected to be completed by December 31, 1998.
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ENGINEERING AND PRODUCT DEVELOPMENT
The Company continually seeks to improve existing products and to
develop new products. The Company's business units focus on developing
engineered products designed to meet the specific needs and applications of its
customers. Teams representing different functional areas within a business unit
work closely with customers early in their product design process to ensure that
the product meets the customer's specifications and is cost effective.
Engineering costs associated with specific customer orders are
capitalized as part of product cost and are included in cost of goods sold
at the time of shipment. Engineering expenses associated with product
development, the application of products to specific customer needs, and
ongoing efforts to refine and enhance existing products are expensed as
incurred through operating expenses and totaled approximately $11,733,000,
$7,009,000 and $6,745,000 in 1997, 1996 and 1995, respectively.
ENVIRONMENTAL
The Company is subject to numerous environmental laws and regulations
concerning, among others, air emissions, discharges into waterways and the
generation, handling, storage, transportation, treatment and disposal of waste
materials. These laws and regulations are constantly changing and it is
impossible to predict with accuracy the effect they may have on the Company in
the future. Like many other industrial concerns, the Company's manufacturing
operations entail the risk of noncompliance, which may result in fines,
penalties and remediation costs, and there can be no assurance that such costs
will be insignificant. To the best of the Company's knowledge, it is in
substantial compliance with all Federal, state and local environmental
protection provisions, and believes that future fines, penalties and remediation
costs associated with environmental noncompliance, if any, should not have a
material adverse effect on 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 in the future due to regulatory noncompliance.
See Note 11, "Commitments and Contingencies," of Notes to Consolidated Financial
Statements.
EMPLOYEES
As of December 31, 1997 and 1996, the Company employed 4,194 and 2,782
persons, respectively, approximately 1,562 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, 1997, the Company operated thirty manufacturing
plants, including foreign plants. Of these manufacturing plants, twenty are
owned, nine are leased, and one is partially owned and partially leased. The
twenty-five domestic plants are located in the states of Arkansas, California,
Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, New York,
North Carolina, Ohio and South Carolina. The Company's Industrial Products
Segment operates five foreign manufacturing plants, two of which are owned, in
England and Brazil, and three of which are leased, in England, Wales and South
Korea. 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, 1997 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 762 429 24 37 15 220 1,487
Industrial 1,144 313 142 39 3 48 1,689
Corporate --- --- 25 --- --- --- 25
--------- -------- -------- --------- --------- --------- ---------
1,906 742 191 76 18 268 3,201
========= ======== ======== ========= ========== ========= =========
</TABLE>
(1) Includes the following facilities and square footage: England-- 64,000;
Brazil-- 63,000; Wales-- 25,000; and South Korea-- 10,000.
(2) Excludes 147,000 and 110,000 square-foot plants 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. 55 1993 Chairman of the Board, Chief Executive
Officer and Director
Curtis G. Anderson 56 1994 President, Chief Operating Officer
and Director
Gary G. Dillon 63 1995 Chairman and Chief Executive Officer of
Schwitzer, Inc. and Director
Vernon J. Nagel 40 1993 Executive Vice President of Finance,
Chief Financial Officer and Treasurer
Richard A. Walker 46 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 Company 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 first with Citibank and then 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 of Schwitzer, Inc. since June 1991, and Chief Executive
Officer since April 1989. From April 1989 to March 1997 he also served as
President of Schwitzer, Inc. Prior to April 1989 he served as President and
Chief Executive Officer of Household Manufacturing, Inc.
Mr. Nagel, who joined the Company on April 5, 1993, became Executive
Vice President of Finance, Chief Financial Officer and Treasurer of the Company
in February 1994 and was Vice President of Finance, Chief Financial Officer and
Treasurer prior thereto. 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 in various financial executive
capacities with The Jepson Corporation from 1985 until 1990.
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,
Mr. Walker served as Vice President, General Counsel and Secretary of the
Company. Prior thereto, Mr. Walker was a partner in the law firm of Harness,
Dickey & Pierce.
PART II
ITEM 5. MARKET FOR 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 "Debt" on page 34 and "Common Stock Price Ranges" on
page 46 of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1997.
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 21 of the Registrant's Annual Report
to Shareholders for the year ended December 31, 1997.
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 22
through 26 of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1997 is incorporated herein by reference.
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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 27 through 43 of the Registrant's Annual Report to Shareholders for the
year ended December 31, 1997, 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 and executive officers 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" of the Registrant's definitive
Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated
herein by reference to the information contained under the captions
"Compensation of Directors," "Executive Compensation," "Savings and Pension
Plans," "Option/SAR Grants During 1997," "Aggregated Option/SAR 1997 Year-End
Option/SAR Values," and "Long-Term Incentive Plan - Awards in Last Fiscal Year"
of the Registrant's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
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
1998 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
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Transactions" of the Registrant's definitive Proxy Statement for the 1998 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 1997
Annual Report to its shareholders for the year ended December 31, 1997,
are incorporated herein by reference:
Consolidated Statements of Income for each of the
three years in the period ended December 31, 1997.
Consolidated Balance Sheets - December 31, 1997 and
1996.
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997.
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended December
31, 1997.
Notes to Consolidated Financial Statements.
The financial statement schedule listed below for each of the
three years in the period ended December 31, 1997 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.
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(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).
2.5 Asset Purchase Agreement among Kuhlman
Corporation, Transpro Group, Inc., Kysor
Industrial Corporation, and certain
subsidiaries of Kysor Industrial Corporation
dated as of February 2, 1997 [incorporated
by reference to Exhibit 2 to Schedule 14D-9
of Kysor Industrial Corporation dated
February 7, 1997 (SEC File No. 1-8973)].
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).
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,
13
<PAGE>
1993).
4.1 Rights Agreement dated as of April 30, 1997
between Kuhlman Corporation and Harris Trust
and Savings Bank (incorporated by reference
to Exhibit 1 to the Registrant's Form 8-K
dated April 24, 1997).
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 Amended 1994 Stock Option Plan of the
Registrant (incorporated by reference to
Exhibit 10.6 to the Registrant's Form 10-K
for the year ended December 31, 1996).
10.6 Schwitzer, Inc. Long-Term Executive
Incentive Compensation Plan, as amended
(incorporated by reference to Exhibit 4.3 to
Registration Statement No. 33-61255).
10.7 Form of Change in Control Agreement dated as
of February 20, 1996.
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).
10.9 Kuhlman Corporation Long-Term Incentive Plan
[incorporated by reference to Exhibit 4.2 to
Registration Statement on Form S-8 (No.
333-26371)].
10.10 Amendment No. 1 dated as of June 30, 1997,
to the 364-Day
14
<PAGE>
Amended and Restated Credit Agreement, dated
as of July 1, 1996, among the Registrant,
The Chase Manhattan Bank as Administrative
Agent and the participating lenders
(incorporated by reference to Exhibit 10.2
to the Registrant's Form 10-Q for the
quarter ended June 30, 1997).
10.11 Amendment No. 1 dated as of June 30, 1997,
to the 5-Year Amended and Restated Credit
Agreement dated as of July 1, 1996, among
the Registrant, The Chase Manhattan Bank as
Administrative Agent and the participating
lenders (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-Q
for the quarter ended June 30, 1997).
10.12 Amended 1994 Stock Appreciation Rights Plan.
10.13 Amended Form of Change in Control Agreement
dated as of January 1, 1998.
13.0 Portions of Annual Report to Shareholders of
the Registrant for the year ended December
31, 1997 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, 1997.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
15
<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 1997 Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 2, 1998. 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 2, 1998
16
<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
OF PERIOD ADDITIONS (1) 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, 1997 (1) $ 2,344 2,582 (1,200) $ 3,726
Year Ended December 31, 1996 (1) $ 1,442 1,093 (191) $ 2,344
Year Ended December 31, 1995 $ 990 1,211 (759) $ 1,442
</TABLE>
(1) Additions reflect amounts related to acquisitions during the respective
period.
17
<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 30, 1998
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.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C>
ROBERT S. JEPSON, JR.* Chairman of the Board and March 30, 1998
Chief Executive Officer (Principal ___________
Executive Officer) and Director
VERNON J. NAGEL* Executive Vice President of March 30, 1998
Finance, Chief Financial Officer ___________
and Treasurer (Principal Financial
and Accounting Officer)
CURTIS G. ANDERSON* President, Chief Operating Officer March 30, 1998
and Director ___________
WILLIAM E. BURCH* Director March 30, 1998
___________
STEVE CENKO* Director March 30, 1998
___________
GARY G. DILLON* Director March 30, 1998
___________
ALEXANDER W. Director March 30, 1998
DREYFOOS, JR.* ____________
WILLIAM M. KEARNS, JR.* Director March 30, 1998
___________
GEORGE J. MICHEL, JR.* Director March 30, 1998
___________
GENERAL H. NORMAN Director March 30, 1998
SCHWARZKOPF* ___________
*By: /s/ ROBERT S. JEPSON, JR. Individually and as March 30, 1998
---------------------------------------- ___________
Robert S. Jepson, Jr. Attorney-in-Fact
</TABLE>
<PAGE>
The following agreement was executed as of February 20, 1996, by the Registrant
and by each of the following executive officers of the Registrant: Robert S.
Jepson, Jr.; Curtis G. Anderson; Vernon J. Nagel; and Richard A. Walker. The
terms of each such definitive agreement are otherwise identical to the form set
forth below.
[FORM OF]
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between Kuhlman Corporation, a Delaware corporation
(the "Company"), and (the "Employee") is dated as of February 20, 1996 (the
"Effective Date").
W I T N E S S E T H:
WHEREAS, the Company considers it to be in the best interests of its
stockholders to encourage the continued employment of key employees of the
Company in that the continuity of competent management is essential to
protecting and enhancing the best interests of the Company and its
stockholders; and
WHEREAS, the Employee is a key employee of the Company having served
in an executive capacity at the Company thereby acquiring an intimate
knowledge of the business and affairs of the Company and having clearly
demonstrated the ability to perform valuable services for the Company; and
WHEREAS, the Company believes that the possibility of the occurrence
of a Change in Control of the Company (as that phrase is defined in
Section 2) may result in the termination of the Employee's employment by
the Company or in the distraction of the Employee from the performance of
his duties to the Company, in either case to the detriment of the Company
and its stockholders; and
WHEREAS, the Company recognizes that the Employee could suffer
adverse financial and professional consequences if a Change in Control of
the Company were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect
the Employee if a Change in Control of the Company occurs, thereby
encouraging the Employee to remain in the employ of the Company and not
be distracted from the performance of his duties to the Company;
NOW, THEREFORE, the parties agree as follows:
Section 1. Other Employment Arrangements. Except as provided in
Section 10, this Agreement does not affect the Employee's existing or
future employment arrangements with the Company. The Employee's employment
by the Company shall continue to be at the will of the Company. If a Change
in Control of the Company shall occur before the expiration of the term of
this Agreement, then, whether or not the Employee's employment by the
Company shall at any time be terminated, the Employee shall be entitled to
receive the benefits provided for in this Agreement. This Agreement
<PAGE>
therefore modifies the current executive Severance Policy of the Company
in the context of a Change in Control of the Company.
Section 2. Change in Control of the Company. A "Change in Control
of the Company" shall have occurred if, after the Effective Date, (i) any
person (within the meaning of Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) other than the Company or an
Affiliate shall become the beneficial owner (as that term is defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 20 percent
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 (ii) the
stockholders of the Company shall approve (w) a merger or consolidation of
the Company with or into any person other than an Affiliate, (x) any sale,
lease, exchange or other transfer of all or substantially all the assets of
the Company to any person other than an Affiliate or (y) the dissolution of
the Company.
Section 3. Term of this Agreement. The term of this Agreement shall
begin on the Effective Date and, unless extended pursuant to the second
sentence of this Section or terminated pursuant to the third sentence of this
Section, shall expire at the end of the three-year period beginning on the
Effective Date (the "Expiration Date"). If the Company shall not have given
written notice to the Employee at least 45 days before the Expiration Date
that the term of this Agreement will expire on the Expiration Date, then the
term of this Agreement shall be extended automatically for successive
one-year periods (the first such period to begin on the day immediately
following the Expiration Date) unless and until the Company shall give
written notice to the Employee at least 45 days before the end of any
one-year period for which the term of this Agreement shall have been
extended that such term will expire at the end of such one-year period,
whereupon the term of this Agreement shall expire at the end of such
one-year period. This Agreement shall in any event expire upon the
termination by the Employee or the Company of the Employee's employment by
the Company, unless there has been a Change in Control of the Company.
Section 4. Benefits Payable on Change in Control. If a Change in
Control of the Company shall occur before the expiration of the term of this
Agreement, then the Employee shall be entitled to the following benefits:
(i) the Company shall pay to the Employee, as a lump sum, an
amount equal to the sum of:
(A) three times the amount of the Employee's annual base
salary as in effect on the date of occurrence of the Change in
Control of the Company (the "Change in Control Date"), plus
(B) three times the amount of the largest annual cash
bonus paid or payable by the Company to the Employee for services
rendered during any one of the three most recent fiscal years of
the Company, regardless of when such bonus may have been paid or
payable, plus
(C) the amount, if positive, equal to the aggregate spread
between the exercise prices of all outstanding unexercised options
to purchase shares of the Company's capital stock ("Shares") and
other rights whose value derives from the value of Shares
(including, without limitation, "cash-only" stock appreciation
rights), which options or rights had been issued by the Company
and are held by the Employee on the Change in Control Date, whether
<PAGE>
or not enough time had elapsed from the date of grant of such
options or rights so as to make them fully exercisable or vested
on the Change in Control Date, and the higher of
(1) the closing price of the Shares as reported on the
New York Stock Exchange or in the over-the-counter market,
as the case may be, on the Change in Control Date, or
(2) the highest price per Share actually paid in
connection with the Change in Control of the Company, plus
(D) an additional amount equal to the aggregate of any and
all federal, state and local income tax and excise tax liabilities
of the Employee resulting from the payments due pursuant to clauses
(A), (B), (C) and (D) hereof; and
(ii) the Company (at its sole expense) shall take the following
actions:
(A) throughout the three-year period immediately following
the Change in Control Date (the "Relevant Period"), the Company
shall maintain in effect, and not materially reduce the benefits
provided by, each of the Benefit Plans; and
(B) the Company shall arrange for the Employee's
uninterrupted participation throughout the Relevant Period in
each of the Benefit Plans, provided that, if the Employee's
participation in any Benefit Plan is not permitted by its terms,
then, throughout the Relevant Period, the Company (at its sole
expense) shall provide the Employee with substantially the same
benefits as were provided to the Employee pursuant to such Benefit
Plan on the Change in Control Date.
Each payment required to be made to the Employee pursuant to the foregoing
provisions of this Section shall be made by check drawn on an account of
the Company at a bank located in the United States of America and shall be
paid not more than 10 days after the Change in Control Date. Upon payment in
full to the Employee of all amounts due under subsection (i) of this Section,
all of the options and other rights referred to in clause (C) of such
subsection as to which payment has been made shall be automatically cancelled.
Section 5. Notices. Notices required or permitted to be given by
either party pursuant to this Agreement shall be in writing and shall be
deemed to have been given when delivered personally to the other party or
when deposited with the United States Postal Service as registered mail with
postage prepaid and addressed:
(i) if to the Employee, at the Employee's address last shown
on the Company's records, and
(ii) if to the Company, at 3 Skidaway Village Square, Savannah,
Georgia 31411, directed to the attention of the Chief Executive Officer;
or, in either case, to such other address as the party to whom or to which
such notice is to be given shall have specified by notice given to the other
party.
Section 6. Withholding Taxes. The Company may withhold from all
payments to be paid to the Employee pursuant to this Agreement all taxes
that, by applicable federal, state or local law, the Company is required
<PAGE>
to so withhold.
Section 7. Expenses of Enforcement. Upon demand by the Employee
made to the Company, the Company shall reimburse the Employee for all
reasonable expenses (including legal fees and expenses) incurred by the
Employee in enforcing or seeking to enforce the payment of any amount or
other benefit to which the Employee shall become entitled pursuant to this
Agreement.
Section 8. Employment by Subsidiaries. If, at the Effective Date,
the Employee is an employee of a subsidiary of the Company, then references
in this Agreement to the Employee's employment by the Company shall be
understood as references to the Employee's employment by the subsidiary.
Section 9. No Obligation to Mitigate. The Employee shall not be
required to mitigate the amount of any payment or other benefit required
to be paid to the Employee pursuant to this Agreement, whether by seeking
other employment or otherwise, nor shall the amount of any such payment or
other benefit be reduced on account of any compensation earned by the
Employee as a result of employment by another person.
Section 10. Confidential Information. From the Effective Date until
the expiration of the term of this Agreement, the Employee shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, that shall have been
obtained by the Employee during the Employee's employment by the Company or
any of its affiliated companies and that shall not have become public
knowledge (other than as a result of acts by the Employee in violation of
this Section). The Company shall not withhold or reduce any amount or
other benefit payable to the Employee pursuant to the terms of this
Agreement, or otherwise, on the ground that the Employee has breached or
threatened to breach the foregoing provisions of this Section; the sole
remedy of the Company for a breach or anticipated breach of such provisions
shall be injunctive relief.
Section 11. Amendment and Waiver. The Company, acting through the
Board of Directors, may amend or waive any or all of the Company's
obligations set forth in Section 4 at any time prior to the occurrence of
a Change in Control of the Company. Otherwise, no provision of this Agreement
may be amended or waived other than by written instrument signed by both
parties. No waiver by either party of any breach of this Agreement shall
be considered a waiver of any other or subsequent breach.
Section 12. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Georgia.
Section 13. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
Section 14. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together will constitute the same instrument.
Section 15. Assignment. This Agreement shall inure to the benefit
of and be enforceable by the Employee's legal representative. The
Company may not assign any of its obligations under this Agreement unless
such assignment is to a person with or into which the Company shall have
<PAGE>
been merged or consolidated or to which the Company shall have transferred
its assets as an entirety or substantially as an entirety.
Section 16. Interpretation.
(a) In the event of the enactment of any successor
provision to any statute or rule cited in this Agreement,
references in this Agreement to such statute or rule shall be to
such successor provision. The headings of Sections of this
Agreement shall not control the meaning or interpretation of this
Agreement. References in this Agreement to any Section are to
the corresponding Section of this Agreement unless the context
otherwise indicates.
(b) As used in this Agreement, the following terms have the
meanings indicated:
(i) "Affiliate" means any person who is, at the date hereof,
controlling or controlled by, or under common control with, the Company.
(ii) "Benefit Plans" means all of the Company's employee benefit
plans, including life insurance and medical, dental, health, accident
and disability plans, in which the Employee was a participant on the
Change in Control Date.
(iii) "Board of Directors" means the Board of Directors of the
Company or any duly authorized committee thereof.
(iv) "Company" has the meaning assigned to such term in the
recitals to this Agreement and shall include any person with or into
which such person shall have been merged or consolidated or to which
such person shall have transferred its assets as an entirety or
substantially as an entirety.
(v) The term "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 Agreement so indicates, such term
also has the meaning assigned to it in Section 13(d) of the Exchange
Act.
(vi) The term "this Agreement" means this Change of Control
Agreement as it may be amended from time to time in accordance with
Section 11.
(vii) "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.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the Effective Date.
KUHLMAN CORPORATION Approved:
By: By:
---------------------------- ---------------------------
<PAGE>
Robert D. Kilpatrick
Chairman, Compensation Committee of
the Board of Directors
THE EMPLOYEE:
(L.S.)
- --------------------------
<PAGE>
Exhibit 10.12
KUHLMAN CORPORATION
1994 STOCK APPRECIATION RIGHTS PLAN
(As Adopted November 17, 1994, Effective November 16, 1994,
and As Amended July 31, 1997)
<PAGE>
INDEX OF DEFINITIONS AND PHRASES
Defined Term Page
- ------------- ----
Affiliate 3
Beneficial Owner 3
Beneficial Ownership 3
Change in Control 4
Disability 4
Effective Date 1
Employee 2
Exchange Act 1
Fair Market Value of a share of Kuhlman common stock 2
Kuhlman 1
Person 4
Plan 1
SAR 2
Stock Appreciation Right 2
Subsidiary 1
Voting Stock 4
<PAGE>
KUHLMAN CORPORATION
1994 STOCK APPRECIATION RIGHTS PLAN
(As Adopted November 17, 1994, Effective November 16, 1994,
and As Amended July 31, 1997)
1. EFFECTIVE DATE AND PURPOSE. Kuhlman Corporation, a Delaware
corporation ("KUHLMAN"), has established this KUHLMAN CORPORATION 1994 STOCK
APPRECIATION RIGHTS PLAN (the "PLAN"), effective as of November 16, 1994 (the
"Effective Date"), and amended July 31, 1997. The purpose of the Plan is to
promote the long-term financial performance and goals of Kuhlman and its
Subsidiaries by attracting, retaining, and motivating key employees of Kuhlman
and its Subsidiaries with incentive compensation opportunities. For purposes of
the Plan, the term "SUBSIDIARY" means any corporation in which Kuhlman owns
directly or indirectly, through an unbroken chain of subsidiary corporations,
stock possessing voting power sufficient to elect a majority of the directors of
that corporation.
2. PLAN ADMINISTRATION AND GOVERNING LAW. The Plan shall be administered
by the Committee (as described below). In addition to those rights, duties, and
powers vested in the Committee by other provisions of the Plan, the Committee
shall have sole authority to:
(a) interpret the provisions of the Plan;
(b) adopt, amend and rescind rules and regulations for the
administration of the Plan; and
(c) make all other determinations deemed by it to be necessary or
desirable for the administration of the Plan.
The Committee shall exercise its authority only by a majority vote of its
members at a meeting or by a writing signed by a majority of its members without
a meeting. The Committee may not exercise its authority under the Plan with
respect to any individual who is subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") at any time that it has
fewer than the minimum number of members required for "disinterested
administration" of the Plan with respect to that individual under then
applicable regulations issued under Section 16(a) or 16(b) of the Exchange Act.
At any
1
<PAGE>
date, the members of the Committee shall be the members of the Compensation
Committee of the Board of Directors of Kuhlman excluding any Director whose
current or prior eligibility for or who was granted any stock, stock options, or
stock appreciation rights under the Plan or any other plan of Kuhlman or a
Subsidiary, if such eligibility or grant would cause that Director to fail to
be considered a "disinterested administrator" or "disinterested person" under
then applicable regulations issued under Section 16(a) or 16(b) of the Exchange
Act.
The Plan shall be governed by, and administered and construed in accordance
with, the internal laws and court decisions of the State of Delaware.
3. GRANTS OF SARS. Stock Appreciation Rights may be granted under the
Plan to any key executive, managerial, supervisory, administrative, or
professional employee of Kuhlman or a Subsidiary, as determined by the Committee
(an "EMPLOYEE"). The Committee may, at any time, grant one or more Stock
Appreciation Rights to an Employee, whether or not the Employee has previously
received a grant under the Plan; provided, however, that no Employee may be
granted more than 50,000 SARs in any calendar year. For purposes of the Plan,
the term "STOCK APPRECIATION RIGHT" or "SAR" means a right to receive, subject
to conditions and limitations of the Plan, as soon as practical after exercise
of the right, cash in an amount equal to the excess, if any, of:
(a) the Fair Market Value of a share of Kuhlman common stock on the date
of exercise of the right; over
(b) the Fair Market Value of a share of Kuhlman common stock on the date
of grant of the right.
For purposes of the Plan, the phrase "FAIR MARKET VALUE OF A SHARE OF KUHLMAN
COMMON STOCK" means, at any date:
(c) the closing price of Kuhlman common stock, as reported in the New
York Stock Exchange Composite Transaction Table in THE WALL STREET
JOURNAL for the trading date coincident with or next preceding the
date for which the value is being determined rounded, if necessary,
to the next full one cent; or
(d) if such shares are not then listed on the New York Stock Exchange or
not so reported (or determined by the Committee to be improperly
reported), then as established by the Committee.
2
<PAGE>
4. SARS AVAILABLE. The total number of Stock Appreciation Rights that
may be granted under the Plan over its term may not exceed 1,500,000. If an SAR
granted under the Plan expires or is terminated without having been exercised,
then that SAR shall not thereafter be considered in determining whether the
limitation described in the next preceding sentence has been exceeded. In the
event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split or other similar change in the corporate structure or
capitalization of Kuhlman which affects the outstanding Kuhlman common stock,
appropriate adjustment, as reasonably determined in good faith by the Board of
Directors of Kuhlman (or its successor), shall be made with respect to the (a)
number of SARs which may thereafter be granted under the Plan; (b) the affected
provisions of the Plan; and (c) the SARs previously granted under the Plan.
5. AUTOMATIC EXERCISE OF SARS. Each SAR granted under the Plan shall, if
not previously forfeited, be automatically exercised on the earliest to occur
of:
(a) the fifth anniversary of the date of grant of the SAR;
(b) the date of the grantee's death;
(c) the date that the grantee's employment with Kuhlman and all
Subsidiaries terminates by reason of the grantee's retirement on or
after age 65 (without remaining as a member of the Board of
Directors of Kuhlman or of any Subsidiary) or the grantee's
Disability;
(d) in the case of a grantee who remains as a member of the Board of
Directors of Kuhlman or of any Subsidiary when the grantee's
employment with Kuhlman and all Subsidiaries terminates, the first
date that the grantee is no longer a member of the Board of
Directors of Kuhlman or of any Subsidiary; or
(e) a Change in Control.
If the grantee's employment with Kuhlman and all Subsidiaries terminates for any
reason other than retirement, as described in (c) above (without remaining as a
member of the Board of Directors of Kuhlman or of any Subsidiary), death, or
Disability, then any outstanding SAR granted to that grantee shall be forfeited
and shall not be exercisable under the Plan; provided, however, that the
Committee may, in its sole discretion, waive the forfeiture of the grantee's
outstanding SARs and treat the grantee's employment termination date as the date
of exercise of those SARs.
For purposes of the Plan, the term "AFFILIATE" means any Person who is, at the
Effective Date, controlling or controlled by, or under common control with,
Kuhlman.
3
<PAGE>
For purposes of the Plan, the terms "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP"
shall have the meaning ascribed to such terms in Rule 13d-3 of the General
Rules and Regulations under the Exchange Act.
For purposes of the Plan, a "CHANGE IN CONTROL" of Kuhlman shall have occurred
if, after the Effective Date: (a) any Person (within the meaning of Section
13(d) of the Exchange Act) other than Kuhlman 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 Kuhlman shall
approve: (i) the dissolution of Kuhlman; or (ii) any sale, lease, exchange, or
other transfer of all or substantially all of the assets of Kuhlman to any
Person other than an Affiliate; or (iii) a merger or consolidation of Kuhlman
with or into any Person other than an Affiliate.
For purposes of the Plan, the term "DISABILITY" means a mental or physical
condition which, in the opinion of a licensed physician selected by the
Committee, renders a Participant incapable of performing the regular duties
assigned to him by Kuhlman and the Subsidiaries.
For purposes of the Plan, the term "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.
For purposes of the Plan, the term "VOTING STOCK" means shares of capital stock
of Kuhlman the holders of which are entitled to vote for the election of
directors of Kuhlman, but excluding shares entitled to vote only upon the
occurrence of a contingency unless that contingency shall have occurred.
6. FUNDING MEDIUM. All amounts payable under the Plan shall be paid
solely from the general assets of Kuhlman and the Subsidiaries. No Employee or
grantee shall have any right to payment under the Plan greater than that of a
general creditor of Kuhlman or a Subsidiary.
7. NO SHAREHOLDER OR EMPLOYMENT RIGHTS. A grantee shall not have any
rights of a stockholder of Kuhlman by reason of the grant or exercise of an SAR.
The Plan does not constitute a contract of employment. Eligibility to receive,
or receipt of, an SAR under the Plan does not give any individual the right to
become or remain an employee of Kuhlman or a Subsidiary and does not limit in
any way the right of Kuhlman or a Subsidiary to change the duties or
responsibilities of any Employee.
4
<PAGE>
8. NON-TRANSFERABILITY. An SAR granted under the Plan may not be
transferred except by will or the laws of descent and distribution; provided,
however, that the grantee may designate a beneficiary or beneficiaries to
receive payment on exercise on account of the grantee's death. A beneficiary
must be designated on a form furnished by or acceptable to the Committee and
shall be effective only if a properly executed form is filed with the Committee
while the grantee is alive. An effective beneficiary designation shall cancel
all beneficiary designations previously filed.
9. WITHHOLDING TAXES ON EXERCISE. Kuhlman and each Subsidiary shall have
the right to deduct, from any payment on exercise of an SAR, the amount of any
tax that Kuhlman or the Subsidiary reasonably believes is required by law to be
so withheld.
10. TERM, AMENDMENT, AND TERMINATION OF PLAN. No SAR shall be granted
under the Plan after November 16, 1999. SAR's granted prior thereto, however,
may extend beyond such date and the provisions of the Plan shall continue to
apply thereto. The Board of Directors of Kuhlman may amend or terminate the Plan
at any time; provided, however, that no amendment or termination of the Plan
shall affect, in any manner that is adverse to the grantee without the consent
of that grantee, the validity or terms of any SAR granted under the Plan before
the later of the effective date or adoption date of the amendment or
termination.
5
Exhibit 10.13
[FORM OF]
TECHNICAL AMENDMENT NO. 1 TO CHANGE IN CONTROL AGREEMENT
THIS TECHNICAL AMENDMENT NO. 1 TO CHANGE IN CONTROL AGREEMENT between
Kuhlman Corporation, a Delaware corporation (the "Company"), and ____________
(the "Employee"), is dated as of January 1, 1998.
W I T N E S S E T H:
WHEREAS, the Company and the Employee, having entered into a Change of
Control Agreement dated as of February 20, 1996 (the "Agreement"), now desire to
amend the Agreement in accordance with the terms hereof;
NOW, THEREFORE, the parties agree to amend the Agreement as follows:
1. Section 4(i) of the Agreement is hereby amended as follows: Clause
(C) is deleted in its entirety. Clause (D) is renamed clause "(C)" and the
reference therein to "clauses (A), (B), (C) and (D) hereof" becomes a reference
to "clauses (A), (B) and (C) hereof".
2. Except as amended hereby, the Agreement shall remain in full force
and effect. This Amendment No. 1 shall be governed by, and construed in
accordance with, the laws of the State of Georgia. This Amendment No. 1 may be
executed in counterparts, each of which shall be deemed an original but all of
which together will constitute the same instrument.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Amendment No. 1 as of the date first mentioned above.
KUHLMAN CORPORATION Approved:
By: _________________________ By: ___________________________
George J. Michel, Jr.
Chairman, Compensation Committee
of the Board of Directors
THE EMPLOYEE:
_____________________________ (L.S.)
<PAGE>
FIVE-YEAR SELECTED FINANCIAL DATA
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------- ---- ---- ---- ---- ----
In thousands, except per share data
Income statement data
Net sales $ 643,440 $ 456,465 $ 425,384 $ 396,117 $ 242,221
Gross profit (%) 23.0 % 22.1 % 19.8 % 19.2 % 17.9 %
Operating expenses (%) 14.1 % 13.7 % 12.9 % 13.3 % 13.2 %
Operating profit before restructuring costs 57,148 38,411 29,161 23,284 11,429
Operating profit (%) 8.9 % 8.4 % 6.9 % 5.9 % 4.7 %
Restructuring costs - - - - 8,650
Interest expense, net (8,637) (6,981) (7,066) (6,969) (4,523)
Merger expenses - - (4,510) - -
Other, net (2,009) (2,087) 493 (712) 178
Income (loss) before taxes and extraordinary item 46,502 29,343 18,078 15,603 (1,566)
Taxes (benefit) on income (loss) 18,573 12,007 8,034 5,633 (1,876)
Income before extraordinary item 27,929 17,336 10,044 9,970 310
Extraordinary item, net of tax - - (1,861) - -
Net income 27,929 17,336 8,183 9,970 310
- ---------------------------------------------------- --------- --------- --------- --------- ---------
Earnings per share (diluted):
Income before extraordinary item $ 1.75 $ 1.25 $ 0.75 $ 0.73 $ 0.02
Extraordinary item, net of tax - - (0.14) - -
Net income 1.75 1.25 0.61 0.73 0.02
- ---------------------------------------------------- --------- --------- --------- --------- ---------
AS OF DECEMBER 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------- --------- --------- --------- --------- ---------
In thousands
Balance sheet data
Working capital $ 60,065 $ 54,592 $ 39,182 $ 49,501 $ 63,397
Plant and equipment - net 125,526 77,864 66,249 64,750 61,161
Total assets 461,318 277,416 214,902 229,185 242,921
Total debt 117,732 94,597 74,175 84,773 106,130
Shareholders' equity 174,453 91,574 74,232 73,216 64,187
- ---------------------------------------------------- --------- --------- --------- --------- ---------
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------- --------- --------- --------- --------- ---------
In thousands, where applicable
Other data
EBITDA(1) $ 75,055 $ 48,794 $ 40,974 $ 33,779 $ 20,209
Cash flow from operations $ 54,652 $ 37,683 $ 28,131 $ 18,881 $ 10,518
Capital expenditures $ 19,966 $ 10,980 $ 15,200 $ 13,048 $ 6,091
Depreciation and amortization $ 19,916 $ 12,470 $ 11,320 $ 11,207 $ 8,602
Dividends paid $ 8,676 $ 7,967 $ 5,814 $ 3,640 $ 3,530
Net book value per share $ 10.55 $ 6.67 $ 5.64 $ 5.59 $ 4.97
Return on investment(2) 13% 12% 12% 9% 7%
Return on equity(3) 21% 21% 18% 15% 8%
Total debt as a percentage of total capitalization 40% 51% 50% 54% 62%
Inventory turns 7.9 7.0 7.6 7.0 6.3
Days sales outstanding 54.7 53.8 52.3 53.7 52.4
Number of employees 4,194 2,782 2,284 2,375 2,364
Shares outstanding at year-end 16,529 13,731 13,167 13,100 12,914
</TABLE>
(1) Income before interest and taxes plus depreciation and amortization,
excluding restructuring costs and merger expenses.
(2) Return on investment is calculated as income for the year divided by
average investment. Income is defined as net income plus the net of tax
impact of interest expense, restructuring costs and merger expenses.
Average investment is the sum of total debt and equity plus the equity
effect of restructuring costs and merger expenses, less cash.
(3) Return on equity is calculated as income for the year divided by average
equity. Income is defined as net income plus the net of tax impact of
restructuring costs and merger expenses. Average equity is adjusted for
the effect of restructuring costs and merger expenses.
1
Kuhlman Corporation 1997 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
Overview
In 1997, Kuhlman Corporation ("Kuhlman" or the "Company") made significant
progress toward its goal of being a larger, more diversified manufacturing
organization focused on building shareholder value by delivering superior
financial performance. While there are numerous metrics by which to gauge the
performance of a company, Kuhlman continued to make progress on virtually all
significant financial fronts. For example, net income grew 61% in 1997 over
1996 on an increase in net sales of 41%, while diluted earnings per share
advanced 40% in the same period. Similarly, the Company's return on investment
improved to 13% in 1997 from 12% in 1996, while return on shareholders' equity
of 21% in 1997 exceeded 20% for the second consecutive year. Importantly,
Kuhlman delivered economic value to its shareholders by providing operating
earnings greater than the cost of the capital employed to produce those
earnings for the third consecutive year. The Company was able to achieve these
results while diversifying the organization through acquisitions. During 1997,
the Company continued to expand its operations both through internal growth and
by acquiring businesses that participate in strategic markets. The two
businesses acquired in 1997, the Transportation Products Group ("Kysor") of
Kysor Industrial Corporation and Snyder Tank Corp. ("Snyder Tank"),
significantly strengthened Kuhlman's Schwitzer Group, which is one of the
world's leading providers of proprietary products used in commercial and
industrial transportation applications.
Since 1993, Kuhlman has acquired five 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 1997 exceeded $643 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 grew to approximately
$28 million in 1997 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 to electrical utilities and certain consumer, commercial and
industrial users, 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, 1997, 1996 and 1995.
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 $54,652,000 in
1997, an increase of 45% compared to 1996. This was the third consecutive year
of record cash flow from operations. Cash flow from operations was $37,683,000
and $28,131,000 in 1996 and 1995, respectively, which represented an increase
of 34% and 49%, 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, 1997 was $60,065,000 compared to
$54,592,000 at December 31, 1996, an increase of $5,473,000 (10%). The increase
was due primarily to higher cash and cash equivalents at certain foreign
locations and the acquisitions of Kysor and Snyder Tank. Operating working
capital (defined as accounts receivable and inventory less accounts payable and
accrued expenses) decreased 15% to $36,745,000 at December 31, 1997 from
$43,366,000 at December 31, 1996. The decrease in operating working capital was
primarily due to improved working capital management, particularly of
inventories, and the positive impact of higher accrued expenses attributable to
the timing of payments for certain operating expenses. Operating working
capital as a percentage of net sales for 1997 declined to 6% from 10% and 11%
(adjusted for the sale of Nehring Electrical Works) in 1996 and 1995,
respectively. Increases in total assets, debt and long-term liabilities at
December 31, 1997 reflect the Company's growth in sales and acquisitions.
In 1997, the Company continued to focus on improving the returns 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 $19,966,000 in 1997 for new
machinery and equipment. Over the last three years,
2
Kuhlman Corporation 1997 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
the Company has invested a total of $46,146,000 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 23% in the three-year period ended December 31, 1997,
have played a key role in improving operating profit margins and will enhance
its operations and financial performance in 1998 and beyond.
Acquisitions continued to play a key role in the growth and diversification of
Kuhlman in 1997. The Company invested approximately $105,000,000, net of cash,
plus the assumption of certain liabilities in 1997 to acquire Kysor and Snyder
Tank in March and November of 1997, respectively. Both acquisitions were
accounted for as purchases and accordingly their results of operations have
been included in the Company's consolidated results since their respective
dates of acquisition. In order to fund the acquisitions and associated working
capital, the Company borrowed approximately $110,000,000 from existing lines of
credit (See Capitalization below and Note 3 of the Notes to Consolidated
Financial Statements for additional information).
Dividends were a record $8,676,000 in 1997 compared with $7,967,000 in 1996 and
$5,814,000 in 1995. The increase in the dividends paid in 1997 over the
previous two years was primarily due to the issuance of 2,500,000 new shares of
common stock to the public in mid-1997 and 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. The dividend
amounted to $0.60 per share in each of the last three years.
Capitalization
Total debt increased to $117,732,000 at December 31, 1997 from $94,597,000 at
December 31, 1996. The increase was due primarily to the acquisitions of Kysor
and Snyder Tank, partially offset by the Company's record cash flow and
proceeds from the issuance of common stock. The Company sold a total of
2,500,000 shares of common stock at a per share price of $28.875 on June 27 and
July 8, 1997. The total proceeds, net of expenses, of $68,187,000 were used to
repay outstanding debt associated with the Kysor acquisition and to redeem
outstanding warrants to purchase 480,750 shares of the Company's common stock.
On June 30, 1997, the Company amended its primary credit facilities with its
banks in order to, among other things, enhance its financial flexibility, lower
its cost of borrowed funds and extend its facility for funding future
acquisitions. The Company's revolving credit facility, which was increased to
$165,000,000 from $125,000,000, is to be used for general corporate purposes
and is due on June 30, 2002. Borrowings under this facility were $111,500,000
at December 31, 1997. In addition, the Company's 364-day, $125,000,000
facility, which was established primarily to fund future acquisitions, was
extended to June 29, 1998, and amounts drawn under this facility, if any, would
convert to a 4-year term loan commencing on October 1, 1998. At December 31,
1997, there were no borrowings against this facility. Total availability under
the Company's domestic and foreign revolving credit agreements, excluding the
364-day facility, was $59,786,000 at December 31, 1997.
The Company's total debt-to-capital ratio was 40% at December 31, 1997 compared
to 51% and 50% at December 31, 1996 and 1995, respectively. The total
debt-to-capital ratio declined in 1997 because of the issuance of common stock
noted above and the Company's record cash flow which offset the impact of
additional indebtedness incurred from the acquisitions. In addition,
shareholders' equity grew 91% to $174,453,000 at December 31, 1997 from
$91,574,000 at the end of 1996 reflecting the benefit of the stock issuance and
the Company's record earnings in 1997. Return on average shareholders' equity
of 21% in 1997 exceeded 20% for the second consecutive year reflecting the
Company's record earnings performance in 1997.
Results of Operations
Consolidated Results
In 1997, the Company sold more products, earned more income and generated more
cash flow from operations than in any year in its 104-year history. 1997 was
the fourth consecutive year in which the Company achieved record sales as all
key business units reported sales growth. Consolidated net sales were
$643,440,000 in 1997 compared with $456,465,000 and $425,384,000 reported in
1996 and 1995, respectively. The Company reported record net income in 1997 of
$27,929,000 compared to $17,336,000 in 1996, an increase of 61%. In 1995, net
income was $13,783,000 (before expenses associated with the Schwitzer merger).
Net income in 1996 and 1995 increased 26% and 38%, respectively, over the
earnings reported in the previous year. Diluted earnings per share increased
40% to $1.75 in 1997 from $1.25 in 1996 which was up 23% from $1.02 (before
expenses associated with the Schwitzer merger) reported in 1995. Net income and
earnings per share in 1995 were $8,183,000 and $0.61, respectively, after
giving effect to the merger
3
Kuhlman Corporation 1997 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
expenses. Please refer to Note 2 of the Notes to Consolidated Financial
Statements which more fully describes the merger with Schwitzer.
Net sales at Kuhlman increased 41% in 1997 over 1996 due primarily to solid
gains in both the Electrical and Industrial Products Segments and the
acquisitions of Kysor and Snyder Tank. Within the Electrical Products Segment,
sales were benefitted by record shipments of medium power transformers to
utilities and growth in certain wire and cable products. The Industrial
Products Segment achieved record sales in 1997, almost double the sales
reported in this segment in 1996, due to excellent domestic and international
demand for various engine component products and the acquisitions noted above.
The Company's consolidated net sales in 1996 were 7% higher than those reported
in 1995 primarily due to strong demand for industrial engine components and
medium power transformers, and the addition of Communication Cable, Inc.
("CCI").
Kuhlman posted record operating profit in 1997 due to the strong earnings
performance of each business segment. Consolidated operating profit advanced
49% in 1997 to $57,148,000 (8.9% of net sales) from $38,411,000 (8.4% of net
sales) reported in 1996. Operating profit in 1995 was $29,161,000 (6.9% of net
sales). The growth in operating profit in 1997 was primarily due to the record
sales volume noted above and improved gross profit margins for key products.
Consolidated gross profit margins advanced to 23.0% of net sales in 1997 from
22.1% and 19.8% in 1996 and 1995, respectively. The improvement in gross profit
margins was primarily due to changes in sales mix to higher value-added
products and better manufacturing efficiencies as a result of productivity
improvement programs. Operating expenses for Kuhlman in 1997 were $91,072,000
(14.1% of net sales) compared to $62,524,000 (13.7% of net sales) in 1996 and
$54,946,000 (12.9% of net sales) in 1995. Operating expenses increased in 1997
over 1996 primarily due to the higher sales noted above, the addition of Kysor
and the impact of the Long-Term Incentive Plan ("LTIP"), which increased
operating expenses by $4,544,000. Excluding the impact of the LTIP, operating
expenses as a percentage of net sales would have declined to approximately
13.5% in 1997. Operating expenses in terms of actual amounts spent and as a
percentage of net sales increased in 1996 over 1995 primarily due to the higher
net sales noted above and changes in product mix.
Other income (expense) for Kuhlman is made up primarily of interest expense
and, to a lesser extent, other miscellaneous non-operating activity. Interest
expense, net for the Company was $8,637,000, $6,981,000 and $7,066,000 in 1997,
1996 and 1995, respectively. Interest expense, net was up in 1997 compared to
1996 primarily because of higher debt levels attributable to the acquisitions,
partially offset by the reduction of debt associated with the issuance of
additional common stock and the lower cost of borrowed funds. Interest expense,
net was down slightly in 1996 compared to 1995 primarily because of the
Company's lower cost of borrowed funds from period to period. Expenses
associated with other miscellaneous non-operating activity has remained
constant between 1997 and 1996 while 1995 was benefitted by a one-time gain.
See Note 12, "Other, Net," of the Notes to Consolidated Financial Statements
for additional information.
The effective tax rate reported by the Company was 39.9% in 1997 compared to
40.9% and 44.4% in 1996 and 1995, respectively. The differences between these
rates and the statutory Federal income tax rate for those three years is due
primarily to the effect of state income taxes and the non-deductability of
certain goodwill amortization. See Note 8, "Income Taxes," of the Notes to
Consolidated Financial Statements for additional information.
Electrical Products Segment
The Electrical Products Segment is comprised of Kuhlman Electric Corporation
("Kuhlman Electric") and Coleman Cable Systems, Inc. ("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 products. Additionally, the maintenance and upgrading of
established electrical systems creates demand for the segment's transformer
products.
In 1997, the Electrical Products Segment reported record sales and operating
earnings for the third consecutive year. Net sales increased to $297,087,000 in
1997 from $268,846,000 reported in 1996 and $243,761,000 in 1995. Operating
earnings of the Electrical Products Segment were $21,165,000 in 1997 compared
to $20,103,000 and $13,639,000 in 1996 and 1995, respectively. Operating
earnings as a percentage of net sales were 7.1%, 7.5% and 5.6% in 1997, 1996
and 1995, respectively. In 1997, net sales for the Electrical Products Segment
increased 11% over 1996 primarily due to greater shipments of medium power
transformers and certain wire and cable products, as well as the inclusion of
the results of CCI and Web Wire for the full period. The increase was partially
offset by lower net sales of security wire due to increased competition in that
market segment. Net sales in 1996 for the Electrical Products Segment increased
10% over 1995
4
Kuhlman Corporation 1997 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
primarily due to continued expansion of the medium power transformer business
and the addition of CCI.
Operating earnings for the Electrical Products Segment increased 5% in 1997
over 1996 because of the record operating performance at Kuhlman Electric,
partially offset by a decline at Coleman Cable. The record operating
performance at Kuhlman Electric in 1997 was driven primarily by strong
shipments of medium power transformers and enhanced margins overall due to
improved manufacturing efficiencies. Operating earnings at Coleman Cable
declined in 1997 over 1996 primarily because of costs incurred to enhance the
Company's manufacturing operations, the impact of changes in the cost of
copper, and reduced margins from the sales of security wire. In 1996, operating
earnings for the Electrical Products Segment increased 47% over 1995 primarily
due to the continued improvement in the operating performance at Kuhlman
Electric and the addition of CCI.
The improvement in the financial results reported by the Electrical Products
Segment in 1997 was driven by the Company's continued focus on providing its
customer base with higher value-added products and implementing programs that
enhance productivity. The result of these efforts has been to change the mix of
sales to higher margin products and services and to improve manufacturing
efficiencies at key locations. This focus continued to have a positive impact
on the results of Kuhlman Electric which increased sales and operating earnings
9% and 50%, respectively, over the 1996 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. 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 four years,
Kuhlman Electric has posted solid annual gains in operating performance since
1993. Similarly, net sales for wire and cable products within the Electrical
Products Segment reached record highs for the third consecutive year in 1997.
Net sales increased 11% in 1997 compared to 1996 and 6% in 1996 over 1995. The
increases in net sales for wire and cable products over the last three years
have been driven by the Company's overall strategy of providing a broader range
of value-added products to customers in key channels of distribution. This
strategy has been augmented by the additions of CCI and Web Wire which have
expanded both the Company's product offering and customer base. While this
strategy has improved profit margins due to a better sales mix, operating
earnings at Coleman Cable in 1997 were negatively impacted due to the cost
associated with actions taken by the Company to strengthen its manufacturing
operations in order to facilitate enhanced product quality and customer
service.
Industrial Products Segment
The Industrial Products Segment is comprised of the Schwitzer Group, which is
made up of Schwitzer, Kysor, Snyder Tank, and Emtec Products Corporation.
Profitability in this segment is generally 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 and commercial transportation equipment are indirect
indicators of demand for the segment's products.
Net sales and operating earnings in the Industrial Products Segment reached
record highs again in 1997. Net sales were $346,353,000 in 1997 compared to
$187,619,000 and $181,623,000 in 1996 and 1995, respectively. Operating
earnings for the Industrial Products Segment increased in 1997 to $46,636,000
from $22,386,000 and $19,541,000 in 1996 and 1995, respectively. Operating
earnings as a percentage of net sales advanced to 13.5% in 1997 compared to
11.9% and 10.8% in the previous two years, respectively.
Sales and operating earnings for the Industrial Products Segment increased 85%
and 108%, respectively, in 1997 compared to 1996. The significant improvement
was due primarily to the acquisition of Kysor and continued robust demand
worldwide for various industrial engine components. The positive demand was
derived primarily from original equipment manufacturers ("OEMs") in the United
States and Europe as economic conditions remained favorable throughout much of
the world. The addition of Kysor significantly expanded and strengthened the
Company's product offering and customer base for commercial and industrial
transportation components. The combination of Kysor and Schwitzer afforded the
Company an opportunity to enhance and streamline certain engineering and
manufacturing operations in 1997, which contributed to greater productivity as
well as improved product quality and customer service. Actions such as these
are a key element of the Company's overall strategy of improving profitability
while providing its customers with higher value-added products and services.
Excluding the impact of acquisitions, sales to domestic based customers grew
14% in 1997 from 1996 while international sales grew 10% over the same period.
Operating earnings in the Industrial Products Segment more than doubled in 1997
over 1996 as profit margins advanced significantly due primarily to improved
operating efficiencies, the impact of higher sales volume and lower operating
expenses as a percentage of sales.
5
Kuhlman Corporation 1997 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
KUHLMAN CORPORATION AND SUBSIDIARIES
In 1996, sales and operating earnings for the Industrial Products Segment grew
3% and 15%, respectively, over the results reported in 1995. The growth in
sales volume was due primarily to greater demand from domestic OEM customers.
Domestic sales increased approximately 8% in 1996 compared to 1995 primarily
due to improved market conditions for medium and heavy-duty trucks and
agricultural and construction equipment, while international sales remained
constant. 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. While the prices for many of those materials
continue to fluctuate, the overall effect of inflation on the Company's
operations has been minimal in 1997 and 1996, and somewhat greater in 1995.
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
In 1997, 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
five years, the sale of additional common stock and a significant capital
expenditure program have made Kuhlman Corporation a larger and more diversified
company with greater financial resources. As Kuhlman enters 1998, management
believes that the Company is positioned to grow and prosper in its many
markets. However, management's optimism about the future continues to be
tempered somewhat by matters including, but not limited to, the potential
impact of fluctuating currencies and raw material costs, an uncertain economic
environment in certain markets and the potential for rising interest rates.
While management will continue to focus on these variables very carefully, it
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 1998" and certain other
information contained in this report, which can be identified by the use of
forward-looking terminology such as "believe," "may," "will," "expect,"
"continue," "remains," "intend," "aim," "should," "prospects," "strive,"
"indicate," "goals," "seek," "vision," "strategy," "could," "plan," "become,"
"objective" and "future," 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 1993, 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.
6
Kuhlman Corporation 1997 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------- ---- ---- ----
In thousands, except per share amounts
Net sales $ 643,440 $456,465 $ 425,384
Cost of goods sold 495,220 355,530 341,277
- ----------------------------------------------------------- --------- -------- ---------
Gross profit 148,220 100,935 84,107
- ----------------------------------------------------------- --------- -------- ---------
Operating expenses:
Selling, engineering, general and administrative expenses 88,068 60,755 53,610
Intangible amortization 3,004 1,769 1,336
- ----------------------------------------------------------- --------- -------- ---------
Total operating expenses 91,072 62,524 54,946
- ----------------------------------------------------------- --------- -------- ---------
Operating profit 57,148 38,411 29,161
Other income (expense):
Interest expense, net (8,637) (6,981) (7,066)
Merger expenses - - (4,510)
Other, net (2,009) (2,087) 493
- ----------------------------------------------------------- --------- -------- ---------
Total other income (expense), net (10,646) (9,068) (11,083)
- ----------------------------------------------------------- --------- -------- ---------
Income before taxes and extraordinary item 46,502 29,343 18,078
Taxes on income 18,573 12,007 8,034
- ----------------------------------------------------------- --------- -------- ---------
Income before extraordinary item 27,929 17,336 10,044
Extraordinary item (net of tax effect of $1,175) - - (1,861)
- ----------------------------------------------------------- --------- -------- ---------
Net income $ 27,929 $ 17,336 $ 8,183
=========================================================== ========= ======== =========
Per share amounts:
Basic:
Income before extraordinary item $ 1.84 $ 1.29 $ 0.76
Extraordinary item - - (0.14)
- ----------------------------------------------------------- --------- -------- ---------
Net income $ 1.84 $ 1.29 $ 0.62
=========================================================== ========= ======== =========
Diluted:
Income before extraordinary item $ 1.75 $ 1.25 $ 0.75
Extraordinary item, net of tax - - (0.14)
- ----------------------------------------------------------- --------- -------- ---------
Net income $ 1.75 $ 1.25 $ 0.61
=========================================================== ========= ======== =========
Average shares outstanding
Basic 15,160 13,389 13,178
Diluted 15,929 13,858 13,475
</TABLE>
The Notes to Consolidated Financial Statements should be read in conjunction
with these statements.
7
Kuhlman Corporation 1997 Annual Report
<PAGE>
CONSOLIDATED BALANCE SHEETS
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
DECEMBER 31, 1997 1996
- ----------------------------------------------------------------------------------------- -------- ---------
In thousands
Assets
Current assets
Cash and cash equivalents $ 6,529 $ 2,209
Accounts receivable, less reserves of $3,726 and $2,344 at December 31, 1997 and 1996, 104,190 70,079
respectively
Inventories 71,282 52,530
Deferred income taxes 13,540 7,810
Prepaid expenses and other current assets 4,726 3,502
- ----------------------------------------------------------------------------------------- ----------- ----------
Total current assets 200,267 136,130
- ----------------------------------------------------------------------------------------- ----------- ----------
Plant and equipment
Land 4,130 3,075
Buildings and leasehold improvements 47,744 39,138
Machinery, fixtures and equipment 173,300 122,655
Construction in progress 5,720 2,825
- ----------------------------------------------------------------------------------------- ----------- ----------
230,894 167,693
Less - accumulated depreciation and amortization (105,368) (89,829)
- ----------------------------------------------------------------------------------------- ----------- ----------
Plant and equipment - net 125,526 77,864
- ----------------------------------------------------------------------------------------- ----------- ----------
Intangible assets, net of amortization of $7,445 and $4,441 at December 31, 1997 and
1996, respectively 123,616 58,326
- ----------------------------------------------------------------------------------------- ----------- ----------
Other assets 11,909 5,096
- ----------------------------------------------------------------------------------------- ----------- ----------
$ 461,318 $ 277,416
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 1,475 $ 2,295
Accounts payable 50,913 35,410
Accrued liabilities 87,814 43,833
- ----------------------------------------------------------------------------------------- ----------- ----------
Total current liabilities 140,202 81,538
- ----------------------------------------------------------------------------------------- ----------- ----------
Long-term debt 116,257 92,302
- ----------------------------------------------------------------------------------------- ----------- ----------
Accrued postretirement benefits 19,573 8,859
- ----------------------------------------------------------------------------------------- ----------- ----------
Other long-term liabilities 10,833 3,143
- ----------------------------------------------------------------------------------------- ----------- ----------
Total liabilities 286,865 185,842
- ----------------------------------------------------------------------------------------- ----------- ----------
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, 16,601 and 13,803 shares issued
at December 31, 1997 and 1996, respectively 16,601 13,803
Additional paid-in capital 103,543 32,749
Retained earnings 57,777 47,272
Foreign currency translation adjustments (1,364) (640)
Minimum pension liability (1,184) (690)
- ----------------------------------------------------------------------------------------- ----------- ----------
175,373 92,494
Less - treasury stock at cost (72 shares in 1997 and 1996) (920) (920)
- ----------------------------------------------------------------------------------------- ----------- ----------
Total shareholders' equity 174,453 91,574
- ----------------------------------------------------------------------------------------- ----------- ----------
$ 461,318 $ 277,416
=========== ==========
</TABLE>
The Notes to Consolidated Financial Statements should be read in conjunction
with these balance sheets.
8
Kuhlman Corporation 1997 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------------------- -------- ------- -------
In thousands
Cash flows from operating activities:
Net income $ 27,929 $ 17,336 $ 8,183
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary item, net - - 1,861
Merger expenses - - 4,510
Depreciation and amortization 19,916 12,470 11,320
Deferred income taxes (1,100) (25) 3,501
Provision for losses on accounts receivable 472 685 1,211
Non-cash charges and other, net 2,794 (217) 67
Changes in operating assets and liabilities:(1)
Accounts receivable (4,976) (4,780) (885)
Inventories (1,765) (1,300) (2,057)
Prepaid expenses and other current assets (87) 274 2,240
Accounts payable 2,266 3,915 1,049
Accrued liabilities 9,203 9,325 (2,869)
- ----------------------------------------------------------------------------------- ----------- ---------- ---------
Net cash provided by operating activities 54,652 37,683 28,131
=================================================================================== =========== ========== =========
Cash flows from investing activities:
Capital expenditures (19,966) (10,980) (15,200)
Acquisition of businesses, net of cash acquired (104,744) (39,863) -
Proceeds from sales of assets 437 126 7,248
- ----------------------------------------------------------------------------------- ----------- ---------- ---------
Net cash used for investing activities (124,273) (50,717) (7,952)
=================================================================================== =========== ========== =========
Cash flows from financing activities:
Net change in revolving loan facility (67,016) (21,572) (4,160)
Proceeds from issuance of long-term debt 90,000 39,439 25,016
Repayment of long-term debt (1,939) (1,850) (32,108)
Dividends paid (8,676) (7,967) (5,814)
Stock options exercised 2,561 2,000 933
Cash proceeds from stock issuance 68,187 4,905 -
Redemption of warrants (9,139) - -
Repurchase of common stock - - (920)
Payments for merger and related expenses - - (5,612)
Other (12) (534) (23)
- ----------------------------------------------------------------------------------- ----------- ---------- ---------
Net cash provided by (used for) financing activities 73,966 14,421 (22,688)
=================================================================================== =========== ========== =========
Effect of exchange rate changes on cash and cash equivalents (25) 241 54
- ----------------------------------------------------------------------------------- ----------- ---------- ---------
Increase (decrease) in cash and cash equivalents 4,320 1,628 (2,455)
Cash and cash equivalents, beginning of year 2,209 581 3,036
- ----------------------------------------------------------------------------------- ----------- ---------- ---------
Cash and cash equivalents, end of year $ 6,529 $ 2,209 $ 581
=================================================================================== =========== ========== =========
</TABLE>
(1) Net of the effects of acquisitions and foreign currency translation, where
applicable. See Note 9 for information on non-cash investing and financing
activities.
The Notes to Consolidated Financial Statements should be read in conjunction
with these statements.
9
Kuhlman Corporation 1997 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
KUHLMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
FOR THE YEARS ENDED ADDITIONAL
DECEMBER 31, 1997, COMMON COMMON PAID-IN
1996 AND 1995 SHARES(1) STOCK CAPITAL
=================================== ======== ======== =======
In thousands
- -----------------------------------
Balance - December 31, 1994 13,100 $13,100 $ 25,300
- ----------------------------------- --------- -------- ----------
Net income - - -
Cash dividends declared
($0.60 per share)(2) - - -
Exercise of stock options 127 127 806
Issuance of common stock 16 16 176
Repurchase of common stock (72) - -
Minimum pension liability - - -
Currency translation adjustment - - -
Other (3) (3) (65)
- ----------------------------------- ------------ ---------- ----------
Balance - December 31, 1995 13,168 $ 13,240 $ 26,217
- ----------------------------------- ----------- --------- ----------
Net income - - -
Cash dividends declared
($0.60 per share) - - -
Exercise of stock options 223 223 1,777
Issuance of common stock(3) 340 340 4,755
Minimum pension liability - - -
Currency translation adjustment - - -
- ----------------------------------- ----------- --------- ----------
Balance - December 31, 1996 13,731 $13,803 $ 32,749
- ----------------------------------- ----------- --------- ----------
Net income - - -
Cash dividends declared
($0.60 per share) - - -
Issuance of common stock(4) 2,638 2,638 69,203
Exercise of stock options 160 160 2,401
Redemption of warrants - - (810)
Minimum pension liability - - -
Currency translation adjustment - - -
- ----------------------------------- ----------- --------- ----------
Balance - December 31, 1997 16,529 $16,601 $ 103,543
=================================== =========== ========= ==========
<S> <C> <C> <C> <C> <C>
FOREIGN
FOR THE YEARS ENDED CURRENCY MINIMUM
DECEMBER 31, 1997, RETAINED TRANSLATION PENSION TREASURY
1996 AND 1995 EARNINGS ADJUSTMENT LIABILITY STOCK TOTAL
=================================== ======= ====== ====== ==== =====
In thousands
- -----------------------------------
Balance - December 31, 1994 $ 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 - - - - 933
Issuance of common stock - - - - 192
Repurchase of common stock - - - (920) (920)
Minimum pension liability - - (339) - (339)
Currency translation adjustment - (98) - - (98)
Other - - - - (68)
- ----------------------------------- -------- ----------- --------- -------- --------
Balance - December 31, 1995 $ 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 - - - - 2,000
Issuance of common stock(3) - - - - 5,095
Minimum pension liability - - (308) - (308)
Currency translation adjustment - 1,271 - - 1,271
- ----------------------------------- -------- ----------- --------- -------- --------
Balance - December 31, 1996 $ 47,272 $ (640) $ (690) $ (920) $ 91,574
- ----------------------------------- -------- ----------- --------- -------- --------
Net income 27,929 - - - 27,929
Cash dividends declared
($0.60 per share) (9,095) - - - (9,095)
Issuance of common stock(4) - - - - 71,841
Exercise of stock options - - - - 2,561
Redemption of warrants (8,329) - - - (9,139)
Minimum pension liability - - (494) - (494)
Currency translation adjustment - (724) - - (724)
- ----------------------------------- -------- ----------- --------- -------- --------
Balance - December 31, 1997 $ 57,777 $ (1,364) $ (1,184) $ (920) $174,453
=================================== ======== =========== ========= ======== ========
</TABLE>
(1) Common shares outstanding exclude 72 treasury shares in 1997, 1996 and
1995, respectively.
(2) Dividends per share have not been restated to reflect the Schwitzer merger.
(3) Includes $4,905 associated with the acquisition of Web Wire Products, Inc.
(4) Includes $68,187, net of expenses, associated with the Company's stock
offering and $3,510 of stock issued under the Company's Long-Term Incentive
Plan.
The Notes to Consolidated Financial Statements should be read in conjunction
with these statements.
Report of Independent Public
Accountants
To the Shareholders of Kuhlman Corporation:
We have audited the accompanying consolidated balance sheets of Kuhlman
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Louisville, Kentucky
February 2, 1998
10
Kuhlman Corporation 1997 Annual Report
<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 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. Further information pertaining to the merger is presented in Note 2,
"Merger."
Certain amounts in the Company's 1996 and 1995 financial statements have been
reclassified to conform with the 1997 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 70% and 62%
of the inventories at December 31, 1997 and 1996, 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. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
operation's undiscounted 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 during
any of the periods presented.
11
Kuhlman Corporation 1997 Annual Report
<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 $11,733,000, $7,009,000 and $6,745,000 in 1997, 1996 and
1995, 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,
including direct and indirect costs, 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
The Company has foreign subsidiaries located in the United Kingdom ("U.K."),
Wales and Brazil. Financial data of the U.K. and Wales subsidiaries are
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 for these subsidiaries are
credited or charged to income as they occur. The Brazilian subsidiary operated
in a hyperinflationary economy for all periods presented. 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. These charges were not significant for the periods shown.
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 each interest rate swap agreement 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 13, "Stock Based Compensation Plans," for
related disclosures.
Per Share Information
In March 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"). The Company's historical
earnings per share have been adjusted to comply with the disclosure
requirements of SFAS No. 128. Under the provisions of SFAS No. 128, 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, including options and warrants,
in the weighted average shares outstanding. Dilutive shares used in the per
share calculation in 1997, 1996 and 1995 included approximately 769,000,
469,000 and 297,000 shares, respectively, resulting from the dilutive effects
of common stock equivalents.
12
Kuhlman Corporation 1997 Annual Report
<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 refinancing of substantially
all of Schwitzer's domestic debt ("Merger expenses").
NOTE 3. ACQUISITIONS AND DIVESTITURE
- --------------------------------------------------------------------------------
Acquisition of
Kysor Transportation Products Group
On March 10, 1997, the Company purchased certain assets and assumed certain
liabilities 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 is being 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 is
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 Company for the periods
shown below gives effect to the Kysor acquisition as if it had occurred as of
the beginning of each period.
<TABLE>
<S> <C> <C>
YEAR ENDED
DECEMBER 31,
In thousands, except per share data 1997 1996
===================================== ======== =====
Net sales $670,249 $592,619
Net income $28,747 $20,771
Diluted per share amounts:
Net income $ 1.80 $ 1.50
</TABLE>
The unaudited pro forma information assumes the acquisition of the net assets
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
informational purposes only and is not necessarily indicative of the results of
operations that actually would have been achieved had the acquisition of Kysor
been consummated at the beginning of the periods presented.
Acquisition of
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 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.
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.
13
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
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 impact on
operations for the period January 1 through February 20, 1996 was not
significant and, therefore, pro forma amounts were not presented giving effect
to the transaction for that period.
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.
Divestiture of Nehring
In the fourth quarter of 1995, Coleman Cable Systems, Inc. ("Coleman Cable")
sold the net assets of its subsidiary, Nehring Electrical Works Company
("Nehring"), for approximately book value. Coleman Cable 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.
NOTE 4. DEBT
- --------------------------------------------------------------------------------
On June 30, 1997, the Company amended its primary credit facilities with its
banks in order to, among others, enhance its financial flexibility, lower its
cost of borrowed funds and extend its facility for funding future acquisitions.
The Company's revolving credit facility, which was increased to $165,000,000
from $125,000,000, is used for general corporate purposes and is due on June 30,
2002. In addition, the Company's 364-day, $125,000,000 facility, which was
established primarily to fund future acquisitions, was extended to June 29,
1998, and amounts drawn under this facility, if any, would convert to a
four-year term loan with payments commencing on October 1, 1998 with equal
quarterly installments. There were no borrowings at December 31, 1997 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 in the credit
facility agreements). The Company's credit facilities are subject to various
covenants, including financial covenants relating to minimum levels of net
worth, interest coverage and the leverage ratio. The Company was free of any
material restrictions as to the payment of dividends as of December 31, 1997.
The average interest rate as of December 31, 1997 under the Company's primary
credit facilities was 6.3%.
At December 31, 1997, the Company had unused availability under its domestic
and foreign revolving credit facilities of approximately $59,786,000, excluding
the 364-day facility.
At December 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<S> <C> <C>
In thousands 1997 1996
==================================== ======== =======
Variable rate notes supported by
revolving credit agreement with
banks $111,500 $87,500
Miscellaneous other long-term debt,
annual interest rates up to 18%,
payable through 2011 6,232 7,097
- ------------------------------------ --------- -------
117,732 94,597
Less - current portion (1,475) (2,295)
- ------------------------------------ --------- -------
$116,257 $92,302
========= =======
</TABLE>
The minimum scheduled principal payments on long-term debt outstanding at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
In thousands
============================================
1998 $ 1,475
1999 1,105
2000 740
2001 445
2002 111,720
Thereafter 2,247
- ---- --------
Total minimum scheduled principal payments $117,732
============================================ ========
</TABLE>
14
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 5. INVENTORIES
- --------------------------------------------------------------------------------
Inventories at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<S> <C> <C>
In thousands 1997 1996
=============================== ======= =======
FIFO cost:
Raw materials $32,904 $24,648
Work-in-progress 17,270 9,790
Finished products 21,662 19,440
- ------------------------------- -------- -------
71,836 53,878
Excess of FIFO over LIFO cost (554) (1,348)
- ------------------------------- -------- -------
$71,282 $52,530
======== =======
</TABLE>
NOTE 6. ACCRUED LIABILITIES
- --------------------------------------------------------------------------------
Accrued liabilities at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<S> <C> <C>
In thousands 1997 1996
======================================= ======= =======
Salaries, wages and employee benefits $31,513 $19,791
Product related accruals 17,085 7,720
Accrued income taxes 7,443 3,173
Workers compensation 5,856 2,100
Dividends payable 2,479 2,060
Other 23,438 8,989
- --------------------------------------- ------- -------
$87,814 $43,833
======= =======
</TABLE>
NOTE 7. 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 approximately $2,004,000,
$1,767,000 and $1,556,000 in 1997, 1996 and 1995, respectively. Pension expense
for the defined benefit plans in 1997, 1996 and 1995 is comprised of the
following elements:
<TABLE>
<S> <C> <C> <C>
In thousands 1997 1996 1995
=============================== ====== ====== ======
Current service cost $2,798 $1,803 $1,576
Interest on projected benefit
obligations 3,939 2,167 2,008
Return on assets (6,363) (3,322) (3,151)
Net amortization and deferral 1,630 1,119 1,123
- ------------------------------- ------ ------ ------
$2,004 $1,767 $1,556
====== ====== ======
</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 its defined benefit plans based on actuarially determined amounts
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
=========================== ==========================
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
In thousands Benefits Assets Benefits Assets
================================= ============= ============= ============= ============
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested $39,651 $7,747 $19,115 $3,839
Non-vested 5,372 51 1,760 817
- --------------------------------- ------- ------ ------- ------
Accumulated benefit
obligations 45,023 7,798 20,875 4,656
Effects of salary progression 12,193 - 6,963 -
- --------------------------------- ------- ------ ------- ------
Projected benefit obligations 57,216 7,798 27,838 4,656
Plan assets at fair value 63,861 6,211 26,599 3,276
- --------------------------------- ------- ------ ------- ------
Plan assets over (under)
projected benefit obligations 6,645 (1,587) (1,239) (1,380)
Unrecognized transition (asset)
liability 932 (210) (124) (66)
Unrecognized net (gain) or loss (1,342) 2,045 1,895 1,161
Unrecognized prior service cost (348) 925 599 510
Adjustment to recognize
minimum liability(1) - (1,815) - (1,145)
- --------------------------------- ------- ------ ------- ------
(Accrued) prepaid pension
expense $5,887 $ (642) $1,131 $ (920)
================================= ======= ====== ======= =======
</TABLE>
(1) Net of the associated intangible asset.
The assumptions used as of December 31, 1997, 1996 and 1995 in determining
pension expense and funded status information shown above are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
==== ==== ====
Discount rate 7.2% 7.5% 7.5%
Rate of salary progression 4.2% 4.2% 4.2%
Long-term rate of return on assets 9.7% 9.7% 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 approximately $1,472,000, $831,000 and $664,000 in the years ended
December 31, 1997, 1996 and 1995, respectively, related to these savings plans.
15
Kuhlman Corporation 1997 Annual Report
<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 1997, 1996 and 1995 included the
following components:
<TABLE>
<S> <C> <C> <C>
In thousands 1997 1996 1995
=================================== ====== ====== ======
Service cost - benefits attributed
to service during the period $ 264 $ 126 $ 80
Interest cost on accumulated
postretirement benefit
obligation 1,466 929 968
Net deferral and amortization 86 133 26
- ----------------------------------- ------ ------ ------
Net periodic postretirement
benefit cost $1,816 $1,188 $1,074
=================================== ====== ====== ======
</TABLE>
The amounts recognized in the Company's consolidated balance sheet at December
31, 1997 and 1996 were as follows:
<TABLE>
<S> <C> <C>
In thousands 1997 1996
=========================================== ======= =======
Accumulated postretirement benefit
obligation:
Retirees $17,920 $10,492
Fully eligible active plan participants 1,315 446
- ------------------------------------------- ------- -------
Fully eligible 19,235 10,938
Other active plan participants 4,043 1,215
- ------------------------------------------- ------- -------
Accumulated benefit obligation 23,278 12,153
Unrecognized net loss (1,802) (1,877)
- ------------------------------------------- ------- -------
Postretirement liability recognized in
financial statements 21,476 10,276
Less: current portion (1,903) (1,417)
- ------------------------------------------- ------- -------
$19,573 $8,859
======= =======
</TABLE>
The accumulated postretirement obligation was determined using a discount rate
of approximately 7.2%. 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% in 2001
and thereafter.
A 1% increase in the health care cost trend rate would increase the estimated
accumulated postretirement benefit obligation as of December 31, 1997 by
approximately $1,007,000. The impact on net periodic cost is minimal. The
Company's postretirement benefit plans are unfunded.
NOTE 8. INCOME TAXES
- --------------------------------------------------------------------------------
Income before taxes and extraordinary item was as follows:
<TABLE>
<S> <C> <C> <C>
In thousands 1997 1996 1995
============== ======= ======= =======
Domestic $38,681 $26,190 $13,270
Foreign 7,821 3,153 4,808
- -------------- ------- ------- -------
$46,502 $29,343 $18,078
======= ======= =======
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<S> <C> <C> <C>
In thousands 1997 1996 1995
============== ======= ======= =========
Current:
Federal $13,361 $ 8,938 $3,784
State 1,716 1,460 630
Foreign 2,473 1,252 1,680
- -------------- ------- -------- ----------
$17,550 $11,650 $6,094
------- -------- ----------
Deferred:
Federal $ 906 $ 439 $1,738
State 106 136 204
Foreign 11 (218) (2)
- -------------- ------- -------- ----------
$ 1,023 $ 357 $1,940
------- -------- ----------
Total $18,573 $12,007 $8,034
============== ======= ======== ==========
</TABLE>
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.
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>
<S> <C> <C> <C>
In thousands 1997 1996 1995
================================== ====== ===== ======
Net operating loss carryforwards $ (177) $(177) $ 425
Restructuring costs - - (326)
Depreciation (330) (304) 47
Employee compensation and
benefits 2,408 1,025 566
Postretirement benefits (80) 53 217
Other (798) (240) 1,011
- ---------------------------------- ------- ----- -------
Total $1,023 $ 357 $1,940
================================== ======= ===== =======
</TABLE>
16
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
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>
1997 1996 1995
======================= ======================= ======================
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 $16,276 35.0% $10,271 35.0% $6,147 34.0%
State income taxes, net
of Federal income tax
effect 1,183 2.5 1,037 3.5 550 3.0
Amortization of
goodwill 543 1.2 479 1.6 332 1.8
Effect of foreign
subsidiaries (253) (0.6) (70) (0.2) 75 0.4
Merger expenses - - - - 949 5.3
Other 824 1.8 290 1.0 (19) (0.1)
- ------------------------ ------- ---- ------- ---- ------ ----
$18,573 39.9% $12,007 40.9% $8,034 44.4%
======= ==== ======= ==== ====== ====
</TABLE>
The net deferred tax asset recognized in the consolidated statements of
financial position as of December 31, 1997 and 1996 consists of the following:
<TABLE>
<S> <C> <C>
In thousands 1997 1996
==================================== ======= ======
Deferred tax assets:
Net operating loss carryforwards $ 1,364 $1,469
Postretirement benefits 4,214 3,984
Employee compensation & benefits 9,503 4,144
Other 4,557 3,383
- ------------------------------------ ------- ------
Total deferred tax assets 19,638 12,980
- ------------------------------------ ------- ------
Deferred tax liabilities:
Depreciation (8,053) (6,975)
Prepaid expenses and other (2,624) (1,037)
- ------------------------------------ ------- ------
Total deferred tax liabilities (10,677) (8,012)
- ------------------------------------ ------- ------
Net deferred tax asset $ 8,961 $4,968
==================================== ======= ======
</TABLE>
One of the Company's wholly-owned domestic subsidiaries has available net
operating losses which expire as follows:
<TABLE>
<S> <C>
In thousands
==============
2005 $3,640
2006 31
- ---- ------
$3,671
======
</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 nine years.
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 were to occur, the Company may be
subject to both United States income taxes and foreign withholding taxes.
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 available foreign tax
credits.
NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------------------------------------------
Cash payments for interest and net cash payments for income taxes are as
follows:
<TABLE>
<S> <C> <C> <C>
In thousands 1997 1996 1995
============================== ======= ====== ======
Interest $ 9,248 $6,419 $6,743
Income taxes, net of refunds $14,948 $9,758 $1,726
</TABLE>
Supplemental Non-Cash Investing and Financing Activities
In 1997, 1996, and 1995, the Company issued 5,646, 10,736 and 16,000 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 $144,000, $192,000 and $192,000 in 1997, 1996 and
1995, respectively, and this amount was amortized to expense over the one-year
term of the grants.
See Note 3, "Acquisitions and Divestiture," and Note 13, "Stock Based
Compensation Plans," for additional supplemental information on non-cash
investing and financing activities.
17
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
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 initially entitles the holder to
purchase one one-hundredth (1/100) of a share of Junior Participating Preferred
Stock at a price of $80 per right. The rights, which do not have voting rights,
will become exercisable for common stock of the Company if a person or group,
without the Company's prior consent, acquires 15% or more of such common stock
or announces a tender offer which would result in such ownership of 15% or more
of such common stock. In the event the rights become exercisable for common
stock, each right will entitle its holder to purchase, at the right's
then-current exercise price, common stock of the Company having a value of
twice the exercise price of the right. In the event the rights become
exercisable for common stock 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, 2007, and may be redeemed by the Company at a
price of $0.001 per right at any time before a 15% position has been acquired
or a tender offer has been announced.
Stock Offering
On June 27, 1997 and July 8, 1997, the Company sold 2,350,000 and 150,000
shares, respectively, of its common stock at a per share price to the public of
$28.875. The total proceeds, net of expenses, were approximately $68,187,000 of
which approximately $59,100,000 was used to reduce amounts outstanding under
the Company's credit facilities associated with the acquisition of Kysor, and
approximately $9,100,000 was used to redeem outstanding warrants held by a
former lender of Schwitzer as described below.
On a supplementary basis, assuming that the total offering and sale of
2,500,000 shares as described above had been completed as of January 1, 1996
and the estimated net proceeds had been used to reduce the Company's
indebtedness and redeem the warrants, diluted earnings per share for the years
ended December 31, 1997 and 1996 would have been approximately $1.70 and $1.21,
respectively.
Warrants
The Company issued detachable warrants in 1992 to a former lender of Schwitzer.
The warrants gave 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 warrants were redeemed by the Company
in June 1997 at the request of the warrant holder.
NOTE 11. 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>
<S> <C> <C> <C>
In thousands 1997 1996 1995
================= ====== ====== ======
Minimum rentals $4,142 $3,248 $3,171
================= ====== ====== ======
</TABLE>
Minimum future rental payments under noncancelable operating leases for each of
the next five years and in the aggregate are as follows:
<TABLE>
<S> <C>
In thousands
===============================
1998 $3,266
1999 2,627
2000 2,196
2001 1,415
2002 220
Subsequent to 2002 235
- ------------------------------- ------
Total minimum rental payments $9,959
=============================== ======
</TABLE>
Capital Leases
The Company leases various manufacturing, office and warehouse properties and
office equipment under capital leases which expire at various dates through
2009. The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
assets. The assets are depreciated over the shorter of their related lease
terms or their estimated productive lives. Depreciation of assets under capital
leases is included in depreciation expense.
At December 31, 1997 and 1996, property under capital leases included with
plant and equipment in the accompanying consolidated balance sheet is as
follows:
<TABLE>
<S> <C> <C>
In thousands 1997 1996
================================= ====== ======
Building and improvements $2,360 $2,360
Machinery and equipment 380 391
- --------------------------------- ------ -------
2,740 2,751
Less - accumulated depreciation (1,039) (964)
- --------------------------------- ------ -------
Plant and equipment, net $1,701 $1,787
================================= ====== =======
</TABLE>
18
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
Minimum future lease payments under capital leases as of December 31, 1997 are
as follows:
<TABLE>
<S> <C>
In thousands
=============================================
1998 $ 566
1999 474
2000 539
2001 407
2002 357
Subsequent to 2002 2,294
- --------------------------------------------- ------
Total minimum lease payments $4,637
Less - amounts representing interest (2,119)
- --------------------------------------------- ------
Present value of net minimum lease payments 2,518
Less - current portion (235)
- --------------------------------------------- ------
Long-term obligations under capital leases $2,283
============================================= ======
</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.
Legal and Environmental
Matters
The Company has accrued for various legal matters and certain investigatory and
non-capital environmental remediation costs consistent with the policy set
forth in Note 1, "Summary of Significant Accounting Policies." Estimates of
these costs have been made and accrued in the financial statements. Based on
the information currently available, management does not expect that sums that
may have to be paid in connection with these matters will exceed balances
already accrued in any material respects and, therefore, management does not
expect that the outcome of such matters will 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 $3,100,000.
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 as presently stated, upon a change of control, as
defined, each such officer would be entitled to receive, among other things,
three times his current annual pay and three times his highest cash bonus in
the past three years. 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 of 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.
NOTE 12. OTHER, NET
- --------------------------------------------------------------------------------
Other, net for the years ended December 31, 1997, 1996 and 1995 consisted of
the following:
<TABLE>
<S> <C> <C> <C>
In thousands 1997 1996 1995
=================================== ======= ======= =====
Non-operating postretirement
benefits $(1,250) $(1,065) $(815)
Settlement of certain liabilities - - 1,586
Foreign currency translation
adjustments, net 94 193 75
Miscellaneous (853) (1,215) (353)
- ----------------------------------- ------- ------- -----
$(2,009) $(2,087) $ 493
======= ======= =====
</TABLE>
19
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 13. STOCK BASED COMPENSATION PLANS
- --------------------------------------------------------------------------------
Stock Award Plans
In 1996, the Board of Directors adopted the Long-Term Incentive Plan ("LTIP")
in order to better align stockholder and employee interests by encouraging
employee stock ownership in the Company and motivating employees with
compensation conditioned upon achievement of the Company's financial goals. The
LTIP was approved by the shareholders of the Company in April, 1997. Under the
terms of the LTIP, awards may be made of incentive and nonqualified stock
options, stock appreciation rights and restricted stock to eligible employees.
In addition, awards may also be made to eligible employees with a value tied to
specific performance goals. The value of these awards may be paid with Company
common stock or cash, or a combination of the two. The program specifies that a
number of awards equal to two and one-half percent of the outstanding shares of
the Company will be available for grant under the various award alternatives on
January 1 of each year subject to certain conditions and adjustments.
In August 1996, award levels were approved by the Board of Directors whereby
certain key employees would receive a payout after the attainment of price
thresholds for Kuhlman common stock of $23 and $27, subject to vesting
requirements and other factors. In April and May, 1997, performance award
levels were achieved for the attainment of the two share price targets of $23
and $27, respectively. The payout to eligible participants, which consists of
two-thirds stock and one-third cash, is being made in four quarterly
installments subject to certain vesting requirements and other factors,
commencing on May 1 and June 1, 1997, respectively. The estimated pre-tax
expense of such awards is approximately $7,000,000, with approximately
$3,600,000 and $3,400,000 to be paid for the $23 and $27 targets, respectively.
Recognition of the related compensation expense of such awards is based on the
commencement date and the vesting requirements. In 1997, the Company recognized
approximately $4,500,000 of expense under the LTIP, of which two-thirds
represents a non-cash charge for the issuance of stock under the terms of the
program. The expenses are included in operating expenses as part of Corporate
expenses. The remaining balance of $2,500,000 will be expensed in the first and
second quarter of 1998, in accordance with the associated vesting requirements.
In July, 1997, additional award levels were approved by the Board of Directors
whereby certain key employees would receive a payout after the attainment of
each of two share price thresholds within two years from the award date,
subject to vesting requirements and other factors. The stock price thresholds
are $36 and $42 per share, and the pre-tax cost of the awards would be
approximately $4,450,000 each. The Company achieved the $36 threshold in
October 1997 with payouts and vesting to commence in the second quarter of
1998.
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. Approximately 20,000 shares were available for grants as of
December 31, 1997.
Stock Appreciation Rights
In addition to the stock appreciation rights that may be issued pursuant to the
LTIP noted above, the Company has a 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 automatically exercised on the earliest to occur of the
fifth anniversary of the grant or other circumstances, including a change in
control as defined in the SAR Plan, of the Company. Unearned compensation,
representing changes in the market value of the SAR, has been charged to income
in the period incurred. Expenses of approximately $1,152,000 and $546,000 were
recognized in 1997 and 1996, respectively, under the Company's SAR plans. As of
December 31, 1997, 171,000 SARs with an average basis of $16.87 per SAR had
been awarded and were outstanding under the SAR Plan.
20
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
Stock Options
The Company has various stock option plans for employees and non-employee
directors. These plans provide for the granting of options to purchase common
shares of the Company. All options under these plans are granted at prices
equal to the market value at the date of grant, become exercisable between six
and forty-eight months after the date of grant, and may be exercised up to ten
years from the grant date. As of December 31, 1997, there were approximately
132,000 and 74,000 options available for grant to employees and non-employee
directors, respectively, under the Company's option plans. Of the option grants
available to employees, approximately 94,000 could be used for any of the other
types of employee awards available under the LTIP.
The following is a summary of options outstanding as of December 31, 1997:
<TABLE>
<S> <C> <C> <C>
WEIGHTED
AVERAGE AVERAGE
EXERCISE OPTION S EXERCISE REMAINING
PRICE (000'S) PRICE LIFE
============== ======= ======== ==========
$ 4.81-$7.20 156 $ 5.72 3.2 yrs.
$ 7.20-$10.80 188 8.86 4.0 yrs.
$10.80-$16.20 786 13.84 6.7 yrs.
$16.20-$27.88 680 19.96 8.1 yrs.
- -------------- ------- ------- ----------
1,810
=======
</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>
<S> <C> <C>
In thousands, except per share data 1997 1996
===================================== ===== =====
Net income
As reported $27,929 $17,336
Pro forma $27,295 $17,068
Basic earnings per share
As reported $ 1.84 $ 1.29
Pro forma $ 1.80 $ 1.27
Diluted earnings per share
As reported $ 1.75 $ 1.25
Pro forma $ 1.71 $ 1.23
</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: dividend yields ranging from 1.8% to 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, 1997:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
====== ====== =======
WEIGHTED WEIGHTED WEIGHTED
AVG. AVG. AVG.
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
======= ====== ======= ==== ======= ====
Outstanding at
beginning of year 1,521 $ 12.81 1,572 $ 12.08 1,549 $ 12.09
Granted 449 21.40 310 14.14 382 12.21
Exercised (160) 12.98 (308) 9.82 (134) 7.70
Forfeited - - (24) 16.16 (219) 14.88
Expired - - (29) 16.90 (6) 12.32
- ---------------------- --------- --------- --------- --------- ------------ ---------
Outstanding at end of
year 1,810 $ 14.92 1,521 $ 12.81 1,572 $ 12.08
====================== ========= ========= ========= ========= =========== =========
Exercisable at end of
year 1,762 $ 14.98 1,434 $ 13.03 1,420 $ 12.43
====================== ========= ========= ========= ========= =========== =========
Weighted average fair
value of options
granted $ 7.42 $ 3.97 $ 3.99
====================== ========= ========= =========
</TABLE>
21
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 14. 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 primarily for domestic electrical utilities and certain industrial
users; and electrical and electronic wire and cable products for consumer,
commercial and industrial applications domestically. The Industrial Products
Segment designs, produces and markets proprietary engine components, fuel tanks
and other products used on light, medium and heavy-duty trucks, and
construction, agricultural, mining, power generation and marine equipment.
Approximately 70% of the Industrial Products Segment's sales, excluding export
sales from the United States, 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 and costs associated with the
Company's Long-Term Incentive Plan. 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, 1997, 1996 and 1995, are as follows:
<TABLE>
<S> <C> <C> <C>
Financial Data by Business Segment
In thousands 1997 1996 1995
========================= ========= ========= =========
Net Sales(1)
Electrical $297,087 $268,846 $243,761
Industrial 346,353 187,619 181,623
- ------------------------- --------- --------- ---------
$643,440 $456,465 $425,384
========= ========= =========
Income Before Taxes and Extraordinary Item
Electrical $ 21,165 $ 20,103 $ 13,639
Industrial 46,636 22,386 19,541
- ------------------------- --------- --------- ---------
Operating earnings(2) 67,801 42,489 33,180
Corporate expenses(3) (12,662) (6,165) (4,156)
Interest expense, net (8,637) (6,981) (7,066)
Merger expenses - - (4,510)
Unallocated - - 630
- ------------------------- --------- --------- ---------
$ 46,502 $ 29,343 $ 18,078
========= ========= =========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Identifiable Assets
Electrical $181,214 $182,468 $127,760
Industrial 270,493 91,353 84,145
Corporate/unallocated 9,611 3,595 2,997
- ------------------------- --------- --------- ---------
$461,318 $277,416 $214,902
========= ========= =========
Capital Expenditures
Electrical $ 5,564 $ 5,134 $ 4,287
Industrial 12,142 5,615 9,183
Corporate/unallocated 2,260 231 1,730
- ------------------------- --------- --------- ---------
$ 19,966 $ 10,980 $ 15,200
========= ========= =========
Depreciation and Amortization
Electrical $ 7,530 $ 6,643 $ 5,667
Industrial 11,963 5,633 5,606
Corporate/unallocated 423 194 47
- ------------------------- --------- --------- ---------
$ 19,916 $ 12,470 $ 11,320
========= ========= =========
</TABLE>
<TABLE>
<S> <C> <C> <C>
Financial Data by Geographic Segment
In thousands 1997 1996 1995
========================= ========= ========= =========
Net Sales (1)
United States $562,546 $397,393 $363,050
Europe 70,384 50,757 50,632
Other 10,510 8,315 11,702
- ------------------------- --------- --------- ---------
$643,440 $456,465 $425,384
========= ========= =========
Income Before Taxes and Extraordinary Item
United States $ 60,162 $ 39,077 $ 28,256
Europe 6,703 3,045 4,601
Other 936 367 323
- ------------------------- --------- --------- ---------
Operating earnings(2) 67,801 42,489 33,180
Corporate expenses(3) (12,662) (6,165) (4,156)
Interest expense, net (8,637) (6,981) (7,066)
Merger expenses - - (4,510)
Unallocated - - 630
- ------------------------- --------- --------- ---------
$ 46,502 $ 29,343 $ 18,078
========= ========= =========
Identifiable Assets
United States $406,602 $236,441 $178,702
Europe 43,038 30,544 26,308
Other 2,067 6,836 6,895
Corporate 9,611 3,595 2,997
- ------------------------- --------- --------- ---------
$461,318 $277,416 $214,902
========= ========= =========
</TABLE>
(1) In 1997, 1996 and 1995, sales to a long-time customer of the Company's
Industrial Products Segment represented 8%, 9% and 10%, respectively, of
the Company's net sales. No other customer represents more than 7% of the
Company's net sales.
(2) Operating earnings is defined as operating profit plus other, net directly
attributable to each segment.
(3) See Note 13, "Stock Based Compensation Plans" for additional information on
Corporate expenses.
22
Kuhlman Corporation 1997 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KUHLMAN CORPORATION AND SUBSIDIARIES
NOTE 15. FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Financial Instruments With
Off-Balance-Sheet Risk
The Company has 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 either
commodity futures contracts or forward purchase commitments. In addition, the
Company hedges currency fluctuations for certain international transactions
through various mechanisms, including futures contracts, and hedges interest
rates through interest rate swap agreements.
At December 31, 1997 and 1996, the Company had $2,315,000 and $750,000,
respectively, of currency hedging futures contracts outstanding for certain
foreign currencies. The maturities on the hedging contracts do not exceed four
months.
As of December 31, 1997, the Company had entered into two 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 $60,000,000, 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 at a weighted average rate of approximately
5.7%. The agreements commenced on October 30, 1997 and mature on various dates,
the latest of which is January 1, 1999, subject to one-year renewal options.
At December 31, 1997 and 1996 there were no significant futures hedging
contracts for commodities outstanding. At December 31, 1997 and 1996, the
Company had approximately $10,100,000 and $3,500,000, respectively, of forward
purchase commitments, principally for copper, at approximately fair market
value. The purchase commitments generally extend up to six months.
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 financial institutions. The fair value of the futures
contracts and swap agreements approximate the unrealized gain or loss on these
instruments. Realized gains or losses during 1997 and unrealized gains or
losses at December 31, 1997 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. While the
Company does have a concentration of accounts receivable with customers in the
commercial transportation industry, management believes that the risk of
collectibility is limited due to their individual financial strength and
dispersion across many different geographies, and because of the large number
of entities comprising the Company's customer base.
NOTE 16. QUARTERLY FINANCIAL
DATA (Unaudited)
- --------------------------------------------------------------------------------
The Company's quarterly results are summarized below for the years ended
December 31, 1997 and 1996.
<TABLE>
<S> <C> <C> <C> <C> <C>
1997 QUARTER
===== =========
In thousands, except
per share data FIRST SECOND THIRD FOURTH TOTAL
===================== ======== ====== ===== ====== =====
Net sales $134,148 $170,221 $164,364 $174,707 $643,440
Gross profit 29,742 38,514 39,134 40,830 148,220
Operating
profit 11,251 14,228 15,241 16,428 57,148
Net income 5,282 6,409 7,673 8,565 27,929
Earnings per
share:
Net income -
basic 0.38 0.46 0.47 0.53 1.84
Net income -
diluted 0.36 0.43 0.45 0.51 1.75
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1996 QUARTER
===== ============
In thousands, except
per share data FIRST SECOND THIRD FOURTH TOTAL
===================== ======== ======== ========= ======== =========
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 -
basic 0.26 0.28 0.38 0.37 1.29
Net income -
diluted 0.25 0.27 0.37 0.36 1.25
</TABLE>
23
Kuhlman Corporation 1997 Annual Report
EXHIBIT 21.0
SUBSIDIARIES OF KUHLMAN CORPORATION
Jurisdiction
of
Name Incorporation
---- -------------
Kuhlman Electric Corporation Delaware
Coleman Cable Systems, Inc. Delaware
Schwitzer, Inc. Delaware
Transpro Group, Inc. (a wholly-owned subsidiary
of Schwitzer, Inc.) Delaware
Schwitzer U.S. Inc. (a wholly-owned subsidiary
of Schwitzer, Inc.) Delaware
EXHIBIT 23.0
Consent Of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report dated February 2, 1998, on the consolidated financial statements of
Kuhlman Corporation as of December 31, 1997, included in the Company's 1997
Annual Report to Shareholders incorporated by reference in this Form 10-K and of
our report dated February 2, 1998, 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, 333-12687, 333-28011,
333-26371, 333-33009 and 333-42883.
ARTHUR ANDERSEN LLP
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Kuhlman 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,529
<SECURITIES> 0
<RECEIVABLES> 107,916
<ALLOWANCES> 3,726
<INVENTORY> 71,282
<CURRENT-ASSETS> 200,267
<PP&E> 230,894
<DEPRECIATION> 105,368
<TOTAL-ASSETS> 461,318
<CURRENT-LIABILITIES> 140,202
<BONDS> 116,257
0
0
<COMMON> 16,601
<OTHER-SE> 157,852
<TOTAL-LIABILITY-AND-EQUITY> 461,318
<SALES> 643,440
<TOTAL-REVENUES> 643,440
<CGS> 495,220
<TOTAL-COSTS> 495,220
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 472
<INTEREST-EXPENSE> 9,256
<INCOME-PRETAX> 46,502
<INCOME-TAX> 18,573
<INCOME-CONTINUING> 27,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,929
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.75
</TABLE>
