UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No. 1-9844
SHELTER COMPONENTS CORPORATION
(Exact name of Registrant as specified in its charter)
Indiana 22-2825183
(State of Incorporation) (IRS Employer Identification No.)
2831 Dexter Drive, P.O. Box 4026, Elkhart, Indiana 46514
(Address of principal executive offices) (Zip Code)
(219) 262-1514
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 Par Value American Stock Exchange
(Title of each class) (Name of Each Exchange on
Which Registered)
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
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 the Registrant's knowledge, in the definitive Proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment hereto. X
---
The aggregate market value of the Common Shares held by non-affiliates of the
Registrant, based on the closing price on February 28, 1997 as reported by The
American Stock Exchange, was approximately $78,508,000. For purposes of the
foregoing calculation only, all directors and executive officers of the
Registrant have been deemed affiliates.
As of February 28, 1997, there were approximately 7,680,000 Common Shares
outstanding.
Documents Incorporated by Reference
Parts of Form 10-K into which
Document the Document is Incorporated
Portions of the Annual Report to Shareholders
for the Year Ended December 31, 1996 Part II
Portions of the Proxy Statement with Respect to the
1997 Annual Meeting of Shareholders of the Registrant Part III
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PART I
Item 1 - Business
(i) General
Shelter Components Corporation ("Registrant") is primarily a supplier of
numerous products to the Manufactured Housing, Modular Housing and Recreational
Vehicle industries including laminated wallboard products and thermoformed
plastic bathroom products which are manufactured by wholly-owned subsidiaries.
To a lesser extent, the Registrant distributes products to other industries
within the Registrant's geographic territories.
On January 31, 1992, the Registrant, through its wholly-owned subsidiary,
Danube Carpet Mills, Inc. ("Danube"), acquired the business operations and net
assets of E'Con Mills, Inc. ("E'Con"), a Chattanooga, Tennessee-based
manufacturer of carpeting primarily for use by the Manufactured Housing
industry. The operations of E'Con were subsequently integrated with Danube
operations.
On October 7, 1993, the Registrant, through a newly-formed wholly-owned
subsidiary, Design Components, Inc. acquired the business operations and net
assets of Design Time, Inc. ("Design Time"), an Elkhart, Indiana based
manufacturer of laminated wallboard products for use by the Manufactured
Housing and Recreational Vehicle industries.
On May 2, 1994 the Registrant, through its wholly-owned subsidiary, Shelter
Components of Indiana, Inc. acquired the business operations and operating
assets of TATCO, Inc. ("TATCO") located in Lancaster, Pennsylvania. TATCO was
a wholesale distributor of building and component products to the Manufactured
Housing and Modular Housing industries.
Effective January 1, 1995, the Registrant, through its newly-formed wholly-
owned subsidiary, Nubabsco, Inc. ("Nubabsco"), acquired the business operations
and operating assets of BABSCO, Inc. ("BABSCO"), located in Elkhart, Indiana
and having additional operations in Plymouth and Warsaw, Indiana and Mt. Joy,
Pennsylvania. The Registrant subsequently changed the name of Nubabsco to
BABSCO, Inc. BABSCO was a wholesale distributor of a full line of electrical
products to the Recreational Vehicle, Manufactured Housing and Modular Housing
industries, and to electrical contractors in the Northern Indiana and Southern
Michigan region.
On January 1, 1996, the Registrant consolidated the operations of its three
wholly-owned distribution subsidiaries, BABSCO, Inc., Thunander Corporation,
and Shelter Components of Indiana, Inc. into a newly-formed limited partnership
named Shelter Distribution, LP. The partnership is owned by the Registrant's
wholly-owned subsidiaries, Shelter Components of Indiana, Inc. (99% limited
partner) and newly formed BPR Holdings, Inc. (1% general partner).
Also on January 1, 1996, the Registrant merged its wholly-owned bath products
manufacturing subsidiaries, Better Bath Components, Inc. and Duo-Form of
Michigan, Inc. ("Duo-Form") under the Duo-Form name, with Better Bath
Components continuing to operate as a division of Duo-Form.
On December 31, 1996, the Registrant sold the business operations and certain
assets and transferred certain liabilities of Danube Carpet Mills, Inc., its
wholly-owned carpet manufacturing subsidiary. Included in the sale agreement
was an agreement not to compete with the buyer for a period of five years in
the carpet and yarn business and for a period of two years in the vinyl floor
covering business.
The Registrant's operations are conducted from its headquarters and
distribution centers in Elkhart, Indiana and from 21 additional locations in
other areas of the United States. Through these locations, the Registrant is
able to service its customers who, in accordance with industry practice,
generally do not inventory significant quantities of items supplied by the
Registrant and, accordingly, require frequent deliveries.
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(ii.) Distributed Products
The principal products manufactured by others and distributed by the
Registrant's wholesale distribution subsidiary, Shelter Distribution, LP, can
be divided into four major groups: building products, hardware and fasteners,
plumbing, and electrical components. The principal products manufactured by
others and distributed by the building products division include wood moulding,
exterior wood and vinyl siding, visqueen, gypsum board, parquet wood flooring,
and windows.
The principal products manufactured by others and distributed by the hardware
and fastener division are a wide variety of fasteners, hardware and power tools
used in the production of both Manufactured Homes and Recreational Vehicles.
The hardware division distributes approximately 30,000 items. Fasteners
include screws, bolts and nuts of various sizes and dimensions. Hardware
components include lock sets, cabinet door pulls, hinges, door slides and
drapery hardware. The power tools and mill supplies are comprised principally
of stationary power tools, table saws, hoists and related equipment used in the
manufacturing cycle, including complete plant set-ups. Additional items
include plastic film, tape, glue, caulking, chemicals and abrasives.
The principal products manufactured by others and distributed by the
Registrant's electrical division are wire, wiring devices, power generators,
circuit breakers, panels, air conditioners, mill supplies and machinery.
The principal products manufactured by others and distributed by the
Registrant's plumbing division are drain waste vent systems, potable water
systems and fixtures.
In view of the variety of products distributed by the Registrant, its customers
are able to maintain low inventories by placing frequent orders to meet their
requirements for such items.
(iii.) Manufactured Products
The principal products manufactured by the Registrant's subsidiaries are
laminated wallboard products and thermoformed bathroom products.
Laminated Wallboard - Design Components, Inc. ("Design") a subsidiary of the
Registrant, manufactures laminated wallboard products primarily for the
Manufactured Housing and Recreational Vehicle industries and, to a lesser
extent, manufactures laminated wall shelving systems for the retail home
improvement industry. Decorative paper or vinyl wall coverings are laminated
onto 4'x 8' sheets of gypsum or lauan and are shipped directly to the customers
from one of Design's five manufacturing facilities located in Indiana, Georgia,
Tennessee, and Texas (2 plants).
Thermoforming - Duo-Form of Michigan, Inc. ("Duo-Form") a subsidiary of the
Registrant, manufactures bathtubs, shower enclosures and tub wall surrounds
using the thermoforming process. Thermoforming is the heating of plastic sheet
to a softening temperature and forcing the hot flexible material over a mold by
the use of mechanical and vacuum pressure. Allowed to cool, the plastic
retains the exact shape and detail of the mold. Better Bath , a division of
Duo-Form, manufactures primarily for the Manufactured Housing industry while
Duo-Form manufactures primarily for the Recreational Vehicle industry.
(iv.) Purchasing
The Registrant's purchases of products for distribution are from domestic and
foreign sources. In 1996, five unaffiliated suppliers accounted for
approximately 35% of consolidated purchases. The relationships with those
suppliers have been good and the Registrant does not have any reason to
anticipate that they will not continue.
The raw material used by the Registrant for its manufactured products are
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generally available from a number of sources and the loss of any one source
would not have a material adverse effect on the Registrant.
The Registrant's purchases, primarily of fasteners, hardware, and plywood
include products manufactured in foreign countries, principally Korea,
Indonesia, Malaysia, China, and Taiwan. The Registrant also purchases products
from United States based distributors and/or affiliates of the foreign
manufacturers. Shipments of foreign manufactured products may be delayed as a
result of shipping difficulties, dock strikes, export and import restrictions,
and other factors beyond the control of the Registrant. The Registrant
generally makes purchases by purchase orders rather than long-term contracts.
Orders for U.S. manufactured products usually require one to two months lead
time while foreign products require up to four months.
(v.) Industry Segment
The Registrant is engaged in only one industry segment: the manufacture and
wholesale distribution of numerous products, for use principally by the
Manufactured Housing and Recreational Vehicle industries and to other
manufacturing companies.
According to the National Conference of States on Building Codes and Standards,
there were approximately 363,000, 340,000, and 304,000 manufactured homes built
in the United States in 1996, 1995 and 1994, respectively. Most Manufactured
Housing and Recreational Vehicle manufacturers do not maintain significant
inventories of parts and supplies as compared with their production
requirements. Suppliers, including the Registrant, must therefore bear the
risk of making accurate advance estimates of customer orders and maintaining
adequate levels of inventories to meet the needs of their customers. The
Manufactured Housing and Recreational Vehicle supply and distribution industry
is generally fragmented, characterized by small and medium size enterprises
located throughout the country.
(vi.) Sales and Principal Customers
The Registrant's sales are conducted principally through its staff of 196
full-time salespeople. Sales are made by personal contact, principally by
visiting customer locations and by telephone contact. As of December 31, 1996,
the Registrant had two customers (Champion Enterprises, Inc. and Fleetwood
Enterprises, Inc.), which accounted for approximately 13% and 11%,
respectively, of the Registrant's 1996 consolidated net sales.
The nature of the Registrant's business and the industries requires that the
Registrant be able to deliver orders promptly from its inventory and
consequently the Registrant does not generally have a significant backlog of
orders.
(vii.) Facilities
Because of the substantial expense in shipping Manufactured Homes,
manufacturers maintain production facilities in or close to the principal
market for these products. The Registrant maintains nine manufacturing and
related facilities and twenty-one distribution centers. Each distribution
center and manufacturing facility is located in a major Manufactured Housing
and/or Recreational Vehicle market and, consequently, the Registrant's delivery
time to its customers is minimized. The Registrant generally purchases its
principal products in truckload quantities and maintains substantial
inventories of these products in each of their distribution centers. Many of
the products are sold directly from the distribution centers and delivered by
the Registrant's trucks, vans or by common carriers, with the balance shipped
directly from the product manufacturer's facilities to the customer. Although
the Registrant has had long-standing business relationships with many of its
customers, there are generally no exclusive or long-term contracts with them.
(viii.) Competition
The ability of the Registrant to compete as a supplier to the Manufactured
Housing and Recreational Vehicle industries is largely dependent on maintaining
an inventory of a wide variety of products, offering competitive prices and
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being able to manufacture and deliver on short notice. Although numerous
manufacturers and distributors are engaged in this industry, the Registrant
believes it is one of the nation's largest wholesale distributors of products
used in the Manufactured Housing and Recreational Vehicle industries, carrying
what it believes to be a wider array of products than any of its competitors.
(ix.) Employees
As of December 31, 1996, the Registrant had 1,127 full-time employees, of whom
196 were engaged in sales, 681 in warehouse, manufacturing and distribution
services, and 250 in administration. The Registrant has experienced no work
stoppage arising from labor disputes and considers employee relations to be
good. None of the employees are covered by collective bargaining agreements,
except that effective February 1, 1997 certain employees at the Registrant's
plastic operation in Texas are covered by a two-year collective bargaining
agreement.
(x.) Seasonality
Sales in the Manufactured Housing and Recreational Vehicle industries are
usually seasonal in nature, with most units normally being sold in the period
from March through October. Historically, the Registrant's sales generally
tend to be greater during the second and third quarter of each calendar year
and lower during the first and last quarter of the calendar year. Operations
during the fourth quarters of 1995 and 1996 were adversely affected by winter
storms that restricted the movement of finished manufactured homes and RVs by
the Registrant's customers to their retail dealerships. These conditions were
not experienced during the fourth quarter of 1994.
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Item 2 - Properties
Set forth below is a brief summary of the properties which were owned or leased
by the Registrant as of December 31, 1996:
LOCATION SQUARE FOOTAGE USE OWNED OR LEASED
Elkhart, IN 5,000 Corporate Offices Owned
DISTRIBUTION
Elkhart, IN (Bldg Products)94,000 Distribution Owned
Elkhart, IN (Hardware) 15,000 Distribution Leased (a)
Elkhart, IN (Hardware) 65,000 Distribution Owned
Elkhart, IN (Electrical) 70,000 Distribution Owned
Elkhart, IN (Electrical) 22,000 Distribution Owned
Elkhart, IN (Electrical) 8,000 Distribution Leased
Plymouth, IN 5,000 Distribution Leased
Warsaw, IN 20,000 Distribution Leased (a)
Bear Creek, AL 85,000 Distribution Owned
Phoenix, AZ 59,000 Distribution Leased
Riverside, CA 35,000 Distribution Leased
Concord, NC 65,000 Distribution Owned
Newton, KS 80,000 Distribution Owned
Valdosta, GA 76,000 Distribution Leased
Lakeland, FL 36,000 Distribution Leased
Milwaukie, OR 62,000 Distribution Leased
Morristown, TN 42,000 Distribution Leased
Ft. Worth, TX 91,000 Distribution Leased
Lancaster, PA 43,000 Distribution Leased
Redwood Falls, MN 24,000 Distribution Owned
Leola, PA 13,000 Distribution Owned
MANUFACTURING
Waxahachie, TX 100,000 Thermoforming Owned
Edwardsburg, MI 70,000 Thermoforming Owned
Edwardsburg, MI 7,000 Warehouse- Thermoforming Leased
Elkhart, IN 74,000 Laminating Owned
Elkhart, IN 20,000 Warehouse-Laminating Owned
Tifton, GA 22,000 Laminating Owned
Madisonville, TN 38,000 Laminating Leased
Mansfield, TX 25,000 Laminating Owned
Temple, TX 44,000 Laminating Leased
(a) These properties are leased from entities that are primarily owned by
certain officers and directors of the Registrant. The rentals are believed to
be as low or lower than could be obtained from an independent third party.
The following owned properties were being held for sale as of December 31,
1996:
LOCATION SQUARE FOOTAGE USE
Ft. Oglethorpe, GA 78,000 Vacant (b)
Ft. Oglethorpe, GA 20,000 Vacant (b)
Ft. Oglethorpe, GA 35,000 Vacant (b)
Chattanooga, TN 74,000 Vacant (b)
Lafayette, GA 73,000 Rental Property (b)
Elkhart, IN 40,000 Vacant
Ft. Worth, TX 42,000 Vacant
Moultrie, GA 10,000 Vacant
(b) Properties held for sale to buyer in connection with the December 31, 1996
sale of carpet manufacturing operations. The Ft. Oglethorpe, GA properties
were sold in February 1997.
Management believes that the present facilities and the equipment therein are
in good repair and are adequate to meet current requirements.
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Item 3 - Legal Proceedings
The Registrant is not involved in any material litigation.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted during the quarter ended December 31, 1996 to a vote
of security holders.
PART II
Item 5 - Market for Registrant's Common Equity and Related Shareholder Matters
The information included under the caption "Securities Information" in Exhibit
13 of this Form 10-K report is incorporated herein by reference in response to
this item.
Item 6 - Selected Financial Data
The information included under the caption "Selected Financial Data" in Exhibit
13 of this Form 10-K report is incorporated herein by reference in response to
this item.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information included under the caption ""Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Exhibit 13 of
this Form 10-K report is incorporated herein by reference in response to this
item.
Item 8 - Financial Statements and Supplementary Data
The information included in Exhibit 13 of this Form 10-K report is incorporated
herein by reference in response to this item.
Item 9 - Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
The Corporation changed independent accountants effective October 16, 1995.
Information related to the change was filed with the SEC on October 23, 1995 on
Form 8-K. There were no disagreements with accountants on accounting and
financial disclosure.
PART III
Item 10 - Directors and Executive Officers of the Registrant
(a) Directors - The information included under the caption "Election of
Directors" in the Registrant's definitive Proxy Statement filed pursuant to
Regulation 14A in connection with its 1997 Annual Meeting of Shareholders (the
"Proxy Statement") is incorporated herein by reference in response to this
item.
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(b.) Executive Officers -
Name of Officer and Age as of Date First Elected Principal Occupation
Positions/Offices February 28, to Executive and Employment During
Presently Held 1997 Office Past Five Years
Larry D. Renbarger 58 1987 Chief Executive
Chief Executive Officer of the
Officer and Director Registrant since
May 1992 and
President from May
1992 to December
1996.
Gerald R. Stults 48 1995 President and owner
President and of BABSCO, Inc. from
Chief Operating Officer January 1981 until
and Director January 1995 when the
Registrant acquired
BABSCO, Inc. from
him. Executive Vice
President and COO
from August 1995 to
December 1996.
Appointed President
in December 1996.
Mark C. Neilson 38 1987 Chief Financial
Chief Financial Officer, Officer, Vice President
Vice President, Secretary, Secretary and
Treasurer and Director Treasurer of the
Registrant.
James E. DeCraene 52 1993 Prior to joining the
Vice President of Registrant in 1993,
Planning and Mr. DeCraene was Vice
Development President and General
Manager of Harmon Glass
Corporation from 1982
through 1992.
Steven A. Salzer 35 1996 Prior to joining the
Vice President, Registrant, Mr. Salzer
General Counsel and was Branch General
Assistant Secretary Manager of Alumax
Building Products, Inc.
from 1994 to 1996
and a Staff Attorney
of Alumax, Inc. from
1992 until 1994.
Item 11 - Executive Compensation
The information included under the captions "Meetings and Committees of the
Board of Directors", "Director Compensation", "Executive Compensation",
"Compensation Committee Report on Executive Compensation", and "Employees'
Savings and Investment Plan" in the Proxy Statement is incorporated herein by
reference in response to this item.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information contained under the captions "Principal Shareholders and
Management Ownership" in the Proxy Statement is incorporated herein by
reference in response to this item.
Item 13 - Certain Relationships and Related Transactions
The information contained under the caption "Transactions With Management and
Directors" in the Proxy Statement is incorporated herein by reference in
response to this item.
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PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents Filed as Part of This Report
1. Financial Statements:
The information included under the captions "Consolidated Balance
Sheets", "Consolidated Statements of Income", "Consolidated Statements
of Shareholders' Equity", "Consolidated Statements of Cash Flows",
"Notes to Consolidated Financial Statements", and "Report of
Independent Accountants" in Exhibit 13 of this Form 10-K is
incorporated herein by reference in response to this item. The
"Report of Independent Accountants" for 1994 appears on page 13 of
this Form 10-K report.
2. Financial Statement Schedule: Page
Report of Independent Accountants on
Financial Statement Schedule - 1996 and 1995 12
Report of Independent Accountants on
Financial Statement Schedule - 1994 13
Schedule II - Valuation and Qualifying Accounts 14
Schedules other than listed above are omitted because they are not
required or the information is included in the Notes to Consolidated
Financial Statements.
3. Exhibits
Index to Exhibits 15
(b) Reports on Form 8-K
Form 8-K was filed on January 15, 1997 announcing the sale of the
operations and certain assets of Danube Carpet Mills, Inc., a wholly-
owned subsidiary of the Registrant.
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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.
SHELTER COMPONENTS CORPORATION
(Registrant)
Dated: March 28, 1997 /S/ Larry D. Renbarger
Larry D. Renbarger, Chief
Executive Officer and Director
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 date indicated.
Dated: March 28, 1997 By: /S/ Larry D. Renbarger
Larry D. Renbarger
Chief Executive Officer and
Director
Dated: March 28, 1997 By: /S/ Gerald R.Stults
Gerald R. Stults
President, Chief Operating
Officer and Director
Dated: March 28, 1997 By: /S/ Mark C. Neilson
Mark C. Neilson
Chief Financial Officer, Vice President,
Treasurer, Secretary and Director
(Principal Financial and Accounting
Officer)
Dated: March 28, 1997 By: /S/ William N. Harper
William N. Harper
Chairman of the Board
Dated: March 28, 1997 By: /S/ Ronald D. Minzey
Ronald D. Minzey
Director
Dated: March 28, 1997 By: /S/ William B. Riblet
William B. Riblet
Director
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SHELTER COMPONENTS CORPORATION
INDEX TO FINANCIAL STATEMENTS
The financial statements and supplementary data of Shelter Components
Corporation and its consolidated subsidiaries, together with the report thereon
of Price Waterhouse LLP dated February 18, 1997, appearing on pages 28 through
51 of this Form 10-K report are incorporated by reference in this Form 10-K
Annual Report. The report of predecessor independent accountants for the year
ended December 31, 1994 appears on page 13 of this Form 10-K Annual Report.
The following additional financial data should be read in conjunction with such
financial statements. Schedules not included with this additional financial
data have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Additional Information: Page
Report of Independent Accountants on
Financial Statement Schedule - 1996 and 1995 12
Report of Independent Accountants on
Financial Statement Schedule - 1994 13
Schedule II 14
Index to Exhibits 15
Consolidated Financial Statements and Notes
to Consolidated Financial Statements 36-48
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Report of Independent Accountants on
Financial Statement Schedule
To the Shareholders and Board of Directors
of Shelter Components Corporation:
Our audits of the consolidated financial statements referred to in our
report dated February 18, 1997 appearing in the 1996 Annual Report to
Shareholders of Shelter Components Corporation (which report and
consolidated financial statements are incorporated by reference in this
Annual Report on Form 10-K) also included an audit of the Financial
Statement Schedule listed in Item 14(a) of this Form 10-K as of December
31, 1996 and 1995 and for each of the two years in the period ended
December 31, 1996. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth
therein as of December 31, 1996 and 1995 and for each of the two years in
the period ended December 31, 1996 when read in conjunction with the
related consolidated financial statements.
The financial statements and the financial statement schedule of Shelter
Components Corporation for the year ended December 31, 1994 were audited
by other independent accountants, whose report dated February 7, 1995,
except as to the information expressed in Note 4 for which the date was
March 27, 1995, expressed an unqualified opinion on those statements.
/s/ Price Waterhouse LLP
South Bend, Indiana
February 18, 1997
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Shelter Components Corporation:
We have audited the consolidated statements of income, shareholders' equity and
cash flows and the financial statement schedule of Shelter Components
Corporation and subsidiaries for the year ended December 31, 1994. These
financial statements and financial statement schedule are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Shelter Components Corporation and subsidiaries for the year ended December 31,
1994, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic 1994 financial statement taken as a
whole, presents fairly, in all material respects, the information required to
be included therein.
/s/ Coopers & Lybrand L.L.P.
South Bend, Indiana
February 7, 1995
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SHELTER COMPONENTS CORPORATION
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
Column A Column B Column C Column D Column E
Balance at Charged to Charged to Balance
Beginning Costs and Other Deductions at End
Description of Year Expenses Accounts (a) of Year
- -----------
Allowance for doubt-
ful receivables de-
ducted from accounts
receivable, trade,
in the consolidated
balance sheet:
1996 $500,000 $326,000 $ -0- $326,000 $500,000
1995 500,000 181,000 -0- 181,000 500,000
1994 567,000 (21,000) -0- 46,000 500,000
(a) Losses, net of recoveries.
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SHELTER COMPONENTS CORPORATION
FORM 10-K
December 31, 1996
Index to Exhibits
Number Assigned Sequential Number-
in Regulation ing System Page
S-K,Item 601 Description of Exhibit Number of Exhibit
(3) 3.1+ Certificate of Incorporation, as amended
3.2+ By-Laws, as amended
(4) No exhibit
(9) No exhibit
(10) 10.8 Key Employee Stock Incentive Plan, as amended 16-23
10.20* Asset Purchase Agreement for purchase of
E'Con Mills, Inc. Agreement dated January
22, 1992, including Exhibit S-2, Non-
Compete Agreement with Anthony Bell
10.23++ Note Agreement, dated March 4, 1993 between
the Registrant and Massachusetts Mutual Life
Insurance Corporation
10.24** Asset Purchase and Sale Agreement for pur-
chase of Design Time, Inc. dated October 7,
1993, including Exhibits 5.1 (Non-Compete
Agreement) and 5.3 (Consulting Agreement)
10.27+++ Asset Purchase and Sale Agreement for pur-
chase of BABSCO, Inc. dated January 27, 1995
10.28*** Amended Note Agreement dated February 21, 1995
between the Registrant and Massachusetts Mutual
Life Insurance Corporation (amends 10.23)
10.29*** Note Agreement dated February 21, 1995 between
the Registrant and Massachusetts Mutual Life
Insurance Corporation
10.30*** Revolving Credit Agreement dated March 27, 1995
between the Registrant and Society National
Bank, Indiana
10.31++++ Asset Purchase Agreement for sale of Danube
Carpet Mills, Inc. dated December 31, 1996
10.32 Non-Qualified Stock Option Plan 24-27
(11) No exhibit
(12) No exhibit
(13) Portion of the Registrant's 1996 Annual Report 28-51
to Shareholders
(16) No exhibit
(18) No exhibit
(19) No exhibit
(21) Subsidiaries of the Registrant 52
(22) No exhibit
(23) No exhibit
(24) No exhibit
(27) Financial Data Schedule 53
(28) No exhibit
+ Filed as an exhibit to Registration Statement File No. 2-80714-C and
hereby incorporated by reference thereto.
* Filed as an Exhibit to the Corporation's report on Form 8-K dated
February 15, 1992, and hereby incorporated by reference thereto.
++ Filed as an exhibit to the Corporation's report on Form 10-K dated
March 26, 1993 and hereby incorporated by reference thereto.
** Filed as an exhibit to the Corporation's report on Form 8-K dated
October 15, 1993 and hereby incorporated by reference thereto.
+++ Filed as an exhibit to the Corporation's report on Form 8-K dated
January 30, 1995 and hereby incorporated by reference thereto.
*** Filed as an exhibit to the Corporation's report on Form 10-K dated March
28, 1995 and hereby incorporated by reference thereto.
++++ Filed as an exhibit to the Corporation's report on Form 8-K dated January
15, 1997 and hereby incorporated by reference thereto.
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Exhibit 10.8
KEY EMPLOYEES STOCK INCENTIVE PLAN
1. Purpose of Plan. This Key Employees Stock Incentive Plan (the "Plan")
is intended to provide employment incentives that will enable Shelter
Components Corporation (the "Company") to retain in the employ of the Company
and its subsidiaries persons of training, experience, and ability, to attract
new employees whose services are considered unusually valuable, to encourage
the sense of proprietorship of such persons, and to stimulate the active
interest of such persons in the development and financial success of the
company. Options granted under the Plan may contain such terms as will
qualify the options as incentive stock options ("ISO") within the meaning of
Section 422A(b) of the Internal Revenue Code of 1954, as amended (the "Code").
2. Administration of Plan. The Board of Directors (the "Board") or a
Stock Incentive Committee (the "Committee") appointed and maintained by the
Board shall have the power to administer the Plan. The Committee shall
consist of at least three (3) members who shall serve at the pleasure of the
Board, and any member of such Committee shall be eligible to receive stock
options ("Options") and stock appreciation rights ("SARs") under the Plan
while serving on the Committee, unless otherwise specified herein. The Board
or the Committee shall have full power and authority: (i) to designate
participants; (ii) to designate options or any portion thereof as ISOs; (iii)
to determine the terms and provisions of respective option agreements (which
need not be identical) including, but not limited to, provisions concerning
the time or times when and the extent to which the Options and SARs may be
exercised and the nature and duration of restrictions as to transferability or
constituting substantial risk of forfeiture; (iv) to amend or modify any
option, with the consent of the holder thereof; (v) to accelerate the right of
an optionee to exercise in whole or in part any previously granted ISO
including any options modified to qualify as ISOs; and (vi) to interpret the
provisions and supervise the administration of the Plan.
The Board or the Committee shall have the authority, subject to
shareholder approval of the Plan, to grant in its discretion to the holder of
an outstanding Option in exchange for the surrender and cancellation of such
Option, a new Option having a purchase price lower than provided in the Option
so surrendered and cancelled and containing such other terms and conditions as
the Board or the Committee may prescribe in accordance with the provisions of
the Plan.
All decisions and selections made by the Board or the Committee pursuant
to the provisions of the Plan shall be made by a majority of its members
except that any decision with respect to the grant of an Option or SAR to a
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member of the Board or the Committee shall be made by a majority of those
Board members or Committee members who are not employees of the Company or
otherwise eligible to receive Options or SARs. Any decision reduced to
writing and signed by a majority of the members who are authorized to make
such a decision shall be fully effective as if it had been made by a majority
at a meeting duly held.
Each member of the Board or the Committee shall be indemnified and held
harmless by the Company against any cost or expense (including counsel fees)
reasonably incurred by him or liability (including any sum paid in settlement
of a claim with the approval of the Company) arising out of any act or
omission to act in connection with the Plan unless arising out of such
member's own fraud or bad faith, to the extent permitted by applicable law.
Such indemnification shall be in addition to any rights or indemnification the
members may have as directors or otherwise under the by-laws of the Company,
any agreement, vote of stockholders or disinterested directors or otherwise.
3. Designation of Participants. The person eligible for participation in
the plan as recipients of Options and SARs shall include only key employees of
the Company or of any subsidiary of the Company. Directors of the Company
shall not be eligible to participate in the Plan as directors, but Directors
otherwise qualified shall be eligible to participate. An employee who has
been granted an Option or SAR hereunder may be granted additional Options or
SARs, if the Committee shall so determine.
4. Stock Subject to the Plan. Subject to adjustment as provided in
Paragraph 6 hereof and subject to ratification by the stockholders, the total
shares of Common Stock, $.01 par value ("Stock") of the Company subject to
this Plan shall be increased to a total of 937,500. The shares subject to the
Plan shall consist of unissued shares, and such amount of shares shall be, and
hereby is, reserved for sale for such purpose. Any of such shares which may
remain unsold and which are not subject to outstanding options at the
termination of the Plan shall cease to be reserved for the purpose of the
Plan, but until termination of the Plan the Company shall, at all times,
reserve a sufficient number of shares to meet the requirements of the Plan.
Should any Option for any reason other than the exercise of SARs expire or be
canceled prior to its exercise to relinquishment in full, the sales
theretofore subject to such Option may again be made subject to an Option
under the Plan.
5. Option Price. (a) The purchase price of each share subject to Option
or any portion thereof which has been designated by the Board or the Committee
as an ISO shall not be less than 100% (or 110%, if at the time of the grant
the optionee owns more than 10% of the total combined voting power of all
classes of stock of the Company, a parent corporation of the Company or a
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subsidiary of the Company) of the fair market value of such share on the date
the option is granted. The purchase price of each share subject to an Option
or any portion thereof which is not designated as an ISO shall be not less
than 75% of the fair market value of such share on the date the option is
granted provided, however, that in no event shall the option price be less
than the par value of the Stock. SARS granted with respect to shares of Stock
covered by an outstanding option shall be granted on the basis of the option
price for such shares fixed by the initial grant of such Option.
(b) The fair market value of a share on a particular date shall be the
mean between the highest and lowest quoted selling prices on such date (the
valuation date) on the securities market where the Common Stock of the Company
is traded. If there were no sales on the valuation date, but there were sales
within a reasonable period both before or after that date, the fair market
value shall be determined by taking a weighted average of the mean between the
highest and lowest sales on the nearest date before and the nearest date after
the valuation date. This average must be weighted inversely by the respective
numbers of trading days between the selling dates and the valuation date.
(c) The option price shall be payable upon the exercise of the Option in
cash, by check, shares of the Company's Stock (valued at their fair market
value) or other form satisfactory to the Board or the Committee.
(d) The proceeds of the sale of the Stock subject to Options are to be
added to the general funds of the Company and used for its corporate purposes.
6. Adjustments. (a) If the Company is reorganized, separated from or
merged or consolidated with another corporation while unexercised Options
remain outstanding under the Plan, there shall be substituted for the shares
subject to the unexercised portions of such outstanding Options an appropriate
number of shares of each class of stock or other securities of the separated
or reorganized, or merged or consolidated corporation which were distributed
to the shareholders of the Company in respect of such shares; provided,
however, that all such Options may be exercised in full by the employee as of
the effective date of any such separation, reorganization, merger, or
consolidation of the Company without regard to the installment exercise
provisions of paragraph 7(a), by the employee giving notice in writing to the
Company of his intention to so exercise.
(b) If the Company is liquidated or dissolved while unexercised Options
or SARs remain outstanding under the Plan, then all such outstanding Options
or SARs may be exercised in full by the employee as of the effective date of
any such liquidation or dissolution of the Company without regard to the
installment exercise provisions of paragraph 7(a), by the employee giving
notice in writing to the Company of his intention to so exercise.
(c) If the outstanding shares of Stock shall at any time be changed or
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exchanged by declaration of a stock dividend, stock split, combination or
exchange of shares, recapitalization, extraordinary dividend payable in stock
of a corporation other than the Company or in cash or any other like event by
or of the Company, and as often as the same shall occur, then the number,
class and kind of shares subject to this Plan or subject to any Options or
SARs theretofore granted, and the option prices, shall be appropriately and
equitably adjusted so as to maintain the proportionate number of shares
without changing the aggregate option price; provided, however, no adjustment
shall be made by reason of the distribution of subscription rights on
outstanding stock.
7. Term and Exercise of Option and Stock Appreciation Rights. (a) Each
Option and SAR granted under this Plan shall be exercisable on the dates and
for the numbers of shares as shall be provided in the option certificate
evidencing the Option granted by the Board or the Committee and the term
thereof. However, no Option or SAR shall be exercisable after the expiration
of five (5) years from the date of grant.
(b) Each Option or portion thereof granted under the Plan and designated
as an ISO shall provide that it may not be exercised while any ISO previously
granted to the participant is outstanding. An Option will be considered
outstanding for this purpose until it is exercised or lapses by its terms,
even if it has previously been surrendered by the participant. For the
purposes of this subparagraph 7(b), an Option shall be deemed exercised to the
extent a related SAR is exercised as provided in paragraph 9(c) hereof.
(c) Options and SARs may be exercised solely by the employee during his
lifetime or after his death by the person or persons entitled thereto under
his will or the laws of descent and distribution.
(d) Options and SARs may not be exercised after the termination of
employment of the employee unless (i) termination of employment is without
cause in which event any Options and SARs still in force and unexpired may be
exercised within a period of ninety (90) days from the date of such
termination, but only with respect to the number of shares purchasable at the
time of such termination, (ii) termination of employment is the result of the
death or disability of the employee in which event any Options and SARs still
in force and unexpired may be exercised within a period of six (6) months from
the date of each, but only with respect to the number of shares purchasable at
the time of such termination, or (iii) termination of employment is the
results of retirement under any deferred compensation agreement or retirement
plan of the Company or of any subsidiary of the Company or after age 60.
While Options and SARs granted hereunder are still in force and unexpired, the
Board or Committee shall have the discretion to permit any unmatured
installments of the Options and SARs to be accelerated to a date on or prior
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to the date three (3) months after the date of retirement, and the Options and
SARs shall thereupon be exercisable in full without regard to the installment
exercise provisions of subparagraph 7(a).
(e) The holders of Options shall not be or have any of the rights or
privileges of a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares shall have been issued by the Company to
such holders.
(f) The form of Option authorized by the Plan may contain such other
provisions as the Board or the Committee may, from time to time, deem
advisable. Without limiting the foregoing, the Board or the Committee may,
with the consent of the employee, from time to time cancel all or any portion
of any Option then subject to exercise, and the Company's obligation in
respect of such Option may be discharged by (i) payment to the employee of an
amount in cash equal to the excess, if any, of the fair market value, as
defined in subparagraph 5(b), of the shares at the date of such cancellation
subject to the portion of the Option so cancelled over the aggregate purchase
price of such shares, (ii) the issuance or transfer to the employee of shares
of Stock with a fair market value, as defined in subparagraph 5(b), at the
date of such transfer equal to any such excess, or (iii) a combination of cash
and shares with a combined value equal to any such excess, all as determined
by the Board or the Committee in its sole discretion.
(g) Options shall be exercised by the optionee giving written notice to,
which exercise shall be effective upon receipt of such notice by (subject, in
the case of the exercise of SARs, to the provisions of paragraph 9 hereof and
the terms of the respective SAR agreement), the Secretary of the Company at
its general offices. The notice shall specify the number of shares with
respect to which the Option is being exercised. If a registration statement
under the Securities Act of 1933, as amended, containing a prospectus as a
part thereof, which prospectus is to comply with said Act, is not then in
effect with respect to the shares issuable upon such exercise, it shall be a
condition precedent to the exercise of any Option entitling the holder thereof
to receive shares of Stock that (i) the person exercising the Option provide
the Company with a written undertaking, satisfactory in form and substance to
the Board or the Committee, that he is acquiring the shares for his own
account for investment and not with a view to the distribution thereof and
(ii) such exercise be permissible under applicable law.
8. Maximum ISOs. The aggregate fair market value of Common Stock with
respect to which ISOs (within the meaning of Section 422 of the Code) are
exercisable for the first time by an Optionee during any calendar year under
the Plan or any other plan of the Corporation or its Affiliates shall not
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exceed $100,000. For this purpose, the fair market value of such shares shall
be determined as of the date the option is granted and shall be computed in
such manner as shall be determined by the Committee, consistent with the
requirements of Section 422 of the Code.
9. Stock Appreciation Rights. (a) At the discretion of the Board or the
Committee, any Option granted under this Plan may, at the time of such grant
or at any time thereafter, include an SAR. The Board or the Committee may
impose conditions upon the grant or exercise of the SAR which conditions may
include a condition that the SAR may only be exercised in accordance with
rules and regulations adopted by the Board or the Committee from time to time
and a condition that the Optionee satisfy certain performance goals before the
SAR may be exercised. Such rules and regulations may govern the right to
exercise the SAR granted prior to the adoption or amendment of such rules and
regulations as well as SARs granted thereafter.
(b) A "stock appreciation right" is the right of an Optionee, without
payment to the Company (except for applicable withholding taxes), to receive
cash or shares of Common Stock with a value equal to the amount by which the
fair market value per share on the date on which an SAR is exercised exceeds
the option price per share as provided in the related underlying Option. An
SAR shall pertain to, and be granted only in conjunction with, a related
underlying Option granted under this Plan and shall be exercisable and
exercised only to the extent that the related Option is exercisable. The
number of shares of Stock subject to the SAR shall be all or part of the
shares subject to the related Option, as determined by the Board or the
Committee. The SAR shall either become all or partially non-exercisable and
shall be all or partially forfeited if the exercisable portion, or any part
thereof, of the related Option is exercised and vice versa.
(c) Subject to any restrictions or conditions imposed by the Board or the
Committee, an SAR may be exercised by the employee as to a number of shares of
Stock under its related Option only upon the surrender of the right to
exercise a like number of shares of Stock available for exercise of the
related Option at the time of surrender. Upon the exercise of an SAR and the
surrender of the exercisable portion of the related Option, the employee shall
be awarded cash, share of Stock or a combination of shares and cash at the
discretion of the Board or the Committee. The award shall have a total value
equal to the product obtained by multiplying (1) the excess of the fair market
value per share on the date on which the SAR is exercised over the option
price per share by (2) the number of shares subject to the exercisable portion
of the related Option so surrendered. Provided further, each of the following
requirements shall be met: (1) The SAR must expire no later than the
expiration of the underlying ISO; (2) The SAR may be for no more than the
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lesser of (i) 100% of the difference between the exercise price of the
underlying option and the market price of the Common Stock subject to the
underlying option at the time the SAR is exercised; or (ii) 200% of the
exercise price of the underlying option; (3) The SAR is transferable only when
the underlying ISO is transferable and subject to the same conditions; (4) The
SAR may only be exercised when the underlying ISO may be exercised; and (5)
The SAR may only be exercised when the market price of the stock exceeds the
exercise price of the ISO.
(d) The portion of the SAR which may be awarded in cash shall be
determined by the Board or the Committee from time to time. The number of
shares awardable to an employee with respect to the non-cash portion of an SAR
shall be determined by dividing such non-cash portion by the fair market value
per share, as defined in subparagraph 5(b), on the exercise date. No
fractional shares shall be issued.
(e) For the purposes of this subparagraph, if there is no sale on the
date the SAR is exercised, then the fair market value shall be determined on
the next preceding day on which there is a sale.
(f) The Board or the Committee may, in its sole discretion, disapprove
the exercise of an SAR or the form of payment elected by any holder of an SAR.
In the event the Board or the Committee so disapproves, in whole or in part,
an election by a holder to exercise an SAR or the form of payment thereof,
such disapproval shall not affect a holder's right to exercise his option
currently or his SAR at a later date to the extent either is otherwise
exercisable, or to elect a form of payment at a later date, provided that such
later exercise and election shall be similarly subject to the Board's or the
Committee's right of disapproval. In addition, such disapproval shall not
affect a holder's right to exercise any other rights or options granted to a
holder under the Plan.
10. Purchase for Investment. Unless the Options and shares covered by
the Plan have been registered under the Securities Act of 1933, as amended, or
the Company has determined that such registration is unnecessary, each person
exercising an Option under the Plan may be required by the Company to give a
representation in writing that he is acquiring such shares for his own account
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
11. Effective Date of Plan. The Plan, upon approval by the Company's
Shareholders, shall be effective as of February 28, 1988.
12. Amendments or Termination. The Board may amend, alter, or
discontinue the Plan, except that no amendment or alteration shall be made
that would impair the rights of any participant under any Option theretofore
granted, without his consent and accept that no amendment or alteration shall
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be made which without the approval of the shareholder, would:
(a) Increase the total number of shares reserved for the purposes of the
Plan, except as is provided in paragraph 6, or decrease the option price
provided in paragraph 5, or change the class of employees eligible to
participate in the Plan as provided in paragraph 3; or
(b) Extend the option period provided for in paragraph 7.
13. Government Regulations. The plan, and the granting and exercise of
Options and SARs thereunder, and the obligation of the Company to sell and
deliver shares or cash under such Options and SARs, shall be subject to all
applicable laws, rules, and regulations, including the registration of the
shares pursuant to the Securities Act of 1933, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
14. Governing Law. This Plan shall be deemed made in the State of
Indiana and shall be governed by and construed and enforced in accordance with
the laws of such State applicable to contracts made and to be performed in
such State without giving effect to the principles of conflict of laws.
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Exhibit 10.32
SHELTER COMPONENTS CORPORATION
1995 NON-QUALIFIED STOCK OPTION PLAN
1. Purpose. The purpose of the Shelter Components Corporation 1995
Non-Qualified Stock Option Plan (the "Plan") is to provide to Directors of
Shelter Components Corporation, who are not employees of Shelter Components
Corporation (the "Corporation").
2. Administration of the Plan. The Plan shall be administered,
construed and interpreted by a Committee (the "Committee"). The Committee
shall consist of the Corporation's Board of Directors or a Committee of not
less than two (2) disinterested persons appointed by the Board of Directors.
(a) General Provision. The decision of a majority of the members
of the Committee shall constitute the decision of the Committee, and the
Committee may act either at a meeting at which a majority of the members
of the Committee are present or by a written consent signed by all
members of the Committee. The Committee shall have the sole, final and
conclusive authority to determine, consistent with and subject to the
provisions of the Plan:
(i) the individuals (the "Optionees") to whom options or
successive options shall be granted under the Plan;
(ii) the time when options shall be granted under the Plan;
(iii) the number of shares of Common Stock of the Corporation
to be covered under each option;
(iv) the option price to be paid upon the exercise of each
option;
(v) the period within which each option may be exercised;
(vi) the extent to which stock appreciation rights shall be
awarded in conjunction with an option; and,
(vii) the terms and conditions of the respective Stock Option
Agreements by which options granted shall be evidenced.
The Committee shall also have authority to prescribe, amend and rescind rules
and regulations relating to the Plan, and to make all other determinations
necessary or advisable in the administration of the Plan.
(b) Notwithstanding the foregoing; to facilitate the
administration of the plan, it shall be automatic, unless rescinded by
the committee, that each non-employee Director of the Company shall be
granted 2,000 options, under the terms of the plan, at the first meeting
of this Board of Directors in each calendar year beginning in 1996.
(c) Until this Plan is submitted to the shareholders, the Plan
will continue to be subject to the rules of Section 16 of the 1934 Act.
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3. Eligibility. Options may be granted only to Directors of the
Corporation who are not employees of the Corporation. Subject to the
provisions of Section 4, an individual who has been granted an option under the
Plan, if he is otherwise eligible, may be granted an additional option or
options if the Committee shall so determine.
4. Stock Subject to the Plan. There shall be reserved for issuance
upon the exercise of options granted under the Plan Two Hundred Thousand
(200,000) shares of Common Stock, $.01 par value per share, of the Corporation,
which may be authorized but unissued shares of the Corporation. Subject to
Section 7, the shares for which options may be granted under the Plan shall not
exceed that number. If any option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject to it
shall (unless the Plan shall have terminated) become available for other
options under the Plan.
5. Terms of Option. Each option granted under the Plan shall be
evidenced by a Stock Option Agreement between the Corporation and the Optionee
and shall be subject to the following terms and conditions and to such other
terms and conditions not inconsistent with that Stock Option Agreement as the
Committee may deem appropriate in each case:
(a) Option Price. The price to be paid for shares of stock upon
the exercise of such option shall be the fair market value at the date of
grant. Fair Market Value will be the price of the Corporation's shares
at the close of trading on the American Stock Exchange on the date of
grant. If the American Stock Exchange is closed on the date of grant,
the closing price on the next day's closing shall be the Fair Market
Value.
(b) Period For Exercise of Option. An option shall be
exercisable at any time for five (5) years from the date of grant.
Options shall be subject to earlier termination as provided in this
Plan.
(c) Exercise of Options. The option price of each share of stock
purchased upon exercise of an option shall be paid in full (i) in cash at
the time of such exercise, (ii) if the Optionee may do so in conformity
with Regulation T (12 C.F.R. Section 220.3(e)(4)) and without violating
Section 16(b) or (c) of the 1934 Act and subject to approval by the
Committee, pursuant to a broker's cashless exercise procedure, by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Corporation the total
option price in cash and, if desired, the amount of any taxes to be
withheld from the Optionee's compensation as a result of any withholding
tax obligation of the Corporation or any of its Affiliates, as specified
in such notice, or (iii) subject to the approval of the Committee, by
tendering to the Corporation whole shares of the Corporation's Common
Stock owned by him or any combination of whole shares of the
Corporation's Common Stock owned by him and cash, having a fair market
value equal to the cash exercise price of the shares with respect to
which the option is being exercised. For this purpose, any shares so
tendered by an Optionee shall be deemed to have a fair market value as
determined by the Committee. The Committee shall have the authority to
grant options exercisable in full at any time during their term, or
exercisable in such installments at such times during their term as the
Committee may determine. Installments not purchased in earlier periods
shall be cumulated and be available for purchase in later periods.
Subject to the other provisions of this Plan, an option may be exercised
at any time or from time to time during the term of the option as to any
or all whole or fractional shares which have become subject to purchase
pursuant to the terms of the option or the Plan. An option may be
exercised only by written notice to the Corporation, mailed to the
attention of its Secretary, signed by the Optionee (or such other person
or persons as shall demonstrate to the Corporation his or their right to
exercise the option), specifying the number of shares in respect of which
it is being exercised, and accompanied by payment of the option price for
such shares.
(d) Certificates. The certificate or certificates for the shares
as to which the option is exercised shall be registered in the name of
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the person or persons so exercising the option and shall be delivered to
or upon the order of such person or persons, as soon as practicable after
such written notice is received by the Corporation. An Optionee shall
not have any rights of a shareholder in respect to the shares of stock
subject to an option until such shares are purchased upon exercise of
such option.
(e) Termination of Option. If an Optionee ceases to be a
Director of the Corporation for any reason, any option granted to him
shall simultaneously terminate, except that the Director shall have
ninety (90) days to exercise all options after the date the Director
terminated.
(f) Estate Right of Option. If a Director dies with options
outstanding, said options will terminate one hundred twenty (120) days
after his death. The deceased Director's estate will have the right to
exercise such options during this one hundred twenty (120) day period.
(g) Nontransferability of Option. An Option may not be
transferred by the Optionee otherwise than by will or the laws of descent
and distribution, and during the lifetime of the Optionee shall be
exercisable only by him or his guardian or legal representative.
(h) Investment Representations. Unless the shares subject to an
Option are registered under applicable Federal and State securities laws,
each Optionee, by accepting an Option, shall be deemed to agree for
himself and his legal representatives that any Option granted to him and
any and all shares of Common Stock purchased upon the exercise of the
Option shall be acquired for investment and not with a view to, or for
the sale in connection with, any distribution, and each notice of the
exercise of any portion of an Option shall be accompanied by a
representation in writing, signed by the Optionee or his legal
representatives, as the case may be, that the shares of Common Stock are
being acquired in good faith for investment and not with a view to, or
for sale in connection with, any distribution (except in case of the
Optionee's legal representatives for distribution, but not for sale, to
his legal heirs, legatees and other testamentary beneficiaries). Any
shares issued pursuant to an exercise of an option may bear a legend
evidencing such representations and restrictions.
(i) No Right to Continued Service. Nothing in this Plan or in
any agreement entered into pursuant to it shall confer on any person any
right to continue in the employ of the Corporation or its Affiliates or
affect any rights of the Corporation, an Affiliate, or the shareholders
of the Corporation may have to terminate his service at any time.
6. Adjustments.
(a) If the Corporation is reorganized, separated from, or merged, or
consolidated with another corporation while unexercised Options remain
outstanding under the Plan, there shall be substituted for the shares subject
to the unexercised portions of such outstanding Options, an appropriate number
of shares of each class of stock or other securities of the separated or
reorganized, or merged or consolidated corporation which were distributed to
the shareholders of the Corporation in respect to such separated or
reorganized, or merged, or consolidated corporation which were distributed to
the shareholders of the Corporation in respect of such shares; provided,
however, that all such Options may be exercised in full by the Optionee as of
the effective date of any such separation, reorganization, merger, or
consolidation of the Corporation by the Optionee giving notice, in writing, to
the Corporation of the Optionee's intention to so exercise.
(b) If the Corporation is liquidated or dissolved while unexercised
Options or SARs remain outstanding under the Plan, then all such outstanding
Options or SARs may be exercised in full by the Optionee as of the effective
date of any such liquidation or dissolution of the Corporation by the Optionee
giving notice, in writing, to the Corporation of the Optionee's intention to so
exercise.
(c) If the outstanding shares of stock shall at any time be
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changed or exchanged by declaration of a stock dividend, stock split,
combination or exchange of shares, recapitalization, extraordinary dividend
payable in stock of a corporation other than the Corporation or in cash or any
other like event or of the corporation, and as often as the same shall occur,
then the number, class, and kind of shares subject to this Plan or subject to
any Options or SARs theretofore granted, and the option prices, shall be
appropriately and equitably adjusted as to maintain the proportionate number of
shares without changing the aggregate option price; provided, however, no
adjustment shall be made by reason of the distribution of subscription rights
on the outstanding stock.
7. Stock Appreciation Rights. The Committee may award a Stock
Appreciation Right in conjunction with an Option. Under a Stock Appreciation
Right, the Optionee may surrender all or a part of a Stock Option and receive,
in exchange, payment of no more than 100% of the excess of the market price of
the Corporation's Common Stock subject to the Option over the exercise price of
the Option. The award of a Stock Appreciation Right shall be evidenced by an
agreement between the Corporation and the Optionee, the provisions of which
shall be determined by the Committee.
Payment may be made in cash, in shares or Corporation's Common Stock, or
in a combination of cash and shares of Common Stock. Notwithstanding any other
provision in the Plan to the contrary, the Committee shall have the sole
discretion either (i) to determine the form in which payment for the Stock
Appreciation Right will be made (i.e., cash, shares of the Corporation's Common
Stock or a combination), or (ii) to consent to or disapprove the election of
the Optionee to receive cash in full or partial settlement of the Stock
Appreciation Right. Such consent or disapproval must be given within seven (7)
calendar days after the date on which the Optionee initially elects the form of
payment. Upon exercise of a Stock Appreciation Right respecting a given number
of shares subject to the option, the right to exercise the related stock option
respecting such shares shall automatically terminate.
To the extent that stock appreciation rights shall be exercised, the
Option with respect to which the stock appreciation rights have been granted
shall be deemed to have terminated for a reason other than the exercise of them
for the purpose of the limitation on the aggregate number of shares reserved
under Section 4 of this Plan.
8. Amendment. The Board of Directors of the Corporation may amend the
Plan from time to time.
No amendment of the Plan, however, may, without the consent of the Optionees,
make any changes in any outstanding options previously granted under the
Plan which would adversely affect the rights of such Optionees.
9. Termination. The Board of Directors of the Corporation may
terminate the Plan at any time and no option shall be granted thereafter. Such
termination, however, shall not affect the validity of any option previously
granted under the Plan.
10. Successors. This Plan shall be binding upon the successors and
assigns of the Corporation.
11. Governing Law. The terms of any options granted under this Plan
and the rights and obligations under this Plan of the Corporation, the Optionee
and their successors in interest shall, except to the extent governed by
Federal law, be governed by Indiana law.
12. Government and Other Regulations. The obligations of the
Corporation to issue or transfer and deliver shares under options granted under
the Plan shall be subject to compliance with all applicable laws, governmental
rules and regulations, and administrative action.
13. Effective Date. The Plan shall become effective when it shall have
been approved by the Corporation's Board of Directors.
PAGE 27
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Exhibit 13
SELECTED FINANCIAL DATA
OPERATING RESULTS DATA Years ended December 31
(in thousands, except per share data)
1996 1995 1994 1993 1992
Net sales $521,022 $462,323 $333,104 $236,958 $193,627
Net income 11,698(1) 10,038 8,697 6,562 4,220
Net income per share:
Primary 1.51(1) 1.31 1.19 .90 .62
Fully diluted 1.51(1) 1.31 1.19 .90 .58
Cash dividends per share .05 .05 .05 .03 .01
Weighted average shares:
Primary 7,738 7,680 7,300 7,240 6,859
Fully diluted 7,751 7,698 7,303 7,269 7,223
Operating results data include the results of acquired businesses from the
dates of acquisition (BABSCO, Inc. - January 1, 1995; TATCO, Inc. - May 2,
1994; Design Components, Inc. - October 7, 1993; and E'Con Mills, Inc. -
January 31, 1992).
(1) 1996 net income includes a $3.2 million gain ($.41 per share) on the sale
of the Corporation's carpet manufacturing and yarn processing operations.
All share and per share data have been adjusted for stock splits.
[Graphic - In the margin of the presentation of `SELECTED FINANCIAL
DATA" in the annual report to shareholders are three charts.
1. The top chart presents the Corporation's "Net Sales" trend for
five years. The X axis shows the years 1992 through 1996. The Y
axis represents net sales dollars, in millions.
2. The middle chart presents the Corporation's "Net Income" trend for
five years. The X axis shows the years 1992 through 1996. The Y
axis represents net income, in millions.
3. The bottom chart presents the Corporation's "Earnings per Share"
trend for five years. The X axis shows the years 1992 through
1996. The Y axis represents fully-diluted earnings per share.]
BALANCE SHEET DATA As of December 31
(in thousands)
1996 1995 1994 1993 1992
Working capital $ 50,084 $ 41,729 $ 40,776 $ 22,998 $ 21,148
Total assets 120,910 107,414 87,332 61,917 47,647
Long-term debt, net of
current maturities 16,639 19,596 21,824 11,766 9,695
Shareholders' equity 62,780 51,168 38,116 29,729 23,336
PAGE 28
<PAGE>
QUARTERLY RESULTS
Presented below is certain selected quarterly financial information for the
years ended December 31, 1996 and 1995: (in thousands, except per share data)
First Second Third Fourth 1996
1996 Quarter Quarter Quarter Quarter Total
Net sales $119,796 $137,958 $139,311 $123,957 $521,022
Gross profit 17,516 19,681 20,319 15,805 73,321
Net income 2,268 2,888 3,235 3,307 11,698
Net income per
common share: .29 .37 .42 .42 1.51
First Second Third Fourth 1995
1995 Quarter Quarter Quarter Quarter Total
Net sales $108,898 $116,406 $119,349 $117,670 $462,323
Gross profit 16,471 16,857 17,638 17,582 68,548
Net income 2,423 2,629 2,905 2,081 10,038
Net income per
common share: .32 .34 .38 .27 1.31
The sum of quarterly earnings per share for the four quarters may not equal
annual earnings per share due to changes in the average common and common
equivalent shares.
The fourth quarter of 1996 includes a net gain of $3.2 million ($.41 per share)
as a result of the December 31, 1996 sale of the Corporation's carpet
manufacturing and yarn processing operations. The gross margin and net income
for the fourth quarter of 1996 were reduced by $1.5 million and $.9 million
($.12 per share) respectively, for inventory adjustments primarily related to
the carpet operations.
[Graphic - In the margin of the presentation of "QUARTERLY RESULTS"
in the annual report to shareholders are two charts.
1. The top chart presents the Corporation's "Earnings per Share by
Quarter" for 1995 and 1996. The X axis shows the captions for
"1st", "2nd", "3rd", and "4th" quarters. The Y axis represents
earnings per share.
2. The bottom chart presents the Corporation's "Net Sales by Quarter"
for 1995 and 1996. The X axis shows the captions for "1st", "2nd",
"3rd", and "4th" quarters. The Y axis represents net sales
dollars, in millions.
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
SIGNIFICANT FACTORS
The following discussion includes the financial condition, results of
operations, and liquidity for the Corporation and its subsidiaries as of
December 31, 1996 and 1995 and for the three years ended December 31, 1996.
The 1995 and 1996 results include the acquired electrical distribution
operations of BABSCO, Inc. ("BABSCO"), acquired on January 1, 1995. Proforma
information regarding the 1994 results of this acquisition is reflected in Note
9 of the Notes to Consolidated Financial Statements.
The results for the three years ended December 31, 1996 also include the
operations of Danube Carpet Mills, Inc. the Corporation's wholly-owned carpet
manufacturing and yarn processing subsidiary, the operations and certain assets
of which were sold on December 31, 1996. Historical financial information
regarding Danube's results of operations is reflected in Note 10 of the Notes
to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth the consolidated statements of income for the
years ended December 31, 1996, 1995 and 1994 expressed as a percentage of net
sales:
Years Ended December 31,
1996 1995 1994
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 85.9 85.2 84.6
----- ----- -----
Gross profit 14.1 14.8 15.4
Commission income .5 .7 .9
----- ----- -----
14.6 15.5 16.3
Selling, general, and
administrative expenses 11.6 11.4 11.7
------ ----- -----
Operating income 3.0 4.1 4.6
Gain on sale of carpet business 1.1 - -
Interest expense, net (.3) (.5) (.3)
------ ----- -----
Income before income taxes 3.8 3.6 4.3
Income taxes 1.6 1.4 1.7
Net income 2.2% 2.2% 2.6%
The following table sets forth the proforma consolidated statements of income
for the years ended December 31, 1996, 1995 and 1994 excluding the results of
operations of the carpet and yarn business (which was sold on December 31,
1996) expressed as a percentage of net sales:
Years Ended December 31,
1996 1995 1994
Net sales 100.0% 100.0% 100.0%
Cost of sales 86.1 86.0 85.5
Gross profit 13.9 14.0 14.5
Commission income .5 .8 1.1
14.4 14.8 15.6
Selling, general, and
administrative expenses 11.1 11.2 11.7
Operating income 3.3 3.6 3.9
Interest expense, net (.4) (.5) (.4)
Income before income taxes 2.9 3.1 3.5
Income taxes 1.1 1.2 1.4
Net income 1.8% 1.9% 2.1
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<PAGE>
1996 COMPARED TO 1995
Net sales increased by $59 million (13%) in 1996 as compared to 1995. The
Corporation's primary market is the Manufactured Housing Industry ("MHI"),
representing approximately 75% of consolidated net sales in 1996. The MHI
recorded a 7% increase in homes produced in 1996 (363,000 homes) compared to
1995 (340,000 homes). With the exception of carpeting, the Corporation
improved its market share in all major product categories during 1996 to
account for the total sales increase in excess of MHI demand. During the year,
the Corporation was particularly successful at improving its market share in
electrical products, stemming from the January 1, 1995 acquisition of BABSCO.
The Corporation's sales also benefited from new regional distribution
operations added in 1995 in Arizona, Minnesota, and Pennsylvania, where the
Corporation has established its presence. Management estimates that less than
2% of the sales increase during 1996 compared with 1995 was due to selling
price increases. While it is widely expected that MHI production will grow at a
slower annual rate in 1997, management anticipates that it will continue to
gradually increase its market share.
Gross profit margins were 14.1% and 14.8% of net sales for 1996 and 1995,
respectively. Of the .7% decrease in gross profit margins as a percentage of
net sales, .6% relates to the Corporation's carpet manufacturing operations and
.1% is attributed to the remaining operations. During 1996, the finishing
operation of the carpet mill reached production levels in excess of "efficient
capacity" and required a percentage of the finishing to be outsourced at a cost
considerably higher than the internal cost of this process. It was discovered
that the inventory costing system did not adequately recognize these higher
costs and a negative year-end adjustment was necessary, adversely impacting the
Corporation's consolidated results for the fourth quarter of 1996.
In addition to the decreased margins from the carpet manufacturing operations,
the Corporation experienced a reduction in gross profit margins at its Design
Components laminating operations. This reduction was due to strong competition
in the marketplace combined with increases in the cost of gypsum during 1996.
The Corporation's distribution operations experienced a modest decline in gross
margins primarily due to an increase in lower margin "direct ship" business
(for truckload quantities) as a percentage of all distributed product sales.
In 1997, management's efforts to improve gross profit margins will focus on:
importing more distribution products at lower costs, reducing manufacturing
labor and overhead, seeking new product lines that exceed current gross profit
margin levels and making acquisitions that will enable the Corporation to
manufacture more products. Management believes that these efforts will
increase gross profit margins above 1996 levels, exclusive of the sold carpet
operations.
Commission income is earned by the Corporation's distribution operations from
selling, warehousing and delivery services to certain product manufacturers.
Commission income decreased from $3.0 million in 1995 to $2.5 million in 1996
primarily due to a decrease in the commission rate received for warehousing and
delivery of wood molding products and a change to a buy-sell arrangement on
certain plumbing products.
Selling, general, and administrative ("S,G & A") expenses were 11.6% and 11.4%
of net sales for 1996 and 1995, respectively. Management has begun to
implement strategies to reduce its S,G & A expenses as a percentage of net
sales including efforts to eliminate duplicate costs as well as reviewing
staffing levels and incentive systems. Management anticipates that its future
annual S,G & A expenses will decrease as a percentage of net sales as a result
of these and other efforts to reduce operating costs.
Interest expense decreased by 26% from $2.5 million in 1995 to $1.8 million in
1996, due to strong cash flows during 1996 which resulted in a reduction in
average borrowings outstanding on the Corporation's $25 million bank revolving
line of credit during the year. The Corporation increased its average accounts
payable balance with certain vendors by negotiating more favorable payment
terms, thus reducing the need for bank borrowings. In addition, the
Corporation negotiated lower market-based rates on its bank revolver. It is
expected that interest expense will continue to decline over the near term,
(exclusive of any future business acquisitions) as the Corporation continues to
PAGE 31
<PAGE>
use excess cash flows generated to reduce its outstanding debt. The
Corporation also anticipates realizing material amounts of interest income
until the proceeds from the sale of its carpet manufacturing operations are
redeployed.
Federal and state income taxes as a percentage of income before income taxes,
were 41% for 1996 compared to 39% for 1995. The increase in the effective rate
in 1996 is due to the write-off of $800,000 of non-deductible goodwill in
connection with the sale of the carpet and yarn operations. The Corporation
anticipates that its effective tax rate in 1997 will be approximately 39%.
Net income was 2.2% of net sales for 1996 and 1995. The 1996 results include a
$3.2 million (after-tax) gain on the sale of the carpet manufacturing and yarn
processing operations. Net income for 1996, exclusive of this gain, was 1.6%
of net sales. The reduction in this percentage, exclusive of the gain on the
sale of the carpet operations, is primarily due to poor performance experienced
in the Corporation's carpet manufacturing operations in 1996, and other factors
as discussed above. Net income as a percentage of net sales, exclusive of both
the carpet and yarn operations and the gain on the sale thereof, was 1.8% and
1.9% for 1996 and 1995, respectively. Management anticipates and expects to
improve its net income as a percentage of net sales in future periods due to
the strategies discussed above aimed at improving the Corporation's
performance.
1995 COMPARED TO 1994
Net sales increased by $129 million (39%) in 1995 from 1994. The 39% increase
consisted of 18% attributable to the acquired electrical distribution
operations of BABSCO and 21% by the other operating units of the Corporation.
The 21% increase in comparable sales compared favorably with the 12% increase
in homes produced in 1995 compared to 1994 by the Corporation's largest market,
Manufactured Housing, which reported 340,000 homes produced in 1995 compared to
304,000 homes produced in 1994. Sales to the Manufactured Housing industry
represented approximately 75% of the Corporation's net sales in 1995. The
Corporation improved its market share in 1995, particularly in decorative
wallboard (produced by Design Components) and in the Corporation's building
products distribution operations, as sales in new territories continued to
grow.
Management estimates that less than 3% of the sales increase during 1995
compared with 1994, was due to selling price increases.
Gross profit margins were 14.8% and 15.4% of net sales for 1995 and 1994,
respectively. The reduction of gross profit margins in 1995 reflects the
increased sales of lower margin laminated decorative wallboard and other
building products at a faster growth rate than certain of the Corporation's
other products. Also, the increased demand for truckload quantities of
product on a "direct ship" basis had a slightly adverse impact on overall
gross margins.
Commission income decreased from $3.1 million in 1994 to $3.0 million in 1995
primarily due to a decrease in the commission rate on certain products
distributed by the Corporation for unaffiliated manufacturers.
Selling, general and administrative expenses decreased from 11.7% of net sales
in 1994 to 11.4% in 1995. The reduction in this percentage reflected the
Corporation's capacity to increase sales without a proportionate increase in
fixed costs.
Interest expense increased from $1.0 million in 1994 to $2.5 million in 1995
due to the debt incurred and assumed in connection with the January 1995
acquisition of the operations and net assets of BABSCO. The increase also
reflected higher prevailing short-term borrowing rates on working capital debt
outstanding during 1995 as compared to short-term borrowing rates in 1994.
Federal and state income taxes as a percentage of income before income taxes
were 39% for 1995 and 1994.
Net income as a percentage of net sales was 2.2% and 2.6% for 1995 and 1994,
respectively. The primary cause of the decline in this percentage was the
PAGE 32
<PAGE>
acquisition of BABSCO in 1995. BABSCO accounted for 13% of 1995 net sales and
less than 2% of net income. The addition of these operations had a .3% adverse
effect on 1995 net income as a percentage of net sales. The remaining decline
of .1% was a result of the decline in gross margins as a percentage of net
sales, as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's cash flows from operating activities during 1996 were $15
million due to net income of $11.7 million (inclusive of the $3.2 million net
gain on the sale of the carpet and yarn business) plus depreciation and
amortization of $3.4 million. The Corporation decreased its accounts
receivable by $2.8 million due to lower net sales during the second half of
December 1996 as compared with the same period in December 1995 due to
inclement weather and holiday plant closings by certain customers. Accounts
payable was increased by $2.7 million due to more favorable payment terms
negotiated with certain vendors. The increase in other current liabilities
includes $3.3 million of income taxes currently due on the gain on the sale of
the carpet and yarn operations.
Cash provided by investing activities during 1996 totalled $8 million,
consisting of $16.4 million in proceeds from the sale of the carpet business
(net of expenses paid in 1996 in connection with the divestiture) less capital
expenditures of $8.4 million in 1996. Capital expenditures in 1996 included
$4.2 million for certain real estate previously leased by the Corporation and
$4.2 million for other property, plant and equipment investments. Capital
expenditures in 1997 are anticipated to be approximately $4 to 7 million,
compared to expected 1997 depreciation and amortization of approximately $3
million.
Cash flows used in financing activities during 1996 totalled $1.9 million as
the Corporation reduced its long-term debt by $3.0 million, but increased its
short-term debt by $1.3 million.
Management believes the Corporation is in good financial condition as of
December 31, 1996, and anticipates the Corporation's operating cash flows in
1997 will be adequate to fund its seasonal working capital needs and capital
expenditures. As of December 31, 1996, the Corporation had cash and cash
equivalents of $21.1 million (primarily due to funds received in the December
31, 1996 sale of its carpet operations), $6 million of which was subsequently
used to retire short-term debt outstanding under the Corporation's $25 million
bank revolving line of credit agreement. The remaining funds are invested in
short-term instruments while management evaluates various opportunities to
reinvest funds received from the divestiture of its carpet manufacturing
operations.
PAGE 33
<PAGE>
SEASONALITY
The Corporation's primary markets, the Manufactured Housing and Recreational
Vehicle industries, typically shut down for a week in early July and for 1-2
weeks over the Christmas holidays. Operations during the fourth quarter of
1995 and 1996 were adversely affected by winter storms that restricted the
shipment of finished manufactured homes and RV's by the Corporation's customers
to their retail dealerships. These conditions were not experienced during the
fourth quarter of 1994.
INFLATION
Generally, the impact of inflation and changing prices had a minimal impact on
1996 operating results as increases in selling prices closely followed
increases in material costs. During 1995, however, the Corporation temporarily
absorbed certain product cost increases because of competitive market
conditions. These increases combined with competitive market conditions for
certain distributed products adversely impacted the Corporation's overall gross
profit margins during 1995.
During 1994, the Corporation temporarily absorbed certain manufacturing
material cost increases because of competitive market conditions. Significant
raw material increases, combined with competitive market conditions for
laminated gypsum wallboard products, adversely impacted the gross profit
margins of Design Components during 1994.
OUTLOOK FOR 1997
The Corporation's strategies to increase its net income and operating margins
in 1997 and beyond will focus on maximizing the benefit from its selling,
general and administrative expenses by better aligning its sales and marketing
efforts with a consolidating customer base. Management also plans to direct
existing resources toward improving its manufacturing systems and processes,
adding new product lines to feed the Corporation's national distribution
network, and aggressively seeking strategic business acquisitions that will
complement existing lines and allow the Corporation to improve its market share
and net profit margins.
DISCUSSION OF FORWARD-LOOKING INFORMATION
From time to time, the Corporation may make oral or written forward-looking
statements regarding its anticipated sales, costs, expenses, earnings and
matters affecting its financial condition and results of operations. Such
forward-looking statements are subject to a number of material factors which
could cause the statements or projections contained in them to be materially
inaccurate. Such factors include, without limitation, the following:
Economic Conditions. The Manufactured Housing and Recreational
Vehicle industries have historically been cyclical and are affected
by the general trends of the economy and consumer preferences and
consumer confidence. The level of disposable consumer income affects
the Corporation's sales, particularly with regards to the Recreational
Vehicle industry, because Recreational Vehicles are generally
considered discretionary expenditures by consumers. Other macro
economic factors affecting the demand for the Corporation's products
include the vacancy rates for rental housing, general employment
levels, the level of interest rates and the availability of consumer
financing. Because the majority of consumers finance their purchase
of a Manufactured Home or Recreational Vehicle, the availability of
financing and level of interest rates can affect a consumer's
purchasing decision. A decline in general economic conditions or
consumer confidence can be expected to affect the Corporation's sales
adversely.
Competition. The U.S. Manufactured Housing and Recreational Vehicle
industries are very competitive with several principal nationwide
manufacturers and suppliers and numerous local and regional
competitors. There is no assurance the Corporation will be able to
maintain its current competitive position in the market or that it
will be able to expand its sales.
Potential Product Liability. Like other manufacturers and suppliers,
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<PAGE>
the Corporation may be subject to claims that its products or
products sold by it caused or contributed to damage or injury or may
be required to recall products deemed unsafe. Any such claims in
excess of the Corporation's insurance coverage or material product
recall expenses could adversely affect the Corporation's financial
condition and results of operations.
Acquisitions. The Corporation expects to be engaged in negotiations
from time to time regarding prospective acquisitions of other
businesses. Such acquisitions could be material to the Corporation
and, if consummated, could have a material effect on the
Corporation's financial condition or results of operations. There is
no assurance as to when or whether the Corporation will be able to
effect acquisitions, whether it will be able to generate the
necessary funding to effect such acquisitions, or as to the terms on
which such acquisitions may be effected.
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CONSOLIDATED BALANCE SHEETS
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
as of December 31, 1996 and 1995
(in thousands, except share and per share data)
ASSETS 1996 1995
Current assets
Cash and cash equivalents $ 21,096 $ 24
Trade receivables, less allowance for
doubtful receivables, 1996 and 1995 - $500 22,827 25,452
Inventories 41,475 50,049
Deferred income taxes 2,128 1,412
Prepaid expenses and other 595 457
Real estate held for sale 2,576 -
Total current assets 90,697 77,394
Property, plant and equipment, net 19,381 17,587
Cost in excess of net assets acquired, net of
accumulated amortization, 1996 - $1,482 and
1995 - $1,125 10,312 11,554
Other assets 520 879
Total assets $120,910 $107,414
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
Current liabilities
Short-term debt $ 6,000 $ 4,723
Current maturities of long-term debt 1,904 2,009
Accounts payable, trade 23,067 23,159
Income taxes payable 2,381 43
Accrued liabilities:
Salaries and wages 2,142 2,015
Accrued expenses related to sale of business 1,703 -
Other 3,416 3,716
Total current liabilities 40,613 35,665
Long-term debt 16,639 19,596
Deferred income taxes 745 944
Other deferred liabilities 133 41
Commitments (Note 8)
Shareholders' equity
Preferred stock, $.01 par value;
authorized and unissued 1,000,000 shares
Common stock, $.01 par value; authorized
10,000,000 shares, issued
1996 - 7,680,623 shares
and 1995 - 6,098,969 shares 76 61
Additional paid-in capital 11,914 11,613
Retained earnings 50,827 39,545
62,817 51,219
Less, Treasury stock, at cost, 1996-
24,482 shares and 1995 - 26,767 shares 37 51
Total shareholders' equity 62,780 51,168
Total liabilities and shareholders' equity $120,910 $107,414
The accompanying notes are an integral part of these consolidated financial
statements.
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CONSOLIDATED STATEMENTS OF INCOME
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per share data)
1996 1995 1994
Net sales $521,022 $462,323 $333,104
Cost of sales 447,701 393,775 281,808
Gross profit 73,321 68,548 51,296
Commission income 2,459 3,005 3,111
75,780 71,553 54,407
Selling, general and
administrative expenses 60,194 52,709 39,136
Operating income 15,586 18,844 15,271
Gain on sale of carpet business (5,919) - -
Interest income (177) (142) (38)
Interest expense 1,831 2,472 1,035
Income before income taxes 19,851 16,514 14,274
Income taxes 8,153 6,476 5,577
Net income $ 11,698 $ 10,038 $ 8,697
Net income per share $ 1.51 $ 1.31 $ 1.19
Weighted average common and
common equivalent shares
outstanding 7,738 7,680 7,300
The accompanying notes are an integral part of these consolidated financial
statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per share data)
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
Balance at
January 1, 1994 $ 58 $ 8,395 $21,522 $ (246) $29,729
Exercise of stock options - 4 - 38 42
Cash dividends
($.05 per share) - - (346) - (346)
Cash paid in lieu of
fractional shares - - (6) - (6)
Net income - - 8,697 - 8,697
Balance at
December 31, 1994 58 8,399 29,867 (208) 38,116
Exercise of stock options - 171 - 157 328
Cash dividends
($.05 per share) - - (360) - (360)
Issuance of common shares in
connection with a business
acquisition (Note 9) 3 2,923 - - 2,926
Tax benefit from early sale
of stock acquired
with options - 120 - - 120
Net income - - 10,038 - 10,038
Balance at
December 31, 1995 61 11,613 39,545 (51) 51,168
Exercise of stock options - 246 - 14 260
Cash dividends - - (413) - (413)
($.05 per share)
Cash paid in lieu
of fractional shares - - (3) - (3)
Five-for-four
stock split 15 (15) - - -
Tax benefit from early
sale of stock acquired
with options - 70 - - 70
Net income - - 11,698 - 11,698
Balance at
December 31, 1996 $ 76 $11,914 $50,827 $ (37) $62,780
The accompanying notes are an integral part of these consolidated financial
statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1996, 1995 and 1994 (in thousands)
1996 1995 1994
Cash flows from operating activities:
Net income $11,698 $10,038 $8,697
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 2,337 1,930 1,508
Amortization 1,013 967 524
Loss (gain) on sales of property,
plant and equipment 29 11 (53)
Deferred income taxes (915) (38) (130)
Gain on sale of carpet business (5,919) - -
Changes in certain assets and liabilities,
excluding effects from acquisitions and dispositions:
Trade receivables 2,760 (1,346) (6,327)
Inventories (738) 1,481 (17,484)
Prepaid expenses and other (138) (154) 167
Accounts payable, trade 2,687 (1,159) 6,479
Other current liabilities 2,174 172 (183)
Net cash provided by (used in)
operating activities 14,988 11,902 (6,802)
Cash flows from investing activities:
Proceeds from sales of property, plant
and equipment 61 51 120
Acquisitions of property, plant
and equipment (8,368) (2,790) (2,136)
Acquisitions of businesses, net of
cash acquired (145) (732) (732)
Proceeds from sale of carpet operations,
net of $1,921 costs and expenses paid 16,367 - -
Other, net 110 180 132
Net cash provided by (used in)
investing activities 8,025 (3,291) (2,616)
Cash flows from financing activities:
Proceeds from issuance of debt 83,837 171,697 100,382
Repayment of debt (85,622) (180,271) (90,652)
Proceeds from exercise of stock options 260 328 42
Cash dividends paid (413) (360) (346)
Other, net (3) - (6)
Net cash (used in) provided by
financing activities (1,941) (8,606) 9,420
Increase in cash 21,072 5 2
Cash, beginning of year 24 19 17
Cash, end of year $21,096 $ 24 $ 19
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest $ 1,894 $ 2,516 $ 979
Income taxes 6,660 6,894 5,940
Non-cash investing and financing activities
Reclassification of short-term
borrowings to reflect debt refinancing - - 8,000
Obligations assumed in business acquisitions - 9,438 897
Short-term debt issued in business acquisition - 1,500 -
Long-term debt issued in business acquisition - 5,522 -
Common stock issued in business acquisition - 2,926 -
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Shelter Components Corporation and subsidiaries
(individually and collectively referred to as the "Corporation") manufacture
and distribute products and materials primarily for use by the Manufactured
Housing, Modular Housing and Recreational Vehicle industries.
Significant Accounting Policies:
Principles of Consolidation - The consolidated financial statements include the
accounts of the Corporation and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Inventories - Inventories are stated at the lower of cost or market, with cost
determined by the first-in, first-out method.
Property, Plant and Equipment - Property, plant and equipment are carried at
cost less accumulated depreciation. Depreciation is computed primarily by the
straight-line method over the estimated useful lives of the assets. Upon sale
or retirement of property, plant and equipment, the asset cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is included in income.
Intangibles - Non-compete agreements are amortized on a straight-line basis
over the terms of the related agreements (3 to 5 years). The excess of
acquisition cost of acquired businesses over the fair value of net assets
acquired ("goodwill") is amortized, using the straight-line method, over
periods ranging from 10 to 40 years. The Corporation periodically reviews the
carrying value of goodwill to assess that recoverability and impairments are
recognized in operating results when a permanent diminution in value has
occurred.
Income Taxes - Deferred income taxes are determined using the liability method
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes".
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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 reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments - The fair value of all financial
instruments where the face value differs from the fair value are estimated
based upon quoted amounts or the use of current rates available for similar
financial instruments. If fair value accounting had been used at December 31,
1996 and 1995, instead of the historic basis of accounting used in the
financial statements, long-term debt would exceed the reported level by
approximately $1.5 million in each year.
Product Warranty Expense - Provisions are made currently for the estimated
future costs that will be incurred under product warranties presently in force.
PAGE 40
<PAGE>
Revenue Recognition and Concentration of Credit Risk - Revenue from product
sales is recognized at the time of shipment and commissions are recognized as
earned on an accrual basis. Although the Corporation has a concentration of
credit risk in the Manufactured Housing and Recreational Vehicle industries,
there is no geographical concentration of credit risk. Sales to one customer
were approximately 11%, 12% and 10% of the Corporation's consolidated net sales
in 1996, 1995 and 1994, respectively. Two of the Corporation's customers
merged during 1996 resulting in combined sales approximating 13% of the 1996
consolidated net sales. The Corporation performs an ongoing credit evaluation
of its customers' financial condition, and credit is extended to customers on
an unsecured basis. Future credit losses are provided for currently through
the allowance for doubtful receivables. Actual credit losses are charged to
the allowance when incurred. The amounts provided for such losses are
determined based on the Corporation's historical loss experience considering
current economic conditions.
Earnings Per Common Share - Primary and fully diluted earnings per common share
computations are based on the weighted average number of shares of common stock
and the dilutive effect of common stock equivalents (see Note 6) outstanding
during each year, adjusted for all stock splits declared during the periods
presented.
Note 2: INVENTORIES
Inventories consist of the following components:
(in thousands)
1996 1995
Raw materials $ 5,466 $ 8,272
Work-in-process 382 4,986
Finished goods 814 6,866
Goods held for resale 34,813 29,925
Total $41,475 $50,049
Note 3: PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation are summarized as follows:
(in thousands)
1996 1995
Land $ 1,984 $ 1,435
Buildings 12,915 10,569
Leasehold improvements 278 1,217
Machinery and equipment 6,276 9,739
Office equipment 2,584 2,569
Transportation equipment 2,206 2,184
26,243 27,713
Less, Accumulated depreciation 6,862 10,126
Property, plant and equipment, net $19,381 $17,587
PAGE 41
<PAGE>
Note 4: DEBT
The Corporation has a $25 million, unsecured, revolving bank line of credit
(the "Revolver"). The Revolver requires monthly interest payments based on
market interest rates (6.47% at December 31, 1996) and an annual commitment fee
of 1/8% based on the unused portion of the Revolver. Outstanding borrowings
under the Revolver at December 31, 1996 were $6 million which were repaid in
January 1997. There were no outstanding borrowings under the revolving line of
credit at December 31, 1995.
Long-term debt consists of the following:
(in thousands)
1996 1995
9.24% senior notes $15,000 $15,000
6.4% senior notes 1,500 3,000
Term loan, payable in monthly
installments including interest
at 6.75% with a final maturity
of February 1999, collateralized
by a real estate mortgage 1,279 1,420
Unsecured note, payable in quarterly
installments of $50 including
interest imputed at 9.24% with
a final maturity of January 2000 556 697
Other 208 1,488
Total long-term debt 18,543 21,605
Less, Current maturities 1,904 2,009
Long-term debt, net of current
maturities $16,639 $19,596
In February 1995, the Corporation issued $15 million, 9.24%, unsecured senior
notes under a note agreement where interest is payable quarterly and principal
is payable in eight annual installments of $1,875,000 commencing March 1998.
The unsecured $1.5 million, 6.4% senior note outstanding at December 31, 1996
was paid in full on February 15, 1997.
Aggregate annual maturities of long-term debt for each of the next five years
ending December 31 are as follows: 1997 - $1,904,000; 1998 - $2,285,000; 1999
- - $3,055,000; 2000 - $1,924,000 and 2001 - $1,875,000.
The revolver and senior note agreements contain, among other provisions,
certain covenants including: maintenance of minimum net worth and certain
financial ratios; limitations on indebtedness, liens and leases; and
limitations on the payment of cash dividends. Under the senior note agreements
and revolver, retained earnings of $39.2 million at December 31, 1996 is
restricted, as to cash dividends and purchases or redemptions of shares of
common stock.
Note 5: RETIREMENT PLAN
The Corporation has a defined contribution plan which covers substantially all
full-time employees of the Corporation and is qualified under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may voluntarily
contribute a percentage of their compensation and the plan allows the
Corporation to make discretionary matching contributions. Retirement plan
expense, including administrative expenses, aggregated $271,000; $259,000 and
$198,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Note 6: SHAREHOLDERS' EQUITY
The Corporation is authorized to issue 1,000,000 shares of special (preferred)
shares (par value $.01), of which none have been issued. The special shares
have no voting rights or powers, except the Corporation's Board of Directors is
vested with authority to determine and state the designations and relative
PAGE 42
<PAGE>
preferences, limitations, voting rights, if any, and other rights of the
special shares.
On May 30, 1996, the Board of Directors declared a five-for-four stock split of
the Corporation's common stock, paid on July 8, 1996 to shareholders of record
on June 24, 1996. On February 8, 1994, the Board of Directors declared a
three-for-two stock split of the Corporation's common stock, paid on March 8,
1994 to shareholders of record on February 22, 1994. All historical share and
per share data has been restated for all periods presented herein to reflect
these stock splits.
During 1996, the Board of Directors approved the Shelter Components Employee
Stock Purchase Plan which allows all full-time employees of the Corporation to
purchase shares of the Corporation's common stock through payroll deduction at
market prices. As of December 31, 1996, 4,422 shares of common stock had
been purchased by employees participating in the plan. The Corporation pays
the expenses of administering the plan.
The Corporation has a stock incentive plan authorizing the grant of incentive
stock options and non-qualified stock options to purchase up to 937,500 shares
of the Corporation's common stock. Under the plan, the incentive stock option
price may not be less than the fair market value of the Corporation's common
stock at the date of grant. Generally, the options become exercisable over
staggered periods and expire five years from the date of grant.
The transactions for shares under options for each of the three years in the
period ended December 31, 1996 were as follows:
Shares
Under Per Share
Option Option Price
Outstanding, January 1, 1994 322,144 $1.54 - $6.94
Exercised (24,884) 1.54 - 2.02
Outstanding, December 31, 1994 297,260 1.54 - 6.94
Exercised (104,235) 1.54 - 6.94
Granted 241,250 9.20
Outstanding, December 31, 1995 434,275 1.54 - 9.20
Exercised (65,823) 1.54 - 9.20
Cancelled (19,687) 6.94 - 9.20
Outstanding, December 31, 1996 348,765 6.94 - 9.20
Exercisable, December 31, 1996 136,401 $6.94 - $9.20
As of December 31, 1996, 331,095 shares were reserved for the granting of
future stock options under this plan, compared with 106,330 shares at December
31, 1995.
In 1996, the Board of Directors implemented a non-qualified stock option plan
for the purpose of granting stock options to the Corporation's non-employee
directors. The plan provides for annual grants of 2,500 options to each non-
employee director at the fair market value of the Corporation's common stock at
the date of the grant. The options are immediately exercisable upon grant. In
May 1996, a total of 20,000 options were granted to the non-employee directors
of the Corporation at an exercise price of $10.90 per share, all of which were
outstanding and exercisable at December 31, 1996. As of December 31, 1996,
180,000 shares were reserved for the granting of future stock options to non-
employee directors under this plan.
The Corporation has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The Corporation applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plan.
Accordingly, no compensation cost has been recognized for its fixed stock
option plan. Had compensation cost for the 1995 grant been determined based
on the fair value method as defined in SFAS No. 123, the Corporation's net
PAGE 43
<PAGE>
income and income per share would have been reduced to the proforma amounts
indicated below.
--------1996---------- --------1995----------
Reported Proforma Reported Proforma
Net income $11,698 $11,548 $10,038 $9,888
Net income per share 1.51 1.49 1.31 1.29
The fair value of the option grant is estimated on the date of grant with the
following assumptions: expected volatility 32%; risk-free interest rate of
6.04%; and expected life of 3 years.
Note 7: INCOME TAXES
Income taxes consist of the following:
(in thousands)
1996 1995 1994
Federal:
Current $7,724 $5,414 $4,728
Deferred (784) (33) (110)
6,940 5,381 4,618
State:
Current 1,344 1,100 979
Deferred (131) (5) (20)
1,213 1,095 959
Total $8,153 $6,476 $5,577
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<PAGE>
The components of the net deferred tax asset and the net deferred tax liability
as of December 31, 1996 and 1995 were as follows:
(in thousands)
1996 1995
Current deferred tax asset:
Allowance for doubtful receivables $ 196 $ 196
Inventories 895 601
Accrued liabilities and other 1,037 615
Deferred tax asset $2,128 $1,412
1996 1995
Non-current deferred tax asset (liability):
Depreciation $ (643) $ (743)
Acquired companies (210) (214)
Other 108 13
Deferred tax liability $ (745) $ (944)
The following is a reconciliation of income taxes computed at the statutory
federal income tax rate to the reported provision:
(in thousands)
1996 1995 1994
Computed income taxes at
federal statutory rate $6,948 $5,782 $4,996
State income taxes, net
of federal benefit 789 711 630
Writedown of non-deductible goodwill 280 - -
Other 136 (17) (49)
Total $8,153 $6,476 $5,577
Note 8: COMMITMENTS, CONTINGENCIES AND RELATED PARTIES
Lease Commitments
The Corporation leases certain facilities under noncancellable agreements which
expire at various dates through September 2000. The lease agreements require
the Corporation to pay property taxes, utilities, insurance, and repairs and
maintenance on the properties. In addition, certain of the building leases are
with entities which are principally owned by certain directors and officers of
the Corporation. During 1996, the Corporation exercised its option to purchase
certain real estate totalling $3.6 million from ELJO Investments, a partnership
principally owned by certain directors and officers of the Corporation. The
aggregate purchase price was below the fair market value of the properties at
the date of purchase. During 1996, the Corporation also purchased a facility
from Stults Realty, Inc. which is owned by Mr. Stults, the Corporation's
President pursuant to a provision in the January 1995 agreement to purchase the
assets of BABSCO, Inc. The purchase price was approximately $600,000, which
reflected the fair market value of the property.
The Corporation also leases certain transportation, manufacturing, distribution
and office equipment under lease agreements with expiring terms through May
2004. The transportation leases require weekly rentals plus additional amounts
based upon actual mileage.
The above described leases are accounted for as operating leases. Total rental
expense in the consolidated statements of income for the years ended December
31, 1996, 1995 and 1994 aggregated $3,759,000, $3,474,000 and $2,901,000
respectively, including payments to related parties of $266,000 in 1996,
$711,000 in 1995, and $531,000 in 1994.
Future minimum annual lease payments under these operating leases, excluding
mileage payments that may be required under transportation vehicle leases, are
as follows:
Year (in thousands)
1997 $2,053
1998 1,724
1999 1,254
2000 711
2001 219
Thereafter 168
$6,129
PAGE 45
<PAGE>
Self Insurance
The Corporation is self-insured for certain employee health benefits ($100,000
per individual with an annual aggregate of approximately $1.4 million) and
workers' compensation ($500,000 per occurrence with an annual aggregate of
approximately $1.1 million). The Corporation accrues for the estimated losses
occurring from both asserted and unasserted claims. The estimate of the
liability for unasserted claims arising from incurred but not reported claims
is based on an analysis of historical claims data.
Other Related Party Transactions
The Corporation made purchases from an electrical wire products supplier in
which the Corporation's President has a 16% ownership interest. Total
purchases for 1996 and 1995 were approximately $3 million per year. The
Corporation believes the purchases were at a price and terms which approximate
general market prices and terms for similar products.
Other
Certain claims are pending against the Corporation with respect to matters
arising out of the ordinary conduct of the business. In the opinion of
management, based upon presently available information, either adequate
provision for anticipated costs has been made by insurance, accruals or
otherwise, or the ultimate anticipated costs resulting will not materially
affect the Corporation's consolidated financial position or results of
operations.
During 1996, the Corporation committed to the expansion of its corporate
offices. At December 31, 1996, the outstanding contractual obligation amounted
to $1.1 million.
Note 9: BUSINESS ACQUISITIONS
The following acquisitions have been accounted for using the purchase method of
accounting, with the operating results of the acquired businesses being
included in the Corporation's consolidated financial statements from the date
of acquisition.
In January 1995, the Corporation acquired the business operations and operating
assets of BABSCO, Inc. ("BABSCO"), located in Elkhart, Indiana, and having
additional operations in Plymouth and Warsaw, Indiana and Mt. Joy,
Pennsylvania. BABSCO is a wholesale distributor of a full line of electrical
products to the Recreational Vehicle, Manufactured Housing and Modular Housing
industries, and to electrical contractors in the Northern Indiana and Southern
Michigan region. The total purchase price was $18.2 million, consisting of
three promissory notes totalling $7.0 million, 336,323 restricted shares of
common stock with a market value of $2.9 million, and $8.3 million of assumed
liabilities as of the closing date. The promissory notes included a $1.5
million demand note, an $800,000 note payable in quarterly installments over
five years and a $4.7 million note paid in January 1996. The $7.5 million
excess of the purchase price over the fair value of acquired assets
("goodwill") is being amortized over a 20-year period.
The following represents unaudited proforma financial information as if the
acquisition of BABSCO had occurred at the beginning of 1994 (in thousands,
except per share amounts):
1994
Net sales $380,022
Net income 9,400
Net income per common share 1.23
On May 2, 1994 the Corporation acquired the business operations and operating
assets of TATCO, Inc. ("TATCO") located in Lancaster, Pennsylvania. TATCO is a
wholesale distributor of building and component products to the Manufactured
and Modular Housing industries. The purchase price, including liabilities
assumed and amounts due under non-compete, employment, and earnout agreements
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<PAGE>
totalled $2.1 million. The $700,000 excess of the purchase price over the fair
value of acquired assets ("goodwill") is being amortized over a ten-year
period. Proforma financial information had TATCO been acquired as of the
beginning of 1994 has not been presented as it is not materially different from
historical results of the Corporation.
Note 10: DISPOSAL OF CARPET BUSINESS
On December 31, 1996, the Corporation sold the carpet manufacturing and yarn
processing operations and certain assets and transferred certain liabilities of
its wholly-owned subsidiary, Danube Carpet Mills, Inc., for $18.3 million in
cash. The transaction resulted in a pre-tax gain of $5.9 million which amounts
to a net gain of $.41 per share after income taxes. The gain is net of $4.5
million of expenses incurred in connection with the sale of the business,
including an $800,000 non-deductible charge for goodwill related to the carpet
and yarn operations. Condensed income statement information and a listing of
the assets and liabilities retained at December 31, 1996 relating to these
operations after eliminating intercompany transactions and allocations are as
follows:
Year ended December 31,
1996 1995 1994
Sales $74,851 $68,210 $64,573
Cost of sales 63,403 55,385 52,228
Gross profit 11,448 12,825 12,345
Selling, general and
administrative expenses 10,547 8,709 7,658
Interest expense 4 3 15
Gain on sale of business (5,919) - -
Income before income taxes $ 6,816 $ 4,113 $ 4,672
December 31, 1996
Accounts receivable $ 3,594
Receivable due from buyer 135
Real estate held for sale to buyer 1,648
Accounts payable and accrued expenses (2,444)
Income taxes payable (2,963)
Net liabilities retained in excess
of assets $ (30)
PAGE 47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Shelter Components Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Shelter
Components Corporation and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The financial statements of Shelter Components Corporation for the year ended
December 31, 1994 were audited by other independent accountants, whose report
dated February 7, 1995, except as to the information presented in Note 4 for
which the date was March 27, 1995, expressed an unqualified opinion on those
statements.
/s/Price Waterhouse LLP
South Bend, Indiana
February 18, 1997
PAGE 48
<PAGE>
CORPORATE INFORMATION
SECURITIES INFORMATION
The Corporation's Common Stock is traded on the American Stock Exchange as
Shelter Components Corporation under the symbol "SST". The following table
sets forth, for the last two fiscal years, quarterly high and low bid prices
for the Common Stock on the American Stock Exchange. All share prices have
been adjusted to reflect the July 1996 five-for-four stock split.
1996 High Low
First Quarter $13-1/8 $9-3/4
Second Quarter 13-5/8 9-7/8
Third Quarter 14-1/4 10-7/8
Fourth Quarter 14-1/2 11-1/2
1995 High Low
First Quarter $11-5/8 $ 8-3/4
Second Quarter 11 8-1/4
Third Quarter 11-7/8 9
Fourth Quarter 13-3/4 11-1/4
As of February 28, 1997 there were 425 holders of record of the Corporation's
common stock.
Dividends
1996 and 1995 dividends per share were as follows:
Dividends Declared In: 1996 1995
June $.024 $.024
December .030 .024
Total $.054 $.048
Pursuant to the terms of certain debt agreements (see Note 4 of the Notes to
Consolidated Financial Statements), the Corporation is prohibited from paying
cash dividends in excess of $750,000 plus 50% of consolidated net income after
December 31, 1994. Future cash dividends will be contingent upon working
capital needs and the financial position of the Corporation.
PAGE 49
<PAGE>
Form 10-K and Shareholder Inquiries
To request a free copy of Shelter Components Corporation's Form 10-K as filed
with the Securities and Exchange Commission, contact:
Investor Relations
2831 Dexter Drive
P.O. Box 4026
Elkhart, Indiana 46514
(800) 571-6929
(219) 262-2213 (fax)
Corporate Offices
2831 Dexter Drive
Elkhart, Indiana 46514
Transfer Agent
KeyCorp Shareholder Services, Inc.
127 Public Square, 15th Floor
Cleveland, Ohio 44114-1306
Independent Accountants
Price Waterhouse LLP
South Bend, Indiana
Legal Counsel
Barnes & Thornburg
Elkhart, Indiana
PAGE 50
<PAGE>
Board of Directors Executive Officers
Outside Directors: Corporate Officers:
William J. Barrett (3) Larry D. Renbarger
Senior Vice President Chief Executive Officer
Janney Montgomery Scott Inc.
(Investment Bankers) Gerald R. Stults
President
Arthur M. Borden & Chief Operating Officer
Partner, Rosenman & Colin
(Attorneys) Mark C. Neilson
Chief Financial Officer
Herbert M. Gardner (2) & Secretary-Treasurer
Senior Vice President
Janney Montgomery Scott Inc. James E. DeCraene
(Investment Bankers) Vice President, Planning & Development
William N. Harper (1)(2) Steven A. Salzer
Private Investor Vice President & General Counsel
Ronald D. Minzey (2)
Private Investor Operating Officers:
Dale A. Ledbetter
Cornelius J. Murphy (3) President, Shelter Distribution
Private Investor
Co-Founder Richard E. Clark
President, Shelter Plastics Group
William B. Riblet
Vice President Richard J. Ostroski
Lippert Components, Inc. President, Design Components, Inc
Employed Directors:
Larry D. Renbarger
Gerald R. Stults
Mark C. Neilson
(1) Chairman of the Board
(2) Audit Committee
(3) Compensation Committee
PAGE 51
<PAGE>
Exhibit 21
SHELTER COMPONENTS CORPORATION
SUBSIDIARIES OF THE REGISTRANT
December 31, 1996
Percentage of Voting
Incorporated Securities Owned
Name Under Laws of by Immediate Parent
BPR Holdings, Inc. Indiana 100% (1)
Shelter Components of Indiana, Inc. Indiana 100% (1)
Shelter Distribution, LP (2)
Design Components, Inc. Indiana 100% (1)
Duo-Form of Michigan, Inc. Michigan 100% (1)
Danube Carpet Mills, Inc. Tennessee 100% (1) (3)
(1) Wholly-owned subsidiary of Shelter Components Corporation
(2) Limited partnership owned by BPR Holdings, Inc. (1%)and Shelter Components
of Indiana, Inc. (99%)
(3) Business operations and substantially all net assets of Danube Carpet
Mills, Inc. were sold on December 31, 1996.
PAGE 52
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,096
<SECURITIES> 0
<RECEIVABLES> 23,327
<ALLOWANCES> 500
<INVENTORY> 41,475
<CURRENT-ASSETS> 90,697
<PP&E> 26,243
<DEPRECIATION> 6,862
<TOTAL-ASSETS> 120,910
<CURRENT-LIABILITIES> 40,613
<BONDS> 16,639
0
0
<COMMON> 76
<OTHER-SE> 62,704
<TOTAL-LIABILITY-AND-EQUITY> 120,910
<SALES> 521,022
<TOTAL-REVENUES> 523,481
<CGS> 447,701
<TOTAL-COSTS> 447,701
<OTHER-EXPENSES> 60,194
<LOSS-PROVISION> 326
<INTEREST-EXPENSE> 1,654
<INCOME-PRETAX> 19,851
<INCOME-TAX> 8,153
<INCOME-CONTINUING> 11,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,698
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
