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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X]Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended January 1, 1995
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or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from _________ to ________.
Commission File Number 1-10183
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Schwitzer, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 35-1764400
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Brevard Road, P.O. Box 15075, Asheville, North Carolina 28813
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (704) 684-4102
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.10 per share New York Stock Exchange
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Common Stock Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 15, 1995, was approximately $69,958,845.
As of March 15, 1995, the registrant had outstanding 7,236,241 shares of Common
Stock, par value $.10 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II: Annual Report to Shareholders for the fiscal year ended January
1, 1995 (with the exception of those portions which are specifically
incorporated by reference in this Form 10-K, the Annual Report to Shareholders
for the fiscal year ended January 1, 1995, is not deemed to be filed as part of
this report).
Part III: Definitive Proxy Statement in connection with the 1995 Annual Meeting
of Stockholders to be held on May 31, 1995.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
Schwitzer, Inc. (the "Company") is a holding company which, through its
subsidiaries, is engaged in the design, manufacture and marketing of industrial
products, including turbochargers, fan drives, cooling fans and crankshaft
vibration dampers, for enhancing the efficiency of diesel and gasoline engines
(the "Schwitzer Business").
The Company is a Delaware corporation that was organized in January 1989 at
the direction of Household International, Inc. ("Household"), which had acquired
the Schwitzer Business in 1981. During the mid-1980's, major restructuring
programs were completed in the Schwitzer Business to discontinue unrelated
products, consolidate operations and reduce operating costs. On April 14, 1989,
the Company became a publicly held company through the pro-rata distribution
(the "Distribution") by Household of the outstanding shares of Common Stock of
the Company to the holders of Household's common stock.
The Company's subsidiaries conduct operations in the United States, the
United Kingdom and Brazil. Another of the Company's subsidiaries conducted
operations in Canada, but these operations were relocated to the United States
in 1990. The Company also relocated its domestic metal fan manufacturing
operations from Rolla, Missouri to Gainesville, Georgia in 1992. Data on the
Company's geographic segments, based on the locations of the Company's
operations, are incorporated herein by reference to Note 13, entitled
"Geographic Segments," of the Notes to Consolidated Financial Statements of
Schwitzer, Inc. and Subsidiaries in the Company's Annual Report to Shareholders
for the fiscal year ended January 1, 1995, which is filed as Exhibit 13 to this
Report. The Company believes that its export sales have not been material.
On February 27, 1995, the Company announced that it had entered into an
Agreement and Plan of Merger, dated as of February 25, 1995 (the "Merger
Agreement"), with Kuhlman Corporation, a Delaware corporation ("Kuhlman"), and
Spinner Acquisition Corp., a Delaware corporation ("Sub") which is a wholly-
owned subsidiary of Kuhlman. Under the Merger Agreement, Sub would be merged
with and into the Company (the "Merger") and each outstanding share of Common
Stock, par value $.10 per share, of the Company would be converted into 0.9615
share of Common Stock, par value $1.00 per share, of Kuhlman. Accordingly, if
the Merger is consummated, the Company would become a wholly-owned subsidiary of
Kuhlman. The Merger is subject to certain closing conditions, including the
approval of the stockholders of both the Company and Kuhlman at their respective
annual meetings of stockholders, both of which are currently scheduled to be
held on May 31, 1995.
Unless the context otherwise requires, "Schwitzer" or the "Company" refers
to Schwitzer, Inc. and its subsidiaries.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates in one industry segment, the design, manufacture and
marketing of industrial products for enhancing the efficiency of diesel and
gasoline engines. Financial information with respect to the Company's business
is included in the consolidated financial statements of the Company set forth on
pages 11-20 of the Company's Annual Report to Shareholders for the fiscal year
ended January 1, 1995, which pages are incorporated herein by reference. This
information is also included in Exhibit 13 to this Report.
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(c) NARRATIVE DESCRIPTION OF BUSINESS.
PRODUCTS AND MARKETS
Schwitzer designs, manufactures and markets technically advanced engine
components primarily for non-passenger car diesel and gasoline engines. These
components improve engine performance in terms of horsepower, fuel and
environmental efficiency, and durability. Schwitzer's highest volume product is
the turbocharger, which accounted for 65 percent, 66 percent and 67 percent of
consolidated net sales during 1994, 1993 and 1992, respectively. Schwitzer
believes that it is one of the leading independent suppliers of turbochargers
to the non-passenger car market. In addition to turbochargers, Schwitzer also
designs, manufactures and markets other related products such as fan drives,
cooling fans and crankshaft vibration dampers. Fan drives and cooling fans
accounted for 27 percent, 26 percent and 25 percent of consolidated net sales
during 1994, 1993 and 1992, respectively.
TURBOCHARGERS. A turbocharger enhances the performance of an engine by
increasing its power and fuel efficiency while allowing reductions in air
pollution. These results are achieved by using the engine's hot exhaust gases
to increase compression and combustion. Schwitzer turbochargers are fitted to
engines in both on-road vehicles (such as delivery and semi-trailer trucks) and
off-road vehicles (such as farm and construction equipment).
Schwitzer sells turbocharger assemblies to original equipment
manufacturers ("OEMs") and also sells replacement turbochargers for the
aftermarket. Turbochargers sold to OEMs must be custom designed to specific
engine applications of each OEM. Accordingly, research and development
personnel of Schwitzer must work closely with the research and development
personnel of OEMs during the design and development of an engine, which
typically takes one to four years. Major OEM customers of Schwitzer include
Caterpillar, John Deere, MAN, Mack Truck, Mercedes-Benz, Perkins, RVI (Renault)
and Saab-Scania.
Schwitzer's employee sales force sells replacement turbochargers and parts
for the aftermarket directly to OEM customers and also to independent
distributors, primarily for the replacement and servicing of equipment
manufactured by Schwitzer. Schwitzer does, however, manufacture and sell
replacement turbochargers and parts which are interchangeable with those of its
competitors.
Schwitzer sells turbochargers and parts in more than 60 countries
throughout the world. Most engine builders are located in North America,
Western Europe, South America and Japan. These primary markets for
turbochargers are relatively mature in terms of medium and heavy duty diesel
engine production, the primary current applications for Schwitzer's
turbochargers. Future market potential exists, however, in light truck diesel
and light and medium truck gasoline applications in these markets. In addition,
more stringent environmental controls, the need for many industrialized nations
to rebuild their infrastructures, and the expected emergence of the economies of
less-developed countries all point toward future market growth.
FAN DRIVES AND COOLING FANS. Fan drives and cooling fans are used on
diesel and gasoline engines to enhance the cooling efficiency of the engine,
thereby allowing the engine to operate efficiently regardless of engine speed or
load. They also reduce noise and increase the fuel efficiency and durability of
the engine. Schwitzer fan drives and cooling fans are sold for use in
agricultural and construction equipment, light, medium and heavy duty trucks and
industrial equipment. Schwitzer manufactures and markets lightweight metal,
molded polymer and composite fans. Schwitzer believes it is a leading supplier
of cooling fans to the light truck market and cooling fans and fan drives to the
heavy duty equipment market.
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Fan drives and cooling fans are manufactured to meet specific engine
requirements. Accordingly, Schwitzer must work with engine manufacturers to
design drives and fans and to test and verify performance.
Schwitzer sells fan drives and cooling fans to engine, vehicle and
equipment manufacturers in North America and Europe. Major customers include
Caterpillar, Chrysler, Ford, General Motors, J.I. Case, Navistar, RVI, Saab-
Scania and Volvo.
VIBRATION DAMPERS. Crankshaft vibration dampers reduce the vibration and
stress which are inherent in engines. These dampers extend engine life and
reduce noise. Schwitzer designs, manufacturers and markets dampers for all
types of medium and heavy duty diesel and gasoline engines for trucks, buses,
construction equipment, agricultural machinery and boats, as well as for
stationary equipment.
Schwitzer markets vibration dampers in North America, where it believes it
is a leading supplier to the truck and agricultural machinery markets, and in
Europe. Major customers include John Deere, Navistar and Saab-Scania.
CUSTOMERS
The major customers of Schwitzer are engine, vehicle and equipment
manufacturers which are concentrated primarily in North America, Europe and
South America. The Middle East and Asia are markets pursued as opportunities
arise. The primary end users of Schwitzer products are industries which employ
trucks, agricultural machinery and construction equipment. During the years
1994, 1993 and 1992, various purchasing units of Caterpillar accounted in the
aggregate for 27, 30 and 28 percent, respectively, of the total sales of
Schwitzer. During the years 1994, 1993 and 1992, various purchasing units of
RVI, including Mack Truck, accounted for 12, 12, and 12 percent, respectively,
of Schwitzer's total sales. No other customer accounted for as much as 10
percent of such sales during 1994, 1993 or 1992.
Although Schwitzer believes that the loss of all of the purchasing units of
a major customer could have an adverse effect on Schwitzer's business, such
purchasing units typically make their purchasing decisions independently for
each of their numerous engine and vehicle applications. Additionally, because
development programs for engine components typically take one to four years,
relationships with OEM customers are usually of long duration. Schwitzer
believes that its dependency on significant customers may increase in the future
due to increased consolidation in the truck industry.
RESEARCH AND DEVELOPMENT
Schwitzer conducts research and development and application engineering
programs at facilities in Indianapolis, Indiana, the United Kingdom and Brazil.
Each of these facilities addresses and responds to the customer requirements in
its area. Advanced engineering development for new products and major
technical breakthroughs are guided and performed primarily at the Indianapolis
research and development center. Application engineering programs support the
specific programs being developed with each customer. Schwitzer's total
research and development expenditures, including application engineering, for
fiscal years 1994, 1993 and 1992 were $7.3 million, $5.9 million and $7.0
million, respectively.
COMPETITION
Schwitzer competes against several worldwide manufacturers in competitive
markets in which the customer group is consolidating. Schwitzer believes it has
a significant share of the worldwide market for its products and believes it
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holds a leading position among suppliers of turbochargers, fan drives, cooling
fans and dampers to the medium and heavy duty engine markets. Principal
competitive factors are technical performance, durability, warranty, price and
service. Schwitzer believes it competes favorably with respect to each of these
factors.
RAW MATERIALS
The principal raw materials used in the manufacture of Schwitzer products
are nickel, aluminum, cast iron, steel and polymers. These materials are
readily available from several sources and Schwitzer has experienced no
difficulties with respect to the availability of these materials. Although
castings used in the manufacture of specialized turbines for turbochargers are
available from only a few suppliers worldwide, Schwitzer has experienced no
difficulties in obtaining adequate supplies of castings to meet its
manufacturing needs.
ENVIRONMENTAL AND OTHER REGULATION
In 1994, the Company recorded a $1.4 million environmental charge against
the Company's closed Rolla, Missouri facility in connection with the Company's
voluntary remediation of certain environmental conditions at the site. The
Company is discussing with the Missouri Department of Natural Resources a
proposed work plan for the remediation of soils contaminated by chlorinated
solvents at the facility. Management expects that the contract for the sale of
the Rolla facility will be completed during the second quarter of 1995.
Schwitzer believes that environmental, health and safety matters will not
have a material adverse effect on its business or financial condition. However,
legal and regulatory requirements in these areas have been increasing, and there
can be no assurance that significant costs and liabilities will not be incurred
for currently unidentified or future problems or new regulatory developments.
GENERAL
PATENTS AND TRADEMARKS. Schwitzer holds many United States and foreign
patents covering various design features used in its products, and also holds a
number of other patents and patent applications, trademarks and trade names.
Schwitzer believes that none of the foregoing is material to its business.
EMPLOYEES. Schwitzer employs approximately 1,100 people. Relationships
with employees of Schwitzer have been satisfactory.
BACKLOG OF ORDERS. The backlog of unshipped orders at the end of the
February 1995 and 1994 accounting months was estimated to be $57.6 million and
$48.8 million, respectively. Schwitzer expects that all of the orders in
backlog at the end of the February 1995 accounting month will be shipped during
calendar 1995.
SEASONALITY. No material portion of the Company's business is seasonal.
WORKING CAPITAL. Schwitzer generally manages its trade receivables and
payables without extended terms and controls inventory levels through proactive
procurement and production scheduling practices.
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(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Financial information on the Company's geographic segments of business is
included under Note 13 entitled "Geographic Segments" on page 19 of the
Company's Annual Report to Shareholders for the fiscal year ended January 1,
1995 which page is incorporated herein by reference. This information is also
included in Exhibit 13 to this Report.
Business risks associated with Schwitzer's subsidiary in the United Kingdom
are similar to those facing the United States operations, except for the added
risks related to foreign currency fluctuations. During 1992, the value of U.K.
sterling in relation to the U.S. dollar decreased. Such exchange rate during
1993 and 1994 remained relatively constant. The 1992 decrease in the value of
U.K. sterling had the effect in 1993 and 1994 of lowering the amounts of sales
and earnings reported in U.S. dollars from the amounts that would otherwise have
been reported for the volume of products sold during such years by Schwitzer's
U.K. subsidiary.
Schwitzer's subsidiary in Brazil is subject to the additional business
risks associated with the economy of that country. Brazil's high inflation rate
resulted in the recognition of foreign currency transaction losses of $0.3
million in 1994, $1.8 million in 1993 and $4.2 million in 1992 before an
additional loss in 1994 of $0.6 million and favorable reductions of $0.8 million
in 1993 and $4.3 million in 1992 for interest recoveries primarily on accounts
receivable and/or invested cash balances. The adequacy of the interest
recoveries is dependent on a number of economic and business factors and sudden
unfavorable changes in exchange rates are possible. Significant positive and
negative fluctuations in Schwitzer's Brazilian sales volumes also occurred at
various times during the past three years as a result of volatility in economic
activity. Such volatility has been exacerbated by political uncertainties and
government imposed economic reforms. Additional volatility in sales and
earnings could occur in 1995 if the government continues its pattern of frequent
change in economic and tax policy.
ITEM 2. PROPERTIES
Schwitzer's North American marketing, administration and research
headquarters are located in a 78,000 square foot facility in Indianapolis,
Indiana, which was completed in 1990.
The domestic manufacturing operations of Schwitzer are located in a 249,000
square foot facility in Asheville, North Carolina and a 117,000 square foot
facility in Gainesville, Georgia. The Asheville facility manufactures
turbochargers, fan drives and vibration dampers. The Gainesville facility
manufactures metal cooling fans. Schwitzer also manufactures turbochargers, fan
drives and cooling fans at a 66,000 square foot plant in Bradford, England and
turbochargers at a 54,000 square foot plant in Campinas, Brazil.
Schwitzer also owns a 250,000 square foot facility in Rolla, Missouri. The
Company currently has a contract for the sale of this facility which is expected
to be completed during the second quarter of 1995. The Company sold its 53,000
square foot facility in Stratford, Ontario, Canada, during the fourth quarter of
1994. These facilities were vacated as a result of relocations of metal fan and
vibration damper operations in 1992 and 1990, respectively.
All of Schwitzer's principal facilities are company-owned, except the
Gainesville facility which is under a ten-year operating lease. As a whole,
Schwitzer's facilities can support additional volume without major capital
resources taking into account additional capacity gained through the outsourcing
of certain less critical manufacturing operations to third-parties. None of the
company-owned properties is subject to a material encumbrance. Schwitzer
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considers the condition of its plants and other properties to be generally good
and well-suited for their current uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings relating to the conduct
of its business and the clean-up of environmental problems, none of which is
believed by management to be material to the business or financial condition of
the Company. No material legal proceedings involving the Company terminated
during the fourth quarter of 1994.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's security holders during
the fourth quarter of 1994.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required for this item is incorporated herein by reference
to the following captions and locations in the Company's Annual Report to
Shareholders for the fiscal year ended January 1, 1995: the principal market,
the range of sales prices, the number of holders of record and the dividends
declared per share of the Company's Common Stock - the section headed "Corporate
Information" appearing on the inside back cover; the portion of shareholders'
equity at January 1, 1995 available for, and the nature of restrictions on,
future payment of cash dividends on the Company's Common Stock - Note 6,
entitled "Debt," of the Notes to the Consolidated Financial Statements appearing
on pages 15 and 16; a description and discussion of restrictions on the ability
of certain of the Company's foreign subsidiaries to transfer funds to the
Company - Note 6, entitled "Debt," of the Notes to the Consolidated Financial
Statements appearing on pages 15 and 16 and the section headed "Liquidity and
Capital Resources" within the section headed "Management's Discussion and
Analysis of Results of Operations and Financial Condition" appearing on pages 8-
10.
ITEM 6. SELECTED FINANCIAL DATA
The information required for this item is incorporated herein by reference
to the tabular chart in the section headed "Selected Financial Data" appearing
on page 1 of the Company's Annual Report to Shareholders for the fiscal year
ended January 1, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required for this item is incorporated herein by reference
to the section headed "Management's Discussion and Analysis of Results of
Operations and Financial Condition" appearing on pages 8 through 10 of the
Company's Annual Report to Shareholders for the fiscal year ended January 1,
1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, including the Report
of Independent Public Accountants thereon, are incorporated herein by reference
to pages 11 through 20 of the Company's Annual Report to Shareholders for the
fiscal year ended January 1, 1995.
The required supplementary financial information is incorporated by
reference to Note 15, entitled "Quarterly Financial Data (Unaudited)," of the
Notes to the Consolidated Financial Statements, which appears on page 20 of the
Company's Annual Report to Shareholders for the fiscal year ended January 1,
1995.
The financial statement schedule required to be filed and the Report of
Independent Public Accountants thereon are listed under Item 14(a)(2) of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) DIRECTORS.
The information required by this item with respect to directors is
incorporated herein by reference to the Company's definitive Proxy Statement
with respect to the Company's 1995 Annual Meeting of Shareholders to be filed
pursuant to Section 14 of the Securities Exchange Act of 1934 with the
Securities and Exchange Commission (the "Commission") not later than 120 days
after the close of the Company's fiscal year ended January 1, 1995.
(b) EXECUTIVE OFFICERS.
Set forth below are the names, ages and present positions (as of March 15,
1995) and the positions during the past five years of the executive officers of
the Company. Unless otherwise indicated, each such officer has served the
Company in the capacity indicated during the past five years, and his
term of office will expire following the Company's 1995 Annual Meeting of
Stockholders.
NAME AND AGE OFFICE AND EXPERIENCE
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Gary G. Dillon, 60......... Chairman of the Board, President and Chief
Executive Officer. Mr. Dillon has served in his
present capacity since June 1991, having served as
President and Chief Executive Officer prior
thereto.
Richard H. Prange, 48...... Vice President - Chief Financial Officer and
Secretary.
Martin G. Spencer, 50 ..... Vice President - Sales and Marketing. Mr. Spencer
has served in his present capacity since January
1994, having served the Company as Vice President
- Sales and Marketing (North America) during all
of 1993 and Director of Sales and Marketing
(Europe) prior thereto.
Peter G. Sanderson, 45..... Vice President - General Manager (Europe).
Peter F. Spratt, 57........ Director of Finance (Europe).
Januario do Carmo, 46...... Vice President - General Manager (South America).
Mr. do Carmo has served in his present capacity
since January 1990, having served the Company as
Director of Manufacturing (South America) prior
thereto.
Claudio R. da Fonseca, 51.. Director of Finance (South America).
Leonildo Zyngier, 53....... Director of Sales and Marketing (South America).
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Company's definitive Proxy Statement with respect to the Company's 1995
Annual Meeting of Shareholders to be filed pursuant to Section 14 of the
Securities Exchange Act of 1934 with the Commission not later than 120 days
after the close of the Company's fiscal year ended January 1, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the Company's definitive Proxy Statement with respect to the Company's 1995
Annual Meeting of Shareholders to be filed pursuant to Section 14 of the
Securities Exchange Act of 1934 with the Commission not later than 120 days
after the close of the Company's fiscal year ended January 1, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the Company's definitive Proxy Statement with respect to the Company's 1995
Annual Meeting of Shareholders to be filed pursuant to Section 14 of the
Securities Exchange Act of 1934 with the Commission not later than 120 days
after the close of the Company's fiscal year ended January 1, 1995.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements and report are incorporated
herein by reference to the Company's Annual Report to Shareholders for the
fiscal year ended January 1, 1995, which is listed as Exhibit 13 to this
Report:
Consolidated Balance Sheets, January 1, 1995 and January 2, 1994
Consolidated Statements of Operations for the fiscal years ended
January 1, 1995, January 2, 1994 and January 3, 1993
Consolidated Statements of Shareholders' Equity for the fiscal years
ended January 1, 1995, January 2, 1994 and January 3, 1993
Consolidated Statements of Cash Flows for the fiscal years ended
January 1, 1995, January 2, 1994 and January 3, 1993
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) FINANCIAL STATEMENT SCHEDULES
Pursuant to Item 14(d), the following report and financial statement
schedule are filed on page 15 herein:
Report of Independent Public Accountants
For the three fiscal years ended January 1, 1995, January 2, 1994
and January 3, 1993:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is not
applicable or the information is presented in the consolidated
financial statements or notes thereto.
(3) EXHIBITS
Pursuant to Item 14(c), the following exhibits are filed with this
Report or, as noted, incorporated by reference herein:
Exhibit
No. Description
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2 Agreement and Plan of Merger dated as of February 25,
1995 among the registrant, Kuhlman Corporation and
Spinner Acquisition Corp. (incorporated herein by
reference to Exhibit 10 to the registrant's Current
Report on Form 8-K filed with the Commission on
February 28, 1995.
3.1 Restated Certificate of Incorporation of the registrant
(incorporated herein by reference to Exhibit 3.1 to the
registrant's Registration Statement with respect to the
Schwitzer Tax Reduction Investment Plan on Form S-1,
Registration No. 33-29123)
3.2 By-Laws of the registrant (incorporated herein by
reference to Exhibit 3.2 to the registrant's
Registration Statement with respect to the Schwitzer
Tax Reduction Investment Plan on Form S-1, Registration
No. 33-29123)
4.1 Restated Certificate of Incorporation of the registrant
(filed as Exhibit 3.1 hereto)
4.2 By-Laws of the registrant (filed as Exhibit 3.2 hereto)
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4.3 Form of Common Stock certificate (incorporated herein
by reference to Exhibit 4.3 to the registrant's
Registration Statement with respect to the Schwitzer
Tax Reduction Investment Plan on Form S-1, Registration
No. 33-29123)
4.4 Rights Agreement dated as of April 14, 1989 between
the registrant and Harris Trust and Savings Bank, as
Rights Agent (incorporated herein by reference to
Exhibit 4.4 to the registrant's Registration Statement
with respect to the Schwitzer Tax Reduction Investment
Plan on Form S-1, Registration No. 33-29123)
4.5* First Amendment to Rights Agreement dated as of
February 25, 1995 amending the Rights Agreement
incorporated by reference as Exhibit 4.4 hereto
4.6 $22,000,000 Credit Agreement dated as of April 30, 1992
among Schwitzer U.S. Inc., as Borrower, the
registrant, as Guarantor, the Banks party thereto and
Harris Trust and Savings Bank, as Agent, including
related Notes (incorporated herein by reference to
Exhibit 4.1 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended March 29, 1992,
Commission File No. 1-10183)
4.7 First Amendment to Credit Agreement dated as of
January 28, 1993 amending the Credit Agreement
incorporated by reference as Exhibit 4.6 hereto
(incorporated herein by reference to Exhibit 4.6 to the
registrant's Annual Report on Form 10-K for the fiscal
year ended January 3, 1993, Commission File
No. 1-10183)
4.8 Second Amendment to Credit Agreement dated as of June
22, 1994 amending the Credit Agreement incorporated by
reference as Exhibit 4.6 hereto (incorporated herein
by reference to Exhibit 4.1 to the registrant's
Quarterly Report on Form 10-Q for the three months
ended July 3, 1994, Commission File No. 1-10183)
4.9 Note Agreement dated as of April 15, 1992 by Schwitzer
U.S. Inc. and the registrant re: $15,000,000 10.21%
Senior Notes due April 15, 2002 and Warrants to
Purchase 500,000 Shares of Common Stock, including
related Notes and Warrants (incorporated herein by
reference to Exhibit 4.2 to the registrant's Quarterly
Report on Form 10-Q for the quarter ended March 29,
1992, Commission File No. 1-10183)
4.10 Amendment No. 1 to Note Agreement dated as of
February 3, 1993 amending the Note Agreement
incorporated by reference as Exhibit 4.9 hereto
(incorporated herein by reference to Exhibit 4.8 to
the registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1993, Commission File
No. 1-10183)
10.1 Reorganization and Distribution Agreement dated as of
March 15, 1989 by and among Household International,
Inc., Eljer Industries, Inc., the registrant and
Scotsman Industries, Inc. (incorporated herein by
reference to Exhibit 10.1 to the registrant's
Registration Statement with respect to the Schwitzer
Tax Reduction Investment Plan on Form S-1,
Registration No. 33-29123)
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Exhibit
No. Description
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10.2 Tax Sharing Agreement dated as of March 15, 1989 by
and among Household International, Inc., Eljer
Industries, Inc., the registrant and Scotsman
Industries, Inc. (incorporated herein by reference to
Exhibit 10.3 to the registrant's Registration Statement
with respect to the Schwitzer Tax Reduction Investment
Plan on Form S-1, Registration No. 33-29123)
10.3 $5,000,000 Loan Facility dated as of February 28, 1990
made available by National Westminster Bank PLC to
Schwitzer (Europe) Holdings Limited, including initial
Loan Drawdown dated as of March 9, 1990 (incorporated
herein by reference to Exhibit 10.6 to the registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, Commission File No. 1-10183)
10.4 Lease dated December 27, 1991 between Rockdale
Industries, as Lessor, and Schwitzer U.S. Inc., as
Lessee, of real property located in the City of
Gainesville, Hall County, Georgia for a term of ten
years commencing April 1, 1992 (incorporated herein by
reference to Exhibit 10.19 to the registrant's Annual
Report on Form 10-K for the fiscal year ended
December 29, 1991, Commission File No. 1-10183)
10.5# Schwitzer, Inc. Long-Term Executive Incentive
Compensation Plan, as amended (incorporated herein by
reference to Exhibit 4.1 to the registrant's
Registration Statement with respect to the Schwitzer,
Inc. Long-Term Executive Incentive Compensation Plan on
Form S-8, Registration No. 33-72898)
10.6# Supplemental Schwitzer Tax Reduction Investment Plan
(incorporated herein by reference to Exhibit 10.8 to
the registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1990, Commission File
No. 1-10183)
10.7# Form of Supplemental Schwitzer Salaried Pension Plan
(incorporated herein by reference to Exhibit 10.6 to
the registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1993, Commission File No.
1-10183)
10.8# Schwitzer, Inc. Executive Incentive Compensation
Program, Plans A, B and C (incorporated herein by
reference to Exhibit 10.10 to the registrant's Annual
Report on Form 10-K for the fiscal year ended
December 29, 1991, Commission File No. 1-10183)
10.9*# Schwitzer, Inc. Performance Unit Plan
10.10*# Executive Employment and Compensation Agreement dated
January 18, 1995 between Schwitzer U.S. Inc. and
Gary G. Dillon, amending and restating an agreement
entered into effective as of April 1, 1989
10.11*# Amendment to Executive Employment and Compensation
Agreement dated February 25, 1995, amending the
Agreement listed as Exhibit 10.10 hereto
-12-
<PAGE>
Exhibit
No. Description
------- -------------------------------------------------------
10.12*# Phantom Stock Agreement dated as of October 18, 1994
between Schwitzer U.S. Inc. and Gary G. Dillon
10.13*# Employment Agreement dated February 28, 1994 between
the registrant and Richard H. Prange
10.14# Employment Agreement dated February 28, 1994 between
Schwitzer Lacom Equipamentos Ltd. and Januario Do
Carmo (incorporated by reference to Exhibit 10.1 to
the registrant's Quarterly Report on Form 10-Q for
the three months ended April 3, 1994)
10.15*# Employment Agreement dated February 28, 1994 between
Schwitzer Lacom Equipamentos Ltd. and Claudio R. da
Fonseca
10.16*# Employment Agreement dated February 28, 1994 between
Schwitzer Lacom Equipamentos Ltd. and Leonildo Zyngier
11* Statement re: Computation of Net Income (Loss) Per
Share
13* The following items**, incorporated by reference herein
from the registrant's Annual Report to Stockholders for
the fiscal year ended January 1, 1995 (the "1994 Annual
Report"), are filed as an Exhibit to this report:
(i) Information under the section entitled "Selected
Financial Data" set forth on page 1 of the
1994 Annual Report;
(ii) Information under the section entitled
"Management's Discussion and Analysis of Results
of Operations and Financial Condition" set forth
on pages 8-10 of the 1994 Annual Report.
(iii) Consolidated Balance Sheets at January 1, 1995 and
January 2, 1994 set forth on page 11 of the 1994
Annual Report;
(iv) Consolidated Statements of Operations for the
three fiscal years ended January 1, 1995, January
2, 1994 and January 3, 1993 set forth on page 12
of the 1994 Annual Report.
(v) Consolidated Statements of Shareholders' Equity
for the three fiscal years ended January 1, 1995,
January 2, 1994 and January 3, 1993 set forth on
page 12 of the 1994 Annual Report.
(vi) Consolidated Statements of Cash Flows for the
three fiscal years ended January 1, 1995,
January 2, 1994 and January 3, 1993 set forth on
page 13 of the 1994 Annual Report;
(vii) Notes to Consolidated Financial Statements set
forth on pages 14-20 of the 1994 Annual Report;
-13-
<PAGE>
Exhibit
No. Description
------- -------------------------------------------------------
(viii) Quarterly Financial Data (Unaudited) set forth on
page 20 of the 1994 Annual Report;
(ix) Report of Independent Accountants set forth on
page 20 of the 1994 Annual Report;
(x) Information under the section entitled "Corporate
Information" set forth on the inside back cover of
the 1994 Annual Report.
21* List of Subsidiaries of the registrant
23* Consent of Independent Public Accountants
27* Financial Data Schedule
* Filed herewith
** Except for those portions of the 1994 Annual Report
which are expressly incorporated by reference in this
Report, the 1994 Annual Report is furnished for the
information of the Commission and is not to be deemed
"filed" as part of this Report
# Denotes a management contract or compensatory plan or
arrangement
(b) REPORTS ON FORM 8-K
The registrant did not file any reports on Form 8-K during the three months
ended January 1, 1995.
-14-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Schwitzer, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Schwitzer, Inc.'s annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 9, 1995, except with respect to the planned merger
between the Company and a wholly-owned subsidiary of Kuhlman Corporation, as
discussed in Note 16 to the consolidated financial statements, as to which the
date is February 25, 1995. Our audits were made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in
Item 14(a)(2) is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 9, 1995.
SCHEDULE II
SCHWITZER, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
---------
Charged
Balance, to Charged Balance,
Beginning Costs/ to Other End of
Description of Year Expenses Accounts Deductions Year
----------- --------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
1992 - Accounts
receivable reserves $568 $ 82 $10 $(112) $548
----- ----- ----- ------ -----
----- ----- ----- ------ -----
1993 - Accounts
receivable reserves $548 $169 $ 2 $(173) $546
----- ----- ----- ------ -----
----- ----- ----- ------ -----
1994 - Accounts
receivable reserves $546 $145 $ 6 $ (70) $627
----- ----- ----- ------ -----
----- ----- ----- ------ -----
</TABLE>
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCHWITZER, INC.
By: /s/ Gary G. Dillon
---------------------------
Gary G. Dillon, Chairman of
the Board, President and
Chief Executive Officer
Dated: March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Name Title Date
/s/ Donald C. Clark Director March 30, 1995
-------------------------
Donald C. Clark
/s/ Joseph D. Corso Director March 30, 1995
-------------------------
Joseph D. Corso
/s/ Gary G. Dillon Chairman of the Board, March 30, 1995
------------------------- President and Chief
Gary G. Dillon Executive Officer and
Director (Principal
Executive Officer)
/s/ Willard R. Hildebrand Director March 30, 1995
-------------------------
Willard R. Hildebrand
/s/ J. Richard Hull Director March 30, 1995
-------------------------
J. Richard Hull
/s/ Robert S. Jepson, Jr. Director March 30, 1995
-------------------------
Robert S. Jepson, Jr.
/s/ Richard H. Prange Vice President-Chief March 30, 1995
------------------------- Financial Officer
Richard H. Prange and Secretary (Principal
Financial and Principal
Accounting Officer)
-16-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------
2 Agreement and Plan of Merger dated as of February 25, 1995
among the registrant, Kuhlman Corporation and Spinner
Acquisition Corp. (incorporated herein by reference to
Exhibit 10 to the registrant's Current Report on Form 8-K
filed with the Commission on February 28, 1995)
3.1 Restated Certificate of Incorporation of the registrant
(incorporated herein by reference to Exhibit 3.1 to the
registrant's Registration Statement with respect to the
Schwitzer Tax Reduction Investment Plan on Form S-1,
Registration No. 33-29123)
3.2 By-Laws of the registrant (incorporated herein by reference
to Exhibit 3.2 to the registrant's Registration Statement
with respect to the Schwitzer Tax Reduction Investment Plan
on Form S-1, Registration No. 33-29123)
4.1 Restated Certificate of Incorporation of the registrant
(filed as Exhibit 3.1 hereto)
4.2 By-Laws of the registrant (filed as Exhibit 3.2 hereto)
4.3 Form of Common Stock certificate (incorporated herein by
reference to Exhibit 4.3 to the registrant's Registration
Statement with respect to the Schwitzer Tax Reduction
Investment Plan on Form S-1, Registration No. 33-29123)
4.4 Rights Agreement dated as of April 14, 1989 between the
registrant and Harris Trust and Savings Bank, as Rights
Agent (incorporated herein by reference to Exhibit 4.4 to
the registrant's Registration Statement with respect to the
Schwitzer Tax Reduction Investment Plan on Form S-1,
Registration No. 33-29123)
4.5* First Amendment to Rights Agreement dated as of February 25,
1995 amending the Rights Agreement incorporated by
reference as Exhibit 4.4 hereto
4.6 $22,000,000 Credit Agreement dated as of April 30, 1992
among Schwitzer U.S. Inc., as Borrower, the registrant, as
Guarantor, the Banks party thereto and Harris Trust and
Savings Bank, as Agent, including related Notes
(incorporated herein by reference to Exhibit 4.1 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 29, 1992, Commission File No. 1-10183)
4.7 First Amendment to Credit Agreement dated as of January 28,
1993 amending the Credit Agreement incorporated by reference
as Exhibit 4.6 hereto (incorporated herein by reference to
Exhibit 4.6 to the registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1993, Commission File
No. 1-10183)
-17-
<PAGE>
4.8 Second Amendment to Credit Agreement dated as of June 22,
1994 amending the Credit Agreement incorporated by reference
as Exhibit 4.6 hereto (incorporated herein by reference to
Exhibit 4.1 to the registrant's Quarterly Report on Form
10-Q for the three months ended July 3, 1994, Commission
File No. 1-10183)
4.9 Note Agreement dated as of April 15, 1992 by Schwitzer U.S.
Inc. and the registrant re: $15,000,000 10.21% Senior
Notes due April 15, 2002 and Warrants to Purchase 500,000
Shares of Common Stock, including related Notes and Warrants
(incorporated herein by reference to Exhibit 4.2 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 29, 1992, Commission File No. 1-10183)
4.10 Amendment No. 1 to Note Agreement dated as of February 3,
1993 amending the Note Agreement incorporated by reference
as Exhibit 4.9 hereto (incorporated herein by reference to
Exhibit 4.8 to the registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1993, Commission File
No. 1-10183)
10.1 Reorganization and Distribution Agreement dated as of March
15, 1989 by and among Household International, Inc., Eljer
Industries, Inc., the registrant and Scotsman Industries,
Inc. (incorporated herein by reference to Exhibit 10.1 to
the registrant's Registration Statement with respect to the
Schwitzer Tax Reduction Investment Plan on Form S-1,
Registration No. 33-29123)
10.2 Tax Sharing Agreement dated as of March 15, 1989 by and
among Household International, Inc., Eljer Industries, Inc.,
the registrant and Scotsman Industries, Inc. (incorporated
herein by reference to Exhibit 10.3 to the registrant's
Registration Statement with respect to the Schwitzer Tax
Reduction Investment Plan on Form S-1, Registration No. 33-
29123)
10.3 $5,000,000 Loan Facility dated as of February 28, 1990 made
available by National Westminster Bank PLC to Schwitzer
(Europe) Holdings Limited, including initial Loan Drawdown
dated as of March 9, 1990 (incorporated herein by reference
to Exhibit 10.6 to the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1989, Commission
File No. 1-10183)
-18-
<PAGE>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------
10.4 Lease dated December 27, 1991 between Rockdale Industries,
as Lessor, and Schwitzer U.S. Inc., as Lessee, of real
property located in the City of Gainesville, Hall County,
Georgia for a term of ten years commencing April 1, 1992
(incorporated herein by reference to Exhibit 10.19 to the
registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1991, Commission File No. 1-10183)
10.5# Schwitzer, Inc. Long-Term Executive Incentive Compensation
Plan, as amended (incorporated herein by reference to
Exhibit 4.1 to the registrant's Registration Statement with
respect to the Schwitzer, Inc. Long-Term Executive Incentive
Compensation Plan on Form S-8, Registration No. 33-72898)
10.6# Supplemental Schwitzer Tax Reduction Investment Plan
(incorporated herein by reference to Exhibit 10.8 to the
registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1990, Commission File No. 1-10183)
10.7# Form of Supplemental Schwitzer Salaried Pension Plan
(incorporated herein by reference to Exhibit 10.6 to the
registrant's Annual Report on Form 10-K for the fiscal year
ended January 3, 1993, Commission File No. 1-10183)
10.8# Schwitzer, Inc. Executive Incentive Compensation Program,
Plans A, B and C (incorporated herein by reference to
Exhibit 10.10 to the registrant's Annual Report on
Form 10-K for the fiscal year ended December 29, 1991,
Commission File No. 1-10183)
10.9*# Schwitzer, Inc. Performance Unit Plan
10.10*# Executive Employment and Compensation Agreement dated
January 18, 1995 between Schwitzer U.S. Inc. and Gary G.
Dillon, amending and restating an agreement entered into
effective as of April 1, 1989
10.11*# Amendment to Executive Employment and Compensation Agreement
dated February 25, 1995, amending the Agreement listed as
Exhibit 10.10 hereto
10.12*# Phantom Stock Agreement dated as of October 18, 1994 between
Schwitzer U.S. Inc. and Gary G. Dillon
10.13*# Employment Agreement dated February 28, 1994 between the
registrant and Richard H. Prange
10.14# Employment Agreement dated February 28, 1994 between
Schwitzer Lacom Equipamentos Ltd. and Januario Do Carmo
(incorporated by reference to Exhibit 10.1 to the
registrant's Quarterly Report on Form 10-Q for the three
months ended April 3, 1994)
10.15*# Employment Agreement dated February 28, 1994 between
Schwitzer Lacom Equipamentos Ltd. and Claudio R. da Fonseca
10.16*# Employment Agreement dated February 28, 1994 between
Schwitzer Lacom Equipamentos Ltd. and Leonildo Zyngier
11* Statement re: Computation of Net Income (Loss) Per Share
-19-
<PAGE>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------
13* The following items**, incorporated by reference herein from
the registrant's Annual Report to Stockholders for the
fiscal year ended January 1, 1995 (the "1994 Annual
Report"), are filed as an Exhibit to this report:
(i) Information under the section entitled "Selected
Financial Data" set forth on page 1 of the 1994
Annual Report;
(ii) Information under the section entitled "Management's
Discussion and Analysis of Results of Operations and
Financial Condition" set forth on pages 8-10 of the
1994 Annual Report.
(iii) Consolidated Balance Sheets at January 1, 1995 and
January 2, 1994 set forth on page 11 of the 1994
Annual Report;
(iv) Consolidated Statements of Operations for the three
fiscal years ended January 1, 1995, January 2, 1994 and
January 3, 1993 set forth on page 12 of the 1994 Annual
Report.
(v) Consolidated Statements of Shareholders' Equity for the
three fiscal years ended January 1, 1995, January 2,
1994 and January 3, 1993 set forth on page 12 of the
1994 Annual Report.
(vi) Consolidated Statements of Cash Flows for the three
fiscal years ended January 1, 1995, January 2, 1994 and
January 3, 1993 set forth on page 13 of the 1994
Annual Report;
(vii) Notes to Consolidated Financial Statements set forth on
pages 14-20 of the 1994 Annual Report;
(viii) Quarterly Financial Data (Unaudited) set forth on page
20 of the 1994 Annual Report;
(ix) Report of Independent Accountants set forth on page 20
of the 1994 Annual Report;
(x) Information under the section entitled "Corporate
Information" set forth on the inside back cover of the
1994 Annual Report.
21* List of Subsidiaries of the registrant
23* Consent of Independent Public Accountants
27* Financial Data Schedule
--------------------------------------------------------------
* Filed herewith
** Except for those portions of the 1994 Annual Report which
are expressly incorporated by reference in this Report, the
1994 Annual Report is furnished for the information of the
Commission and is not to be deemed "filed" as part of this
Report
# Denotes a management contract or compensatory plan or
arrangement
<PAGE>
Exhibit 4.5
FIRST AMENDMENT TO RIGHTS AGREEMENT
FIRST AMENDMENT TO RIGHTS AGREEMENT, dated as of February 25, 1995
(this "Amendment"), to the Rights Agreement dated as of April 14, 1989 (the
"Rights Agreement"), between Schwitzer, Inc., a Delaware corporation (the
"Company"), and Harris Trust and Savings Bank, an Illinois banking corporation
(the "Rights Agent").
WHEREAS, pursuant to and in compliance with Section 27 of the Rights
Agreement, the Company and the Rights Agent desire to amend the Rights Agreement
as set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein and in the Rights Agreement, the parties hereto
hereby agree as follows:
SECTION 1. Section 1(a) of the Rights Agreement is hereby amended to
add the following at the end of the existing language thereof:
"Anything in this Agreement to the contrary notwithstanding, "Acquiring
Person" shall not include Kuhlman Corporation, a Delaware corporation
("K"), Spinner Acquisition Corp., a Delaware corporation ("Sub"), or any
Affiliates or Associates of K or Sub, by virtue of the execution and
delivery of the Agreement and Plan of Merger (the "Merger Agreement") by
and among K, Sub and the Company, dated as of February 25, 1995."
SECTION 2. The first paragraph of Section 11(a)(ii)(B) of the Rights
Agreement is hereby amended to read in its entirety as follows:
"(B) any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any entity holding shares of Common Stock for or pursuant
to the terms of any such plan), shall become the Beneficial Owner of 20%
or more of the shares of Common Stock of the Company then outstanding
(other than through (1) an acquisition described in subparagraph (iii) of
this paragraph (a) or (2) the execution and delivery of the Merger
Agreement)."
SECTION 3. The Rights Agreement is hereby amended to add a new
Section 34 which shall read in its entirety as follows:
Section 34. EFFECT OF MERGER AGREEMENT. "Anything in this Agreement
to the contrary notwithstanding, the execution and delivery of the Merger
Agreement shall not cause K, Sub, or any Affiliates or Associates of K or
Sub to
<PAGE>
be deemed an Acquiring Person or to give rise to an event as described in
clauses (A), (B), (C) or (D) of Section 11(a)(ii) hereof, an event as
described in Section 13 hereof or a Shares Acquisition Date."
SECTION 4. This amendment shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
SECTION 5. This Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
SECTION 6. Except as expressly set forth herein, this Amendment shall
not by implication or otherwise alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Rights Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the day and year first above written.
SCHWITZER, INC.
Attest:
/s/ Richard H. Prange By: /s/ Gary G. Dillon
------------------------------ -------------------------------
Name: Richard H. Prange Name: Gary G. Dillon
Title: Secretary Title: Chairman, President
and Chief Executive
Officer
HARRIS TRUST AND SAVINGS BANK,
as Right Agent
Attest:
/s/ W. A. Ryter By: /s/ K. W. Penn
------------------------------ -------------------------------
Name: W. A. Ryter Name: K. W. Penn
Title: Trust Officer Title: A.V.P.
-2-
<PAGE>
Exhibit 10.9
SCHWITZER, INC.
PERFORMANCE UNIT PLAN
1. PURPOSE
The purpose of the Schwitzer, Inc. Performance Unit Plan (the "Plan") is to
further the long-term growth of Schwitzer, Inc. ("Schwitzer") by strengthening
the ability of Schwitzer to attract and retain key employees and to provide
additional motivation and incentives for the performance of key employees.
2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of Schwitzer's
Board of Directors (the "Committee"). The Committee shall have such powers to
administer the Plan as are delegated to it by the Plan and the Board of
Directors, including the power to interpret the Plan and any agreements
executed thereunder, to prescribe rules and regulations relating to the Plan,
to determine the terms, restrictions, and provisions of any agreement relating
to awards granted pursuant to the Plan, and to make all other determinations
necessary or advisable for administering the Plan. No member of the Committee
shall be eligible to receive any awards under the Plan while a member of the
Committee or at any time within one year prior to becoming a member of the
Committee.
3. PERFORMANCE UNIT AWARDS
(a) The Committee may grant Performance Unit Awards pursuant to this
Section 3. The Committee shall establish, with respect to and at the time of
each Performance Unit Award a performance period over which the performance of
the holder of a Performance Unit Award shall be measured. The Committee shall
also establish performance levels but subject to such later revisions as the
Committee, in its sole judgment, shall deem appropriate to reflect significant,
unforeseen events or changes. The Committee in its discretion may also grant
Performance Unit Awards to employees following the start of any performance
period and may also grant additional Performance Unit Awards to participants
after the start of any performance period.
(b) Each Performance Unit shall have an initial value of $100 per unit.
As determined by the Committee, the value of Performance Units may increase or
decrease depending upon the extent to which the performance targets set by the
Committee in respect of the holder of the Performance Unit Award are achieved.
<PAGE>
(c) The holder of a Performance Unit Award shall be entitled to receive
payment of an amount equal to the value of the Performance Unit Award, based on
the achievement of the performance targets for such performance period, as
determined by the Committee at the time of settlement of the Performance Unit
Award.
(d) Payment shall be made in cash in a lump sum or in installments as
prescribed by the Committee. If a payment is to be made on a deferred basis,
the recipient may be entitled, in the discretion of and on terms and conditions
established by the Committee, to be paid interest on the unpaid amount.
(e) In the event of death, permanent and total disability, or retirement
under terms of a pension plan and, unless the Committee in its sole discretion
adopts a contrary rule, the holder of a Performance Unit Award shall receive
payment of such Award prorated on the number of elapsed months in the
performance period but based on the extent to which performance targets are
achieved for the full performance period. Such Performance Unit Award shall be
payable at the time of payment of all other Performance Unit Awards granted for
the same performance period. A holder of a Performance Unit Award whose
employment terminates for reasons other than those listed in this paragraph will
forfeit his rights to any outstanding Performance Unit Award. Such forfeiture
may be waived in whole or in part by the Committee, in its sole discretion.
4. AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors or the committee may amend the Plan or any award
granted thereunder at any time and may terminate the Plan at any time, but such
termination shall not affect Awards previously granted under the Plan.
-2-
<PAGE>
Exhibit 10.10
January 18, 1995
Mr. Gary G. Dillon
Schwitzer U.S. Inc.
P.O. Box 15075
Asheville, North Carolina 28813
Re: EXECUTIVE EMPLOYMENT AND COMPENSATION AGREEMENT
Dear Gary:
1. This letter serves to restate in its entirety the Agreement entered into
effective as of April 1, 1989 by and between you and Schwitzer U.S., Inc.
("Schwitzer"), and as subsequently amended by letters dated August 27, 1990
and September 28, 1992 and resolution of the Board of Directors of
Schwitzer on October 18, 1994 (the terms of which are detailed in
correspondence dated November 22, 1994 from Peter S. Egan of Hewitt
Associates). The terms of this restated Agreement are effective as of
January 1, 1995.
2. You have been employed by Schwitzer as President and Chief Executive
Officer since April 1, 1989, and have agreed to continue employment as
President and Chief Executive Officer beyond your planned retirement date
of October 31, 1994. In this capacity you are entitled to the following:
a. An annual salary of $297,000, as increased from time to time by the
Board of Directors of Schwitzer.
b. Benefits as described in, and in accordance with, Schwitzer's benefit
plans.
c. An annual bonus awarded under the Executive Incentive Compensation
Plan equal to a percentage of your annual salary. The amount of bonus
that you actually receive, if any, will depend on the achievement of
corporate and your individual goals, and will be in amount ranging
from a cut-in rate equal to 0% of your annual salary, a par rate equal
to 50% of your annual salary, to a maximum rate equal to 80% of your
annual salary. The bonus percentage for attainment of objectives
between these levels will be calculated on a prorated basis.
d. A grant, under the Company's Performance Unit Plan, of 1500
performance units, for the period from January 1, 1995 through
December 31, 1997. Performance will be measured in terms of a Return
(net income) on Investment (equity plus debt) averaged over that three
year period. A 10% ROI average over that period will result in an
award of $0 per unit, a 15% ROI over that period will result in an
award of $100 per unit and a 20% ROI over that period will result in
an award of $200 per unit. Performance between 10% and 15%, as well
as 15% and 20% will result in a prorated award. You will also be
eligible to receive a grant under any subsequent Performance Unit
Plans established by the Board of Directors of Schwitzer for any
three-year periods beginning on or after January 1, 1996, in
accordance with the terms of such Plans.
e. Upon written request to the Compensation Committee, and upon the
Compensation Committee's concurrence, a distribution of your benefits
under the Supplemental
<PAGE>
Mr. Gary G. Dillon
January 18, 1995
Page 2
Schwitzer Salaried Pension Plan payable over three years following
your retirement from Schwitzer.
f. Membership in an Asheville, North Carolina area country club to be
used primarily for business reasons. Schwitzer will pay all dues,
fees, assessments and expenses in connection with such membership.
g. The establishment of your personal residence at Kiawah Island outside
Charleston, South Carolina, or at any other site not farther than 350
miles from Asheville, North Carolina.
3. During your employment with Schwitzer you will devote your full time and
energies to the faithful and diligent performance of the duties inherent
in, and implied by, your executive position.
4. In consideration of your having accepted employment with Schwitzer, and
your having agreed to continue such employment beyond October 31, 1994, it
is mutually agreed that in the event your employment with Schwitzer is
terminated by Schwitzer before you reach age 65 for any reason, or in the
event that you resign your position with Schwitzer before you reach age 65
for any reason, Schwitzer shall be required, and hereby agrees, to continue
paying your then salary, to pay your then bonuses at par levels (such
salary and bonus to be at the annual rate prorated after the first year)
and to provide all pension, profit sharing, deferred compensation, medical
and life insurance benefits under Schwitzer's benefit plans, or the
economic equivalent thereof, for a period ending on the earlier of (a)
18 months from the date of such termination or resignation; or (b) your
attainment of age 65. If, pursuant to the terms of a benefit plan, a
benefit would be earned or accrued during such period but would be payable
on a deferred basis (were you to be employed during such period) the
benefit similarly shall be deferred hereunder; provided, however, that
Schwitzer reserves the right to pay the present value of such benefit to
you in cash at the end of such period.
If, upon the date of your termination or resignation in accordance with
this paragraph 4, you hold any options with respect to the stock of
Schwitzer, all such options will immediately become exercisable upon such
date and will be exercisable in accordance with the terms of the Company's
Long Term Executive Incentive Compensation Plan. Any restrictions on the
stock of Schwitzer owned by you upon the date of such termination or
resignation, other than 75,000 shares granted to you on October 18, 1994
under the Company's Long Term Executive Incentive Compensation Plan, will
lapse on such date. To the extent such acceleration of exercise of such
options, or such lapse of restrictions, is not permissible under the terms
of any plan pursuant to which options or restricted stock was granted,
Schwitzer will pay to you or your beneficiary: (a) an amount equal to the
excess, if any, of the aggregate fair market value of all stock of
Schwitzer subject to such options, determined on the date of such
termination or resignation, over the aggregate exercise price of such
options, and you or your beneficiary shall surrender all such options
unexercised, and (b) the aggregate fair market value on the date of such
termination or resignation of all such restricted stock, and you or your
beneficiary shall transfer such stock to Schwitzer. Payments pursuant to
the preceding sentence will be made to you or your beneficiary in a lump
sum within 30 days after the date of such termination or resignation.
Notwithstanding
<PAGE>
Mr. Gary G. Dillon
January 18, 1995
Page 3
the above, restrictions on the 75,000 shares of Schwitzer stock granted to
you on October 18, 1994 under the Company's Long Term Executive
Compensation Plan shall continue to lapse in accordance with the terms
otherwise applicable to such grant.
5. It is further agreed that should your employment be terminated or should
you resign your position pursuant to the provisions of paragraph 4 hereof
following a Change of Control of Schwitzer, Schwitzer shall, in addition to
the payments required of it under paragraph 4, promptly make a lump sum
cash payment to you in an amount equal to 1-1/2 times your then annual
salary and 1-1/2 times your then annual bonus at par level.
For purposes of this paragraph a Change of Control of Schwitzer shall have
the same meaning as that set forth in the Company's Long Term Executive
Incentive Compensation Plan.
6. You are not required to mitigate the amount of any payments to be made by
Schwitzer pursuant to this Agreement by seeking other employment, or
otherwise, nor shall the amount of any payments provided for you in this
Agreement be reduced by any compensation earned by you as the result of
self-employment or your employment by another employer after the date of
termination of your employment with Schwitzer.
7. It is the intent and desire of Schwitzer that the benefits set forth
hereunder shall be provided without any diminution by reason of an excise
tax imposed pursuant to the Internal Revenue Code. Accordingly, in the
event that any excise tax is due with respect to any excess parachute
payment, within the meaning of Section 280G and 4999 of the Internal
Revenue Code (or successor provisions), Schwitzer shall pay to you such
amount as is necessary to satisfy (a) the excise tax and (b) any additional
federal income and excise taxes on (a). If there is any reasonable
disagreement between you and Schwitzer as to whether any excise tax is due,
Schwitzer shall obtain an opinion of outside counsel with respect to the
issue, and both you and Schwitzer shall be bound by such opinion.
8. Prior to October 31, 1993, the Board of Directors of Schwitzer U.S. Inc.
reviewed the qualifications of internal candidates eligible to replace you
as President and Chief Executive Officer of Schwitzer effective November 1,
1994. Because the Board determined that no such internal candidate was an
acceptable replacement, you are required to continue to make a good faith
effort to initiate an outside executive search, at the expense of
Schwitzer, to identity other qualified candidates for consideration by the
Board. It is your and Schwitzer's mutual intent that you will remain as
Chief Executive Officer of Schwitzer until your successor is hired.
Accordingly, and consistent with that intent, and notwithstanding any other
provision of this Agreement to the contrary, it is agreed and understood
that should you elect to resign on or after October 31, 1994 and the Board
has not employed a successor Chief Executive Officer, Schwitzer shall not
be obligated to make the payments otherwise required under the provisions
of this Agreement.
9. If you should die during the period described in paragraph 4 above, all
amounts payable hereunder to you shall, during the remainder of the period,
be paid to your surviving spouse or your estate; provided, however, that
benefits under any benefit plan of Schwitzer, or the economic equivalent
thereof, shall be paid only to the extent such benefits continue following
your death pursuant to the terms of the applicable benefit plan.
<PAGE>
Mr. Gary G. Dillon
January 18, 1995
Page 4
10. If a dispute arises regarding the termination of your employment or the
interpretation or enforcement of this Agreement and you obtain a final
judgment in your favor from a court of competent jurisdiction from which no
appeal may be taken, whether because the time to do so has expired or
otherwise, or your claim is settled by Schwitzer prior to the rendering of
such a judgment, all reasonable legal and other professional fees and
expenses incurred by you in contesting or disputing any such termination or
in seeking to obtain or enforce any right or benefit provided for in this
Agreement or in otherwise pursuing your claim will promptly be paid by
Schwitzer with interest thereon at the highest statutory rate of your state
of domicile for interest on judgments against private parties from the date
of payment thereof by you to the date of reimbursement to you by Schwitzer.
11. To the extent the terms and conditions of this Agreement are inconsistent
with the terms or conditions of any benefit plan maintained by Schwitzer,
the terms of the applicable benefit plan shall prevail.
If the forgoing terms and provisions are acceptable to you, please sign the
enclosed copy of this Agreement where indicated and return it to me.
Sincerely,
Schwitzer U.S. Inc.
By: /s/ J. Richard Hull
-----------------------------------
J. Richard Hull
Chairman, Compensation Committee of the Board
ACCEPTED AND AGREED TO the date first above set forth.
/s/ Gary G. Dillon
----------------------------------------
Gary G. Dillon
President and Chief Executive Officer
<PAGE>
Exhibit 10.11
February 25, 1995
Mr. Gary G. Dillon
Schwitzer U.S. Inc.
P. O. Box 15075
Asheville, NC 28813
Re: Amendment to Executive Employment
and Compensation Agreement
---------------------------------
Dear Gary:
1. Reference is made to the Executive Employment and Compensation Agreement
dated January 18, 1995 (the "Agreement") between you and Schwitzer U.S.
Inc. ("Schwitzer") which amended and restated the employment and
compensation agreement between you and Schwitzer that was originally
effective as of April 1, 1989.
2. Concurrently with the execution and delivery of this letter agreement,
Schwitzer, Inc., the parent corporation of Schwitzer (the "Company"), is
entering into an Agreement and Plan of Merger (the "Merger Agreement") with
Kuhlman Corporation ("Kuhlman") and Spinner Acquisition Corp. ("Sub")
pursuant to which, among other things, Sub would be merged with and into
the Company (the "Merger") in consideration for the conversion in such
merger of each outstanding share of Common Stock of the Company into 0.9615
share of Common Stock of Kuhlman. The closing of the Merger will result in
a "Change of Control" for purposes of the Agreement.
3. Schwitzer and you desire to amend the Agreement to give you an incentive to
remain in the employ of Schwitzer after the closing of the Merger and, in
order to eliminate any incentive in paragraphs 4 and 5 of the Agreement for
you to leave the employ of Schwitzer after such closing, to accelerate the
payments that would otherwise be required to be made to you under such
paragraphs upon your termination or resignation.
4. In consideration of your continued employment as President and Chief
Executive Officer of Schwitzer after the date hereof, you and Schwitzer
agree that the Agreement shall be further amended as provided below:
<PAGE>
Paragraph 2a of the Agreement is hereby amended effective as of
January 1, 1995, to read in its entirety as follows:
"a. An annual salary of $325,000, as increased from time to time
by the Board of Directors of Schwitzer."
The following new paragraph 12 is hereby added to the Agreement after
paragraph 11 thereof:
"12. Anything in this Agreement to the contrary notwithstanding, upon
the consummation of the merger (the "Effective Time") provided
for in the Agreement and Plan of Merger dated as of February 25,
1995 (the "Merger Agreement") among Kuhlman Corporation, Spinner
Acquisition Corp. and Schwitzer, Inc. (the "Company"), the
following provisions shall apply:
a. The obligation of Schwitzer to continue to pay your salary
and your bonuses at par levels for up to 18 months upon your
termination or resignation in accordance with paragraph 4,
its obligation to make a lump sum payment upon your
termination or resignation following a Change of Control in
accordance with paragraph 5 and any other severance pay
obligation of Schwitzer to you shall be terminated as of the
Effective Time. In lieu of, and as an acceleration of, such
obligations under paragraph 4, Schwitzer shall, concurrently
with the Effective Time, make a lump sum cash payment to you
in an amount equal to the sum of 1-1/2 times your then
annual salary and 1-1/2 times your then annual bonus at par
level. In lieu of such obligations under paragraph 5,
Schwitzer shall, concurrently with the Effective Time, make
an additional lump sum cash payment to you in an amount
equal to the sum of 1-1/2 times your then annual salary
and 1-1/2 times your then annual bonus at par level.
b. Concurrently with the Effective Time, (i) each option to
purchase shares of Common Stock of the Company held by you
pursuant to a grant under the Company's Long Term Executive
Compensation Plan (the "Plan") shall be converted into an
option to purchase shares of Common Stock of Kuhlman in
accordance with the "Exchange Ratio" provided for in the
Merger Agreement and each such
-2-
<PAGE>
option shall continue to become exercisable in accordance
with such option's terms and (ii) the 75,000 shares of
phantom stock awarded to you by an Agreement dated as of
October 18, 1994 shall be converted into 75,000 shares of
phantom stock of Kuhlman and shall continue to become vested
as of October 18, 1997. From and after the Effective Time,
all provisions of the second grammatical paragraph of
paragraph 4 shall be deemed to have been waived by you in
consideration for your rights under this paragraph 12.
c. The provisions of paragraphs 6, 7, 9, 10 and 11 of this
Agreement shall apply to the payments and benefits provided
for under this paragraph 12.
d. Anything in paragraph 8 of this Agreement to the contrary
notwithstanding, the Board shall be deemed to have employed
a successor Chief Executive Officer as of the Effective
Time.
e. After the Effective Time, your employment as the President
and Chief Executive Officer of Schwitzer shall be subject to
the following terms and conditions:
(i) Schwitzer may terminate your employment by
Schwitzer at any time and you may resign such
employment at any time.
(ii) The provisions of paragraphs 2, 3 and 4 of this
Agreement (including, without limitation,
Schwitzer's obligation under paragraph 4 to
continue providing all pension, profit sharing,
deferred compensation, medical and life insurance
benefits under Schwitzer's benefit plans, or the
economic equivalent thereof, for a period ending
in the earlier of (A) 18 months after your
employment by Schwitzer is terminated or you
resign your position with Schwitzer or (B) your
attainment of age 65) shall apply to your
services under this paragraph 12e, provided that
(I) the Compensation Committee of the Company and
Schwitzer shall be deemed to have concurred in the
-3-
<PAGE>
distribution provided for in paragraph 2e, (II)
Schwitzer shall have no obligation under
paragraph 4 to continue to pay you any salary or
bonuses with respect to any period after your
employment by Schwitzer is terminated or you
resign your position with Schwitzer and (III) the
second grammatical paragraph of paragraph 4 shall
be deemed to have been waived by you in
consideration for your rights under this
paragraph 12.
(iii) During such employment by Schwitzer, you will
continue to receive all perquisites that you were
entitled to receive immediately prior to the
Effective Time, including, without limitation,
payment of certain automobile expenses and tax
return preparation fees.
f. Anything in this paragraph 12 to the contrary
notwithstanding, this paragraph 12 shall be void and have no
effect if you should elect to resign your position with
Schwitzer prior to the Effective Time."
If the foregoing terms and provisions are acceptable to you, please sign the
enclosed copy of this Agreement where indicated and return it to me.
Sincerely,
SCHWITZER U.S. INC.
By: /s/ Richard H. Prange
------------------------------
Name: Richard H. Prange
Title: Vice President
APPROVED:
/s/ J. Richard Hull
-------------------------------
J. Richard Hull
Chairman, Compensation Committee
of the Board of Directors of
Schwitzer, Inc.
ACCEPTED AND AGREED TO as of the date first above set forth.
/s/ Gary G. Dillon
-------------------------------
Name: Gary G. Dillon
President and Chief Executive
Officer
-4-
<PAGE>
Exhibit 10.12
SCHWITZER U.S. INC. PHANTOM STOCK AGREEMENT
THIS AGREEMENT is dated as of October 18, 1994, and is between Schwitzer
U.S. Inc., a Delaware corporation (the "Company"), and Gary G. Dillon
("Executive").
1. PURPOSE
The purpose of this Phantom Stock Agreement (the "Agreement") is to provide
deferred compensation to the Executive. Such deferred compensation shall be
based upon the award of Phantom Stock Units, the value of which is related to
the appreciation in the value of the common stock of the Company. The Agreement
is also intended to benefit the Company by creating incentives to the Executive.
2. ADMINISTRATION
The Agreement shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company. The Committee shall have
authority to interpret the Agreement, to adopt and revise rules and regulations
relating to the Agreement and to make any other determinations that it believes
necessary or advisable for the administration of the Agreement. Determinations
by the Committee shall be made by majority vote and shall be final and binding
on all parties with respect to all matters relating to the Agreement.
3. AWARD
The Executive shall be awarded 75,000 Phantom Stock Units.
4. PHANTOM STOCK UNITS
The Phantom Stock Units shall be credited to a Phantom Stock Unit Account
(the "Account") established and maintained for the Executive. The Account of
the Executive shall be the record of Phantom Stock Units awarded to him under
the Agreement, is solely for accounting purposes and shall not require a
segregation of any Company assets. Each Phantom Stock Unit shall be valued by
the Committee, in the manner provided in Section 7, as of the date of this
award. The value of such Phantom Stock Units as of the date of award is $9.50
per share.
5. VESTING OF PHANTOM STOCK UNITS
Phantom Stock Units awarded to the Executive shall vest and become fully
payable on October 18, 1997, the third anniversary of the date of this
Agreement.
6. PAYMENT FOR PHANTOM STOCK UNITS
(a) Upon the termination of the Executive's employment with the Company
for any reason on or after October 18, 1997, the Executive shall be entitled to
receive from the
1
<PAGE>
Company an amount, with respect to each Phantom Stock Unit in the Executive's
Account, determined as follows: (i) the value (as determined by the Committee
pursuant to Section 7) of each Phantom Stock Unit in the Executive's Account as
of the date of termination of his employment with the Company; (ii) reduced by
the value (as specified in Section 4) of such Phantom Stock Unit as of the date
of award to the Executive.
(b) Payment to the Executive of the amount set forth in paragraph (a) next
above for Phantom Stock Units shall be made in cash in a lump sum. Payment will
be made within thirty (30) days after the date of termination of the Executive's
employment with the Company.
7. VALUATION OF PHANTOM STOCK UNITS
(a) The value of a Phantom Stock Unit on the date of the Executive's
termination of employment pursuant to Section 6 will be an amount equal to the
greater of: (i) such amount as shall be determined, as of the applicable date,
by the Committee in its sole discretion; and (ii) the closing price of the
Company's Common Stock on a recognized stock exchange, as of the applicable
date.
8. FORFEITURE OF PHANTOM STOCK UNITS
If the Executive's employment with the Company is terminated for any reason
prior to October 18, 1997, the Executive's rights with respect to Phantom Stock
Units will terminate and be forfeited and neither the Executive nor his heirs,
personal representatives, successors or assigns shall have any future rights
with respect to any such Phantom Stock Units.
9. CHANGES IN CAPITAL OR CORPORATE STRUCTURE AND CHANGE IN CONTROL
In the event of any change in the outstanding shares of common stock of the
Company by reason of an issuance of additional shares, recapitalization,
reclassification, reorganization, stock split, reverse stock split, combination
of shares, stock dividend or similar transaction, the Committee shall
proportionately adjust, in an equitable manner, the number of Phantom Stock
Units held by the Executive under this Agreement. The foregoing adjustment
shall be made in a manner that will cause the relationship between the aggregate
appreciation in outstanding common stock of the Company and the increase in
value of each Phantom Stock Unit awarded hereunder to remain unchanged as a
result of the applicable transaction.
In the event of a Change in Control of the Company the Committee, in its
sole discretion, may accelerate the vesting of each Phantom Stock Unit. If the
Committee does not accelerate the vesting of each Phantom Stock Unit, then each
Phantom Stock Unit shall be exchanged in a manner that will cause the
relationship between the aggregate appreciation in outstanding common stock of
the Company and the increase in value of each Phantom Stock Unit awarded
hereunder to remain unchanged as a result of the applicable transaction.
2
<PAGE>
For purposes of this Agreement, a "Change in Control" means: a change in
the beneficial ownership of the Company's Common Stock or a change in the
composition of the Company's Board of Directors which occurs as follows:
(a) any "person" (as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934) becomes a beneficial owner, directly or
indirectly, of Common Stock of the Company representing twenty percent (20%) or
more of the total voting power of the Company's then outstanding Common Stock;
or
(b) a tender offer is made for the Company's Common Stock, which has not
been approved by the Company's Board of Directors, and the person making the
offer owns or has accepted for payment Common Stock of the Company representing
thirty percent (30%) or more of the total voting power of the Company's Common
Stock.
10. NONTRANSFERABILITY
Phantom Stock units awarded under this Agreement, and any rights and
privileges pertaining thereto, may not be transferred, assigned, pledged or
hypothecated in any manner, by operation of law or otherwise, other than by will
or by the laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. In the event of the Executive's
death, payment of any amount due under this Agreement shall be made to the duly
appointed and qualified executor or other personal representative of the
Executive to be distributed in accordance with the Executive's will or
applicable intestacy law; or in the event that there shall be no such
representative duly appointed and qualified within six (6) months after the date
of death of such deceased Executive, then to such persons as, at the date of his
death, would be entitled to share in the distribution of such deceased
Executive's personal estate under the provisions of the applicable statute then
in force governing the descent of intestate property, in the proportions
specified in such statute.
11. WITHHOLDING
The Company shall have the right to deduct from all amounts paid pursuant
to this Agreement any taxes required by law to be withheld with respect to such
awards.
12. VOTING AND DIVIDEND RIGHTS
Except as provided under Section 9, the Executive shall not be entitled to
any voting rights, to receive any dividends, or to have his Account credited or
increased as a result of any dividends or other distribution with respect to the
Common Stock of the Company.
13. MISCELLANEOUS PROVISIONS
(a) Neither the Agreement nor any action taken hereunder shall be
construed as giving the Executive any right to be retained in the employ of the
Company.
(b) The Agreement shall at all times be entirely unfunded and no
provisions shall at any time be made with respect to segregating assets of the
Company for payment of any
3
<PAGE>
benefits hereunder. The Executive shall not have any interest in any particular
assets of the Company by reason of the right to receive a benefit under this
Agreement and shall have only the rights of a general unsecured creditor of the
Company with respect to any rights under the Agreement.
14. AMENDMENT OF THE AGREEMENT
The Board of Directors of the Company may alter or amend this Agreement
from time to time by written agreement with the Executive. No amendment to this
Agreement may alter, impair or reduce the number of Phantom Stock Units awarded
under the Agreement prior to the effective date of such amendment without the
written consent of the Executive.
WITNESS the due execution hereof as of the date first above written.
SCHWITZER U.S. INC.
By: /s/ J. Richard Hull
------------------------------------
J. Richard Hull
Chairman, Compensation
Committee of the Board
of Directors of Schwitzer, Inc.
/s/ Gary G. Dillon
----------------------------------------
Gary G. Dillon
4
<PAGE>
Exhibit 10.13
SCHWITZER, INC.
--------------------------------------------------------------------------------
Gary G. Dillon
Chairman, President and February 28, 1994
Chief Executive Officer
Mr. Richard H. Prange
Schwitzer, Inc.
P. O. Box 15075
Asheville, NC 28813
Dear Rich:
RE: EMPLOYMENT AGREEMENT
--------------------
1. This letter confirms your employment by Schwitzer Inc. (the "Company") as
Vice President, Chief Financial Officer, and Secretary effective February
28, 1994. In that capacity, you are entitled to the following:
a. An annual salary of $94,620;
b. Benefits as described in, and in accordance with, the Company's
benefit plans; and
c. An annual par bonus equal to 25% of your annual salary. The amount of
bonus that you actually receive, if any, will depend on the
achievement of the business and your individual goals.
2. During your employment with the Company, you will devote your full time and
energies to the faithful and diligent performance of the duties inherent
in, and implied by, your executive position.
3. In consideration of your having accepted employment with the Company it is
mutually agreed that:
a. In the event your employment with the Company is terminated by the
Company at any time after the effective date hereof for any reason
other than:
i. willful and deliberate misconduct;
ii. inability, for reasons of disability, reasonably to perform your
duties for six (6) consecutive calendar months; or
<PAGE>
Mr. Richard Prange
Employment Agreement
Page 2
b. In the event that before you reach 65 years of age you resign your
position with the Company because:
i. you are assigned to a position of lesser rank or status;
ii. your annual salary, annual par bonus or your benefits are
reduced; or
iii. you are reassigned to a geographical area more than 50 miles from
Asheville, North Carolina or Indianapolis, Indiana.
the Company shall be required, and hereby agrees, to continue paying your
then salary, to pay your then bonuses at par levels (such salary and bonus
to be at the annual rate prorated after the first year) and to provide all
pension, profit sharing, deferred compensation, medical and life insurance
benefits under the Company's benefit plans, or the economic equivalent
thereof, for a period of 12 months from the date of such termination or
resignation. If, pursuant to the terms of a benefit plan, a benefit would
be earned or accrued during such 12 months period but would be payable on a
deferred basis (were you to be employed during such 12 months period) the
benefit similarly shall be deferred hereunder; provided, however, that the
Company reserves the right to pay the present value of such benefit to you
in cash at the end of such 12 months period.
4. You are not required to mitigate the amount of any payments to be made by
the Company pursuant to this Agreement by seeking other employment, or
otherwise, nor shall the amount of any payments provided for this Agreement
be reduced by any compensation earned by you as the result of self-
employment or your employment by another employer after the date of
termination of your employment with the Company.
5. If a dispute arises regarding the termination of your employment or the
interpretation of enforcement of this Agreement and you obtain a final
judgment in your favor from a court of competent jurisdiction from which no
appeal may be taken, whether because the time to do so has expired or
otherwise, or your claim is settled by the Company prior to the rendering
of such judgement, all reasonable legal and other professional fees and
expenses incurred by you in contesting or disputing any such termination or
in seeking
<PAGE>
Mr. Richard H. Prange
Employment Agreement
Page 3
to obtain or enforce any right or benefit provided for in this Agreement or in
otherwise pursuing your claim will be promptly paid by the Company with interest
thereon at the highest statutory rate of your state of domicile for interest on
judgments against private parties form the date of payment thereof by you to the
date of reimbursement to you by the Company.
Sincerely,
Schwitzer Inc.
By /s/ Gary G. Dillon
--------------------------------------
Gary G. Dillon
Chairman, President & Chief Executive Officer
ACCEPTED AND AGREED TO the date first above set forth.
/s/ Richard H. Prange
----------------------------------------
<PAGE>
Exhibit 10.15
SCHWITZER, INC.
GARY G DILLON
Chairman, President and February 28, 1994
Chief Executive Officer
Mr. Claudio R. da Fonseca
Schwitzer Lacom Equipamentos Ltd.
Estrada da Rhodia, km 15
Cx Postal 6540
CEP 13082-Campinas-Sao Paulo
BRAZIL
Dear Claudio:
RE: EMPLOYMENT AGREEMENT
--------------------
1. This letter confirms your employment by Schwitzer Lacom Equipamentos Ltd.
(the "Company") as Director-Finance/Accounting-South America effective
February 28, 1994. In that capacity, you are entitled to the following:
a. An annual salary paid in local currency equivalent to $74,298.
b. Benefits as described in, and in accordance with, the Company's
benefit plans; and
c. An annual par bonus equal to 15% of your annual salary. The amount of
bonus that you actually receive, if any, will depend on the
achievement of the business and your individual goals.
2. During your employment with the Company, you will devote your full time and
energies to the faithful and diligent performance of the duties inherent
in, and implied by, your executive position.
3. In consideration of your having accepted employment with the Company it is
mutually agreed that:
a. In the event your employment with the Company is terminated by the
Company at any time after the effective date hereof for any reason
other than:
i. willful and deliberate misconduct;
ii. inability, for reasons of disability, reasonably to perform your
duties for six (6) consecutive calendar months; or
<PAGE>
Mr. Claudio R. da Fonseca
Employment Agreement
Page 2
b. In the event that before you reach 65 years of age you resign your
position with the Company because:
i. you are assigned to a position of lesser rank or status;
ii. your annual salary, annual par bonus or your benefits are
reduced; or
iii. you are reassigned to a geographical area more than 50 miles from
your present residence,
the Company shall be required, and hereby agrees, to continue paying your
then salary, to pay your then bonuses at par levels (such salary and bonus
to be at the annual rate prorated after the first year) and to provide all
pension, profit sharing, deferred compensation, medical and life insurance
benefits under the Company's benefit plans, or the economic equivalent
thereof, for a period of 6 months from the date of such termination or
resignation. If, pursuant to the terms of a benefit plan, a benefit would
be earned or accrued during such 6 months period but would be payable on a
deferred basis (were you to be employed during such 6 months period) the
benefit similarly shall be deferred hereunder; provided, however, that the
Company reserves the right to pay the present value of such benefit to you
in cash at the end of such 6 months period.
4. You are not required to mitigate the amount of any payments to be made by
the Company pursuant to this Agreement by seeking other employment, or
otherwise, nor shall the amount of any payments provided for this Agreement
be reduced by any compensation earned by you as the result of self-
employment or your employment by another employer after the date of
termination of your employment with the Company.
5. If a dispute arises regarding the termination of your employment or the
interpretation of enforcement of this Agreement and you obtain a final
judgement in your favor from a court of competent jurisdiction from which
no appeal may be taken, whether because the time to do so has expired or
otherwise, or your claim is settled by the Company prior to the rendering
of such a judgement, all reasonable legal and other professional fees and
expenses incurred by you in contesting or disputing any such termination or
in seeking
<PAGE>
Mr. Claudio R. da Fonseca
Employment Agreement
Page 3
to obtain or enforce any right or benefit provided for in this Agreement or in
otherwise pursuing your claim will be promptly paid by the Company with interest
thereon at the highest statutory rate of your state of domicile for interest on
judgments against private parties from the date of payment thereof by you to the
date of reimbursement to you by the Company.
Sincerely,
Schwitzer Inc.
By /s/ Gary G. Dillon
--------------------------------------
Gary G. Dillon
Chairman, President & Chief Executive Officer
ACCEPTED AND AGREED TO the date first above set forth.
/s/ Claudio R. da Fonseca
----------------------------------------
<PAGE>
Exhibit 10.16
SCHWITZER, INC.
Gary G. Dillon
Chairman, President and February 28, 1994
Chief Executive Officer
Mr. Leonildo Zyngier
Schwitzer Lacom Equipamentos Ltd.
Estrada da Rhodia, km 15
Cx Postal 6540
CEP 13082-Campinas-Sao Paulo
BRAZIL
Dear Leonildo:
RE: EMPLOYMENT AGREEMENT
--------------------
1. This letter confirms your employment by Schwitzer Lacom Equipamentos Ltd.
(the "Company") as Director-Sales and Marketing South America effective
February 28, 1994. In that capacity, you are entitled to the following:
a. An annual salary paid in local currency and equivalent to $74,298.
b. Benefits as described in, and in accordance with, the Company's
benefit plans; and
c. An annual par bonus equal to 15% of your annual salary. The amount of
bonus that you actually receive, if any, will depend on the
achievement of the business and your individual goals.
2. During your employment with the Company, you will devote your full time and
energies to the faithful and diligent performance of the duties inherent
in, and implied by, your executive position.
3. In consideration of your having accepted employment with the Company it is
mutually agreed that:
a. In the event your employment with the company is terminated by the
Company at any time after the effective date hereof for any reason
other than:
i. willful and deliberate misconduct;
ii. inability, for reasons of disability, reasonably to perform your
duties for six (6) consecutive calendar months; or
<PAGE>
Mr. Leonildo Zyngier
Employment Agreement
Page 2
b. In the event that before you reach 65 years of age you resign your
position with the Company because:
i. you are assigned to a position of lesser rank or status;
ii. your annual salary, annual par bonus or your benefits are
reduced; or
iii. you are reassigned to a geographical area more than 50 miles from
your present residence,
the Company shall be required, and hereby agrees, to continue paying your
then salary, to pay your then bonuses at par levels (such salary and bonus
to be at the annual rate prorated after the first year) and to provide all
pension, profit sharing, deferred compensation, medical and life insurance
benefits under the Company's benefit plans, or the economic equivalent
thereof, for a period of 6 months from the date of such termination or
resignation. If, pursuant to the terms of a benefit plan, a benefit would
be earned or accrued during such 6 months period but would be payable on a
deferred basis (were you to be employed during such 6 months period) the
benefit similarly shall be deferred hereunder; provided, however, that the
Company reserves the right to pay the present value of such benefit to you
in cash at the end of such 6 months period.
4. You are not required to mitigate the amount of any payments to be made by
the Company pursuant to this Agreement by seeking other employment, or
otherwise, nor shall the amount of any payments provided for this Agreement
be reduced by any compensation earned by you as the result of self-
employment or your employment by another employer after the date of
termination of your employment with the Company.
5. If a dispute arises regarding the termination of your employment or the
interpretation of enforcement of this Agreement and you obtain a final
judgement in your favor from a court of competent jurisdiction from which
no appeal may be taken, whether because the time to do so has expired or
otherwise, or your claim is settled by the Company prior to the rendering
of such a judgement, all reasonable legal and other professional fees and
expenses incurred by you in contesting or disputing any such termination or
in seeking
<PAGE>
Mr. Leonildo Zyngier
Employment Agreement
Page 3
to obtain or enforce any right or benefit provided for in this Agreement or in
otherwise pursuing your claim will be promptly paid by the Company with interest
thereon at the highest statutory rate of your state of domicile for interest on
judgments against private parties from the date of payment thereof by you to the
date of reimbursement to you by the Company.
Sincerely,
Schwitzer Inc.
By /s/ Gary G. Dillon
--------------------------------------
Gary G. Dillon
Chairman, President & Chief Executive Officer
ACCEPTED AND AGREED TO the date first above set forth.
/s/ Leonildo Zyngier
----------------------------------------
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
THREE MONTHS ENDED TWELVE MONTHS ENDED
--------------------------- ---------------------------
JAN. 1, 1995 JAN. 2, 1994 JAN. 1, 1995 JAN. 2, 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE WAS COMPUTED
AS FOLLOWS:
PRIMARY:
1. Net Income $2,682,000 $1,419,000 $8,930,000 $2,530,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
2. Weighted Average Common Shares Outstanding 7,214,590 7,167,192 7,188,024 7,161,116
3. Incremental Shares Under Stock Options and Warrants
Computed Under the Treasury Stock Method Using the
Average Market Price of Issuer's Stock During the
Periods 175,415 74,783 166,223 82,427
---------- ---------- ---------- ----------
4. Weighted Average Common Shares and Common
Equivalent Shares Outstanding 7,390,005 7,241,975 7,354,247 7,243,543
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
5. Net Income Per Share (Item 1 divided by Item 4) $ 0.36 $ 0.20 $ 1.21 $ 0.35
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FULLY DILUTED:
1. Net Income $2,682,000 $1,419,000 $8,930,000 $2,530,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
2. Weighted Average Common Shares Outstanding 7,214,590 7,167,192 7,188,024 7,161,116
3. Incremental Shares Under Stock Options and Warrants
Computed Under the Treasury Stock Method Using the
Higher of the Average or Ending Market Price of
Issuer's Stock at the End of the Periods 174,757 74,783 215,684 89,079
---------- ---------- ---------- ----------
4. Weighted Average Common Shares and Common
Equivalent Shares Outstanding 7,389,347 7,241,975 7,403,708 7,250,195
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
5. Net Income Per Share (Item 1 divided by Item 4) $ 0.36 $ 0.20 $ 1.21 $ 0.35
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
Exhibit 13
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1992(1) 1991 1990
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $153.3 $124.1 $109.7 $111.0 $114.4
Income from operations 17.0 9.6 4.9 9.7 11.3
Income (loss) before
income taxes 12.7 3.5 (.5) 3.2 6.0
Income (loss) before
cumulative effect
of accounting changes 8.9 2.5 (1.4) 1.7 3.7
Per common share 1.21 .35 (.19) .23 .52
Net income (loss) 8.9 2.5 (11.3) 1.7 3.7
Per common share 1.21 .35 (1.58) .23 .52
Total assets 82.6 78.3 77.0 87.0 89.4
Long-term debt 21.9 30.5 30.0 32.9 38.8
-----------------------------------------------------------------------------------------------------
<FN>
(1) Reflects adoption of SFAS Nos. 106 and 109, as disclosed in Notes 10 and 11
to the Consolidated Financial Statements appearing elsewhere in this Annual
Report, and includes restructuring charge of $1.65 million ($1.0 million
after tax).
</TABLE>
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SCHWITZER, INC. AND SUBSIDIARIES
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES.
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO FISCAL 1993 Schwitzer, Inc. (the Company) reported net
income of $8.9 million ($1.21 per share) for 1994, compared to $2.5 million
($.35 per share) in the prior year. Earnings improvement was largely the result
of sales volume gains at all operating locations. Included in 1994 earnings are
abnormal charges for environmental and idle facility costs at the Company's
Rolla, Missouri plant and a reduction in a tax valuation allowance. These items
are described in more detail in the analysis below.
Worldwide sales in 1994 were up 24 percent to $153.2 million from $124.1 million
in 1993. Schwitzer's primary markets-trucks, construction equipment and
agricultural machinery--gained strength as the Company's sales volume growth
generally paralleled market improvements. Price increases were only a minor
factor in the improvement in worldwide sales. Schwitzer's geographic
segments--North America, Europe and Brazil--all experienced improved sales
volumes in 1994. See Note 13 to the consolidated financial statements for a
comparative table of sales and other financial data related to the Company's
geographic segments.
Sales in North America increased 16 percent in 1994 primarily on the same
customer base and applications as existed in 1993. Market conditions in North
America continued their rebound from a low in 1992 as growth in U.S. truck,
construction and agricultural markets expanded. Heavy duty truck production
ended the year at an all time high. During June 1994, Caterpillar, the Company's
largest customer, incurred a union strike at eight U.S. facilities. The strike
continues with Caterpillar's management reporting no adverse impacts to meeting
their production requirements. Shipments and orders in North America continue at
a strong level in early 1995.
Sales volumes in Europe were up 42 percent in 1994. This increase is due to the
continuing economic recovery in the United Kingdom and the emergence of economic
recoveries in most other European countries. Further benefiting the European
operation were new original equipment manufacturers (OEM) customer applications.
Continued growth in the European truck market and OEM application gains are
expected during 1995.
The Company's operation in Brazil reported a 48 percent increase in sales in
1994 as OEM and aftermarket truck production continued to expand from
historically depressed levels. Although the Company continues to see strength in
the Brazilian markets, it is uncertain whether volumes beyond the first quarter
of 1995 will continue to increase over 1994 levels. During 1994, Brazil launched
its seventh economic plan in seven years, the Plano Real. This plan has resulted
in a more stable economic environment. However, the Brazilian economy continues
to be affected by economic and political uncertainty.
Schwitzer's consolidated gross profit margin increased to 23.1 percent of sales
in 1994 from 20.4 percent in 1993. Higher sales volumes led to better
utilization of production capacity and improved gross margin percentages at all
company facilities except Europe. In Europe, the gross margin percentage was
slightly lower in 1994, primarily because of an increase in lower margin OEM
sales, rather than aftermarket shipments, in the sales mix. The Company's gross
profit margin percent would have been higher except for a $1.4 million
environmental charge, additional reserves on idle facility valuations of $.7
million, and higher operating costs experienced to meet rapidly increasing
customer demands. Further, the Company's Gainesville, Georgia metal fan
operation experienced unfavorable operating variances to plant goals of $1.4
million. The Gainesville plant began operations in the third quarter of 1992
following a relocation of domestic metal fan production from Rolla, Missouri.
The new plant experienced start-up problems that led to $5.0 million in
variances during 1993. Management expects such variances to be minimal in 1995
as operations continue to improve.
The $1.4 million environmental charge was recorded against the Company's closed
Rolla, Missouri facility in connection with the Company's voluntary remediation
of certain environmental conditions at the site. The Company is discussing with
the Missouri Department of Natural Resources a proposed work plan for the
remediation of soils contaminated by chlorinated solvents at the facility.
Management expects that the contract for sale of the Rolla facility will be
completed during the second quarter of 1995.
The Company also recorded a charge on idle facilities of $.7 million during
1994. This charge was taken primarily against the closed plant in Rolla,
Missouri. This asset held for sale, along with certain deferred relocation and
restructuring costs, has a net carrying value of $2.2 million. The Company has a
contract to sell this property and to recover the $2.2 million of net value. The
Company completed the sale of its idle Canadian facility during the fourth
quarter of 1994 .
Selling, administrative and research and development ("SAR") expenses increased
by $2.6 million, or 17% in 1994. Higher research and development costs of $1.4
million were primarily due to greater research and development expenses for
commercialization programs for new product introductions. It is expected that
these expenses will continue during 1995, but at a reduced level. Further
impacting SAR expenses were costs for severance pay of current and former
company employees of $.6 million and inflationary cost increases on a worldwide
level.
Net interest expense was reduced by $1.3 million in 1994 compared to 1993.
Interest expense was primarily impacted by the conclusion of an interest rate
swap agreement established in 1989, which fixed $22.0 million of principal at
10.3 percent. The expiration of this agreement in April 1994 favorably impacted
interest expense by $1.0 million. Interest expense was further reduced by a
reduction in borrowings from $31.6 million to $22.5 million by year end. These
favorable borrowing reductions were partially offset by higher borrowing rates
on the variable rate based loans. Management expects interest expense to decline
during 1995 as anticipated cash flows are used to further reduce debt.
8
<PAGE>
Net other expense decreased by $.4 million in 1994 mainly because of improved
conditions in the hyperinflationary economic environment of Brazil. During the
year, new government programs led to lower inflation which resulted in lower
currency-related losses. The sensitivity of these net charges or credits to
significantly fluctuating variables, such as local inflation and currency
exchange rates, and the composition of the Brazilian subsidiary's balance sheet,
cause frequent large variances in net other expense. Such currency-related
adjustments primarily impact the reported results of operations of the Brazilian
subsidiary, rather than the subsidiary's cash flows, which occur in Brazilian
currencies.
On a consolidated basis, the provision for income taxes amounted to $3.8 million
resulting in an effective income tax rate of 30 percent of pretax income. The
effective rate was below the statutory rates of the tax jurisdictions in which
Schwitzer operates. This was mainly because the Company recorded a credit of $.6
million against its U.S. income tax provision to reduce the valuation allowance
against deferred tax assets. The Company's expected continued favorable
operating performance reinforces management's judgment that, more likely than
not, the Company's U.S. operations will be able to generate sufficient future
taxable income to realize the net deferred tax assets.
FISCAL 1993 COMPARED TO FISCAL 1992 Consolidated net income was $2.5 million
($.35 per share) in 1993 compared to a loss of $1.4 million ($.19 per share) in
1992 before a charge of $9.9 million ($1.39 per share) for the cumulative effect
of accounting changes described below. Included in the 1992 recorded loss were
additional charges of $1.0 million ($.14 per share) after tax for a
restructuring program and $.9 million ($.13 per share) for federal and foreign
taxes on subsidiary dividends. Earnings were $.6 million ($.08 per share) in
1992 before these three charges.
The Company adopted two new accounting standards in 1992. These were Statement
of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", and SFAS No. 109, "Accounting for
Income Taxes." The key provisions of these standards are described in Notes 10
and 11 to the consolidated financial statements. The adoption of these standards
resulted in an after-tax charge of $9.9 million to recognize the standards'
cumulative effect on prior years' earnings.
Consolidated net sales of $124.1 million in 1993 were up 13 percent from $109.7
million reported for 1992. The company could have reported an 18 percent
increase in sales to approximately $129.0 million were it not for a reduction in
sales reported by Schwitzer's European subsidiary in the United Kingdom, caused
solely by exchange rate fluctuations. Sales in North America, up 21 percent,
were much improved over 1992 due to growth in U.S. truck production. The
European operation posted a 5 percent increase in sales in 1993. Although
recessionary conditions prevailed throughout the year in most of the economies
served by the European operation, the Company realized volume gains from new OEM
customer applications. Sales reported by Schwitzer's operation in Brazil were up
33 percent in 1993 as OEM truck production rebounded from historically depressed
levels.
Schwitzer's consolidated gross profit margin decreased slightly to 20.4 percent
of net sales in 1993 from 20.6 percent in 1992. Higher sales volumes led to
better utilization of production capacity and improved gross margin percentages
at the Company's facilities in Asheville, North Carolina and Brazil. In Europe,
however, gross margin percentage was reduced in 1993 primarily by an increase in
OEM shipments, rather than higher-margin aftermarket shipments, in the sales
mix. Further, the overall favorable impact of higher sales on gross margin
percentage was largely offset by $5.0 million in higher operating and shipping
cost variances at the Company's new Gainesville, Georgia facility. Gross margin
percentage was also reduced in 1993 by a charge of $1.0 million taken against
nonproductive assets of former manufacturing operations. Unfavorably impacting
1992 gross margin was a $1.65 million restructuring program to reduce operating
costs and invested capital in the Company's worldwide facilities.
SAR expenses were essentially flat compared to 1992, after taking into account
the weaker British pound in 1993.
Net interest expense was also flat compared to 1992. The favorable effects of
slightly lower borrowings in 1993 were offset by lower interest rates on
temporary cash investments.
Net other expense increased by $.7 million in 1993 mainly because the
hyperinflationary conditions that prevailed in Brazil during 1993 produced
greater currency-related losses than the Company was able to recover in the
marketplace.
The Company's consolidated provision for income taxes was an effective rate of
28 percent of pretax income in 1993. The 1993 rate was favorably impacted by the
Company recording a credit of $.5 million against its U.S. income tax provision
to reduce the valuation allowance against deferred tax assets. In 1992, the
Company recorded a consolidated tax provision of $.9 million even though a
pretax loss was incurred. This unusual relationship was caused by a provision of
$.9 million for federal and foreign taxes associated with subsidiary dividends
and non-tax deductibility of certain hyperinflationary impacts in Brazil.
LIQUIDITY AND CAPITAL RESOURCES
At the end of both 1994 and 1993, Schwitzer had a consolidated cash
balance of $2.4 million. Additional borrowing capacity of $12.1 million was
available at year end 1994 while $7.6 million of additional borrowing capacity
was available at year end 1993. Working capital amounted to $21.5 million and
the current ratio was 1.8 at year end 1994, which was similar to the $20.9
million and 1.9 ratio at the beginning of the year. During the second quarter of
1994, the Company's domestic revolving credit agreement was amended from $20
million to a commitment level of $17 million. The agreement was further amended
to extend the termination date until March 1998.
9
<PAGE>
Cash balances remained relatively constant during the year as net cash provided
by operating activities was used principally to reduce debt and invest in
equipment. Net income plus depreciation, amortization and deferred income taxes
of $13.7 million in 1994 increased $5.1 million from the prior year's $8.6
million. Including the impact of changes in foreign exchange rates, trade
accounts receivable increased $1.7 million while accounts payable increased $2.7
million, which netted a positive $1.0 million in cash flows. Both of these items
increased primarily due to the greater volume of business generated during 1994.
Increases in inventories of $.7 million (4%) were not as significant as the
increases experienced in sales volume due to improved inventory management.
Other current assets (exclusive of deferred income taxes) increased by $1.2
million due largely to an increase in value added tax receivable in the United
Kingdom and a note receivable due on the facility sold in Canada. Accrued
expenses and postretirement benefits increased primarily due to an environmental
reserve of $1.2 million and an increase in accrued income taxes of $1.1 million.
Net capital expenditures amounted to $5.8 million in 1994 and primarily
represented purchases of machinery and equipment necessary to support new
applications, facilitate improvements in product quality, and increase capacity.
Production capacity was further increased as the Company outsourced certain
manufacturing processes to third parties. Capital expenditures of $6.0-$7.0
million are planned for 1995. The Company entered into operating leases for an
additional $.8 million of equipment in 1994 and a similar level is expected in
1995.
The Company's U.S. operation reduced its revolving credit loan amount
outstanding by $7.5 million during 1994. It also paid off an Industrial Revenue
Bond in the amount of $1.0 million. Schwitzer's United Kingdom operation made a
required $.6 million loan repayment. Primarily as a result of improved
profitability, the Company's ratio of debt to total capitalization (debt plus
equity) improved to 48 percent at the end of 1994 from 68 percent at the end of
1993.
Schwitzer's cash management and capital decision priorities are primarily
applied on a worldwide basis so as to make the most effective use of
consolidated resources. Cash flows generated by each operating unit generally
fund local working capital, capital expenditures and debt service requirements,
but intercompany transfers have been made when deemed appropriate by management.
Legal and contractual factors do not materially affect the Company's ability to
deploy its worldwide resources effectively.
Management anticipates that operating cash flows will remain strong in 1995
while additional investment in working capital should be minimal. These factors
should also allow the Company to repay additional debt and further strengthen
its balance sheet.
SUBSEQUENT EVENT:
On February 25, 1995, the Company and Kuhlman Corporation (Kuhlman), a
publicly-held company traded on The New York Stock Exchange, jointly announced
that they have signed a definitive agreement to merge the Company with a
wholly-owned subsidiary of Kuhlman. Kuhlman is a holding company involved in the
manufacturing of electrical and electronic wire and cable products;
distribution, power and instrument transformers; and spring products. In the
transaction, shares of the Company's common stock will be converted into shares
of Kuhlman common stock using an exchange ratio of 0.9615 share of Kuhlman for
each share of the Company. The merger is subject to certain closing conditions,
including the approval of the shareholders of both companies. It is anticipated
that the transaction will be consummated in the second quarter of 1995,
following approval by shareholders of both companies at the companies'
respective annual meetings of shareholders. Both meetings are currently
scheduled to be held on May 31, 1995.
10
<PAGE>
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 1995 AND JANUARY 2, 1994
SCHWITZER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(in thousands of dollars, except per share amount) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 2,414 $ 2,439
Trade accounts receivable, net of reserves of $627 and $546 23,888 21,904
Inventories 19,646 18,715
Other current assets 3,962 1,970
-----------------------------------------------------------------------------------------------
Total current assets 49,910 45,028
Properties and equipment, net 30,301 29,291
Other assets 2,411 3,983
-----------------------------------------------------------------------------------------------
Total assets $82,622 $78,302
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 635 $ 1,095
Accounts payable 11,293 8,492
Accrued income taxes 1,676 571
Accrued expenses 14,774 14,010
-----------------------------------------------------------------------------------------------
Total current liabilities 28,378 24,168
Long-term debt 21,910 30,466
Accrued postretirement benefits other than pensions 6,757 7,583
Deferred income taxes 1,033 1,389
-----------------------------------------------------------------------------------------------
Total liabilities 58,078 63,606
-----------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.10 par value, 50,000,000 shares
authorized; 7,231,866 and 7,167,192 shares outstanding 723 717
Paid-in capital 19,062 18,695
Deferred compensation (37) (36)
Retained earnings (accumulated deficit) 6,609 (2,321)
Foreign currency translation adjustments (1,813) (2,359)
-----------------------------------------------------------------------------------------------
Total shareholders' equity 24,544 14,696
-----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $82,622 $78,302
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE BALANCE SHEETS.
11
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED
JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
SCHWITZER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1992
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $153,271 $124,124 $109,692
Cost of sales 117,869 98,773 87,078
-----------------------------------------------------------------------------------------------
Gross profit 35,402 25,351 22,614
Selling, administrative and research and development
expenses 18,383 15,773 16,073
Restructuring charge -- -- 1,650
-----------------------------------------------------------------------------------------------
Income from operations 17,019 9,578 4,891
Interest expense, net 2,918 4,211 4,251
Other expense, net 1,421 1,832 1,127
-----------------------------------------------------------------------------------------------
Income (loss) before income taxes 12,680 3,535 (487)
Income taxes 3,750 1,005 873
-----------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting changes 8,930 2,530 (1,360)
Cumulative effect of changes in accounting for
postretirement benefits other than pensions
and income taxes -- -- (9,910)
-----------------------------------------------------------------------------------------------
Net income (loss) $ 8,930 $ 2,530 $(11,270)
-----------------------------------------------------------------------------------------------
Net income (loss) per share:
Income (loss) before cumulative effect of
accounting changes $ 1.21 $ .35 $ (0.19)
Cumulative effect of accounting changes -- -- (1.39)
-----------------------------------------------------------------------------------------------
Net income (loss) $ 1.21 $ .35 $ (1.58)
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED
JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
SCHWITZER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Retained Foreign
Common Stock Earnings Currency Total
(IN THOUSANDS OF DOLLARS, ------------------- Paid-in Deferred (Accumulated Translation Shareholders'
EXCEPT SHARE AMOUNTS) Shares Amount Capital Compensation Deficit) Adjustments Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 29, 1991 7,126,775 $713 $17,621 $ (91) $ 6,419 $ 459 $ 25,121
Net loss -- -- -- -- (11,270) -- (11,270)
Foreign currency translation adjustments -- -- -- -- -- (2,528) (2,528)
Common stock award 11,661 1 101 (102) -- -- --
Exercise of stock options 13,475 1 68 -- -- -- 69
Issuance of warrants -- -- 810 -- -- -- 810
Amortization of deferred compensation -- -- -- 151 -- -- 151
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1993 7,151,911 715 18,600 (42) (4,851) (2,069) 12,353
Net income -- -- -- -- 2,530 -- 2,530
Foreign currency translation adjustments -- -- -- -- -- (290) (290)
Common stock award 12,981 2 84 (86) -- -- --
Exercise of stock options 2,300 -- 11 -- -- -- 11
Amortization of deferred compensation -- -- -- 92 -- -- 92
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 1994 7,167,192 717 18,695 (36) (2,321) (2,359) 14,696
Net income -- -- -- -- 8,930 -- 8,930
Foreign currency translation adjustments -- -- -- -- -- 546 546
Common stock award 12,949 1 105 (106) -- -- --
Exercise of stock options 51,725 5 262 -- -- -- 267
Amortization of deferred compensation -- -- -- 105 -- -- 105
-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 7,231,866 $723 $19,062 $ (37) $ 6,609 $(1,813) $ 24,544
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED
JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
SCHWITZER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,930 $ 2,530 $(11,270)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities--
Cumulative effect of accounting changes -- -- 9,910
Depreciation and amortization 5,632 5,834 6,222
Provision (benefit) for deferred income taxes (891) 240 (119)
Restructuring charge -- -- 1,650
Changes in assets and liabilities:
Trade accounts receivable (1,684) (5,383) (1,482)
Inventories (753) (958) 1,791
Other current assets (1,193) 485 (10)
Accounts payable 2,664 929 844
Accrued expenses and postretirement benefits 1,705 (296) (1,407)
Net assets held for sale and deferred and
accrued relocation and restructuring costs 467 706 (5,055)
Other, net (254) 63 (919)
-----------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,623 4,150 155
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment (6,029) (3,297) (3,712)
Proceeds from dispositions of properties and equipment 246 17 342
-----------------------------------------------------------------------------------------------
Net cash used in investing activities (5,783) (3,280) (3,370)
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (11,047) (2,567) (34,086)
Proceeds from issuance of long-term debt, net 2,367 1,000 28,690
Proceeds from issuance of common stock warrants -- - 810
Proceeds from exercise of stock options 267 11 69
Increase (decrease) in short-term debt, net (494) 342 22
-----------------------------------------------------------------------------------------------
Net cash used in financing activities (8,907) (1,214) (4,495)
-----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
temporary cash investments 42 4 (53)
-----------------------------------------------------------------------------------------------
Net decrease in cash and temporary cash investments (25) (340) (7,763)
Cash and temporary cash investments, beginning of year 2,439 2,779 10,542
-----------------------------------------------------------------------------------------------
Cash and temporary cash investments, end of year $ 2,414 $2,439 $ 2,779
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information--
Cash paid during the year for:
Interest $ 3,342 $4,215 $ 4,265
Income taxes 3,725 612 1,185
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Schwitzer, Inc. and Subsidiaries
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION Schwitzer, Inc. (the Company) is a Delaware corporation
organized in 1989 in connection with the distribution of the Company's common
stock (the Distribution) by Household International, Inc. (Household). The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries: Schwitzer U.S. Inc.; Schwitzer Manufacturing Canada
Inc.; Schwitzer (Europe) Holdings Limited; and Lacom Schwitzer Equipamentos,
Ltda. All significant intercompany accounts and transactions have been
eliminated.
FISCAL YEAR The Company's fiscal year ends on the Sunday closest to December
31. Fiscal years 1994 and 1993 included 52 weeks, and fiscal year 1992 included
53 weeks.
TEMPORARY CASH INVESTMENTS For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid investments purchased with a
maturity of three months or less to be temporary cash investments.
INVENTORIES Inventories are stated at the lower of cost or market and include
the appropriate elements of material, labor and manufacturing overhead expenses.
Cost is determined using the last-in, first-out (LIFO) method for substantially
all domestic inventories and the first-in, first-out (FIFO) method for foreign
inventories.
PROPERTIES AND EQUIPMENT Properties and equipment are recorded at cost and
depreciated over their estimated useful lives, ranging from 3 to 40 years, using
principally the straight-line method for financial reporting purposes and
accelerated methods for tax reporting purposes.
REVENUE RECOGNITION Sales are generally recorded by the Company when products
are shipped to customers. The Company provides for anticipated costs of product
warranty and returns at the time of the sale of the products.
RESEARCH AND DEVELOPMENT COSTS Research and development costs related to both
present and future products are expensed as incurred. Total research and
development expenditures for fiscal years 1994, 1993 and 1992 were $7,325,
$5,891 and $6,982, respectively.
FOREIGN CURRENCY TRANSLATION The Company has foreign subsidiaries located in
the United Kingdom (U.K.), Canada and Brazil. Financial data of the U.K. and
Canadian subsidiaries are translated into U.S. dollars at current exchange rates
and translation adjustments are accumulated as a separate component of
shareholders' equity. Foreign currency transaction gains and losses of the U.K.
and Canadian subsidiaries are credited or charged to income as they occur.
The Brazilian subsidiary operates in a hyperinflationary economy. Accordingly,
financial data stated in Brazilian currencies are remeasured into U.S. dollars
at both current (monetary items) and approximate historical (nonmonetary items)
exchange rates and the resulting adjustments are charged or credited to income.
Transaction adjustments included in other expense, net, on the consolidated
statements of operations were $847 loss in fiscal 1994, $1,040 loss in fiscal
1993 and $88 income in fiscal 1992. The transaction adjustments for 1994, 1993
and 1992 are stated net of imputed interest income (expense) of $(589), $749 and
$4,271, respectively, realized on net monetary assets and liabilities.
INCOME TAXES In 1992, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes." Under SFAS No. 109,
deferred income taxes are recognized for the estimated future tax effects of
differences between the tax bases of assets and liabilities and their financial
reporting amounts based on enacted tax laws. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Federal and state income taxes are not provided on undistributed
earnings of foreign subsidiaries that have been or are intended to be reinvested
indefinitely. Based upon current tax rates and the level of undistributed
earnings of the foreign subsidiaries, it is anticipated that no significant net
additional taxes would be incurred if the accumulated earnings at January 1,
1995 were distributed.
NET INCOME (LOSS) PER SHARE Net income (loss) per share amounts were determined
based on the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares were determined under the treasury stock
method and had no material effect on the per share amounts in 1994, 1993 or
1992. The weighted average numbers of common and common equivalent shares
outstanding were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Primary 7,354,247 7,243,543 7,140,081
Fully diluted 7,403,708 7,250,195 7,140,081
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
NOTE 2. INVENTORIES:
Inventories at January 1, 1995 and January 2, 1994 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 6,323 $ 4,965
Work in process 5,390 5,974
Raw materials 7,933 7,776
---------------------------------------------------------------------------
Total inventories $19,646 $18,715
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
The LIFO inventory values approximate the respective FIFO values.
14
<PAGE>
NOTE 3. PROPERTIES AND EQUIPMENT:
Properties and equipment, net, at January 1, 1995 and January 2, 1994 consisted
of the following:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,315 $ 1,307
Buildings and leasehold improvements 13,865 13,577
Machinery, fixtures and equipment 68,845 64,016
Construction in progress 1,061 909
Accumulated depreciation and amortization (54,785) (50,518)
---------------------------------------------------------------------------
Properties and equipment, net $ 30,301 $ 29,291
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
NOTE 4. OTHER ASSETS:
Other assets at January 1, 1995 and January 2, 1994 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Net assets held for sale and deferred relocation and
restructuring costs $2,126 $3,336
Deferred income taxes -- 307
Other 285 340
---------------------------------------------------------------------------
Total other assets $2,411 $3,983
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
The net assets held for sale and deferred relocation and restructuring costs are
expected to be recovered upon the sale of a former manufacturing facility.
During 1994, the Company sold a former manufacturing facility. Proceeds from the
sale of this facility included a note receivable for $448, which is included in
other current assets on the January 1, 1995 consolidated balance sheet.
NOTE 5. ACCRUED EXPENSES:
Accrued expenses at January 1, 1995 and January 2, 1994 consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Payroll and benefits accruals $ 7,970 $ 6,573
Warranty and other sales accruals 2,428 3,289
Environmental reserve (see Note 14) 1,229 --
Relocation and restructuring accruals 178 921
Other 2,969 3,227
---------------------------------------------------------------------------
Total accrued expenses $14,774 $14,010
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
NOTE 6. DEBT:
Debt outstanding at January 1, 1995 and January 2, 1994 was as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Fixed rate notes payable to an institutional
lender, maturing 1998 to 2002 $14,407 $14,326
Variable rate revolving credit notes payable
to banks, maturing in 1998 6,000 13,500
Variable rate loan facility payable to bank,
denominated in Sterling, maturing 1995 to 1997 1,718 2,188
Other 420 1,547
---------------------------------------------------------------------------
22,545 31,561
Less-Short-term debt and current maturities
of long-term debt (635) (1,095)
---------------------------------------------------------------------------
Total long-term debt $21,910 $30,466
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
Long-term debt maturities in each of the next five fiscal years are as follows:
1995-$635; 1996-$686; 1997-$663; 1998-$9,092 and 1999-$3,061.
The fixed rate notes are due in equal annual installments of $3,000 in 1998
through 2002 and bear interest at an annual rate of 10.21% payable semiannually
on $15,000 of principal at par. These notes are accompanied by detachable
warrants that give the holders the right to purchase with cash, or through
surrender of the notes at par, 500,000 shares, in the aggregate, of the
Company's common stock at an exercise price of $8 per share. The total
consideration of $15,000 received on the notes and warrants was allocated
$14,190 to the notes, recorded as long-term debt, and $810 to the warrants,
recorded as paid-in capital. The exercise price and number of common shares are
subject to adjustment should the Company (1) issue additional shares of common
stock at a share price below the then current warrant exercise price or common
stock market price, (2) issue warrants, options or other rights for such a
common stock issuance, or (3) otherwise change the equity interest of the
warrants. The Company has the right, under certain circumstances, to repurchase
the warrants, which expire on April 15, 2002.
Interest on the revolving credit notes is payable quarterly at the Company's
option of either the prime lending rate of one of the bank lenders (8.25% at
January 1, 1995) or the London Interbank Offered Rate (LIBOR) (6.0% at January
1, 1995) less a margin of 0% to 0.25% on prime loans or plus a margin of 1.25%
to 1.50% on LIBOR loans. The Company can increase or decrease its revolving
credit borrowings at any time, but such borrowings are limited to the lesser of
a borrowing base or the revolving credit commitment. The borrowing base is
calculated monthly based on specified percentages of the Company's domestic
accounts receivable and inventories and the amount exceeded $17,000 at January
1, 1995. The revolving credit commitment amount is $17,000 until March 1998,
when the revolving credit commitment expires. The Company was a party to an
interest rate swap agreement with a bank that expired in April 1994 pursuant to
which the Company paid interest or received interest payments for the difference
between a fixed rate of 10.29% and LIBOR on $22,000 of principal.
15
<PAGE>
The note and bank credit agreements include cross-default provisions and various
financial covenants, including certain restrictions on the payment of cash
dividends and certain other items. The Company must maintain certain levels of
consolidated adjusted tangible net worth and cannot declare dividends that
exceed, on a cumulative basis, proceeds from any sales of common stock plus 40%
of cumulative consolidated net income, as defined, earned after December 29,
1991. As of January 1, 1995, the amount of shareholders' equity available for
payment of dividends is limited to approximately $4,300.
Interest on the loan facility is payable quarterly at variable rates (8.0% at
January 1, 1995). This variable rate facility also contains certain financial
covenants, including minimum tangible net worth requirements of the U.K.
subsidiary.
The Company also has a $1,100 bank line of credit available through May 1995.
The terms of the line of credit are essentially the same as those of the
variable rate loan facility. During 1994 and 1993, borrowings under the line of
credit were insignificant.
The Company has a standby letter of credit to an insurance company in the amount
of $500 issued July 18, 1994 and expiring June 30, 1995. No amounts are
outstanding on the letter of credit at January 1, 1995.
Total interest expense was $3,040 in 1994, $4,305 in 1993 and $4,405 in 1992.
NOTE 7. OPERATING LEASES:
The Company leases certain of its buildings, machinery and equipment for periods
of up to 8 years with various renewal options. Rental expense under operating
leases was $1,071 in 1994, $963 in 1993 and $901 in 1992. Future minimum lease
commitments under operating leases are as follows: $955 in 1995; $866 in 1996;
$834 in 1997; $801 in 1998 ; $725 in 1999 and $735 thereafter.
NOTE 8. CAPITAL STOCK:
The Company's Long-term Executive Incentive Compensation Plan (the Plan)
empowers the Company's Compensation Committee of the Board of Directors (the
Committee) to grant stock options at the discretion of the Committee. A maximum
of 650,000 shares of common stock may be issued under the Plan. Such shares may
consist of previously unissued shares or shares held in treasury. The Plan
provides that options may be granted at 100% of the fair market value of the
shares on the date of grant. A summary of the option transactions for the years
ended January 1, 1995, January 2, 1994 and January 3, 1993 follows:
<TABLE>
<CAPTION>
Shares Price Ranges
---------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 29, 1991
(88,347 shares exercisable) 433,092 4.63 to 15.13
Granted 61,500 7.75
Exercised (13,475) 4.63 to 5.50
Canceled (12,900) 4.63 to 15.13
---------------------------------------------------------------------------
Options outstanding at January 3, 1993
(179,404 shares exercisable) 468,217 4.63 to 15.13
Granted 73,000 6.75
Exercised (2,300) 4.63
Canceled (18,200) 4.63 to 7.75
---------------------------------------------------------------------------
Options outstanding at January 2, 1994
(261,306 shares exercisable) 520,717 4.63 to 15.13
Granted 41,000 9.38
Exercised (51,725) 4.63 to 7.75
Canceled (22,000) 4.63 to 9.38
---------------------------------------------------------------------------
Options outstanding at January 1, 1995
(344,617 shares exercisable) 487,992 4.63 to 15.13
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
During 1994, 1993 and 1992, 12,949, 12,981 and 11,661 shares, respectively, were
issued to the nonemployee members of the Board of Directors for services to be
performed. These shares were recorded as deferred compensation at their fair
market values on the date of grant of $106 in 1994, $86 in 1993 and $102 in
1992. These amounts were recorded as compensation expense over the respective
12-month periods on a straight-line basis. The Company also previously granted
restricted shares of common stock to a key officer, which vested ratably over
certain periods through 1992. Compensation expense in connection with the shares
issued to the nonemployee Board members and the key officer was $105, $92 and
$151 during 1994, 1993 and 1992, respectively.
The Company has 10,000,000 shares of $1 par value preferred stock authorized, of
which none are issued or outstanding.
The Company has issued one common stock purchase right for each share of common
stock. Each right entitles the holder to purchase one share of the Company's
common stock at $56, subject to adjustment (the Purchase Price). In the event of
an acquisition by a party of a beneficial interest of at least 20% of the
Company's common stock, each right would entitle the rightholder to receive,
upon exercise, common stock of the Company having a value of two times the
Purchase Price. In addition, upon merger or other business combination, each
right would entitle the rightholder to exercise the right and receive shares of
an acquiring company having a market value of twice the Purchase Price of the
right. The rights will not become exercisable, however, if the party crossing
the 20% threshold does so through an all-cash tender offer in which the party
becomes beneficial owner of at least 80% of the Company's outstanding common
stock. The rights, which cannot vote, expire on May 1, 1999 and may be redeemed
by the Company at a price of $.01 per right any time prior to the acquisition by
a party of beneficial ownership of 20% of the outstanding shares.
16
<PAGE>
NOTE 9. EMPLOYEE RETIREMENT PLANS:
Substantially all employees of the Company participate in noncontributory
defined benefit pension plans. Employee retirement benefits are a function of
the years of service and compensation for a specified period of time before
retirement. The Company's current funding policy is to contribute annually
amounts sufficient to comply with regulatory requirements. Plan assets consist
substantially of investments in pooled funds, comprised primarily of equity
securities, and investments in collective short-term investment funds.
The following table sets forth the funded status of the defined benefit plans,
including the unfunded supplemental plan, and amounts recognized in the
Company's consolidated balance sheets at January 1, 1995 and January 2, 1994.
<TABLE>
<CAPTION>
1994 1993
----------------------- -----------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations-
Vested benefits $(1,652) $(2,150) $(1,267) $(1,799)
Nonvested benefits (185) (909) (142) (648)
---------------------------------------------------------------------------
Accumulated benefit
obligations (1,837) (3,059) (1,409) (2,447)
Effect of projected future
compensation levels (2,692) (1,844) (2,066) (2,032)
---------------------------------------------------------------------------
Projected benefit
obligations (4,529) (4,903) (3,475) (4,479)
Plans' assets at fair
market value 4,169 2,439 3,648 2,015
---------------------------------------------------------------------------
Plans' assets in excess of
(less than) projected
benefit obligations $ (360) $(2,464) $ 173 $(2,464)
---------------------------------------------------------------------------
Prior service cost not yet
recognized in net
periodic pension cost $ -- $ (710) $ -- $ (751)
Unrecognized transition
obligation (395) -- (411) --
Unrecognized net gain (loss) (364) (865) 309 (1,162)
Unfunded prepaid
(accrued) pension cost 399 (889) 275 (551)
---------------------------------------------------------------------------
Total $ (360) $(2,464) $ 173 $(2,464)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
The components of net periodic pension cost and the significant assumptions of
defined benefit plans consisted of the following:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Service costs (benefits earned during the year) $ 956 $ 761
Interest cost on projected benefit obligations 625 513
Actual return on assets 98 (619)
Net amortization and deferral (443) 321
---------------------------------------------------------------------------
Net periodic pension cost $1,236 $ 976
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.5%-8.0% 7.5%-8.5%
Expected long-term rate of return on assets 8%-9% 9%
Salary increase assumption 5% 5%-6%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
In addition, certain of the Company's employees participate in defined
contribution plans in which each participant's contribution is matched in whole
or part by the Company up to a maximum of 6% of the participant's compensation.
To date, the Company has matched 25% or 50% of participant contributions,
depending on the plan, up to a maximum of 3% of a participant's compensation.
Costs incurred under the Company's defined contribution plans, including the
supplemental plan, were $239 in 1994, $270 in 1993 and $236 in 1992.
NOTE 10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain health care and life insurance benefits to
qualifying domestic retirees. These benefits are available to qualifying
retirees if they reach normal retirement age while working for the Company.
Employees hired on or after January 1, 1992 are not eligible to receive
postretirement health care or life insurance benefits.
In 1992, the Company adopted SFAS No. 106, which requires that the expected cost
of these benefits be charged to expense during the years that the employees
render service. The Company recorded the transition obligation at the beginning
of fiscal year 1992 of $7,643 ($1.07 per share), net of taxes of $2,812, as the
cumulative effect of an accounting change. Application of SFAS No. 106 during
1992 increased earnings before cumulative effect of accounting changes by $400
($.06 per share). The expense recorded for these postretirement benefits of $825
in 1994, $896 in 1993 and $937 in 1992 is included in other expense, net, on the
consolidated statements of operations.
The following table sets forth the amounts recognized in the Company's
consolidated balance sheets at January 1, 1995 and January 2, 1994:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation--
Retirees $10,102 $10,291
Active employees-fully eligible 229 167
Active employees-not fully eligible 476 420
---------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 10,807 10,878
Unrecognized net loss (2,180) (1,425)
---------------------------------------------------------------------------
Accrued postretirement benefits (includes
current portion of $1,870 at January 1,
1995 and January 2, 1994) $ 8,627 $ 9,453
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
17
<PAGE>
The net periodic postretirement benefit cost for 1994 and 1993, determined on
the accrual basis, included the following components:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 51 $ 75
Interest cost 746 821
Net deferral and amortization 28 --
---------------------------------------------------------------------------
Net periodic postretirement benefit cost $825 $896
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
The Company's postretirement benefit plans are unfunded. In determining the
actuarial present value of the accumulated postretirement benefit obligation at
January 1, 1995, a weighted average discount rate of 8.0% was used (7.5% at
January 2, 1994).
An 11% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1994; the rate was assumed to decrease 1% per year to
5.5% for 2000 and remain at that level thereafter. A 1% increase in the assumed
annual health care trend rate would increase the accumulated postretirement
benefit obligation as of January 1, 1995 by $822 and the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for the year then ended by $80.
NOTE 11. INCOME TAXES:
The Company adopted the provisions of SFAS No. 109 effective as of the beginning
of 1992. A charge of $2,267 ($.32 per share) was recorded in the 1992
consolidated statement of operations for the cumulative effect of this change in
accounting principle. Financial statements for years prior to 1992 were not
restated. There was no significant net effect on 1992 pretax income resulting
from the adoption of SFAS No. 109.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
United States:
Federal--
Current $2,582 $ 199 $ 25
Deferred (389) 248 72
---------------------------------------------------------------------------
Total 2,193 447 97
---------------------------------------------------------------------------
State--
Current 309 -- (16)
Deferred (19) 33 (61)
---------------------------------------------------------------------------
Total 290 33 (77)
---------------------------------------------------------------------------
Foreign:
Current 1,750 566 983
Deferred (483) (41) (130)
---------------------------------------------------------------------------
Total 1,267 525 853
---------------------------------------------------------------------------
Provision for income taxes $3,750 $1,005 $ 873
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
The provision (benefit) for deferred income taxes included the following:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating loss carryforwards $ 67 $1,119 $(1,327)
Postretirement benefits other than pensions 309 323 238
Adjustment to valuation allowance (577) (511) --
Relocation and restructuring costs (10) (275) 1,273
Depreciation (356) (259) (172)
Alternative minimum taxes 490 (68) --
Purchase price premium in inventory (83) 6 (447)
Environmental reserve (524) -- --
Payroll related accruals (358) (175) 76
Warranty and other sales accruals 322 (115) (22)
Other, net (171) 195 262
---------------------------------------------------------------------------
Provision (benefit) for
deferred income taxes $(891) $ 240 $ (119)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
In accordance with SFAS No. 109, net deferred tax assets and liabilities related
to different tax jurisdictions are not offset in the Company's consolidated
balance sheets as of January 1, 1995 and January 2, 1994. The components of the
net deferred tax assets and liabilities as of January 1, 1995 and January 2,
1994 were as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Net deferred tax assets--
Gross deferred tax assets:
Postretirement benefits other than pensions $3,203 $ 3,512
Regular federal and state net operating
loss carryforwards 141 170
Warranty and other sales accruals 873 1,195
Payroll-related accruals 1,206 848
Environmental reserve 524 --
Relocation and restructuring accruals 76 345
Alternative minimum tax credit carryforwards -- 490
Other 706 548
---------------------------------------------------------------------------
Total gross deferred tax assets 6,729 7,108
---------------------------------------------------------------------------
Gross deferred tax liabilities:
Property, plant and equipment (2,166) (2,283)
Purchase price premium in inventory (1,752) (1,835)
Relocation and restructuring deferrals (470) (536)
Other (223) (169)
---------------------------------------------------------------------------
Total gross deferred tax liabilities (4,611) (4,823)
Valuation allowance -- (577)
---------------------------------------------------------------------------
Net deferred tax assets (including $2,200 and $1,401
current and $(82) and $307 noncurrent, respectively,
as of January 1, 1995 and January 2, 1994) $2,118 $ 1,708
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net deferred tax liabilities:
Gross deferred tax assets--
Net operating loss carryforwards $ -- $ 38
---------------------------------------------------------------------------
Gross deferred tax liabilities:
Property, plant and equipment (951) (1,144)
Relocation and restructuring deferrals -- (213)
Other -- (70)
---------------------------------------------------------------------------
Total gross deferred tax liabilities (951) (1,427)
---------------------------------------------------------------------------
Net deferred tax liabilities $ (951) $(1,389)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
18
<PAGE>
A valuation allowance of $1,088 was established in connection with the adoption
of SFAS No. 106 as of the beginning of 1992. There were no changes in the
valuation allowance during 1992. The valuation allowance was reduced by $577 in
1994 and $511 during 1993.
Income from foreign operations before income taxes was $4,333 in 1994, $1,353 in
1993 and $1,142 in 1992.
The differences between the provision for income taxes and income taxes computed
using the statutory federal income tax rate were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease) in rate resulting from--
State income taxes, net of federal
tax benefit 1.5 3.0 10.5
Foreign tax effects (1.6) 1.8 (41.6)
Adjustment to valuation allowance (4.6) (14.5) --
Federal and foreign taxes of $926 related
to dividends from foreign subsidiaries
of $2,214 -- -- (190.4)
Deduction for pre-Distribution
tax adjustments -- -- 10.0
Other 0.3 4.1 (1.8)
---------------------------------------------------------------------------
Effective rate 29.6% 28.4% (179.3)%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
A tax sharing agreement between Household and the Company provides, among other
things, that, in general, post-Distribution adjustments to pre-Distribution tax
liabilities of Household Manufacturing, Inc., Household Manufacturing Limited
and their subsidiaries, will be borne by the Company or by Household in
proportions or by other formulas which are deemed by Household to appropriately
allocate these liabilities to the Company. The Distribution qualified as a
tax-free spinoff under Section 355 of the Internal Revenue Code of 1986, as
amended. However, if the Distribution were to be reclassified as a taxable
event, Household and the Company would share the tax costs in a no-fault
situation and would indemnify each other for any liabilities incurred arising
from any act or omission by either party that would cause the Distribution to be
reclassified as a taxable event.
NOTE 12. MARKET AND CUSTOMER DATA:
The Company manufactures components that are used on medium and heavy duty
diesel engines; light, medium and heavy trucks; and agricultural and
construction equipment. These components consist of turbochargers, engine
cooling fans, fan drives and crankshaft vibration dampers.
A substantial portion of the Company's sales is to a limited number of
customers. In 1994, 1993 and 1992, sales to Caterpillar Inc. represented 27%,
30% and 28%, respectively, of total net sales. In each of the fiscal years 1994,
1993 and 1992, sales to Renault Vehicules Industriels (RVI) represented 12% of
total net sales.
NOTE 13. GEOGRAPHIC SEGMENTS:
Data on the Company's geographic segments, based on the locations of the
Company's operations, for fiscal 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers--
United States $104,327 $ 89,848 $ 74,049
Europe 38,630 27,294 30,401
Brazil 10,314 6,982 5,242
---------------------------------------------------------------------------
Total $153,271 $124,124 $109,692
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Operating profit (loss)--
United States $ 11,509 $ 7,003 $ 3,143
Europe 3,404 1,826 2,320
Brazil 2,106 749 (572)
---------------------------------------------------------------------------
Total $ 17,019 $ 9,578 $ 4,891(1)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Identifiable assets--
United States $ 49,918 $ 52,314 $ 50,730
Europe 23,925 18,385 18,981
Canada 628 849 884
Brazil 8,151 6,754 6,406
---------------------------------------------------------------------------
Total $ 82,622 $ 78,302 $ 77,001
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accounts receivable--
United States $ 13,623 $ 15,499 $ 10,258
Europe 8,693 5,655 5,537
Brazil 1,572 750 844
---------------------------------------------------------------------------
Total $ 23,888 $ 21,904 $ 16,639
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<FN>
(1) Operating profit for 1992 was reduced by $1,650 as the Company approved a
plan for restructuring manufacturing processes and streamlining the organization
for improved focus. Restructuring costs consisted primarily of equipment
write-offs, plant rearrangements and severance pay.
</TABLE>
NOTE 14. CONTINGENCIES:
The Company is involved in various lawsuits and environmental matters arising in
the normal course of business. Management believes that the resolution of such
matters will not have a material effect on the financial condition or the
results of operations of the Company.
The Company has an employment and compensation agreement with an executive which
provides for cash compensation and the continuation of certain benefits under
certain circumstances, including a change in control of the Company (as
defined).
19
<PAGE>
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for the years ended January 1, 1995 and
January 2, 1994 are as follows:
<TABLE>
<CAPTION>
1994 First Second Third Fourth
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $36,746 $38,689 $38,059 $39,777
Gross profit 8,645 9,303 9,151 8,303
Net income 1,724 2,291 2,233 2,682
Per share .24 .31 .30 .36
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<CAPTION>
1993 First Second Third Fourth
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $29,923 $31,803 $29,356 $33,042
Gross profit 5,737 6,704 6,111 6,799
Net income 120 637 354 1,419
Per share .02 .09 .05 .20
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
During the fourth quarter of 1994, the Company recorded a charge of $800 ($.11
per share), after tax, for the anticipated costs associated with environmental
cleanup of the Rolla, Missouri facility. Also, during the fourth quarter of
1994, the Company recorded an adjustment to reduce the valuation allowance on
deferred tax assets which had the effect of increasing net income by $577 ($.08
per share).
During the fourth quarter of 1993, the Company recorded a charge of $640 ($.09
per share), after tax, against assets held for sale and deferred relocation and
restructuring costs. Also, during the fourth quarter of 1993, the Company
recorded an adjustment to reduce the valuation allowance on deferred tax assets
which had the effect of increasing net income by $511 ($.07 per share).
NOTE 16. SUBSEQUENT EVENT:
On February 25, 1995, the Company and Kuhlman Corporation (Kuhlman), a publicly
held company traded on The New York Stock Exchange, jointly announced that they
have signed a definitive agreement to merge the Company with a wholly-owned
subsidiary of Kuhlman. Kuhlman is a holding company involved in the
manufacturing of electrical and electronic wire and cable products;
distribution, power and instrument transformers; and spring products. In the
transaction, shares of the Company's common stock will be converted into shares
of Kuhlman common stock using an exchange ratio of 0.9615 share of Kuhlman for
each share of the Company. The merger is subject to certain closing conditions,
including the approval of the shareholders of both companies. It is anticipated
that the transaction will be consummated in the second quarter of 1995,
following approval by shareholders of both companies at the companies'
respective annual meetings of shareholders. Both meetings are currently
scheduled to be held on May 31, 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF SCHWITZER, INC.:
We have audited the accompanying consolidated balance sheets of Schwitzer, Inc.
(a Delaware corporation) and subsidiaries as of January 1, 1995 and January 2,
1994 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period ended January 1, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 16 to the consolidated financial statements, the Company
has signed, on February 25, 1995, a definitive agreement to merge with a
wholly-owned subsidiary of Kuhlman Corporation.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Schwitzer, Inc. and
subsidiaries as of January 1, 1995 and January 2, 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
January 1, 1995 in conformity with generally accepted accounting principles.
As discussed in Notes 10 and 11 to the consolidated financial statements,
effective as of the beginning of 1992, the Company changed its methods of
accounting for postretirement benefits other than pensions and income taxes.
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
February 9, 1995 (except with respect
to the matter discussed in Note 16, as
to which the date is February 25, 1995).
20
<PAGE>
CORPORATE INFORMATION
ANNUAL MEETING
The annual shareholders' meeting will be held on Wednesday, May 31, 1995 at 9:30
a.m. CDT at the Northbrook Hilton in Northbrook, Illinois.
COMMON STOCK INFORMATION
As of March 16, 1995 there were 8,858 shareholders of record. There were no
dividends declared during 1994 or 1993. Quarterly stock price ranges were as
follows:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------
High Low High Low
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter 10-3/4 6-1/8 7-3/4 5-5/8
2nd Quarter 10-5/8 6-3/4 7-1/8 5-3/4
3rd Quarter 9-5/8 6-7/8 7-3/4 7
4th Quarter 10-1/8 7-1/2 7-1/2 5-3/4
-----------------------------------------------------------------------------
</TABLE>
LISTED
New York Stock Exchange
Ticker Symbol: SCZ
AUDITORS
Arthur Andersen LLP
Charlotte, North Carolina
SHAREHOLDER SERVICES
Shareholder address changes and inquiries regarding shareholder
accounts and stock transfers should be directed to the Stock
Transfer Agent:
Harris Trust and Savings Bank
Stock Transfer Division
P.O. Box 755
Chicago, IL 60690
312-461-6833
Investor inquiries and Form 10-K inquiries from security analysts and investment
professionals and requests for copies of the Form 10-K Annual Report to the
Securities and Exchange Commission should be directed to the Company's investor
relations representative at 704-684-4014.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or Other
Jurisdiction of
Incorporation
Name or Organization
---- ---------------
Schwitzer U.S. Inc. Delaware
Schwitzer Manufacturing Canada Inc. Canada
Lacom Schwitzer Equipamentos, Ltda. Brazil
Schwitzer (Europe) Holdings Limited United Kingdom
Schwitzer (Europe) Limited United Kingdom
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included and incorporated by reference in this Form 10-K, into
Schwitzer, Inc.'s previously filed Registration Statements File Nos. 33-34210,
33-42330, 33-44090 and 33-72898.
/s/ ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
March 27, 1995.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1994 FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-03-1994
<PERIOD-END> JAN-01-1995
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 24,515
<ALLOWANCES> 627
<INVENTORY> 19,646
<CURRENT-ASSETS> 49,910
<PP&E> 85,086
<DEPRECIATION> 54,785
<TOTAL-ASSETS> 82,622
<CURRENT-LIABILITIES> 28,378
<BONDS> 0
<COMMON> 723
0
0
<OTHER-SE> 23,821
<TOTAL-LIABILITY-AND-EQUITY> 82,622
<SALES> 153,271
<TOTAL-REVENUES> 153,271
<CGS> 117,869
<TOTAL-COSTS> 136,252
<OTHER-EXPENSES> 1,421
<LOSS-PROVISION> 145
<INTEREST-EXPENSE> 2,918
<INCOME-PRETAX> 12,680
<INCOME-TAX> 3,750
<INCOME-CONTINUING> 8,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,930
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
