SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File No. 0-21830
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1672791
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Michigan Avenue
Suite 1000
Chicago, IL 60611
(Address of Principal executive offices)
(312) 280-8844
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value NASDAQ National Market System
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K.
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall by computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405).
$169,058,504 as of January 28, 2000
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JANUARY 28, 2000
Common Stock, $.01 par value 10,322,280
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PART I
ITEM 1. BUSINESS
THE COMPANY
Transportation Technologies Industries, Inc. (formerly Johnstown America
Industries, Inc., the "Company") is a leading manufacturer of components for
heavy-duty and medium-duty trucks, buses, specialty vehicles and the truck parts
aftermarket. Product lines include: Gunite wheel-end components; Brillion custom
iron castings; Imperial body and chassis components; Bostrom truck and bus
seating systems; and Fabco steerable drive axles and gearboxes. The Company is
headquartered in Chicago, Illinois and has manufacturing operations in Alabama,
California, Illinois, Indiana, Pennsylvania, Tennessee, Texas, Virginia,
Washington and Wisconsin.
Formerly, the Company had a second operating segment which was a leading
manufacturer and lessor of new and rebuilt freight cars used for hauling coal,
intermodal containers, highway trailers, automobiles, agricultural and mining
products. See "Corporate History of the Company" below.
Gunite Corporation ("Gunite") is a leading North American supplier of
wheel-end systems and components, such as brake drums, disc wheel hubs, spoke
wheels, rotors and automatic slack adjusters to original equipment manufacturers
("OEMs") in the medium and heavy-duty truck and trailer industries and the truck
parts aftermarket.
Brillion Iron Works, Inc. ("Brillion") operates one of the nation's
largest and most versatile iron foundries and is focused on providing high
quality complex castings to the heavy-duty truck industry and to customers in a
wide range of industries, including industrial machinery, automotive and
construction equipment markets. A leader in ductile iron technology, Brillion
specializes in the production of lightweight, intricate thin wall castings. In
addition to providing an important source of high quality castings for Gunite,
Brillion has long-standing relationships with many of its over 225 customers.
Brillion also manufactures and sells a line of farm equipment products.
Imperial Group, L.P. ("Imperial") is a leading Tier I and Tier II
supplier of body and chassis components for heavy-duty truck and transit bus
OEMs. Imperial fabricates a broad line of nearly 5,500 metal products, ranging
from bumpers to fenders to fuel tanks. Imperial also provides a variety of
value-added services such as chrome plating, polishing, assembly and sequencing
of parts and chassis.
Bostrom Seating, Inc. ("Bostrom") is a leading manufacturer of air
suspension and static seating systems for the medium and heavy-duty truck and
bus industries.
Fabco Automotive Corporation ("Fabco") is a leading supplier of
steerable drive axles, gear boxes and related parts for heavy-duty on/off
highway trucks and utility vehicles.
For a definition of certain terms used in this Form 10-K, see "Glossary
of Certain Terms" at the end of this item.
CORPORATE HISTORY OF THE COMPANY
An investor group led by Thomas M. Begel, the Chairman, and Chief
Executive Officer of the Company and the former Chairman, President and Chief
Executive Officer of the Pullman Company, formed the Company in 1991 as the
holding company for Johnstown America Corporation ("JAC") to acquire
substantially all of the assets of the freight car manufacturing business of
Bethlehem Steel Corporation ("Bethlehem"), a business started in 1901 in
Johnstown, Pennsylvania and acquired by Bethlehem in 1923.
In July 1993, the Company completed an initial public offering of its
common stock and in February 1994 the Company completed a secondary offering of
its common stock.
In January 1995, the Company purchased Bostrom, a leading manufacturer
of heavy-duty truck seating systems located in Piedmont, Alabama, for
approximately $32.4 million. Bostrom was founded in 1935 in Milwaukee,
Wisconsin.
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In January 1995, the Company through Freight Car Services, Inc. ("FCS")
acquired a freight car rebuilding and repair facility in Danville, Illinois for
$2.5 million and spent $2.6 million for refurbishment. FCS started operations in
October 1995.
In August 1995, the Company acquired Truck Components Inc. ("TCI"), a
holding company for Gunite, Brillion, and Fabco, for approximately $266.1
million in cash, including the repayment of TCI's existing indebtedness. TCI was
formed in 1987 in order to acquire Gunite and Fabco from Fruehauf Corporation
now known as K-H Corporation ("K-H"). In 1988, TCI acquired Brillion from a
group of investors led by the Robins Group. Gunite was founded in Rockford,
Illinois in 1854 as a custom manufacturer of cast iron products. Fabco was
founded in 1918 in Oakland, California as a manufacturer of truck components and
specialty vehicles. Brillion was founded in 1890 as a farm equipment
manufacturer and constructed its first iron foundry in 1933.
In April 1999, the Company acquired Imperial, headquartered in Portland,
Tennessee, for approximately $61.6 million, consisting of $58.8 million in cash
and 156,740 shares of the Company's common stock. The purchase price is also
subject to a contingent earn-out of up to $4.0 million based on the operating
results of Imperial's Washington plant for the 24 months ending April 2001.
Imperial was founded in 1962.
In May 1999, the Company through Gunite acquired EMI Company, an iron
foundry and machining company located in Erie, Pennsylvania, for $18.7 million
in cash.
In June 1999, the Company sold its freight car operations, including
JAC, FCS and JAIX Leasing Company, for approximately $101.3 million in cash,
contingent additional consideration of $20.0 million, a 20 percent equity
interest in the buyer comprised of common and preferred stock and buyer's
assumption of substantially all of the liabilities of the freight car
operations, including $14.4 million in debt.
Following the sale by the Company of its freight car operations in June
1999, the Company changed its name from "Johnstown America Industries, Inc." to
"Transportation Technologies Industries, Inc."
In September 1999, the Company through Imperial acquired Clark
Engineering and Manufacturing, Inc., a manufacturer of a broad range of metal
parts and accessories for the heavy-duty truck industry located in Ft. Worth,
Texas, for approximately $8.5 million.
In October 1999, the Company through Imperial acquired BMC of Virginia,
Inc., which manufactures, warehouses, assembles and sequences components for
heavy-duty truck manufacturers Volvo and Freightliner and is located in Dublin,
Virginia, for approximately $11.0 million.
RECENT EVENT
On December 14, 1999, an investor group (the "Investor Group") led by
senior members of management of the Company, including Thomas M. Begel, Chairman
and Chief Executive Officer, and Andrew M. Weller, President and Chief Operating
Officer, made a proposal to acquire all of the outstanding shares of common
stock of the Company at a price of $20.00 per share.
On January 28, 2000, the Company entered into a definitive merger
agreement providing for the acquisition of the Company by the Investor Group.
Under the terms of the merger agreement, which was unanimously approved by the
Company's Board of Directors after receiving the unanimous recommendation of a
special committee of independent members of the Board, the Company and
Transportation Acquisition I Corp., ("Acquisition") a company formed by the
Investor Group, were required to commence a joint tender offer to purchase for
$21.50 per share in cash all of the outstanding shares of the Company's common
stock.
The Company and the Investor Group have received executed commitment
letters from financial institutions providing for all of the necessary debt and
equity financing for the proposed acquisition.
The tender offer, which commenced on February 3, 2000 and will remain
open until March 3, 2000, unless extended, will be followed by a merger under
which those shares not tendered will be converted into the right to receive the
same $21.50 per share in cash. The offer is conditioned on the funding of the
committed financing, the tender of a sufficient number of shares to give
Transportation Acquisition I Corp. ownership of at least a majority of the fully
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diluted outstanding shares of the Company after giving effect to the repurchase
of shares by the Company in the offer, the agreement of the holders of the
Company's outstanding 11-3/4% notes to either sell their notes to the Company or
consent to certain amendments to the indentures for such notes and other
conditions.
The Board's approval of the transaction was based, in part, on the
recommendation of the special committee of independent members of the Board
which had been formed to consider the proposal. The special committee's
recommendation was based on a number of factors, including the opinion of the
special committee's independent financial advisor, Merrill Lynch & Co., that the
consideration being offered is fair from a financial point of view to the
Company's stockholders (other than the Investor Group).
Concurrently with the joint tender offer for the Company's common stock,
the Company also commenced offers to purchase and consent solicitations with
respect to both its 11-3/4% Senior Subordinated Notes due 2005 and its 11-3/4%
Series C Subordinated Notes due 2005.
The foregoing is discussed in more detail in the Schedule TO relating to
the tender offer for the Company's shares filed with the Securities and Exchange
Commission by Acquisition and the Company on February 3, 2000, including the
Offer to Purchase and other exhibits thereto, and the related Schedule 14D-9
filed with the Securities and Exchange Commission by the Company on February 3,
2000.
PRODUCT LINES
GUNITE
Gunite is a leading North American supplier of wheel-end components,
such as brake drums, disc wheel hubs, spoke wheels and rotors to OEMs in the
heavy-duty truck industry with QS9000 certification. Gunite also supplies such
products to the aftermarket as well as the medium-duty truck and trailer
markets.
OEMs have increasingly stressed product quality, engineering capability
and customer service, as well as price, in awarding business to suppliers.
Gunite has distinguished itself among wheel-end component manufacturers by
providing its customers with dependable design and testing support and reliable
customer service. Gunite works closely with its customers' product design,
marketing and purchasing departments, including vendor quality certification
personnel. Gunite has received top quality awards from all of its major
customers. Obtaining quality awards is a competitive advantage because a
manufacturer must first go through the OEM's quality certification process
before it can become a qualified supplier.
MARKETS
The truck components industry in which Gunite competes is composed of
two primary markets: (i) the OEM market; and (ii) the vehicle maintenance and
repair sector, also called the replacement market or aftermarket. The OEM market
served by Gunite includes truck manufacturers such as Navistar, Mack,
Freightliner, PACCAR, Volvo and Western Star trucks. For the twelve months ended
December 31, 1999, approximately 69% of Gunite's total net sales were to truck
and trailer OEMs and the remainder was to the aftermarket.
OEMs use independent suppliers for the production of most parts and
components. The use of independent suppliers, also known as outsourcing, is
largely a result of the ability of independent suppliers to design, engineer and
manufacture production parts and components at a more competitive cost than the
OEMs. Outsourcing also enables the OEMs to be more responsive to changes in the
marketplace and in technology and to reduce their capital investment. In
general, OEMs increasingly have turned to suppliers to design products, engineer
prototypes and manufacture parts and components for the life of their vehicles.
The OEMs also have sought to minimize the size of their supplier base in order
to improve quality, efficiency and their ability to manage their supplier
network. The success of suppliers in obtaining and maintaining supply
relationships has been a function of four factors: (i) consistent product
quality; (ii) competitive pricing; (iii) technical expertise; and (iv)
responsiveness to changes in the marketplace. The net effect of these changes
has been to increase the opportunities for, as well as the competitive pressures
faced by, independent suppliers to the OEM market.
Sales of Gunite's products to OEMs are affected, to a large extent, by
heavy-duty truck production volume which, in turn, is dependent on general
economic conditions. Historically, heavy-duty truck sales have been cyclical.
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In general, Gunite's sales tend to follow the North American Class 8 truck
build.
Gunite seeks to increase sales to the OEM market through the
"standardization" process. In this process, Gunite sales representatives call on
OEM purchasers and Gunite's engineers work with OEM engineering departments to
attempt to have Gunite products selected for OEM product lines as standard
equipment. Once a product is chosen as standard on a line of trucks, any order
of a truck in that line will come with the standard product unless the end-use
customer specifies a different type of product. If a different product is
specified by an end-user, the end-user is generally required to pay an
additional fee to the OEM. Selection of a Gunite product as standard on a line
of trucks will generally create a steady demand for that product. Because such
demand is a derivative of the sales of the particular truck line, being standard
on certain lines may be more advantageous than being standard on others. Gunite
wheel-end components are currently standard on certain Navistar, Mack,
Freightliner, and PACCAR truck lines.
Aftermarket customers include the service organizations of the OEMs,
parts manufacturers and distributors. Aftermarket sales principally consist of
the sale of brake drums. Sales of Gunite's products to the aftermarket
historically have been less adversely affected by general business conditions
since vehicle owners are more likely to repair vehicles than purchase new ones
during recessionary periods. Aftermarket sales, which are tied to the age of
vehicles in service and the need for replacement parts, have been increasing in
recent years due to Gunite's focus on the aftermarket, where margins are higher
when compared to the OEM market, and the fact that Gunite's products are offered
as standard on more trucks than any of its competitors' products. However, in
1999 Gunite's sales to the aftermarket decreased due to capacity constraints
resulting from record levels of OEM demand. Gunite intends to utilize a portion
of its additional capacity at the newly acquired Erie, Pennsylvania facility to
increase its aftermarket sales.
PRODUCTS
Gunite supplies the medium- and heavy-duty truck and trailer markets
with a full line of wheel-end components. These products are made by Gunite and
delivered to the customer either as component parts or in assemblies. Gunite
products are utilized in four basic systems: (i) Disc Wheel Hub-and-Brake Drum;
(ii) Spoke Wheel- and-Brake Drum; (iii) Spoke Wheel-and-Brake Rotor; and (iv)
Disc Wheel Hub-and-Brake Rotor. Generally, brake drums and rotors are the
braking devices that work with the vehicle's braking system to stop the vehicle.
Wheel hubs and spoke wheels are the connecting pieces between the brake system
and the axle and upon which the rim and tire are mounted.
Truck builders have recently purchased a greater percentage of disc
wheel hubs in place of spoke wheels due to their perceived better performance
characteristics and ease of maintenance. However, spoke wheels are still popular
for severe duty due to their higher strength.
Gunite's product line also includes finely-machined hubs and wheels for
ABS, which enhance vehicle safety and have been mandated for all new trucks with
air brakes since March 1997, and all new trailers with air brakes since March
1998. The production of ABS parts constitutes a value-added process, and
additional components and machining are required.
In response to growing concerns by truck fleet operators over brake
adjustment, Gunite introduced its initial automatic slack adjuster product in
1984. The use of automatic slack adjusters reduces maintenance costs, improves
braking performance and minimizes side-to-pull and stopping distance. Slack
adjusters were mandated for all new trucks in October 1994.
CUSTOMERS
Gunite markets its wheel-end component and assembly products to more
than 400 customers, including most of the major North American medium- and
heavy-duty truck and trailer manufacturers, relying on account managers to
service OEMs and regional sales managers and a nationwide network of
approximately 300 independent distributors to sell to the aftermarket.
Gunite has long-term relationships with many of its larger customers,
many of whom have purchased wheel- end systems and components from Gunite for
more than 25 years. Gunite's top five OEM customers in 1999 represented
approximately 68% of Gunite's total net sales in 1999, with sales to Navistar
accounting for approximately 25% of
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Gunite's total net sales in 1999. Due to Gunite's capacity constraints resulting
from very high OEM demand in 1999, Gunite was unable to provide all of the
product requested by certain customers. Utilizing the additional capacity at its
newly acquired Erie, Pennsylvania facility, Gunite intends to provide its OEM
customers with all product requested by each customer and, as a result, improve
its strained relationships with such customers.
Many truck manufacturers require quality certification of their
suppliers, and Gunite undergoes periodic quality surveys by all of its major
customers. Gunite is QS9000 certified and has received numerous quality awards
from its customers, including Ford Motor Company's "Q1," Freightliner's "Master
of Quality" and ISO 9000 equivalent, PACCAR's "Supplier Quality Certification"
and Volvo's ISO 9000 equivalent. The primary criteria on which such quality
certifications and awards are based include quality of product, delivery
performance, inventory control, operator knowledge, condition of facility,
receiving inspection of incoming materials, record maintenance and retention and
equipment gauge controls. Quality certification requirements tend to limit the
number of suppliers which can compete in the safety intensive product lines
manufactured by Gunite and benefits high-quality suppliers such as Gunite.
MANUFACTURING
Gunite has a fully integrated manufacturing operation that combines
high-quality castings from its Rockford, Illinois and Erie, Pennsylvania
foundries and from Brillion and machining capabilities at its Elkhart, Indiana
and Erie, Pennsylvania facilities. Most of the components produced by Gunite are
high-volume products that are critical to the safe operation of the vehicle. As
a result, Gunite must combine efficient production with comprehensive product
testing. Implementation of statistical process controls ("SPC") insures strict
control of the manufacturing process and consistent quality.
The manufacturing process involves melting purchased scrap iron and
steel, adding various alloys and pouring the molten metal into molds made of
sand. After the molten metal is poured into the molds, the castings cool,
solidify and are removed. Once the rough castings have been cleaned, they are
transferred to the Elkhart, Indiana or Erie Pennsylvania plant for machining
through a variety of automated plant techniques. Both the casting and machining
operations are subject to statistical sampling and charting techniques. Other
manufacturing processes include painting, welding and assembly.
BRILLION
Brillion operates one of the nation's largest job casting iron
foundries, producing a wide variety of high-quality, complex iron castings for
transportation-related and a wide variety of other markets. Sales to the medium-
and heavy- duty truck and trailer industries accounted for approximately 36% of
Brillion's sales (including sales to Gunite) in 1999.
Brillion also designs, manufactures and markets a range of farm
equipment products for the "behind-the- tractor" market. These pulverizers,
seeders, mulchers, deep tillers and cultivators are marketed nationally under
the Brillion trade name through a nationwide network of 1,050 farm implement
dealers and distributors. Sales of these products were approximately 11% of
Brillion's sales in 1999.
MARKETS
Brillion markets its products on a job-by-job basis to the truck,
automotive and equipment industries. Brillion is one of the leaders in ductile
iron technology, such as complex, thin wall and near net shape castings, in the
markets it serves. In addition to being easily machinable and wear-resistant,
ductile iron has greater strength (an important factor for customers who desire
a lighter finished product) and elasticity than gray iron. As a result of these
superior properties, management expects the demand for ductile iron castings to
increase. This shift towards ductile iron products may replace other products
(such as lighter-weight aluminum products) that gray iron products could not
replace, and is not expected to adversely impact Brillion's business. Gray iron,
the oldest and most widely used cast iron, is readily formed into intricate
shapes which are easily machinable and wear-resistant. For the year 1999,
ductile iron castings represented approximately 58% of Brillion's foundry's
total tons sold, while gray iron represented the balance.
PRODUCTS
As illustrated in the table below, Brillion produces a broad range of
gray and ductile iron castings used in the
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manufacture of components for the truck, automotive and a variety of light and
heavy equipment industries. Currently, Brillion utilizes over 3,700 patterns to
produce castings that range in weight from one pound to nearly 350 pounds, with
the majority below 100 pounds. Castings are made to the specific requirements of
each customer. The customer consults with Brillion to specify such important
considerations as physical properties, surface finish, dimensional accuracy and
methods of inspection for each casting.
FOUNDRY PRODUCTS
* Automotive and Truck Brackets * Hydraulic-Valve Bodies
* Bearing Cups * Manifolds
* Brake Calipers and Adapters * Pressure Plates
* Clutch Housings * Small Engine Camshafts and Crankshafts
* Farm Machinery Castings * Steering Housings
* Flywheel Housings * Transmission Cases
* Flywheels * Wheel Hubs
Brillion markets its castings, directly and indirectly, to OEMs in
various industrial markets. The table below provides a list of representative
end products in which Brillion's castings are used.
END PRODUCTS IN WHICH BRILLION CASTINGS ARE USED
* Air-Cooled Engines * Industrial Lift Trucks
* Automobiles and Light Trucks * Lawn and Garden Equipment
* Construction Equipment * Locomotive Engines
* Diesel Engines * Marine Engines
* Farm Equipment * Medium- and Heavy-Duty Trucks
* Fluid Power Pumps and Motors * Oil and Gas Field Machinery and Equipment
* Hardware * Pumps and Pumping Equipment
* High-speed Drives and Gears * Small Tools
* Home Shop Tools
CUSTOMERS
Over 99% of Brillion's net foundry sales in 1999 were to existing
customers. Once production begins on a product, the same foundry will generally
manufacture that product for the product's life cycle.
Brillion has over 225 foundry customers, a majority of which are located
in the Midwest, East and Southeast. Brillion's top five unaffiliated customers
accounted for approximately 28% of Brillion's 1999 total net sales. Brillion
also serves as an important source of castings for Gunite, with sales to Gunite
representing approximately 14% of Brillion's total net sales in 1999. As a
result of Gunite's conversion of its Erie, Pennsylvania facility to exclusively
produce wheel-end components, approximately $13 million in annual revenues of
job shop foundry work was transferred to Brillion.
Brillion works closely with customers in order to insure that castings
meet all required specifications, including machinability, dimensional accuracy
and overall quality. Brillion's engineers work with customers from concept to
market with respect to new products. Brillion's strategy is to focus on the
market for higher margin castings, as well as for products requiring new,
innovative castings designs. Unlike Gunite, Brillion's products are primarily
designed by its customers, and thus the product designs are proprietary to the
customers.
Brillion has enjoyed long-term, stable relationships with the majority
of its customers and is certified as a preferred supplier by most of its
customers. Brillion's quality system is certified to ISO 9002 and QS 9000
quality standards and Brillion has received Caterpillar's "Certified Supplier
Status" and was approved by Ford's "Technical Service Capability Survey." The
primary criteria on which such quality certifications and awards are based
include quality of product, delivery performance, inventory control, operator
knowledge, condition of facility, receiving inspection of incoming materials,
record maintenance and retention and equipment gauge controls. A quality
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certification is required by most sophisticated purchasers, thereby enhancing
the competitive advantage of suppliers like Brillion that have achieved a
quality certification.
MANUFACTURING
In general, Brillion's customers specify the properties of their
castings, such as hardness, strength and dimensions, and Brillion determines how
best to meet those specifications. Brillion engineers work with its customers to
develop an efficient manufacturing process. Brillion constantly tests and
monitors the manufacturing process in order to maintain the quality and
consistency of its castings. The manufacturing process involves melting iron,
steel scrap and pig iron, adding various alloys and pouring the molten metal
into molds made primarily of sand. Most of the castings manufactured by Brillion
must meet strict dimensional control requirements specified by its customers. As
a result, Brillion uses SPC in every phase of the production process, and all
employees are given extensive SPC training. The Company believes that Brillion
has the most advanced core capabilities in the industry, allowing for efficient
and environmentally superior core processes that are necessary for the
production of quality, complex thin-wall and lighter weight products. Production
lines are designed to accommodate a wide variety of products and volumes. In
addition, Brillion's multiple production lines provide flexibility to move
production from line to line to meet customer scheduling changes and
requirements.
IMPERIAL
Imperial is a leading Tier I and Tier II supplier of body and chassis
components for the heavy-duty truck and transit bus markets. All of Imperial's
facility's are QS9000 certified, other than those facilities acquired in late
1999.
MARKETS
Imperial's products are sold primarily to the heavy-duty truck OEMs as
well as to transit bus OEMs, the heavy- duty truck aftermarket and to Tier I
suppliers who in turn sell the products to the heavy-duty truck OEMs. When
Imperial's products are specified for a given model of truck, the specified
product will generally be part of all trucks of that type for the life of that
model of truck.
PRODUCTS
Imperial supplies a large number of body and chassis components,
including battery and tool boxes, bumpers, crown and grill assemblies, door
assemblies, fenders, front end cross members, fuel tanks, and roofs and roof
bows. Imperial also provides a number of services, including chrome plating,
assembly, warehousing and sequencing.
CUSTOMERS
Imperial's customers include many of the heavy-duty OEMs, including
PACCAR, Freightliner and Volvo, as well as transit bus manufacturers such as
Gillig Corporation and Nova Bus Incorporated. Imperial's top five customers
accounted for 96% of Imperial's 1999 net sales, with PACCAR (including PACCAR
Parts) accounting for approximately 78% of Imperial's 1999 net sales.
MANUFACTURING
Imperial has manufacturing and assembly facilities in New Deal,
Tennessee, Decatur, Texas, Ft. Worth, Texas, Dublin, Virginia, and Chehalis,
Washington. Imperial also has chrome plating facilities in Portland, Tennessee
and Gainesville, Texas. Many of these facilities are located near OEM facilities
and provide line setting services for the OEMs. Imperial is in the process of
constructing two new facilities, funded by its former owners, to be leased upon
completion in 2000, one of which is a fabricating facility in Portland,
Tennessee to replace its existing facilities in such location and the other is a
chrome plating facility in Gainesville, Texas to replace its existing facility
in such location.
BOSTROM
Bostrom designs, manufactures and markets a full line of air suspension
and static seating systems primarily for the heavy-duty truck market. Bostrom is
ISO 9001 and QS9000 certified.
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MARKETS
Bostrom is a leading manufacturer of seating systems for the heavy-duty
truck industry. Bostrom's products are sold primarily to heavy-duty truck OEMs
as well as to the aftermarket. Bostrom also supplies its line of seating systems
to the medium-duty truck and bus and transit bus markets, as well as to a number
of specialty markets such as construction and agriculture vehicles. Bostrom's
seats are offered as standard or as an option by all major North American
heavy-duty truck OEMs.
CUSTOMERS
Bostrom's customers include all of the major North American heavy-duty
truck manufacturers. Bostrom's top five customers accounted for approximately
84% of Bostrom's 1999 net sales, with Freightliner accounting for approximately
48% of such sales.
MANUFACTURING
Bostrom's manufacturing facility is located in Piedmont, Alabama. For a
number of its OEM customers, Bostrom ships its seats to line-setting facilities
which it has established near certain OEM plants to provide just-in-time
inventory of seats to the assembly line in the order that the seats will be
used.
FABCO
Fabco designs, manufactures and markets steerable drive axles, gear
boxes and related parts for the North American on/off-road medium- and
heavy-duty truck markets. Fabco is QS9000 certified.
MARKETS
Fabco's products are sold primarily to the OEM market for use in the
construction, military, mining and municipal service markets. Fabco's axles and
gear boxes are offered as standard or as an option by all major North American
heavy-duty truck manufacturers, and Fabco is a leading supplier of these items
in the North American heavy- duty truck market.
PRODUCTS
Fabco supplies a full line of steerable drive axles for the North
American on/off-road medium- and heavy-duty truck and specialty vehicle markets.
Fabco's drive axles are rated at capacities ranging from 12,000 to 23,000 pounds
to serve Class 6, 7 and 8 trucks. End-users of Fabco's axles require ease of
steering and high speed driving for on- highway use while demanding
maneuverability and functionality for off-highway use. Fabco's axles are
designed to increase durability and maintenance accessibility. Fabco believes
that the ease of operating and servicing Fabco's products are competitive
advantages that lead to ongoing demand for steerable drive axles. Fabco also
manufactures a wide range of medium- and heavy-duty gear boxes. Gear boxes are
used by vehicles that operate auxiliary equipment in the construction, oil and
gas field services and utility industries, among others. Fabco also sells its
products in the aftermarket.
CUSTOMERS
Fabco's customers include most of the major North American on/off road
medium- and heavy-duty truck and specialty vehicle manufacturers. The majority
of Fabco's sales are made to OEM customers with which it enjoys relationships of
over 25 years. Sales during 1999 to Fabco's five largest customers accounted for
approximately 80% of Fabco's total net sales, with Navistar accounting for
approximately 61% of such sales.
MANUFACTURING
Fabco's manufacturing facility is located in Oakland, California.
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GENERAL
COMPETITION
The Company operates in highly competitive markets. No single
manufacturer competes with respect to all products manufactured and sold by the
Company in the heavy- and medium-duty truck market, and the degree of
competition varies with different products. In each market the Company competes
on the basis of price, its manufacturing and distribution capabilities, product
development and product quality, delivery and service. Gunite's primary
competitors in the wheel end component market for Class 6, 7 and 8 trucks and
trailers are Meritor Corporation (Dayton Walther) and Webb Wheel Products.
Brillion's major competitors include 10 to 12 foundries operating in the Midwest
and Southern regions, including Waupaca Foundry, Inc., Grede Foundries, Inc.,
Western Foundry, Neenah Foundry Company, Intermet Corporation and Citation
Corporation. Imperial's major competitors include 8 to 12 metal fabricators with
large press capacity and chrome platers, including Quality Industries, Inc., M&J
Industries, Mark Concepts, American Fabricators and Linton Industries. Bostrom's
principal competitors include National Seating as well as a number of smaller
seating manufacturers. Fabco's primary competitor in the steerable drive axle
market for the on/off-road medium- and heavy-duty truck and specialty vehicles
is Meritor Corporation (formerly Rockwell Corporation.)
Due to short production turnaround times from order to delivery
resulting from the just-in-time inventory systems utilized by many of its
customers, the company's truck components and other castings operations do not
normally carry a material amount of backlog orders. Most of the Company's sales
contracts are made pursuant to purchase orders and releases which are subject to
change or cancellation by the customer.
SUPPLIERS AND RAW MATERIALS
The major raw material for the Company's foundry operations is steel
scrap and for the Company's fabricating operations is sheet and formed steel
which is purchased from various sources. The Company has no long-term
contractual commitments with any steel or scrap suppliers, and does not
anticipate any difficulty in obtaining steel or scrap because of the large
number of potential suppliers and its position as a major purchaser. Increases
in scrap prices are generally passed through to customers either by means of a
fluctuating surcharge, which is calculated and adjusted on a monthly or
quarterly basis. Steel and formed steel is primarily purchased through an OEMs
steel purchasing program. Other major foundry raw materials, such as silicon
sand, binders, sand additives and coated sand, are purchased from multiple
sources. Electricity, coke and natural gas, the primary energy sources for
melting operations, are in adequate supply and reasonably priced. Other major
fabricating and seating materials, such as aluminum, foam and fabric, are
purchased from multiple sources.
LABOR RELATIONS AND EMPLOYEES
At December 31, 1999, the Company had approximately 3,980 employees. Of
these, approximately 705 are salaried employees and the balance are paid on an
hourly basis. Approximately 1,800 or about 45% of all employees are member of
unions. The Company has collective bargaining agreements with several unions
including the United Autoworkers, the Brotherhood of Teamsters, the United
Steelworkers of America, the United Paperworkers International Union, the
Patternmarkers League of North America and the International Association of
Machinists and Aerospace Workers. Each of the Company's unionized facilities has
a separate contract with the union that represents the workers employed at such
facility including the following contracts entered into since early 1999: (1)
Brillion's three-year contract with the United Paperworkers International Union
entered into in August 1999; (2) Fabco's four-year contract with the
International Association of Machinists and Aerospace Workers entered into in
September 1999; (3) Gunite's four-year contract with the International
Brotherhood of Teamsters, Chaffeurs, Warehousemen and Helpers of America
covering employees at Gunite's Elkhart Plant #1 entered into in July 1999
following a four week strike and (4) Gunite's four-year contract with the
International Brotherhood of Teamsters, Chaffeurs, Warehousemen and Helpers of
America covering employees at Gunite's Elkhart Plant #2 entered into in
September 1999. The Company's union contracts expire at various times over the
next few years, with no contract expiring before April 2001. While the Company
considers its relations with its employees to be good at each of the Company's
subsidiaries, there can be no assurance that the Company will reach new
agreements upon expiration of such union contracts or that the failure to reach
new agreements will not have a material adverse effect on the financial
condition or results of operations of the Company.
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PATENTS AND TRADEMARKS
The Company has numerous United States and foreign patents and pending
applications, registered trademarks and trade names. While the existence of a
patent is prima facie evidence of its validity, the Company cannot assure that
any of its patents will not be challenged nor can it predict the outcome of any
such challenge.
ENVIRONMENTAL MATTERS
COMPLIANCE MATTERS
The Company's subsidiaries are subject to comprehensive and frequently
changing federal, state and local environmental laws and regulations, including
those governing emissions of air pollutants, discharges of wastewater and storm
waters, and the disposal of non-hazardous and hazardous waste. Many of these
laws authorize the imposition of civil and criminal sanctions upon corporations
that fail to comply with the statutory or regulatory requirements. In 1999,
1998, and 1997, the Company's capital expenditures for compliance with
environmental requirements were approximately $0.1 million, $2.1 million, and
$0.7 million, respectively. These figures do not include routine operational
compliance costs, such as the costs for the disposal of hazardous and
non-hazardous solid waste, which were approximately $4.4 million, $5.7 million,
and $5.3 million in 1999, 1998 and 1997, respectively. The Company's
subsidiaries have budgeted $3.5 million for environmentally related capital
expenditures in 2000. The Company's capital expenditures for compliance with
environmental requirements and for routine operational compliance costs, such as
the costs for the disposal of hazardous and non-hazardous solid waste, for all
non-foundry facilities are not material. Other than for certain immaterial
expenditures, the Company's non-foundry subsidiaries have not budgeted funds for
capital expenditures in 2000 to comply with environmental laws.
Pursuant to a National Pollutant Discharge Elimination System ("NPDES")
permit, Gunite previously discharged noncontact cooling water from its Rockford
facility to a pond (the "Rockford Pond"), formerly owned by Gunite and by a
prior owner of Gunite that is adjacent to the Gunite plant. Gunite also
periodically had accidental, unpermitted discharges of process wastewater to the
Rockford Pond, which Gunite has reported to the Illinois Environmental
Protection Agency ("IEPA"). In addition, Gunite had not received express
authorization from the current or immediately preceding owner of the Rockford
Pond for any of the discharges. In order for Gunite to eliminate all discharges,
the City of Rockford obtained an easement to allow Gunite to construct a
conveyance that directs discharges of noncontact cooling water and storm water
from the Gunite facility to the Rock River, and the IEPA has issued a modified
NPDES permit to Gunite, substituting the Rock River as the outfall for Gunite's
discharge. The conveyance was completed in February 1995. The modified NPDES
permit contains a stringent limit for the discharge of total residual chlorine.
Gunite estimates that the capital cost for installing a treatment system
allowing its discharges to comply with this limit could be approximately $0.2
million, although Gunite is exploring a less expensive treatment system. Gunite
has appealed to the Illinois Pollution Control Board to remove or modify the
chlorine limit from the permit (Gunite Corp. v. Illinois Environmental
Protection Agency, PCB 94-382, filed December 12, 1994). IEPA has recently
agreed to eliminate the chlorine limit from the permit, thereby laying the
groundwork for a potential settlement of this appeal. The parties are attempting
to conclude such a settlement prior to the hearing date, set to commence May 15,
2000. The proposed settlement would be subject to public notice and comment, and
ultimate disposition by the Illinois Pollution Control Board. The cost to Gunite
of constructing the conveyance to the river (not including any environmental
remediation costs that might be incurred in connection with historical
discharges to the Rockford Pond) was approximately $0.3 million.
In 1998, the Occupational Safety and Health Administration issued a
citation to Gunite concerning the Rockford facility. OSHA imposed a fine of
$407,000 on Gunite with respect to this citation. Gunite has contested the
imposition of this fine, and believes it has meritorious defenses. Gunite is
currently pursuing an administrative appeal from the imposition of this fine,
with a hearing before the administrative law judge scheduled to occur in
mid-2000. The OSHA citation and fine relate to certain indoor air emissions and
the use of protective equipment, both alleged by OSHA to be in violation of OSHA
rules.
On October 25, 1999, IEPA issued a notice of violation to Gunite,
alleging that at the Rockford facility, certain fugitive particulate air
emissions are in violation of state laws. On December 20, 1999, IEPA rejected
Gunite's compliance proposal, which had been submitted by Gunite on December 3,
1999. By letter of January 17, 2000, Gunite has informed IEPA that the Rockford
facility has achieved compliance based on recent observations which confirmed
that Gunite's remedial work was successful in eliminating any violative
particulate air emissions. Gunite is negotiating
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with IEPA to settle this matter, but cannot rule out the possible imposition of
fines or penalties.
The Wisconsin Department of Natural Resources ("WDNR") has notified
Brillion that it is deemed to be in compliance with the Wisconsin air toxics
program, pending a review of a compliance plan submitted by Brillion in
September 1993, although Brillion is currently exceeding Wisconsin air emissions
limits for benzene and other air toxic compounds. Brillion's submittal included
a plan for compliance with the emission limitations for arsenic, barium, cadmium
and formaldehyde, and a request for a variance with respect to its emissions of
benzene. The Company believes that compliance with Wisconsin's air toxics
regulations apparently is an industry-wide problem, and WDNR is developing
compliance standards for the industry as a whole. The most recent state
inspection (June 1999) found Brillion to be in compliance with all Wisconsin air
regulations, but it is likely that as Brillion continues its review of its
operations, it may find that certain of its emission sources will require
further air pollution controls. In addition, further controls may be required
under the Federal Clean Air Act regulations that are currently scheduled to be
promulgated in the year 2000.
The Company's subsidiaries' manufacturing plants are large and complex
facilities. The environmental regulations to which these facilities are subject
are numerous, complicated, often ambiguous and constantly changing. It is
possible, therefore, that in addition to the instances of noncompliance
discussed above, there are other areas in which the facilities are not currently
in compliance with environmental laws and regulations. The Company does not
currently believe that any such noncompliance is likely to have a material
adverse effect on the Company's business or financial results. However, there
can be no guarantee that the Company will not be required to make substantial
additional expenditures to remain in or achieve compliance in the future.
REMEDIATION MATTERS
In addition to environmental laws that regulate the Company's
subsidiaries' ongoing operations, the subsidiaries also are subject to
environmental remediation liability. Under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and analogous state laws,
certain persons may be liable as a result of the release or threatened release
of hazardous substances into the environment. Such persons include the current
owner or operator of property where such release or threatened releases have
occurred, any persons who owned or operated such property during the time
hazardous substances were disposed of at such property, and persons who arranged
for the disposal of hazardous substances at such property. Liability under
CERCLA is strict and, in most cases, joint and several, meaning that any
responsible party could be held liable for all of the costs incurred or to be
incurred in investigating and remediating a release or threatened release of
hazardous substances, although liability at most CERCLA (and similar) sites is
shared among all of the solvent potentially responsible parties ("PRPs"). The
liability of PRPs is typically determined by the cost of the investigation and
remediation, the amount and toxicity of hazardous substances contributed by each
PRP and the number of solvent PRPs.
Under CERCLA, sites may be listed for priority cleanup by being placed
on the National Priorities List ("NPL"). NPL sites are sites at which the
federal government may spend monies from the "Superfund" for long-term
remediation and then seek reimbursement from liable parties. A much more
extensive list compiled pursuant to CERCLA, known as the Comprehensive
Environmental Response, Compensation, and Liability Act Information System
("CERCLIS"), includes sites that have been, or are to be, evaluated and "scored"
by the EPA for possible future inclusion on the NPL.
GUNITE. With respect to claims involving Gunite, TCI and Gunite in
September 1997 entered into a private- party settlement (the "Settlement") of
certain pending litigation with a prior owner of Gunite, pursuant to which each
of TCI and Gunite and the prior owner withdrew their claims against each other.
As a result of the Settlement, TCI and Gunite will not be responsible for
liabilities and costs related to certain alleged contamination at Gunite's
facilities and at certain off-site properties to the extent arising out of
operations of Gunite prior to the acquisition of Gunite by TCI in September
1987.
Gunite is a PRP at three NPL sites, the Interstate Pollution Control
("IPC") site (which is adjacent to Gunite's Rockford facility), the
M.I.G./Dewane Landfill located in Boone County, Illinois and the Southeast
Rockford Groundwater site located in Rockford, Illinois. Gunite's connection to
the IPC, the M.I.G./Dewane and Southeast Rockford sites stem from activities
that took place prior to the acquisition of Gunite by TCI in 1987. Pursuant to
the Settlement, TCI and Gunite will not be responsible for liabilities and costs
related to these sites to the extent arising from Gunite's waste disposals prior
to the acquisition of Gunite by TCI in 1987.
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As to the IPC site, the Company believes that the waste disposed of at
the IPC site was disposed of prior to the acquisition of Gunite by TCI in 1987
and, as a result of the Settlement, TCI and Gunite will not be responsible for
such liabilities and costs.
As to the M.I.G./Dewane Landfill site, the Company believes that the
waste disposed of at the M.I.G./Dewane Landfill site was disposed of prior to
the acquisition of Gunite by TCI in 1987 and, as a result of the Settlement, TCI
and Gunite will not be responsible for such liabilities and costs.
The EPA and the City of Rockford have reportedly incurred approximately
$16 million in response costs to date in connection with the Southeast Rockford
Groundwater NPL Site, which is alleged to be down-gradient of the IPC site, but
which Gunite believes, based on data collected during the investigation of the
IPC site, is cross- or up-gradient. In 1996, the City of Rockford demanded that
Gunite pay $1 million in response costs which the City allegedly has incurred at
the site area 7, commonly known as the Ekberg Park area, within the Southeast
Rockford Groundwater NPL Site, based on alleged trans-shipment of Gunite's waste
to the Ekberg Park area. In September 1998, Gunite and the City of Rockford
reached a settlement of the City's claims against Gunite concerning the
Southeast Rockford site, including Area 7 thereof, Ekberg Park. In exchange for
Gunite's settlement payment (funded principally by the former owner of Gunite
pursuant to the Settlement), the City released all of its claims against Gunite
at the site. Further, the City and the United States allowed Gunite to be named
as an added beneficiary of the United States' covenant not to sue the City in
connection with the Southeast Rockford site. The United States' covenant not to
sue was provided in THE CONSENT DECREE ENTERED ON JANUARY 25, 1999 BY THE
FEDERAL COURT IN THE CASE OF UNITED STATES V. CITY OF ROCKFORD, Case No.
98-C-50026. In April 1999, an instrument adding Gunite as beneficiary of the
covenant not to sue was recorded in the Winnebago County and records concerning
Gunite's real property in Rockford, Illinois. With the recent entry of this
consent decree, all pending claims against Gunite at the Southeast Rockford site
have been resolved.
Gunite also may be subject to liabilities at other NPL sites or other
locations as a result of its past disposal of hazardous substances.
As a result of historical operations at the Gunite plant in Rockford,
there are areas on-site that have been affected by the disposal or spillage of
raw materials or wastes. Gunite does not know at this time whether any cleanup
or remediation of such areas will be required by any state, local or federal
agency, although it is possible that such areas may be included in the IPC site
remediation. The Company believes that, to the extent on-site remediation or
cleanup is required, most of the alleged contamination would be attributable to
operations of Gunite prior to the acquisition of Gunite by TCI in 1987 and, as a
result of the Settlement, TCI and Gunite will not be responsible for most of
such liabilities and costs.
BRILLION. Brillion is likely to incur investigation and/or remediation
costs in connection with two landfills that it used to dispose of foundry
wastes. These landfills are the Brillion Iron Works Landfill, where Brillion was
the operator and sole generator of waste from 1980 through 1989, and the
adjacent City of Brillion Landfill, where Brillion may be a significant
generator of waste. Brillion disposed of plant trash at the City landfill from
1970 to 1975 and also disposed of foundry wastes in this landfill from 1976 to
1980. Both of these landfills are on the CERCLIS and the Wisconsin Remedial
Response Site list, and both have been scored by the WDNR and listed on the
State's Hazard Ranking List as being above the threshold for potential State
remedial action. Although it is not possible to predict the exact timing or
amount of the expenditures that will be made in future years to remediate these
sites, TCI expects that investigation and/or remediation will be required and
that such expenditures could be substantial.
Further, Brillion has already incurred cleanup costs at the Lemberger
Landfill, an NPL site in Whitelaw, WISCONSIN, pursuant to a consent decree
entered in 1997 in UNITED STATES V. ACE, ET AL., Case No. 96-CV-0739. Additional
remediation of areas adjacent to the Lemberger Landfill may be required by the
United States and the State of Wisconsin.
Brillion has also disposed of foundry wastes at many other sites in the
Brillion area, a few of which are on the CERCLIS and the Wisconsin Remedial
Response Site list. It is possible that Brillion will incur remedial response
costs at some or all of these sites, although at this date, Brillion is not
aware of any action by federal or state regulators or private parties to
investigate or remediate any of these other sites.
In 1992, Brillion excavated two underground diesel fuel storage tanks
which were discovered to have leaked diesel fuel into surrounding soil as a
result of a 1978 spill. Brillion has removed approximately 300 cubic yards of
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contaminated fill in connection with this incident. Although the WDNR initially
indicated that a deed restriction would be sufficient for managing this issue,
Brillion has not at this date been able to reach a satisfactory arrangement with
the owners of the Brillion property. The WDNR has informed Brillion that,
regardless of the presence of a deed restriction, any future utility or
excavation work performed within the contaminated soil area will require soil
remediation. Accordingly, Brillion expects to undertake additional soil and
groundwater analysis, and possible soil remediation, in connection with this
matter.
As the Brillion facility has been in operation for many years, it is
possible that there are areas at this facility, other than the underground
storage tanks, that have been adversely affected by the handling of foundry
process materials and wastes. Brillion does not know at this time whether any
remediation of any such areas will be required by any state, local or federal
agency.
Brillion was the Robins Group (consisting of the Robins Family Trust,
Karl F. Gabler and First City Securities) entity that acquired a Beatrice
subsidiary (also named Brillion) from Beatrice in 1984. In 1993, the Company
notified Beatrice of its claims for indemnification against Beatrice with
respect to most of its disposal sites to the extent that liabilities arise from
incidents occurring prior to December 31, 1984. Beatrice disputed this
interpretation and later notified Brillion that it will not honor any claims for
indemnification (including the one claim for breach of representation concerning
the Lemberger Landfill made within two years after the sale). In December 1997,
TCI and Brillion filed suit against Beatrice, and its parent, ConAgra, Inc., for
recovery of costs expended at the Lemberger Landfill, and for declaratory relief
with respect to the cleanup of the Lemberger Landfill and adjacent areas. In
this suit (BRILLION, ET AL. V. CONAGRA, ET AL., Case No. 97-L-15968), the court
has denied Brillion's motion for judgment on the pleadings and has granted the
defendants' motion to dismiss. TCI and Brillion has appealed this adverse ruling
to the First District Appellate Court in Illinois. A decision by this state
appellate court is expected in late 2000. Brillion was also notified by the
Robins Group (which sold Brillion to TCI) that it will not honor any claims for
indemnification. On May 25, 1994, TCI and Brillion filed suit against Beatrice
and the Robins Group for recovery of costs expended at sites other than the
Lemberger Landfill and for declaratory and injunctive relief with respect to
various environmental matters pursuant to the indemnification provisions of the
respective stock purchase agreements and other causes of ACTION, INCLUDING
CERCLA (TRUCK COMPONENTS INC., ET AL. V. BEATRICE COMPANY ET AL., Northern
District of Illinois). On June 10, 1994, TCI and Brillion filed a first amended
complaint in this lawsuit to add Hunt-Wesson, Inc., a corporate successor of
Beatrice that may be a successor to Beatrice's liabilities in these matters. In
1996, the district court entered judgment against Brillion, holding that
Beatrice and the Robins Group did not owe any indemnity for Brillion's expenses
at the sites (excepting the Lemberger Landfill from this holding), and that
Brillion owed Karl F. Gabler $0.2 million pursuant to a 1987 indemnity contract.
On May 7, 1998, the United States Court of Appeals for the Seventh Circuit
affirmed the 1996 judgment of the district court and, in June 1998, denied
Brillion's petition for rehearing and issued its final mandate of affirmance.
TCI and Brillion have satisfied the counterclaim judgment of $0.2 million.
POTENTIAL COSTS. As of December 31, 1999, based on all the information
currently available, the Company had an environmental reserve in the amount of
$10.4 million for estimated future costs related to potential environmental
investigation and remediation liabilities with respect to certain currently
known matters. The environmental reserve is principally related to potential
remediation liability at various off-site locations and, to a lesser degree, to
potential remediation liability at Gunite's, Rockford, Illinois, and Brillion's,
Brillion, Wisconsin manufacturing facilities. This reserve is based on current
cost estimates and does not reduce estimated expenditures to net present value.
Further, the estimated reserve takes into consideration the number of other PRPs
at each site, the alleged volume of waste contributed by other PRPs at each
site, and the identity and financial position of such parties in light of the
joint and several nature of the liability, but it does not take into account
possible insurance coverage or other similar indemnification or reimbursement.
Based upon all currently available information, no reserve has been established
with respect to potential environmental obligations at any of the Company's
non-foundry subsidiaries. Because many of the matters described above, however,
are at the early stages in their respective investigations, there can be no
assurance that the amounts ultimately expended to address all of these matters
or to address other matters not yet known to be in existence will not exceed the
amounts allocated in the environmental reserve. Accordingly, it may be necessary
to establish additional reserves for environmental liabilities in the future.
Any cash expenditures required by the Company to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be reduced
or otherwise affected by the existence of the environmental reserve. Management
believes, based on its evaluation of the various matters described above,
including its experience with such matters to date, the time period over which
it believes costs for such matters are likely to be incurred by the Company, and
the existence of the various indemnifications described above, that any costs
the Company ultimately will incur for
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such matters are not reasonably likely to have a material adverse effect on the
Company's business or financial results. However, given the early stage of many
of the matters, there can be no assurance that one or more of these matters (or
matters which have not yet been identified) will not have such an effect. The
Company currently anticipates spending approximately $0.7 million per year in
2000 through 2004 for monitoring the various environmental sites associated with
the environmental reserve, including attorney and consultant costs for and
negotiations with regulators and other PRPs, and payment of remedial
investigation costs. The Company expects to fund such expenditures with the cash
flow generated from its operations and amounts available under its revolving
credit facility. These sites are generally in the early investigatory stages of
the remediation process and thus it is anticipated that significant cash
payments for remediation will not be incurred for at least several years. After
the evaluation and investigation period, the investigation and remediation costs
will likely increase because the actual remediation of the various environmental
sites associated with the environmental reserve will likely be under way. In
addition, it is possible that the timing of any necessary expenditures could be
accelerated.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the executive officers
of the Company:
NAME AGE POSITION
Thomas M. Begel 57 Chairman of the Board and Chief Executive Officer
of the Company
Andrew M. Weller 53 President, Chief Operating Officer and Director of
the Company
James D. Cirar 53 President and Chief Executive Officer of Gunite
Fred D. Culbreath 61 Chairman of Imperial
Joseph A. Hicks 52 Chief Executive Officer of Imperial
Robert L. Jackson 53 President and Chief Executive Officer of Bostrom
Timothy A. Masek 35 Executive Vice President-Sales and Marketing of the
Company
John D. McClain 55 President of Brillion
Donald C. Mueller 36 Vice President, Treasurer and Chief Financial
Officer of the Company
Allen L. Sunderland 48 President of Fabco
Kenneth M. Tallering 38 Vice President, General Counsel and Secretary of
the Company
John C. Wilkinson 43 President and Chief Operating Officer of Imperial
Brent Williams 45 Controller of the Company
THOMAS M. BEGEL, Chairman of the Board and Chief Executive Officer of
the Company, served as President from October 1991 through January 2000 and has
served as Chairman of the Board and Chief Executive Officer since May 1993. He
is also Chairman of, and a partner in, TMB Industries ("TMB"), an investment
firm which is a partnership between himself and Mr. Weller, and is a director or
officer of certain TMB companies. Mr. Begel has served as a director of Silgan
Holdings Inc., a packaging company, since March 1997.
ANDREW M. WELLER, has served as President and Chief Operating Officer
since January 2000 and as a Director of the Company since September 1994.
Formerly, he served as Executive Vice President and Chief Financial Officer
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of the Company from September 1994 to January 2000 and as Secretary from March
1995 to November 1995. From April 1988 to September 1994, he was Vice President
and Treasurer of Bethlehem Steel Corporation and prior thereto held various
other positions with Bethlehem. He has also been Executive Vice President of,
and a partner in TMB since September 1994, and is a director or officer of
certain TMB companies.
JAMES D. CIRAR, has been the President and Chief Executive Officer of
Gunite Corporation since January 2000. Formerly he was Chairman of Johnstown
America Corporation and Freight Car Services, Inc. from September 1998 to June
1999 and Senior Vice President of the Company from July 1997 to June 1999. From
September 1995 to August 1998, he was President and Chief Executive Officer of
Johnstown America Corporation and from March 1998 to August 1998 he was
President and Chief Executive Officer of Freight Car Services, Inc. Prior to
September 1995, Mr. Cirar was the Plant Manager of the Truck and Bus Assembly
Group of General Motors Corporation in Flint, Michigan.
FRED D. CULBREATH, has been Chairman of Imperial for the past five years
and has held various other titles with Imperial since being one of the primary
founders of Imperial in 1962.
JOSEPH A. HICKS, has been Chief Executive Officer of Imperial since
January 1995 and served as President of Imperial from January 1995 to November
1997. Prior to January 1995, he was President of Eagle Associates, a private
management firm.
ROBERT L. JACKSON, has been President and Chief Executive Officer of
Bostrom since January 2000. From August 1996 to January 2000 he was Executive
Vice President of Bostrom. Prior to that he held various financial positions
with Bethlehem Steel Corporation.
TIMOTHY A. MASEK, has served as Executive Vice President-Sales and
Marketing of the Company since January 2000 and formerly served as Vice
President - Corporate Development of the Company from December 1995 to January
2000 and President of Bostrom from June 1996 to January 2000. From September
1992 to December 1995, Mr. Masek performed marketing and corporate development
functions for the Company. Prior to September 1992, Mr. Masek was a Market
Analyst for the Transportation Equipment Group of Bombardier Corporation, a
railcar and aviation manufacturer.
JOHN D. MCCLAIN, joined Brillion as Manager of Manufacturing in 1988 and
was appointed Vice President of Manufacturing in 1989. Mr. McClain was promoted
to his present position of President in 1994. Prior to joining Brillion, Mr.
Mclain held metallurgical and foundry manager positions at Owen-Illinois, a
manufacturer of glass containers and television picture tubes, Emerson Electric,
a diverse manufacturing company producing power transmission and electric motor
components, pumps, valves and hand tools, and Clow Valve Company, a manufacturer
of waste and water system valves, fire hydrants and fire protection system
valves.
DONALD C. MUELLER, has served as Vice President and Treasurer since July
1998 and as Chief Financial Officer since January 2000. For the five years prior
to July 1998, he held various financial positions with Fisher Scientific
International.
AL SUNDERLAND, joined Fabco in 1995 as Vice President of Sales and
Engineering and was appointed President in December 1999. Prior to joining Fabco
Mr. Sunderland served as Vice President of Engineering and Product Development
for Monroe Truck Equipment, General Manager of a Fontaine Modification Center,
and managed a product development group at Mack Trucks.
KENNETH M. TALLERING, has served as Vice President, General Counsel and
Secretary of the Company since November 1995. From September 1987 to October
1995, Mr. Tallering was an attorney with the law firm of Skadden. Arps, Slate,
Meagher & Flom.
JOHN C. WILKINSON, has served as President and Chief Operating Officer
of Imperial since November 1997. Prior to that he was General Manager of
Imperial.
BRENT WILLIAMS, has served as Controller of the Company and has served
in various financial capacities at TCI and Gunite for the past five years. Prior
to that, he was Corporate Controller of Caron International.
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GLOSSARY OF CERTAIN TERMS
The following industry terms have the meanings set forth below for
purposes of the Form 10-K:
ABS: Anti-lock brake system.
Automatic Slack Adjuster: A Mechanism that reacts to, and
adjusts for, variations in brake shoe-to-drum
clearance, maintains the proper amount of space
between the shoe and drum and thereby eliminates the
need for manual adjustment.
Brake Drum: A metal cylinder to which pressure is applied by a
braking mechanism in order to arrest rotation of the
wheel to which the cylinder is attached.
Brake Rotor: Device which works with a vehicle's braking system
to stop the vehicle.
OEM: Original equipment manufacturer.
Spoke Wheels: Along with the wheel hub, it is the connecting piece
between the brake system and the axle upon which the
rim and tire are mounted.
Wheel Hubs: Along with the spoke wheel, it is the connecting
piece between the brake system and the axle upon
which the rim and tire are mounted.
17
<PAGE>
ITEM 2. FACILITIES
The Company's headquarters are located in leased offices in Chicago,
Illinois. The following table provides a summary description of the Company's
other principal facilities.
<TABLE>
<S> <C> <C> <C>
COVERED SPACE
FACILITIES BUSINESS FUNCTION OWNED/LEASED SQ. FT.
---------- ----------------- ------------ -------
Gunite
Rockford, Illinois Administrative Offices: Owned 619,000
Specialty Foundry,
Aftermarket Distribution
Warehouse
Elkhart, Indiana Machining-Wheel End Owned 258,000
(Plant 1) Components
Elkhart, Indiana Machining and Assembling- Leased 115,000
(Plant 2) Automatic Slack Adjusters
Erie, Pennsylvania Foundry; machining Owned 366,000
Brillion (1)
Plant I Melting; Molding; Leased 180,000
Administrative Offices
Plant II Melting; Molding Leased 165,000
Plant III Farm Machinery Owned 150,000
Plant IV Finishing; Shipping Leased 85,000
New property Storage Owned 85,000
(1) All Brillion facilities are located in Brillion, Wisconsin
Imperial
Portland, Tennessee Administrative Offices Leased 10,000
New Deal, Tennessee Fabricating Leased 134,000
(Plant 1)
New Deal, Tennessee Fabricating Leased 39,000
(Plant 2)
Portland, Tennessee Chrome Plating Owned 90,000
Decatur, Texas Fabricating Owned 124,000
Ft. Worth, Texas Fabricating Owned 40,000
Gainesville, Texas Chrome Plating Leased 37,000
(Buildings 1-5)
Dublin, Virginia Fabricating, sequencing Owned 112,500
Chehalis, Washington Fabricating Owned 90,000
Chehalis, Washington Fabricating Leased 12,000
Bostrom
Piedmont, Alabama Manufacturing; Administrative Leased 231,000
Offices
Fabco
Oakland, California Manufacturing; Warehouse; Owned 65,000
Administrative Offices
</TABLE>
The Company believes that its facilities and equipment are in good condition
and, together with scheduled capital improvements, are adequate for its present
and immediately projected needs.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain threatened and pending legal
proceedings, including worker's compensation claims, arising out of the conduct
of its businesses. In the opinion of management, the ultimate outcome of such
legal proceedings will not have a material adverse effect on the financial
position or results of operations of the Company.
The Company may be subject to liability as a result of the disposal of
hazardous substances on and off the properties owned or operated by its
subsidiaries, including Brillion, Gunite and Fabco. TCI and Brillion filed suit
on May 25, 1994 against Beatrice and the Robins Group for certain causes of
action, including indemnification under purchase agreements. TCI added
Hunt-Wesson, Inc., a corporate successor to Beatrice that may be a successor to
Beatrice's liability in these matters, as a defendant on June 10, 1994. In 1996,
the district court entered judgment against Brillion, holding that Beatrice and
the Robins Group did not owe any indemnity for Brillion's expenses at the sites,
and that Brillion owed Karl F. Gabler $0.2 million pursuant to a 1987 indemnity
contract. On May 7, 1998, the United States Court of Appeals for the Seventh
Circuit affirmed the 1996 judgment of the district court, and, in June 1998,
denied Brillion's petition for rehearing and issued its final mandate of
affirmance. TCI and Brillion have satisfied the counterclaim judgment of $0.2
million. In December 1997, TCI and Brillion filed suit against Beatrice, and its
parent, ConAgra, Inc., for recovery of costs expended at the Lemberger Landfill,
and for declaratory relief with respect to the CLEANUP OF THE LEMBERGER LANDFILL
AND ADJACENT AREAS. IN THIS SUIT (BRILLION, ET AL. V. CONAGRA, ET AL., Case No.
97-L- 15968), the court has denied Brillion's motion for judgment on the
pleadings and has granted defendants' motion to dismiss. TCI and Brillion have
appealed this adverse ruling to the First District Appellate Court in Illinois.
A decision by this state appellate court is expected in late 2000. In September
1997, TCI and Gunite entered into the Settlement which settled its pending
litigation against a prior owner of Gunite and pursuant to which TCI and Gunite
and the prior owner withdrew their claims against the other. As a result of the
Settlement, TCI and Gunite will not be responsible (through a contractual
undertaking by the former owner) for certain environmental liabilities and costs
resulting from Gunite's waste disposals prior to the acquisition of Gunite by
TCI in September 1987, including at the IPC, M.I.G./Dewane and Southeast
Rockford sites. See "Environmental Matters" in Item 1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price range of Common Stock
The Company's common stock is listed and traded on the NASDAQ National
Market System under the symbol "TTII" (formerly "JAII"). The following table
sets forth the high and low sales prices of the common stock as reported by the
NASDAQ National Market System.
Sales Prices
1998
- ----
First Quarter $17.75 $9.13
Second Quarter 19.15 12.75
Third Quarter 19.94 10.25
Fourth Quarter 16.75 10.00
1999
- ----
First Quarter $17.50 $12.75
Second Quarter 19.25 12.50
Third Quarter 19.75 12.63
Fourth Quarter 18.94 12.75
The number of record holders of the Company's common stock on January
28, 2000 was 106.
DIVIDEND POLICY
The Company has never paid any dividends on its common stock and expects
for the foreseeable future to retain all of its earnings from operations for use
in expanding and developing its business. Any future decision as to the payment
of dividends will be at the discretion of the Company's Board of Directors and
will depend upon the company's earnings, financial position, capital
requirements and such other factors as the Board of Directors deems relevant. In
addition, the Company's senior bank credit facility and senior subordinated
notes contains covenants limiting dividends that may be paid to holders of
shares of common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data with respect to
the Company for the periods and at the dates indicated. All selected financial
data is derived from the audited consolidated financial statements of the
Company and should be read in conjunction with those statements which are
incorporated by reference in this report.
20
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 (1) 1996 1997 1998 1999(2)
----------- ------------ ----------- ------------ -----------
INCOME STATEMENT DATA:
TOTAL REVENUES $175,583 $361,825 $415,866 $433,563 $541,543
COST OF GOODS 143,773 288,756 329,678 343,852 429,711
----------- ----------- ----------- ------------ -----------
Gross profit 31,810 73,069 86,188 89,711 111,832
Selling, general & administrative 16,918 33,857 35,719 38,434 47,104
Amortization expense 2,904 6,970 6,798 6,773 7,792
Pension termination gain -- -- -- (1,688) --
Reduction of Environmental Reserves -- -- (14,300) -- --
----------- ----------- ----------- ------------ -----------
Operating income 11,988 32,242 57,971 46,192 56,936
Interest expense, net 11,285 31,503 29,547 27,146 25,251
Provision for
income taxes 900 2,116 12,881 10,853 14,449
----------- ----------- ----------- ------------ -----------
Income (loss) before extraordinary
items and discontinued operations (197) (1,377) 15,543 8,193 17,236
Extraordinary items, net of income taxes -- -- (2,008) (1,146) (2,505)
Discontinued Operations:
Gain on sale, net of income taxes -- -- -- -- 29,817
Income (loss), net of income taxes 5,782 (3,994) (6,069) 30,808 22,728
----------- ----------- ----------- ------------ -----------
Net income (loss) $ 5,585 $ (5,371) $ 7,466 $ 37,855 $ 67,276
=========== =========== =========== ============ ===========
Diluted Earnings Per Share:
Income (loss) from continuing operations
before extraordinary items $ (0.02) $ (0.14) $ 1.58 $ 0.81 $ 1.67
Income (loss) from discontinued operations 0.59 (0.41) 5.07 3.04 (0.62)
EXTRAORDINARY ITEM -- -- (0.20) (0.11) (0.24)
----------- ----------- ----------- ------------ -----------
Net income (loss) per share $0.57 ($0.55) $0.76 $3.74 $6.50
- -------------------------------------- ----------- ----------- ----------- ------------ -----------
AS OF DECEMBER 31,
BALANCE SHEET DATA: (in thousands)
- -------------------------------------- -------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ---------- ------------ -----------
Total assets $489,691 $479,355 $487,101 $493,003 $535,381
Long-term debt, including
current maturities 302,105 285,293 277,814 240,563 204,366
Total shareholders' equity 68,874 63,537 71,020 110,717 182,675
- -------------------------------------- ----------- ----------- ----------- ------------ -----------
(1) Acquired Bostrom in January, 1995 and TCI in August, 1995. See Note 1 to
the consolidated Financial Statements of the Company and the notes thereto
for the year ended December 31, 1999.
(2) Acquired Imperial in April 1999, EMI in May 1999, Clark Engineering in
September 1999 and BMC of Virginia in October 1999, and sold freight car
operations in June 1999. See Notes 1 and 2 to the Consolidated Financial
Statements of the Company and the notes thereto for the year ended December
31, 1999.
</TABLE>
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company conducts its continuing operations in the truck components
segment of the transportation industry and is a leading manufacturer of
wheel-end components, body and chassis components, seating systems, steerable
drive axles and gearboxes for the heavy-duty truck and bus industries and other
castings for the heavy-duty truck industry and various industrial markets. The
Company's discontinued operations were in the freight car segment and included a
leading manufacturer and lessor of new and rebuilt freight cars used for hauling
coal, intermodal containers, highway trailers, automobiles, agricultural and
mining products.
On April 29, 1999, the Company acquired the assets of Imperial Group,
Inc. (Imperial). Imperial is a leading Tier I and Tier II supplier of body and
chassis components for heavy-duty truck manufacturers and transit bus
manufacturers. The purchase price for Imperial was approximately $61.6 million
consisting of $58.8 million in cash and 156,740 shares of the Company's common
stock. The acquisition was accounted for under the purchase method of
accounting. The purchase price is also subject to a contingent earn out of up to
$4.0 million, based on the results of Imperial's Washington plant for the 24
months ending April 2001. The Company also incurred transaction costs of $0.7
million and issued 36,500 shares of restricted stock to two Imperial employees
valued at $0.6 million, which vest ratably over three years if employment
continues.
In conjunction with the acquisition of Imperial, the Company, on April
29,1999 entered into a new Senior Bank Credit Facility. The new facility is
comprised of a $50 million Term A Loan, a $50 million Term B Loan and an undrawn
$75 million Revolving Credit Facility. Proceeds were used to finance the
Imperial acquisition, to refinance the Company's outstanding senior bank debt of
$36.6 million (resulting in an extraordinary non-cash after tax charge of $1.7
million), and for working capital and other general corporate purposes. The
Company incurred and deferred $2.2 million of costs in obtaining the new
financing which will be deferred and amortized over the term of the related debt
(5-6 years).
On May 17, 1999, the Company's Gunite subsidiary acquired certain assets
and liabilities of EMI Company (EMI), an iron foundry and machining company
located in Erie, Pennsylvania. The Company paid $16.5 million in cash for
property, plant and equipment and $2.2 million for working capital. The
acquisition was accounted for under the purchase method of accounting.
On June 3, 1999, the Company completed the sale of its freight car
operations comprised of three wholly owned subsidiaries - JAC, FCS, and JAIX
Leasing to Rabbit Hill Holdings, Inc. (the Buyer). The Company received
consideration consisting of approximately $101.3 million in cash, contingent
additional consideration of $20.0 million and a 20 percent equity interest in
the Buyer. In addition, the Buyer assumed substantially all of the liabilities
of the freight car operations, including $14.4 million of debt. The 20 percent
equity interest in the Buyer is comprised of common and preferred stock, some of
which is non-voting. Further, the Company's rights with respect to voting and
transferability of its equity interest are limited and, in particular, the
Company granted a proxy to vote its equity interest to another shareholder of
Buyer under certain circumstances. As a result, the Company accounts for its
investment in Buyer using the cost method. The sale resulted in a pretax gain of
$46.8 million after consideration of transaction costs of $4.2 million and a
related pension curtailment loss of $0.3 million. The after-tax gain on the
disposition of the freight car business of $29.8 million was recorded in the
Company's results for the second quarter of 1999. Approximately $2.5 million of
additional gain was deferred due to the Company's continuing interest in the
freight car business. Proceeds from the $20.0 million contingent additional
consideration will be recorded as a gain, if and when collected. Also as a
result of the sale, approximately $80.0 million of senior bank debt was paid
subsequent to the disposition which resulted in the after-tax write off of $2.2
million of unamortized deferred financing costs.
On September 30, 1999 and October 21, 1999, the Company's Imperial Group
subsidiary acquired certain assets and liabilities of Clark and BMC-VA to expand
its manufacturing capabilities, product offering, and customer base. The Company
used cash on hand of $19.5 million to fund the acquisitions. The acquisitions
were accounted for under the purchase method of accounting.
22
<PAGE>
The Company's sales are affected to a significant degree by the
heavy-duty truck market which is subject to significant fluctuations due to
economic conditions, changes in the alternative methods of transportation and
other factors. There can be no assurance that fluctuations in such market will
not have a material adverse effect on the results of operations or financial
condition of the Company.
RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES
Net sales in 1999 increased by 24.9% to $541.5 million from $433.6
million in 1998. The increase in net sales was primarily from businesses
acquired in 1999, and a 24.0% increase in revenues at Bostrom, partially offset
by a 6.0% reduction in revenues at Brillion.
COST OF SALES AND GROSS PROFIT
Cost of sales as a percentage of net sales was 79.3% in both 1999 and
1998. Related gross profit margin was 20.7% in both years.
SELLING, GENERAL, ADMINISTRATIVE AND AMORTIZATION EXPENSES
The increase of $8.7 million in selling, general and administrative
expenses resulted primarily from businesses acquired. As a percentage of net
revenue, selling, general and administrative were 8.7% and 8.9% in 1999 and
1998, respectively. Amortization expense increased by $1.0 million due to the
amortization of excess cost over net assets acquired of acquisitions made during
1999. Amortization expense in 1999 as a percentage of sales was 1.4% compared to
1.6% in 1998.
OPERATING INCOME
Operating income was $56.9 million in 1999, compared to $46.2 million in
1998, an increase of $10.7 million. The increase was achieved by increased gross
profit of $22.1 million, offset by increased selling, general and administrative
expenses of $8.7 million, increased amortization expense of $1.0 million and the
pension termination gain of $1.7 million during the 1998 year.
OTHER
Interest expense was $26.6 million in 1999 compared to $28.7 million in
1998. Interest expense in 1999 was lower than 1998 due to lower debt levels as a
result of the debt paid down with the proceeds from the sale of the freight car
business. Interest income in 1999 was $1.4 million compared to $1.6 million in
1998.
In conjunction with the prepayments of $136.5 million of senior bank
debt in 1999, the Company recorded extraordinary charges of $2.5 million net of
income tax, related to the write-off of unamortized deferred financing costs. In
conjunction with the $35.0 million of senior debt prepayments in 1998, the
Company recorded extraordinary charges of $1.1 million net of income tax,
related to the write-off of unamortized deferred financing costs.
Income from discontinued freight car operations decreased by $8.1
million from $30.8 million in 1998 to $22.7 million in 1999. The decrease is
primarily attributable to the partial year period in 1999, offset by the impact
of the relative strength of the freight car market in 1999 versus 1998 which
resulted in a substantial increase in the sales run rate. The Company recognized
a gain, net of income taxes, of $29.8 million on the sale of the freight car
businesses.
Net income, income from continuing operations before extraordinary items
and diluted earnings per share for 1999 were $67.3 million, $1.67 and $6.50,
respectively, compared to net income, income from continuing operations before
extraordinary items and diluted earnings per share of $37.9 million, $0.81 and
$3.74, respectively, for 1998.
RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 AND 1997
NET SALES
Net sales in 1998 increased 4.3% to $433.6 million from $415.9 million
in 1997 due to stronger product demand in the Class 8 truck market.
COST OF SALES AND GROSS PROFIT
Cost of sales as a percentage of net sales was 79.3% in both 1998 and
1997. Related gross profit margin was 20.7% in both years.
23
<PAGE>
SELLING, GENERAL, ADMINISTRATIVE AND AMORTIZATION EXPENSES
Selling, general and administrative expenses as a percentage of net
sales were 8.9% and 8.6% in 1998 and 1997, respectively. Amortization expense
was $6.8 million in both 1998 and 1997.
OPERATING INCOME
Operating income was $46.2 million in 1998, compared to $58.0 million in
1997, a decrease of $11.8 million. The decrease was primarily a result of a
$14.3 million reduction in environmental reserves in 1997, higher selling,
general and administrative expenses of $2.7 million in 1998, increased gross
profit of $3.5 million during 1998 and a pension termination gain of $1.7
million also in 1998.
OTHER
Interest expense was $28.7 million in 1998 compared to $30.0 million in
1997. Interest expense in 1998 was lower than 1997 due primarily to the
prepayment of $35.0 million of Tranche B term debt. Interest income in 1998 was
$1.6 million in 1998 compared to $0.4 million in 1997. The increase in interest
income was due to increased levels of cash.
In conjunction with the $35.0 million of senior debt prepayments in
1998, the Company recorded extraordinary charges of $1.1 million net of income
tax, related to the write-off of unamortized deferred financing costs.
In conjunction with the 1997 issuance of $80.0 million of Notes to
refinance $80.0 million of Tranche A term debt, the Company recorded an
extraordinary charge of $2.0 million after income tax, primarily related to the
write-off of $3.4 million of unamortized deferred financing costs.
Income from discontinued freight car operations, net of income tax,
increased by $36.9 million from a loss of ($6.1) million in 1997 to income of
$30.8 million in 1998, primarily due to the increase in demand in the freight
car market.
Net income, income from continuing operations before extraordinary items
and diluted earnings per share for 1998 were $37.9 million, $0.81 and $3.74,
respectively, compared to net income, income from continuing operations before
extraordinary items and diluted earnings per share of $7.5 million, $1.58 and
$0.76, respectively, for 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1999, the Company provided cash from
operations of $35.6 million compared with $32.6 million for 1998. The increase
is primarily due to increased earnings in 1999 after non-cash impacts. The
Company used $12.6 million of net cash from investing activities during 1999
consisting primarily of $101.3 million of proceeds from the sale of the freight
car businesses offset by $97.2 million used to acquire Imperial, EMI, Clark and
BMC and $16.4 million for capital expenditures. Cash used by financing
activities was $36.3 for 1999, mainly representing new borrowings of $103.1
million offset by debt repayments of $138.9 million.
As of December 31, 1999 there was $19.2 million of term loans
outstanding under the Senior Credit Facility, $180.7 million of notes
outstanding, and no borrowings under the $75.0 million revolving credit line
under the Senior Credit Facility. Availability under the revolving credit line,
after consideration of outstanding letters of credit of $7.5 million, was $67.5
million.
Interest payments on the Notes and under the new bank facilities
represent significant near-term cash requirements for the Company. The Notes
require semiannual interest payments of approximately $10.6 million. Borrowings
under the bank facilities bear interest at floating rates and require interest
payments on varying dates depending upon the interest rate option selected by
the Company.
The Company believes that the cash flow generated from its continuing
operations, together with amounts available under its revolving credit line,
should be sufficient to fund its debt service requirements, working capital
needs, anticipated capital expenditures and other operating expenses (including
expenditures required by applicable environmental laws and regulations). The
Company's future operating performance and ability to service or refinance the
Notes and to extend or refinance the new bank facilities will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the Company's control.
As of December 31, 1999, the Company had cash of $8.8 million.
24
<PAGE>
YEAR 2000
The Year 2000 issue is the result of date-sensitive devices, systems and
computer programs that were deployed using two digits rather than four to define
the applicable year. Any such technology may recognize a year containing "00" as
the year 1900 rather than the year 2000. This issue could have resulted in a
system failure or miscalculations causing disruptions of operations including,
among other things, a temporary inability to process transactions or engage in
similar normal business activities.
In 1996, the Company initiated a comprehensive program to ensure that
its various business systems continue to function properly in the year 2000. By
the end of 1998, all critical business systems at each operating unit then owned
had been reviewed, modified if necessary, and tested.
In connection with the Company's acquisitions in 1999, comprehensive
programs were initiated to ensure year 2000 compliance. By September 30, 1999,
all critical business systems had been reviewed, modified and tested.
Additionally, the Company assessed readiness for the year 2000 of key
suppliers and other third parties with whom it has significant business
relationships. No negative or materially significant impact was experienced from
any supplier due to Year 2000 related problems.
Appropriate contingency plans were developed for all sites. No
contingency plans at any site had to be invoked due to a Year 2000 related
problem.
Beginning in 1996, as part of the Company's ongoing information system
improvement process, its enterprise systems were upgraded, which partially
mitigated the impact of the year 2000 problem. Excluding the cost of upgrading
the enterprise systems, the pretax cost incurred to date of becoming "Year 2000"
compliant has been approximately $0.6 million and is not expected to change.
Such costs have been funded through operating cash flows.
ENVIRONMENTAL MATTERS
The Company is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, and will incur additional
capital and operating costs in the future to comply with currently existing laws
and regulations, new regulatory requirements arising from recently enacted
statutes and possible new statutory enactments. In addition to environmental
laws that regulate the Company's subsidiaries' ongoing operations, the
subsidiaries also are subject to environmental remediation liability. Under the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and analogous state laws, the Company's subsidiaries may be liable as a
result of the release or threatened release of hazardous substances into the
environment. The Company's subsidiaries are currently involved in several
matters relating to the investigation and/or remediation of locations where the
subsidiaries have arranged for the disposal of foundry and other wastes.
Such matters include five situations in which the Company, has been
named or is believed to be Potentially Responsible Parties (PRPs) in the
contamination of the sites. Additionally, environmental remediation may be
required at two of the truck components segment facilities at which soil and
groundwater contamination has been identified.
The Company believes that it has valid claims for contractual
indemnification against prior owners for certain of the investigatory and
remedial costs at each of the above mentioned sites. As a result of a private
party settlement of certain pending litigation with a prior owner of Gunite, TCI
and Gunite will not be responsible (through a contractual undertaking by the
former owner) for certain liabilities and costs resulting from Gunite's waste
disposal prior to the acquisition of Gunite by TCI in September 1987 at certain
of such sites. The Company has been notified, however, by certain other
contractual indemnitors that they will not honor future claims for
indemnification. Accordingly, the Company is litigating indemnification claims
and there is no assurance that even if successful in any such claims, any
judgments against the indemnitors will ultimately be recoverable. In addition,
the Company believes it is likely that it has incurred some liability at various
sites for activities and disposal following acquisition which would not in any
event be covered by indemnification by prior owners.
As of December 31, 1999, the Company has a $10.4 million environmental
reserve. This reserve is based on current cost estimates and does not reduce
estimated expenditures to net present value. The Company currently anticipates
spending approximately $0.7 million per year in 2000 through 2004 for monitoring
the various environmental sites associated with the environmental reserve,
including attorney and consultant costs for strategic planning and negotiations
with regulators and other PRPs, and payment of remedial investigation costs.
These sites are
25
<PAGE>
generally in the early investigatory stages of the remediation process and thus
it is anticipated that significant cash payments for remediation will not be
incurred for at least several years. After the evaluation and investigation
period, the investigation and remediation costs will likely increase because the
actual remediation of the various environmental sites associated with the
environmental reserve will likely be underway. Any cash expenditures required by
the Company or its subsidiaries to comply with applicable environmental laws
and/or to pay for any remediation efforts will not be reduced or otherwise
affected by the existence of the environmental reserve. Due to the early stage
of investigation of many of the sites and potential remediations referred to
above, there are significant uncertainties as to waste quantities involved, the
extent and timing of the remediation which will be required, the range of
acceptable solutions, costs of remediation and the number of PRPs contributing
to such costs. Based on all of the information presently available to it, the
Company believes that the environmental reserve will be adequate to cover its
future costs related to the sites associated with the environmental reserve, and
that any additional costs will not have a material adverse effect on the
financial condition or results of operations of the Company. However, the
discovery of additional sites, the modification of existing laws or regulations,
the imposition of joint and several liability under CERCLA or the uncertainties
referred to above could result in such a material adverse effect.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's market risk sensitive instruments do not subject the
Company to material market risk exposures except as such risks relate to
interest rate fluctuations. As of December 31, 1999, the Company has debt
outstanding with a carrying value of $204.4 million. The estimated fair value of
this debt is $207.5 million. Fixed interest rate debt outstanding as of December
31, 1999, represents 89% of total debt, carries an average interest rate of
11.7% and matures as follows: $0.2 million in fiscal 2000, $0.3 million in
fiscal 2001, $0.2 million in fiscal 2002, and $181.4 million thereafter.
Variable interest rate debt outstanding as of December 31, 1999 had an average
interest rate at that date of 7.8% and matures as follows: $1.7 million in
fiscal 2000, $1.9 million in fiscal 2001, $2.1 million in fiscal 2002, $2.5
million in fiscal 2003, $3.5 million in fiscal 2004 and $10.6 million
thereafter.
The Company has an interest rate protection agreement to fix a portion
of its variable rate Senior Bank debt. At December 31, 1999, the notional
principal amount of this contract was $15 million at a 6.14% fixed rate of
interest plus the applicable borrowing margins. The contract matures in August
2000.
EFFECTS OF INFLATION
General price inflation has not had a material impact on the Company's
results of operations.
FORWARD LOOKING STATEMENTS
The foregoing outlook contains forward-looking statements that are based
on current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from current expectations due to a number
of factors, including general economic conditions; competitive factors and
pricing pressures; shifts in market demand, the performance and needs of
industries served by the Company's businesses; and the risks described from time
to time in the Company's Securities and Exchange Commission reports.
26
<PAGE>
<TABLE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
- ------------------------------------------------------- ------------- ------------- -------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------- ------------- ------------- -------------
Net sales $ 541,543 $ 433,563 $ 415,866
Cost of sales 429,711 343,852 329,678
- ------------------------------------------------------- ------------- ------------- -------------
Gross profit 111,832 89,711 86,188
Selling, general and administrative expense 47,104 38,434 35,719
Amortization expense 7,792 6,773 6,798
Pension termination gain -- (1,688) --
Reduction of environmental reserves -- -- (14,300)
- ------------------------------------------------------- ------------- ------------- -------------
Operating income 56,936 46,192 57,971
Interest income (1,359) (1,558) (439)
Interest expense 26,610 28,704 29,986
- ------------------------------------------------------- ------------- ------------- -------------
Income from continuing operations before income taxes,
extraordinary items and discontinued operations 31,685 19,046 28,424
Provision for income taxes 14,449 10,853 12,881
- ------------------------------------------------------- ------------- ------------- -------------
Income from continuing operations before
extraordinary items and discontinued operations 17,236 8,193 15,543
Discontinued operations:
Gain on sale, net of income taxes 29,817 -- --
Income (loss) from discontinued operations,
net of income taxes 22,728 30,808 (6,069)
- ------------------------------------------------------- ------------- ------------- -------------
Income before extraordinary items 69,781 39,001 9,474
Extraordinary items, net of income taxes (2,505) (1,146) (2,008)
- ------------------------------------------------------- ------------- ------------- -------------
Net income and comprehensive income $ 67,276 $ 37,855 $ 7,466
- ------------------------------------------------------- ------------- ------------- -------------
Basic earnings per share:
Income from continuing operations before
extraordinary items $ 1.71 $ 0.83 $ 1.59
Income (loss) from discontinued operations 5.22 3.13 (0.62)
Extraordinary items (0.24) (0.11) (0.21)
- ------------------------------------------------------- ------------- ------------- -------------
Net income per share $ 6.69 $ 3.85 $ 0.76
- ------------------------------------------------------- ------------- ------------- -------------
Basic weighted average shares outstanding 10,063 9,838 9,761
- ------------------------------------------------------- ------------- ------------- -------------
Diluted earnings per share:
Income from continuing operations before
extraordinary items $ 1.67 $ 0.81 $ 1.58
Income (loss) from discontinued operations 5.07 3.04 (0.62)
Extraordinary items (0.24) (0.11) (0.20)
- ------------------------------------------------------- ------------- ------------- -------------
Net income per share $ 6.50 $ 3.74 $ 0.76
- ------------------------------------------------------- ------------- ------------- -------------
Diluted weighted average equivalents and shares
outstanding 10,348 10,122 9,856
- ------------------------------------------------------- ------------- ------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 8,799 $ 33,382
Accounts receivable, net 61,053 55,550
Inventories 44,930 29,566
Deferred income tax assets 13,688 13,688
Prepaid expenses and other current assets 7,316 2,643
Net assets of discontinued operations -- 37,555
- ----------------------------------------------------------------------------------------------
Total current assets 135,786 172,384
Property, plant and equipment, net 129,999 82,402
Deferred financing costs and other, net 5,644 8,809
Intangible assets, net 263,952 229,408
- ----------------------------------------------------------------------------------------------
Total assets $ 535,381 $ 493,003
- ----------------------------------------------------------------------------------------------
LIABILITIES:
Accounts payable $ 26,574 $ 19,601
Accrued payroll and employee benefits 19,578 19,281
Other current liabilities 33,883 32,381
Current maturities of long-term debt and capital lease 1,936 9,039
- ----------------------------------------------------------------------------------------------
Total current liabilities 81,971 80,302
Long-term debt and capital lease, less current maturities 21,695 49,186
Senior subordinated notes 180,735 182,338
Deferred income tax liabilities 34,677 34,571
Other long-term liabilities 33,628 35,889
- ----------------------------------------------------------------------------------------------
Total liabilities 352,706 382,286
- ----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, par $.01, 20,000 shares authorized, none outstanding -- --
Common stock, par $.01, 201,000 shares authorized, 10,322 and 9,900
issued and outstanding as of December 31, 1999 and 1998, respectively 103 99
Paid-in capital 63,166 56,892
Retained earnings 121,017 53,741
Unearned compensation (1,611) --
Employee receivables for stock purchase -- (15)
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 182,675 110,717
- ----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 535,381 $ 493,003
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of the these statements.
28
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------- -------------- -------------- ---------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------- -------------- -------------- ---------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 67,276 $ 37,855 $ 7,466
(Income) loss from discontinued operations
and gain on sale of discontinued operations,
net of income taxes (52,545) (30,808) 6,069
- --------------------------------------------------- -------------- -------------- ---------------
Income from continuing operations 14,731 7,047 13,535
Adjustments to reconcile net income from
continuing operations to net cash
provided by operating activities:
Depreciation 13,609 10,579 10,318
Amortization 9,229 9,032 9,810
Deferred income tax expense (benefit) (753) 3,023 5,451
Pension termination gain -- (1,688) --
Reduction of environmental reserves -- -- (14,300)
Extraordinary items, net of income tax 2,505 1,146 2,008
Change in continuing operations assets and liabilities:
Accounts receivable 10,636 (828) (9,128)
Inventories (5,300) 1,425 (2,046)
Prepaid expenses and other current assets (1,860) 507 (359)
Accounts payable (6,017) (2,649) 2,664
Accrued payroll and employee benefits (2,918) 558 408
Other assets and liabilities 1,737 4,451 9,257
- --------------------------------------------------- -------------- -------------- ---------------
Cash provided by continuing operations 35,599 32,603 27,618
INVESTING ACTIVITIES:
Capital expenditures (16,447) (8,941) (6,636)
Change in restricted cash and other (319) 141 53
Cash paid for acquisitions (97,187) -- --
Proceeds from sale of the discontinued operations 101,348 -- --
- --------------------------------------------------- -------------- -------------- ---------------
Cash used in investing activities (12,605) (8,800) (6,583)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 103,100 -- 82,823
Payments of term loans and capital lease (137,694) (36,899) (90,170)
Retirement of subordinated debt (1,250) -- --
Payments of deferred financing costs and other, net (485) 521 (3,102)
- --------------------------------------------------- -------------- -------------- ---------------
Cash used in financing activities (36,329) (36,378) (10,449)
- --------------------------------------------------- -------------- -------------- ---------------
Net change in cash and cash equivalents from
continuing operations (13,335) (12,575) 10,586
Net cash (provided to) received from discontinued
operations (11,248) 18,073 (1,007)
Cash and cash equivalents, beginning of year 33,382 27,884 18,305
- --------------------------------------------------- -------------- -------------- ---------------
Cash and cash equivalents, end of year $ 8,799 $ 33,382 $ 27,884
- --------------------------------------------------- -------------- -------------- ---------------
</TABLE>
The accompanying notes to consolidated financial statements are integral to
these statements.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Effective June 14, 1999, the name of the Company was changed from
Johnstown America Industries, Inc. to Transportation Technologies Industries,
Inc., a Delaware corporation (the Company).
The Company has historically had two operating segments within the
transportation industry: truck components, a leading manufacturer of wheel end
components, seating systems, steerable drive axles, gearboxes and other castings
for the heavy-duty truck industry; and freight cars, a leading manufacturer and
lessor of new and rebuilt freight cars used for hauling coal, intermodal
containers, highway trailers, automobiles, agricultural and mining products.
On October 28, 1991, the Company through its wholly owned subsidiary
Johnstown America Corporation, (JAC), consummated the purchase of the former
Freight Car Division of Bethlehem Steel Corporation . In 1994, the Company began
leasing new and used freight cars through its JAIX Leasing Company (JAIX
Leasing) subsidiary. The Company completed the acquisition of Truck Components
Inc. (TCI) and its subsidiaries (Gunite Corporation, Brillion Iron Works, Inc.
and Fabco Automotive Corporation) on August 23, 1995, and Bostrom Seating, Inc.
(Bostrom) on January 13, 1995. Operations commenced on October 2, 1995, at the
Freight Car Services, Inc. (FCS) facility. During 1999, the Company made four
additional truck component acquisitions (see Note 2).
On June 3, 1999, the Company completed the sale of its freight car
operations comprised of three wholly owned subsidiaries - JAC, FCS, and JAIX
Leasing to Rabbit Hill Holdings, Inc. (the Buyer). The Company received
consideration consisting of approximately $101.3 million in cash, contingent
additional consideration of $20 million and a 20 percent equity interest in the
Buyer. In addition, the Buyer assumed substantially all of the liabilities of
the freight car operations, including $14.4 million of debt. The 20 percent
equity interest in the Buyer is comprised of common and preferred stock, some of
which is non-voting. Further, the Company's rights with respect to voting and
transferability of its equity interest are limited and, in particular, the
Company granted a proxy to vote its equity interest to another shareholder of
Buyer under certain circumstances. As a result, the Company accounts for its
investment in Buyer using the cost method. The sale resulted in a pretax gain of
$46.8 million after consideration of transaction costs of $4.2 million and a
related pension curtailment loss of $0.3 million. The after-tax gain on the
disposition of the freight car business of $29.8 million was recorded in the
Company's results for the second quarter of 1999. Approximately $2.5 million of
additional gain was deferred due to the Company's continuing interest in the
freight car business. Proceeds from the $20.0 million contingent additional
consideration will be recorded as a gain, if and when collected. Also as a
result of the sale, approximately $80.0 million of senior bank debt was paid
subsequent to the disposition which resulted in a non-cash $2.2 million
extraordinary charge, net of income taxes, from the write off of unamortized
deferred financing costs.
Revenues of the freight car business in 1999 (through June 3), 1998, and
1997 were $ 315.6 million, $532.2 million, and $234.3 million, respectively.
Included within the income (loss) from discontinued operations is an allocation
of consolidated interest which is not attributable to other operations of the
Company. The interest included was $(0.2) million, $2.1 million and $3.3 million
in 1999, 1998 and 1997, respectively.
The accompanying consolidated financial statements have been recast to
reflect the freight car business as a discontinued operation for all periods.
For historical business segment reporting purposes, the Company's financial data
related to its freight car business was previously reported as the segment,
"Freight Car." The Company's continuing operations comprise a single reporting
segment.
NOTE 2. ACQUISITIONS
IMPERIAL GROUP ACQUISITION
On April 29, 1999, the Company acquired the assets of Imperial Group,
Inc. (Imperial). Imperial is a leading Tier I and Tier II supplier of body and
chassis components for heavy-duty truck manufacturers and transit bus
manufacturers. The purchase price for Imperial was approximately $61.6 million
consisting of $58.8 million in cash
30
<PAGE>
and 156,740 shares of the Company's common stock. The purchase price is also
subject to a contingent earn-out of up to $4.0 million, based on the operating
results of Imperial's Washington plant for the 24 months ending April 2001. The
Company also incurred transaction costs of $0.7 million and issued 36,500 shares
of restricted stock to two Imperial employees valued at $0.6 million, which vest
ratably over three years if employment continues. The cash portion of the
purchase price was funded by the new credit facility described in Note 6.
EMI COMPANY ACQUISITION
On May 17, 1999, the Company's Gunite subsidiary acquired certain assets
and liabilities of EMI Company (EMI), an iron foundry and machining company
located in Erie, Pennsylvania. The Company paid $16.5 million in cash for
property, plant and equipment and $2.2 million for working capital.
CLARK ENGINEERING & MANUFACTURING ACQUISITION
On September 30, 1999, the Company's Imperial Group subsidiary acquired
certain assets and liabilities of Clark Engineering & Manufacturing, Inc.
(Clark), a manufacturer of a broad range of metal parts and accessories for the
heavy-duty truck industry. The Company used cash on-hand of $8.7 million to fund
the acquisition.
BMC OF VIRGINIA, INC. ACQUISITION
On October 21, 1999, the Company's Imperial Group subsidiary acquired
certain assets and liabilities of BMC of Virginia, Inc. (BMC-VA), a leading
supplier of components to Volvo, whose North American assembly operations are
located adjacent to BMC-VA facilities. BMC-VA manufactures, warehouses,
assembles and sequences components for Volvo and Freightliner. The Company used
cash on hand of $11.0 million to fund the acquisition.
The acquisitions were accounted for as purchases for financial reporting
purposes. Accordingly, certain assets and liabilities of the acquired companies
were recorded at estimated fair values as of the acquisition date, adjusted as
of December 31, 1999, based on management's best judgement and available
information at the time. Future changes in these estimates, if any, will be made
within one year of the acquisition dates and are not expected to be material.
The operating results of the acquired companies have been included in
the Company's reported results of operations from their respective acquisition
dates.
The Company's pro forma unaudited consolidated results of operations for
the years ended December 31, 1999 and 1998 prepared as though the acquisitions
and the related financing transactions occurred on January 1, of the applicable
year are as follows:
(IN MILLIONS, EXCEPT PER SHARE DATA)
- ------------------------------------------------ -------------- ---------------
1999 1998
- ------------------------------------------------ -------------- ---------------
Total revenues $ 610.1 $ 583.3
Income before extraordinary item 72.1 38.6
Net income 71.5 35.5
Net income per share $ 6.91 $ 3.51
- ------------------------------------------------ -------------- ---------------
The pro forma operating results include each acquiree's pre-acquisition
results of operations for the indicated years with adjustments to reflect
amortization of excess cost over n et assets acquired and other identified
intangible assets, additional depreciation on the increase to fair market value
of fixed assets, interest expense on the acquisition borrowings and the effect
of income taxes thereon. The pro forma information given above does not purport
to be indicative of the results that actually would have been obtained if the
operations were combined during the periods presented and is not intended to be
a projection of the future results or trends.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the
application of the following significant accounting policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in the accompanying consolidated
financial statements.
31
<PAGE>
CASH EQUIVALENTS
The Company considers all short-term investments with original
maturities of three months or less when acquired to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of 41%
and 25% of the Company's inventories as of December 31, 1999 and 1998,
respectively, was determined on the first-in, first-out (FIFO) method, with the
cost of the remaining inventories determined on the last-in, first-out method
(LIFO). Had all inventories been determined on the FIFO method at December 31,
1999 and 1998, the reported value of such inventories would have been increased
by $1.4 million and $1.1 million, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. In the case of acquisitions, cost represents estimated fair market
value at date of acquisition. Depreciation is provided using the straight-line
method by making periodic charges to income over the estimated useful lives of
the assets, which are as follows:
- --------------------------------------------------------------------------------
Buildings and improvements 10-40 years
Machinery and equipment 3-12 years
- --------------------------------------------------------------------------------
Property, plant and equipment under capital leases are amortized over
the shorter of the estimated useful life of the asset or the term of the lease.
Maintenance and repairs are charged to expense as incurred, while major
replacements and improvements are capitalized. The cost and accumulated
depreciation of items sold or retired are removed from the property accounts and
any gain or loss is recorded currently in the consolidated statements of income.
RESEARCH AND DEVELOPMENT
Costs associated with research and development are expensed as incurred.
INTANGIBLE ASSETS
The excess of purchase costs over amounts allocated to identifiable
assets and liabilities of businesses acquired (goodwill) is amortized on the
straight-line method over 40 years. Should events or circumstances occur
subsequent to the acquisition of a business which bring into question the
realizable value or impairment of the related goodwill, the Company will
evaluate the remaining useful life and balance of goodwill, and should an
impairment be identified, a loss would be recognized to the extent that the
carrying value exceeds the fair value. The Company's principle considerations in
determining impairment include the strategic benefit to the Company of the
particular business as measured by undiscounted current and expected future
operating cash flows of that particular business.
Other intangible assets, except pension assets, are amortized on the
straight-line method over their estimated useful lives, which are as follows:
Trademarks 40 years
Technologies 13-40 years
Patents 8 years
Non-compete 3-5 years
ENVIRONMENTAL RESERVES
The Company is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, and will incur additional
capital and operating costs in the future to comply with currently existing laws
and regulations, new regulatory requirements arising from recently enacted
statutes and possible new statutory enactments. In addition to environmental
laws that regulate the Company's ongoing operations, the Company is also subject
to environmental remediation liability. It is the Company's policy to provide
and accrue for the estimated cost of environmental matters, on a nondiscounted
basis, when it is probable that a liability has been incurred and the amount of
the liability can be reasonably estimated. Such provisions and accruals exclude
claims for recoveries from insurance carriers or other third parties.
32
<PAGE>
Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities" was issued in October 1996 and adopted by the Company with minimal
impact in 1997. This SOP provides authoritative guidance on specific accounting
issues that are present in the recognition, measurement and disclosure of
environmental remediation liabilities.
INCOME TAXES
The Company provides for deferred income taxes on differences that arise
when items are reported for financial statement purposes in years different from
those for income tax reporting purposes in conformance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
REVENUE RECOGNITION
Revenue from the continuing operations is recognized when the products
are shipped.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and must be adopted by the Company by the
year 2000. This new pronouncement will require the Company to record derivatives
on the balance sheet as assets or liabilities, measured at fair value and gains
or losses resulting from the changes in the values of those derivatives to be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The Company is evaluating the standard and does not expect
it to have a material impact on the financial results or condition of the
Company because the use of derivatives at the Company is not significant.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to
conform to current year presentation.
NOTE 4. DETAIL OF CERTAIN ASSETS AND LIABILITIES
<TABLE>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
- -------------------------------------------------------- ------------ ------------- -------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,729 $ 2,244 $ 1,883
Acquired in business acquisitions 407 -- --
Provision for doubtful accounts 601 673 1,854
Net write-offs (461) (1,188) (1,493)
- -------------------------------------------------------- ------------ ------------- -------------
Balance at end of year $ 2,276 $ 1,729 $ 2,244
- -------------------------------------------------------- ------------ ------------- -------------
INVENTORIES
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------
As of December 31, 1999 1998
- --------------------------------------------------------------------- ------------- ------------
Raw materials and purchased components $ 14,481 $ 8,575
Work in progress and finished goods 30,449 20,991
- --------------------------------------------------------------------- ------------- ------------
Inventories $ 44,930 $ 29,566
- --------------------------------------------------------------------- ------------- ------------
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------
As of December 31, 1999 1998
- --------------------------------------------------------------------- ------------- -------------
Land $ 5,271 $ 3,254
Buildings and improvements 33,245 19,831
Machinery and equipment 132,155 88,728
Construction in progress 6,618 4,841
- --------------------------------------------------------------------- ------------- -------------
177,289 116,654
Accumulated depreciation 47,290 34,252
- --------------------------------------------------------------------- ------------- -------------
Property, plant and equipment, net $ 129,999 $ 82,402
- --------------------------------------------------------------------- ------------- -------------
33
<PAGE>
INTANGIBLE ASSETS
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------
Net Balance
Accumulated -------------------------------
Original Amortization
As of December 31, Cost 1999 1999 1998
----------- -------------- ------------ -------------
Excess cost over net assets acquired $ 239,020 $ 22,358 $ 216,662 $ 179,965
Trademarks 26,988 3,023 23,965 24,662
Technologies 20,722 3,556 17,166 17,987
Patents 5,878 1,841 4,037 4,373
Non-compete agreements 2,550 428 2,122 --
Pension asset -- -- -- 414
Pension asset from discontinued operations -- -- -- 2,007
- -------------------------------------- ------------ ----------------- ------------ -------------
Intangible assets $ 295,158 $ 31,206 $ 263,952 $ 229,408
- -------------------------------------- ------------ ----------------- ------------ -------------
OTHER CURRENT LIABILITIES
(IN THOUSANDS)
As of December 31, 1999 1998
- ------------------------------------------------------------ ----------------- -----------------
Accrued interest $ 8,195 $ 8,489
Accrued workers' compensation 3,798 2,626
Current portion of postretirement medical
and pension benefit reserves 3,005 3,000
Accrued warranty 1,291 818
Other 17,594 17,448
- ------------------------------------------------------------ ----------------- -----------------
Other current liabilities $ 33,883 $ 32,381
- ------------------------------------------------------------ ----------------- -----------------
OTHER LONG-TERM LIABILITIES
(IN THOUSANDS)
As of December 31, 1999 1998
- ------------------------------------------------------------ ----------------- -----------------
Postretirement medical and pension benefit reserves $ 18,969 $ 20,985
Environmental reserves 9,659 9,904
Other 5,000 5,000
- ------------------------------------------------------------ ----------------- -----------------
Other long-term liabilities $ 33,628 $ 35,889
- ------------------------------------------------------------ ----------------- -----------------
NOTE 5. SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON PAID-IN RETAINED UNEARNED EMPLOYEE
STOCK CAPITAL EARNINGS COMPENSATION RECEIVALBES TOTAL
---------- --------- ---------- ----------- ---------- ---------
Balance-December 31, 1996 $ 98 $ 55,049 $ 8,420 $ -- $ (30) $ 63,537
Options exercised -- 17 -- -- -- 17
Net income for year -- -- 7,466 -- -- 7,466
- ------------------------------------------------------------------------------------------------
Balance-December 31, 1997 98 55,066 15,886 -- (30) 71,020
Options exercised 1 1,512 -- -- -- 1,513
Net income for year -- -- 37,855 -- -- 37,855
- ------------------------------------------------------------------------------------------------
Balance-December 31, 1998 99 56,892 53,741 -- (15) 110,717
Collection of employee receivables -- -- -- -- 15 15
Options exercised 1 1,297 -- -- -- 1,298
Common stock issued 3 4,977 -- (2,217) -- 2,763
Amortization of unearned
compensation -- -- -- 606 -- 606
Net income for year -- -- 67,276 -- -- 67,276
- ------------------------------------------------------------------------------------------------
Balance-December 31, 1999 $ 103 $ 63,166 $ 121,017 $ (1,611) $ -- $ 182,675
- ------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
COMMON AND PREFERRED STOCK
The Company authorized 200,000,000 shares of Common Stock (voting),
1,000,000 shares of Class B Common Stock (non-voting) and 20,000,000 shares of
preferred stock. No Class B Common Stock or preferred stock has been issued.
In October 1995, the Board of Directors of the Company adopted a
Shareholder Rights Plan and declared a dividend of one right ("Right") for each
outstanding share of the Company's common stock held by shareholders of record
on October 16, 1995. When exercisable, each Right entitles shareholders of
record to purchase from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock at an exercise price of $32.00, subject to
certain adjustments. The Company authorized 20,000 shares of such stock pursuant
to this plan. The Rights will become exercisable, and will trade separately from
the common stock, only if a person or group acquires 15% or more of the
Company's outstanding common stock or commences a tender or exchange offer that
would result in that person or group owning 15% or more of the Company's
outstanding common stock. Subsequently, upon the occurrence of certain events,
holders of Rights will be entitled to purchase common stock of the Company or a
third-party acquiror at an amount equal to twice the Right's exercise price.
Until the Rights become exercisable, they may be redeemed at the Company's
option at a price of one cent per Right. The Rights expire on October 4, 2005.
The Rights were amended as of January 31, 2000 (see footnote 18).
On February 1, 1999 the Company issued 98,000 shares of Restricted Stock
to certain key executives. This stock has a three year vesting period and the
expense of this unearned compensation will be amortized over the vesting period.
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following:
(IN THOUSANDS)
- -------------------------------------------- ------------ ------------
AS OF DECEMBER 31, 1999 1998
- -------------------------------------------- ------------ ------------
Revolving credit line $ -- $ --
Tranche A term loan 9,200 --
Tranche B term loan 9,950 56,632
Industrial revenue bonds 3,100 --
Capital lease 1,381 1,593
- -------------------------------------------- ------------ ------------
Total debt 23,631 58,225
Current maturities (1,936) (9,039)
- -------------------------------------------- ------------ ------------
Long-term debt $ 21,695 $ 49,186
- -------------------------------------------- ------------ ------------
Maturities of long-term debt, are as follows:
(IN THOUSANDS)
- ------------------------------------------------------------
As of December 31, 1999
2000 $ 1,936
2001 2,163
2002 2,280
2003 2,544
2004 3,473
Thereafter 11,235
- ------------------------------------------------------------
SENIOR BANK CREDIT FACILITY
In conjunction with the acquisition of Imperial on April 29, 1999, the
Company entered into a new Senior Bank Credit Facility. The new facility is
comprised of a $50 million Term A Loan, a $50 million Term B Loan and an
35
<PAGE>
undrawn $75 million Revolving Credit Facility. Proceeds were used to finance the
Imperial acquisition, to refinance the Company's then outstanding senior bank
debt of $36.6 million, and for working capital and other general corporate
purposes.
At the Company's election, interest rates per annum on the Term A Loan
and the revolving credit line are fluctuating rates of interest measured by
reference to either (a) an adjusted London interbank offered rate (LIBOR) plus a
borrowing margin or (b) an alternate base rate (ABR) plus a borrowing margin.
Such borrowing margins range between 1.50% and 2.50% for LIBOR loans and between
0.50% and 1.50% for ABR loans, fluctuating within each range in 0.25% increments
based on the Company achieving certain financial results. Interest rates per
annum applicable to the Term B Loan are either (a) LIBOR plus a margin of 2.75%
or (b) ABR plus a margin of 1.75%. Additionally, various fees related to unused
commitments, letters of credit and administration of the facility are incurred
by the Company. Borrowings under the Senior Bank Credit Facility are guaranteed
by each of the Company's subsidiaries and are secured by the assets and stock of
the Company and its Guarantor Subsidiaries. The Term A Loan and the Revolving
Credit Facility mature on April 29, 2004 and the Term B Loan matures on April
29, 2005. As of December 31, 1999, availability under the revolving credit line,
after consideration of outstanding letters of credit of $7.5 million, was $67.5
million and the weighted average interest rate of all outstanding loans under
the Senior Bank Credit Facility was 8.5%. In connection with the sale of the
freight car operations, net proceeds were used to pay down $40.0 million of the
Term A Loan and $40.0 million of the Term B Loan.
The Senior Bank Credit Facility contains various financial covenants
including capital expenditure limitations, minimum leverage and interest
coverage ratios, and minimum net worth. The agreement also restricts the Company
from paying dividends and making other distributions in certain circumstances,
and limits the ability to repurchase common stock and prepay the Senior
Subordinated Notes.
INDUSTRIAL REVENUE BONDS
On April 1, 1999, the Company, through its wholly owned subsidiary,
Bostrom Seating, Inc., issued Industrial Revenue Bonds for $3.1 million which
bear interest at a variable rate (5.7% as of December 31, 1999) and can be
redeemed by the Company at any time. The bonds are secured by a letter of credit
issued by the Company. The bonds have no amortization and mature in 2014. The
bonds are also subject to a weekly "put" provision by the holders of the bonds.
In the event that any or all of the bonds are put to the Company under this
provision, the Company would either refinance such bonds with additional
borrowings under the Revolving Credit Facility or use available cash on hand.
OTHER
The company has entered into an interest rate contract to fix a portion
of the cost of its variable rate bank debt. This contract limits the effect of
market fluctuations on the interest cost of floating rate debt. The impact of
fixed versus variable interest rates is recorded as incurred, as a component of
interest expense. The notional principal amounts outstanding on the interest
rate contract covering the current period is $15.0 million at a 6.14% fixed rate
of interest plus the applicable borrowing margin. The contract matures in August
2000. Costs associated with obtaining the Senior Bank Credit Facility, the
Senior Subordinated Notes described in Note 7 and other indebtedness aggregated
to $5.7 million as of December 31, 1999. Such costs are amortized over the term
of the related debt. Amortization of deferred financing costs amounted to $1.0
million, $1.9 million and $2.2 million for the years ended December 31, 1999,
1998, and 1997, respectively. As a result of prepayment of debt, the Company
recorded extraordinary non-cash charges, net of income tax of $2.5 million, $1.1
million and $2.0 million for the years ended December 31, 1999, 1998 and 1997,
respectively, to write off related unamortized deferred financing costs. As of
December 31, 1999 and 1998, accumulated amortization of deferred financing costs
was $1.7 million and $4.3 million, respectively.
NOTE 7. SENIOR SUBORDINATED NOTES
In 1995, the Company issued $100 million of Senior Subordinated Notes
which are due August 15, 2005. In 1997, the Company issued $80 million of
additional notes due August 15, 2005 (collectively, the Notes) with
substantially identical terms to the already outstanding notes at a $3.5 million
premium, for an effective rate of 10.8%. These Notes have an interest rate of
$11.75% per annum and are guaranteed on an unsecured, senior subordinated joint
and several basis by each of the Company's subsidiaries. Pursuant to the
settlement of separate interest rate contracts in effect when each portion of
the Notes was issued, the Company realized a $0.8 million loss and a $2.6
million gain upon the 1997 and 1995 issuances, respectively. The gain and the
loss are being amortized as an offset to interest
36
<PAGE>
expense over the term of the Notes. The Notes are subordinated to all
indebtedness under the Senior Bank Credit Facility and cross-default provisions
do exist. Except in certain limited circumstances, the Notes are not subject to
optional redemption by the Company prior to August 15, 2000, and thereafter are
subject to optional redemption by the Company at declining redemption premiums.
Upon the occurrence of a change in control (as defined), the Company is required
to offer to repurchase the Notes at a price equal to 101% of the principal
amount thereof plus accrued interest. In August, 1999 the Company repurchased
and retired Notes with a face value of $1.25 million.
The Company's future operating performance and ability to service or
refinance the Notes and to extend or refinance the senior bank debt will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control.
NOTE 8. EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
Certain of the Company's subsidiaries have qualified, defined benefit
plans covering a majority of their employees. Company contributions to the plans
were made based upon the minimum amounts required under the Employee Retirement
Income Security Act. The plans' assets are held by independent trustees and
consist primarily of equity and fixed income securities.
Following the acquisition of TCI, a certain TCI plan was frozen and was
replaced with a defined contribution plan. The Company, after consideration of
previously unrecognized amounts, recognized a $1.7 million non-cash gain on the
termination of the plan in 1998.
POSTRETIREMENT BENEFITS
The Company provides health care benefits and life insurance for certain
salaried and hourly retired employees. Employees may become eligible for health
care benefits if they retire after attaining specified age and service
requirements. These benefits are subject to deductibles, co-payment provisions
and other limitations.
The Company does not offer any other significant postretirement
benefits. The following table sets forth the plans' funded status:
<TABLE>
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------- ------------------------
AS OF DECEMBER 31, 1999 1998 1999 1998
CHANGE IN BENEFIT OBLIGATION
<S> <C> <C> <C> <C>
Benefit obligations at beginning of year $ 7,667 $ 12,165 $ 16,779 $ 14,647
Benefit obligations acquired in business acquisition 7,347 -- 178 --
Benefit obligations retained from discontinued operations 27,316 -- -- --
Service cost 533 418 341 425
Interest cost 2,018 620 1,212 1,135
Plan amendment -- 878 (260) --
Actuarial loss (2,908) 217 2,105 1,873
Settlement gain -- (1,688) -- --
Benefits paid (1,641) (4,943) (1,916) (1,301)
- -------------------------------------------------- ----------- ---------- ----------- ------------
Benefit obligations at end of year $ 40,322 $ 7,667 $ 18,439 $ 16,779
- -------------------------------------------------- ----------- ---------- ----------- ------------
Change in Plan Assets
Fair value of plan assets at beginning of year $ 5,890 $ 8,220 $ -- $ --
Plan assets acquired in business acquisition 7,384 -- -- --
Plan assets retained from discontinued operations 24,334 -- -- --
Actual return on plan assets 5,665 675 -- --
Employer contribution 1,172 1,938 -- --
Benefits paid (1,641) (4,943) -- --
- -------------------------------------------------- ----------- ---------- ----------- ------------
Fair value of plan assets at end of year $ 42,804 $ 5,890 $ -- $ --
- -------------------------------------------------- ----------- ---------- ----------- ------------
Plan assets in excess of benefit obligations $ 2,482 $ -- $ -- $ --
38
<PAGE>
Pension Benefits Postretirement Benefits
AS OF DECEMBER 31, ----------------------- -------------------------
1999 1998 1999 1998
Benefit obligations in excess of plan assets -- (1,777) (18,439) (16,779)
Unrecognized net (gain) /loss (8,764) (272) 3,333 1,279
Unrecognized prior service cost 980 686 (241) --
- -------------------------------------------------- ----------- ---------- ----------- ------------
Net amount recognized $ (5,302) $ (1,363) $ (15,347)$ (15,482)
- -------------------------------------------------- ----------- ---------- ----------- ------------
Recognized in Balance Sheet
Accrued benefit obligation $ (6,627)$ (1,777)$ (15,347) $ (15,482)
Pension asset 1,325 -- -- --
Intangible asset -- 414 -- --
- --------------------------------------------- ------------ ------------- ------------ ------------
Net amount recognized $ (5,302)$ (1,363)$ (15,347) $ (15,482)
- --------------------------------------------- ------------ ------------- ------------ ------------
Weighted-Average Assumptions
Discount rate 8.00% 6.75% 8.00% 6.75%
Expected return on plan assets 9.00% 9.00% -- --
Rate of compensation increase 3.00-4.00% 3.00-4.00% -- --
- --------------------------------------------- ------------ ------------- ------------ ------------
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999 decreasing
gradually to an ultimate rate of 5.00% by the year 2005.
The Company recognized a minimum pension liability for underfunded
plans. The minimum liability is equal to the excess of the accumulated benefit
obligation over the fair market value of plan assets. A corresponding amount is
recognized as an intangible asset. The table above does not reflect $4.7 million
of net pension liabilities as of December 31, 1998, retained from the
discontinued freight car operations.
COMPONENTS OF NET PERIODIC BENEFIT COST
(IN THOUSANDS)
Pension Benefits Postretirement Benefits
-------------------------- ------------------------
Years ended December 31, 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------
Service cost $ 533 $ 418 $ 325 $ 341 $ 425 $ 365
Interest cost 2,018 620 674 1,212 1,135 1,081
Expected return on plan assets (2,076) (605) (2,433) -- -- --
Amortization of unrecognized net loss -- -- 1,807 69 16 --
Prior service cost 58 31 14 (19) -- --
Net periodic benefit cost $ 533 $ 464 $ 387 $ 1,603 $ 1,576 $ 1,446
- ----------------------------------------------------------------------------------------------
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------
As of December 31, 1999 1-Percentage- 1-Percentage-
Point Increase Point Decrease
- ----------------------------------------------------------- ---------------- ---------------------
Effect on total of service and interest cost $ 328 $ (277)
Effect on postretirement benefit obligation 2,855 (2,484)
- ----------------------------------------------------------- ---------------- ---------------------
DEFINED CONTRIBUTION PLANS
Certain of the Company's subsidiaries also maintain qualified, defined
contribution plans which provide benefits to their employees based on employee
contributions, years of service, employee earnings or certain subsidiary
earnings, with discretionary contributions allowed. Expenses relating to these
plans, were $3.8 million, $3.1 million and $2.9 million for the years 1999, 1998
and 1997, respectively.
38
<PAGE>
NOTE 9. INCOME TAXES
The provision for income taxes for income before extraordinary items and
discontinued operations includes current and deferred components as follows:
(IN THOUSANDS)
- ---------------------------------------------------------- ------------ ------------ ------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------- ------------ ------------ ------------
Current tax provision:
Federal $ 11,892 $ 5,054 $ 6,172
State 3,310 2,776 1,258
- ---------------------------------------------------------- ------------ ------------ ------------
15,202 7,830 7,430
Deferred tax (benefit) provision (753) 3,023 5,451
- ---------------------------------------------------------- ------------ ------------ ------------
Provision for income taxes for income from continuing
operations, before extraordinary items and discontinued
operations $ 14,449 $ 10,853 $ 12,881
- ---------------------------------------------------------- ------------ ------------ ------------
The provision for income taxes before extraordinary items and
discontinued operations differs from the amounts computed by applying the
federal statutory rate as follows:
(IN THOUSANDS)
- ---------------------------------------------------------- ------------ ------------ ------------
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------- ------------ ------------ ------------
Income taxes at federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 6.6 10.3 5.2
Nondeductible amortization expense 5.4 9.0 6.1
Other, net (1.4) 2.7 (1.0)
- --------------------------------------------------------- ------------ ------------ ------------
Effective income tax rate 45.6% 57.0% 45.3%
- --------------------------------------------------------- ------------ ------------ ------------
Components of deferred tax benefits (obligations) consist of the following:
(IN THOUSANDS)
As of December 31, 1999 1998
------------------------------ - ------------------------------
Benefits Obligations Benefits Obligations
------------ ------------- ----------- --------------
Postretirement medical and
pension benefit reserves $ 8,030 $ -- $ 12,458 $ --
Environmental reserve 4,219 -- 4,155 --
Accrued workers' compensation reserve 1,482 -- 1,862 --
Warranty reserve 734 -- 2,924 --
Vacation reserve 1,984 -- 1,805 --
Property, plant and equipment -- (17,827) -- (26,487)
Trademarks and technologies -- (17,616) -- (18,339)
Inventories -- (2,700) -- (2,412)
Other 4,997 (4,292) 6,570 (3,419)
- ------------------------------------------ ------------ ------------- ----------- --------------
Deferred tax benefits (obligations) $ 21,446 $ (42,435) $ 29,774 $ (50,657)
- ------------------------------------------ ------------ ------------- ----------- --------------
</TABLE>
In the consolidated balance sheets, these deferred benefits and deferred
obligations are classified as deferred income tax assets or deferred income tax
liabilities, based on the classification of the related liability or asset for
financial reporting. A deferred tax asset or liability that is not related to an
asset or liability for financial reporting, including deferred tax assets
related to carry forwards, are classified according to the expected reversal
date of the temporary difference as of the end of the year. Tax credit carry
forwards which existed at December 31, 1998 consisted of certain state tax net
operating losses which primarily related to the freight car business. A
valuation allowance of $1.0 million as of December 31, 1998, has been recorded
to offset these state tax credit carry forwards. As of December 31, 1999 and
1998, no other valuation allowances are deemed necessary as management expects
to realize all other deferred benefits as future tax deductions.
39
<PAGE>
NOTE 10. STOCK OPTION PLANS
The Company maintains a Stock Option Plan (the Option Plan) for
management and nonaffiliated directors of the Company and has reserved 989,000
shares of common stock for issuance under such plan. Options are granted to
management at the discretion of the Company's directors and pursuant to an
option program for nonaffiliated Company directors. Options granted under the
Option Plan generally have an exercise price equal to the closing market value
of the Company's common stock as of the date of grant, and become exercisable
under various vesting periods of up to three years.
Certain information regarding stock options issued by the Company is summarized
below:
(SHARES IN THOUSANDS)
- ------------------------------------------------------------------------------
Outstanding Exercisable
------------------------------------------------------
Wtd. Avg. Wtd. Avg.
Shares Exer. Price Shares Exer. Price
----------- ---------------- -------- ------------
December 31, 1996 673 $ 10.10 472 $ 10.82
Issued 209 6.54
Exercised (10) 2.79
Canceled (50) 15.40
- ------------------------------------ ---------------- -------- ------------
December 31, 1997 822 8.94 651 9.74
Issued 72 15.35
Exercised (102) 6.57
- ------------------------------------ ---------------- -------- ------------
December 31, 1998 792 9.79 670 9.62
Issued 48 17.14
Exercised (132) 7.02
Canceled (47) 16.85
- ------------------------------------ ---------------- -------- ------------
December 31, 1999 661 $ 10.37 604 $ 9.84
- ------------------------------------ ---------------- -------- ------------
<TABLE>
(SHARES IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------
As of December 31, 1999 Outstanding Exercisable
---------------------------------- ----------------------------
Wtd. Avg Wtd. Avg. Wtd. Avg.
Range of Exercise Prices Shares Remaining Years Exer. Price Shares Exer. Price
- ------------------------- -------- ------------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
$3.06 - $13.50 472 6.66 $ 7.25 455 $ 7.02
$14.50 - $25.63 188 6.00 18.19 149 18.46
- ------------------------- ---------- -------------------- ------------ ------------- -------------
$3.06 - $25.63 660 6.47 10.37 604 9.84
- ------------------------- ---------- -------------------- ------------ ------------- -------------
</TABLE>
The Company measures compensation cost under the intrinsic value based
method. Had compensation expense been determined under the fair value based
method, pro forma net income and diluted earnings per share would have been as
follows:
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Years ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------
Pro forma net income $ 67.1 $ 37.7 $ 6.9
Pro forma diluted earnings per share 6.48 3.73 0.70
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes pricing model assuming an expected life of 10 years, a
zero dividend yield and the following weighted average assumptions:
- --------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997
Risk free interest rate 5.6% 5.3% 6.3%
Volatility rate 61.6% 60.9% 64.9%
- --------------------------------------------------------------------------------
40
<PAGE>
NOTE 11. ENVIRONMENTAL MATTERS
The Company is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, and will incur additional
capital and operating costs in the future to comply with currently existing laws
and regulations, new regulatory requirements arising from recently enacted
statutes and possible new statutory enactments. In addition to environmental
laws that regulate the Company's subsidiaries' ongoing operations, the
subsidiaries also are subject to environmental remediation liability. Under the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and analogous state laws, the Company's subsidiaries may be liable as a
result of the release or threatened release of hazardous substances into the
environment. The Company's subsidiaries are currently involved in several
matters relating to the investigation and/or remediation of locations where the
subsidiaries have arranged for the disposal of foundry and other wastes.
Such matters include five situations in which the Company, has been
named or is believed to be Potentially Responsible Parties (PRPs) in the
contamination of the sites. Additionally, environmental remediation may be
required at two of the facilities at which soil and groundwater contamination
has been identified.
The Company believes that it has valid claims for contractual
indemnification against prior owners for certain of the investigatory and
remedial costs at each of the above mentioned sites. As a result of a private
party settlement of certain pending litigation with a prior owner of Gunite, TCI
and Gunite will not be responsible (through a contractual undertaking by the
former owner) for certain liabilities and costs resulting from Gunite's waste
disposal prior to the acquisition of Gunite by TCI in September 1987 at certain
of such sites. The Company has been notified, however, by certain other
contractual indemnitors that they will not honor future claims for
indemnification. Accordingly, the Company is litigating indemnification claims
and there is no assurance that even if successful in any such claims, any
judgments against the indemnitors will ultimately be recoverable. In addition,
the Company believes it is likely that it has incurred some liability at various
sites for activities and disposal following acquisition which would not in any
event be covered by indemnification by prior owners.
As of December 31, 1999, the Company has a $10.4 million environmental
reserve. This reserve is based on current cost estimates and does not reduce
estimated expenditures to net present value. The Company currently anticipates
spending approximately $0.7 million per year in 2000 through 2004 for monitoring
the various environmental sites associated with the environmental reserve,
including attorney and consultant costs for strategic planning and negotiations
with regulators and other PRPs, and payment of remedial investigation costs.
These sites are generally in the early investigatory stages of the remediation
process and thus it is anticipated that significant cash payments for
remediation will not be incurred for at least several years. After the
evaluation and investigation period, the investigation and remediation costs
will likely increase because the actual remediation of the various environmental
sites associated with the environmental reserve will likely be under way. Any
cash expenditures required by the Company or its subsidiaries to comply with
applicable environmental laws and/or to pay for any remediation efforts will not
be reduced or otherwise affected by the existence of the environmental reserve.
Due to the early stage of investigation of many of the sites and potential
remediations referred to above, there are significant uncertainties as to waste
quantities involved, the extent and timing of the remediation which will be
required, the range of acceptable solutions, costs of remediation and the number
of PRPs contributing to such costs. Based on all of the information presently
available to it, the Company believes that the environmental reserve will be
adequate to cover its future costs related to the sites associated with the
environmental reserve, and that any additional costs will not have a material
adverse effect on the financial condition or results of operations of the
Company. However, the discovery of additional sites, the modification of
existing laws or regulations, the imposition of joint and several liability
under CERCLA or the uncertainties referred to above could result in such a
material adverse effect.
NOTE 12. CONTINGENCIES
The Company is involved in certain threatened and pending legal
proceedings including workers' compensation claims arising out of the conduct of
its businesses. In the opinion of management, the ultimate outcome of such legal
proceedings will not have a material adverse effect on the financial position or
results of operations of the Company.
Additionally, the Company is involved in various warranty and repair
claims with its customers as a normal course of business. In the opinion of
management, accrued warranty costs relating to these obligations are adequate.
41
<PAGE>
NOTE 13. COMMITMENTS
The Company leases certain real property and equipment under long-term
leases expiring at various dates through 2032. The leases generally contain
specific renewal or purchase options at the then fair market value.
Future minimum lease payments at December 31, 1999, are as follows:
<TABLE>
(IN THOUSANDS)
Capital Operating
Lease Leases
--------------- -----------------
<S> <C> <C>
2000 $ 395 $ 4,556
2001 395 3,364
2002 281 2,403
2003 125 1,461
2004 86 1,178
Thereafter 1,917 2,305
- ----------------------------------------------------------------------------------------------------------
Total minimum lease payments 3,199 $ 15,267
Less: Amount representing interest 1,818
- ----------------------------------------------------------------------------------------------------------
Present value of minimum lease payments 1,381
Less: Current portion of obligation under capital lease 236
- ----------------------------------------------------------------------------------------------------------
Noncurrent obligation under capital lease $ 1,145
- ----------------------------------------------------------------------------------------------------------
While the Company is liable for maintenance, insurance and similar costs
under most of its leases, such costs are not included in the future minimum
lease payments.
The Company assumed the capital lease in its acquisition of TCI. The
related asset balance of $1.9 million is included as a component of buildings
and improvements. Accumulated depreciation of this asset was $0.5 million and
$0.4 million as of December 31, 1999 and 1998, respectively.
Total rental expense, of continuing operations, for the years 1999, 1998
and 1997 amounted to $5.8 million, $3.6 million and $3.2 million, respectively.
NOTE 14. UNAUDITED QUARTERLY INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------------------------------
1999 First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------- -------------
Total revenue $ 117.3 $ 134.4 $ 141.1 $ 148.8
Gross profit 24.6 28.3 26.5 32.4
Income from continuing operations
after extraordinary items 2.9 2.5 4.1 5.2
Net income 14.6 43.3 4.1 5.2
Diluted earnings per share 1.47 4.23 0.40 0.50
- -------------------------------------------- ------------ ------------ ------------- -------------
1998 First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------- -------------
Total revenue $ 113.8 $ 109.0 $ 105.7 $ 105.0
Gross profit 22.9 21.9 22.7 22.2
Income from continuing operations 1.0 1.9 2.3 2.4
after extraordinary items
Net income 14.0 6.2 8.0 9.7
Diluted earnings per share 1.40 0.61 0.78 0.96
- -------------------------------------------- ------------ ------------ ------------- -------------
</TABLE>
42
<PAGE>
NOTE 15. GUARANTOR SUBSIDIARIES
The Notes are fully and unconditionally guaranteed on an unsecured,
senior subordinated, joint and several basis by each of the Company's current
subsidiaries. The following condensed consolidating financial data illustrate
the composition of the Parent Company, Guarantor Subsidiaries, and JAIX Leasing.
Separate complete financial statements of the respective Guarantors Subsidiaries
would not provide additional information which would be useful in assessing the
financial composition of the Guarantor Subsidiaries and thus are not presented.
As described in Note 1, the Company sold its freight car business
effective June 3, 1999. The non-guarantor subsidiary, JAIX Leasing, along with
two guarantor subsidiaries JAC and FCS, were part of the freight car business.
The operations of the freight car business have been reflected as discontinued
operations in the accompanying consolidated financial statements for all years
presented: however, the following data, for clarity, has not been restated.
Investments in subsidiaries are accounted for by the Parent Company on
the equity method for purposes of the supplemental consolidating presentation.
Earnings of subsidiaries are, therefore, reflected in the Parent Company's
investment accounts and earnings. The principal elimination entries eliminate
the Parent Company's investment in subsidiaries and intercompany balances and
transactions.
43
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
(IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1999 PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 15.4 $ (6.6) $ -- $ 8.8
Accounts receivable, net -- 61.1 -- 61.1
Inventories -- 44.9 -- 44.9
Prepaid expenses and other 5.7 15.3 -- 21.0
- --------------------------------------------------------------------------------------------------------------------
Total current assets 21.1 114.7 -- 135.8
Property, plant and equipment, net 0.6 129.4 -- 130.0
Other assets 233.8 262.6 (226.8) 269.6
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 255.5 $ 506.7 $ (226.8) $ 535.4
- --------------------------------------------------------------------------------------------------------------------
Accounts payable $ 0.2 $ 26.4 $ -- $ 26.6
Other current liabilities (28.8) 84.2 -- 55.4
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities (28.6) 110.6 -- 82.0
Noncurrent liabilities 6.8 61.5 -- 68.3
Long-term debt, less
current maturities and intercompany
advances (receivables) 94.6 107.8 -- 202.4
Total shareholders' equity 182.7 226.8 (226.8) 182.7
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 255.5 $ 506.7 $ (226.8) $ 535.4
- --------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Total revenue $ -- $ 541.5 $ -- $ 541.5
Cost of sales -- 429.7 -- 429.7
- --------------------------------------------------------------------------------------------------------------------
Gross profit -- 111.8 -- 111.8
Selling, general, administrative
and amortization expenses 4.4 50.5 -- 54.9
- --------------------------------------------------------------------------------------------------------------------
Operating income (loss) (4.4) 61.3 -- 56.9
Interest expense, net 12.8 12.5 -- 25.3
Equity (earnings) of subsidiaries (27.7) -- 27.7 --
Provision (benefit) for income taxes (6.7) 21.1 -- 14.4
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary items and discontinued
operations 17.2 27.7 (27.7) 17.2
Discontinued operations: 29.8 -- -- 29.8
Gain on sale, net of income taxes
Income from discontinued operations,
net of income taxes 22.7 -- -- 22.7
Extraordinary item, net of tax (2.5) -- -- (2.5)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 67.2 $ 27.7 $ (27.7) $ 67.2
- --------------------------------------------------------------------------------------------------------------------
44
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Cash flows from (used for)
operating activities $(25.5) $ 61.1 $ -- $ 35.6
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
investing activities:
Capital expenditures -- (16.4) -- (16.4)
Cash paid for acquisitions (78.5) (18.7) -- (97.2)
Proceeds from sale of freight car business 101.3 -- -- 101.3
Changes in restricted
cash/other -- (0.3) -- (0.3)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
investing activities 22.8 (35.4) -- (12.6)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
financing activities:
Proceeds from issuance of long-term debt 100.0 3.1 -- 103.1
Payments of term loans and
capital lease (137.5) (0.2) -- (137.7)
Retirement of subordinated debt (1.2) -- -- (1.2)
Intercompany advances 32.9 (32.9) -- --
Payment of deferred financing
costs and other (0.4) (0.1) -- (0.5)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
financing activities (6.2) (30.1) -- (36.3)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents from continuing operations (8.9) (4.4) -- (13.3)
Net cash provided to discontinued operations (11.3) -- -- (11.3)
Cash and cash equivalents,
beginning of year 35.6 (2.2) -- 33.4
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of year $ 15.4 $ (6.6) $ -- $ 8.8
- --------------------------------------------------------------------------------------------------------------------
45
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
(IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998 PARENT GUARANTOR JAIX
COMPANY SUBSIDIARIES LEASING ELIMINATIONS CONSOLIDATED
Cash and cash equivalents $47.4 $(13.5) $5.2 $ -- $39.1
Accounts receivable, net -- 81.3 0.4 -- 81.7
Inventories -- 66.7 -- -- 66.7
Prepaid expenses and other 3.1 12.0 1.1 -- 16.2
- --------------------------------------------------------------------------------------------------------------------
Total current assets 50.5 146.5 6.7 -- 203.7
Property, plant and equipment, net 2.4 114.4 18.2 (0.3) 134.7
Other assets 168.1 238.5 0.3 (160.9) 246.0
- --------------------------------------------------------------------------------------------------------------------
Total assets $221.0 $499.4 $25.2 $(161.2) $584.4
- --------------------------------------------------------------------------------------------------------------------
Accounts payable $ -- $65.4 $0.2 $ -- $65.6
Other current liabilities (16.0) 93.9 2.4 -- 80.3
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities (16.0) 159.3 2.6 -- 145.9
Noncurrent liabilities -- 78.8 3.5 -- 82.3
Long-term debt, less
current maturities and intercompany
advances (receivables) 126.3 110.5 8.7 -- 245.5
Total shareholders' equity 110.7 150.8 10.4 (161.2) 110.7
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $221.0 $499.4 $25.2 $(161.2) $584.4
- --------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 PARENT GUARANTOR JAIX
COMPANY SUBSIDIARIES LEASING ELIMINATIONS CONSOLIDATED
Total revenue $ -- $957.8 $8.3 $ -- $966.1
Cost of sales -- 821.0 4.9 -- 825.9
- --------------------------------------------------------------------------------------------------------------------
Gross profit -- 136.8 3.4 -- 140.2
Selling, general, administrative
and amortization expenses 1.2 59.5 0.9 -- 61.6
Gain on sale of leased freight cars -- -- (1.2) -- (1.2)
Patent lawsuit settlement -- (1.7) -- -- (1.7)
Pension termination gain -- (16.8) -- -- (16.8)
- --------------------------------------------------------------------------------------------------------------------
Operating income (loss) (1.2) 95.8 3.7 -- 98.3
Interest expense, net 12.6 16.9 0.9 -- 30.4
Equity (earnings) of subsidiaries (47.4) -- -- 47.4 --
Provision (benefit) for income taxes (5.4) 33.2 1.1 -- 28.9
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) before
extraordinary item 39.0 45.7 1.7 (47.4) 39.0
Extraordinary item, net of tax (1.1) -- -- -- (1.1)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $37.9 $45.7 $1.7 $(47.4) $37.9
- --------------------------------------------------------------------------------------------------------------------
46
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 PARENT GUARANTOR JAIX
COMPANY SUBSIDIARIES LEASING ELIMINATIONS CONSOLIDATED
Cash flows from (used for)
operating activities $ (29.6) $82.4 $3.9 $ -- $56.7
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for) investing activities:
Capital expenditures (0.1) (11.4) -- -- (11.5)
Leasing business asset additions -- -- (4.9) -- (4.9)
Proceeds from sale of leased assets -- -- 24.3 -- 24.3
Changes in restricted
cash/other 0.2 (0.1) -- -- 0.1
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
investing activities 0.1 (11.5) 19.4 -- 8.0
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
financing activities:
Payments of term loans and
capital lease (36.7) (0.2) -- -- (36.9)
Net payments of JAIX
Leasing debt -- -- (20.0) -- (20.0)
Intercompany advances 88.0 (88.0) -- -- --
Payment of deferred financing
costs and other 0.5 -- (0.1) -- 0.4
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
financing activities 51.8 (88.2) (20.1) -- (56.5)
Net increase (decrease) in cash
and cash equivalents 22.3 (17.3) 3.2 -- 8.2
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
beginning of year 25.1 3.8 2.0 -- 30.9
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of year $47.4 $ (13.5) $5.2 $ -- $39.1
- --------------------------------------------------------------------------------------------------------------------
47
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(In millions)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 PARENT GUARANTOR JAIX
COMPANY SUBSIDIARIES LEASING ELIMINATIONS CONSOLIDATED
Total revenue $ -- $642.8 $7.6 $ -- $650.4
Cost of sales -- 552.4 4.0 -- 556.4
- --------------------------------------------------------------------------------------------------------------------
Gross profit -- 90.4 3.6 -- 94.0
Selling, general, administrative
and amortization expenses 1.1 53.5 0.1 -- 54.7
Gain on sale of leased freight cars -- -- (0.8) -- (0.8)
Reduction of environmental reserves -- (14.3) -- -- (14.3)
- --------------------------------------------------------------------------------------------------------------------
Operating income (loss) (1.1) 51.2 4.3 -- 54.4
Interest expense, net 12.3 20.9 2.2 -- 35.4
Equity (earnings) of subsidiaries (17.6) -- -- 17.6 --
Provision (benefit) for income taxes (5.3) 14.2 0.6 -- 9.5
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) before
extraordinary item 9.5 16.1 1.5 (17.6) 9.5
Extraordinary item, net of tax (2.0) -- -- -- (2.0)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $7.5 $16.1 $1.5 $ (17.6) $7.5
- --------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 PARENT GUARANTOR JAIX
COMPANY SUBSIDIARIES LEASING ELIMINATIONS CONSOLIDATED
Cash flows from (used for)
operating activities $(5.2) $29.5 $2.4 $ -- $26.7
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
investing activities:
Capital expenditures (0.1) (8.2) -- -- (8.3)
Leasing business asset additions -- -- (27.6) -- (27.6)
Proceeds from sale of leased assets 3.1 -- 7.1 -- 10.2
Changes in restricted
cash/other -- 0.6 -- -- 0.6
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
investing activities 3.0 (7.6) (20.5) -- (25.1)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
financing activities:
Issuance of long-term debt 82.8 -- -- -- 82.8
Payments of term loans and
capital lease (90.0) (0.1) -- -- (90.1)
Net proceeds from JAIX
Leasing debt -- -- 15.6 -- 15.6
Intercompany advances 19.4 (19.4) -- -- --
Payment of deferred financing
costs and other (3.0) -- (0.5) -- (3.5)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from (used for)
financing activities 9.2 (19.5) 15.1 -- 4.8
Net increase (decrease) in cash
and cash equivalents 7.0 2.4 (3.0) -- 6.4
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
beginning of year 18.1 1.4 5.0 -- 24.5
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of year $25.1 $3.8 $2.0 $ -- $30.9
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on borrowing rates currently available to the Company for
borrowings with similar terms and maturities, the fair value of the Company's
total debt was approximately $207.5 million and $248.5 million as of December
31, 1999 and 1998, respectively. No quoted market value is available except for
the Notes which had a market value of approximately $184 million and $190
million as of December 31, 1999, and 1998, respectively. The outstanding
interest rate contract, based on current market pricing models, has an estimated
discounted fair market value ($0.4) million as of December 31, 1998. All other
financial instruments of the continuing operations of the Company have fair
market values which approximate carrying value as of December 31, 1999 and 1998.
NOTE 17. SUPPLEMENTAL CASH FLOWS
(IN THOUSANDS)
- -----------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
Cash paid for:
Interest $ 25,578 $ 30,038 $ 27,906
Income taxes 44,722 28,914 952
- -----------------------------------------------------------------------------
Business acquisitions:
Cash paid $ 97,187 -- --
Stock issued 2,762 -- --
Assets received 117,863 -- --
- -----------------------------------------------------------------------------
Liabilities assumed $ 17,914 -- --
- -----------------------------------------------------------------------------
NOTE 18. MAJOR CUSTOMERS
For the following years certain customers accounted for more than 10% of
the Company's total revenue:
- -----------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
Customer A 17% 20% 20%
Customer B 14 13 12
Customer C 13 -- --
- -----------------------------------------------------------------------------
No other customer accounted for greater than 10% of the Company's total
revenue during these periods.
NOTE 19. SUBSEQUENT EVENTS (unaudited)
On January 28, 2000, the Company entered into a definitive merger
agreement providing for the acquisition of the Company by an investor group
("Investor Group") led by senior members of the Company's management, including
Thomas M. Begel, its Chairman and Chief Executive Officer, and Andrew M. Weller,
its President and Chief Operating Officer. Under terms of the merger agreement,
which was unanimously approved by the Company's Board of Directors after
receiving the unanimous recommendation of a special committee of independent
members of the Board, the Company and Transportation Acquisition I Corp., a
company formed by the Investor Group, commenced a joint tender offer to purchase
for $21.50 per share all of the outstanding shares of common stock. The tender
offer which commenced on February 3, 2000 will remain open until March 3, 2000,
unless extended, and will be followed by a merger under which those shares not
tendered will be converted into the right to receive the same $21.50 per share
in cash. In connection therewith, the Company amended its Shareholders Rights
Plan to allow the acquisition by the Investor Group.
Concurrently with the joint tender offer for the Company's common stock,
the Company also commenced offers to purchase and consent solicitations with
respect to both its 11-3/4% Senior Subordinated Notes due 2005 and its 11-3/4%
Series C Subordinated Notes due 2005.
49
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheets of Transportation
Technologies Industries, Inc. (formerly Johnstown America Industries, Inc.) and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Transportation
Technologies Industries, Inc. and Subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 25, 2000
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name and present principal occupation
or employment, and material occupations, positions, offices or employments for
the past five years, of each director and executive officer of the Company.
Unless otherwise indicated, each such person is a citizen of the United States
and the business address of each such person is c/o Transportation Technologies
Industries, Inc., 980 N. Michigan Avenue, Suite 1000, Chicago, Illinois 60611.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ---- --------------------------------------------------
Thomas M. Begel.................... Chairman of the Board and Chief Executive
Officer. He served as President from October
1991 to January 2000. He is also Chairman
of, and a partner in, TMB Industries, and a
director of Silgan Holdings, Inc.
Andrew M. Weller................... Director, President and Chief Operating
Officer. He is also Executive Vice President
of, and a partner in, TMB Industries, and is
a director or officer of certain TMB
companies. From September 1994 to January
2000, he served as Executive Vice President
and Chief Financial Officer of the
Company, and from March 1995 to November
1995, he served as Secretary of the Company.
From April 1998 to September 1994, he was
Vice President and Treasurer of Bethlehem
Steel Corporation.
James D. Cirar .................... President and Chief Executive Officer of
Gunite Corporation since January 2000. He
was Chairman of Johnstown America
Corporation and Freight Car Services, Inc.
from September 1998 to June 1999 and Senior
Vice President of the Company from July 1997
to June 1999. From September 1995 to August
1998, he was President and Chief Executive
Officer of Johnstown America Corporation and
from March 1998 to August 1998 he was
President and Chief Executive Officer of
Freight Car Services, Inc. Prior to
September 1995, he was the Plant Manager of
the Truck and Bus Assembly Group of General
Motors Corporation.
Fred D. Culbreath.................. Chairman of Imperial Group, L.P. He has
held various other titles with Imperial
Group, L.P. since being one of its primary
founders in 1962.
Joseph A. Hicks.................... Chief Executive Officer of Imperial Group,
L.P. He served as President of Imperial
Group, L.P. from January 1995 to November
1997 and, prior thereto, he was President of
Eagle Associates, a private management firm.
Robert L. Jackson.................. President and Chief Executive Officer of
Bostrom Seating, Inc. From August 1996 to
January 2000, he was Executive Vice
President of Bostrom Seating, Inc. Prior
thereto, he held various positions with
Bethlehem Steel Corporation.
Timothy A. Masek................... Executive Vice President-Sales and Marketing
He served as Vice President-Corporate
Development from December 1995 to January
2000 and President of Bostrom Seating, Inc.
from June 1996 to January 2000. Prior
thereto, he performed marketing and
corporate functions for the Company.
51
<PAGE>
John D. McClain.................... President of Brillion Iron Works, Inc.
Donald C. Mueller.................. Vice President and Treasurer. Prior to July
1998, he held various financial positions
with Fisher Scientific International.
R. Philip Silver................... Director. In addition, he is currently Co-
Chief Executive Officer of Silgan Holdings,
Inc., and has been either Chairman of the
Board or President and a Director of Silgan
Holdings, Inc. since 1988.
Francis A. Stroble................. Director. From 1982 to 1994, he was the
Senior Vice President and Chief Financial
Officer of Monsanto Company. He is also a
Director of Mercantile Bancorporation, Inc.
Camillo M. Santomero III........... Director. He has been a private investor
and a Senior Consultant to Chase Capital
Partners (formerly Chemical Venture
Partners) since January 1992. In addition,
from October 1988 to January 1992, he was a
General Partner of Chase Capital Partners.
Allen L. Sunderland................ President of Fabco Automotive Corporation
since December 1999. He joined Fabco
Automotive Corporation in 1995 as Vice
President of Sales and Engineering.
Kenneth M. Tallering............... Vice President, General Counsel and
Secretary. Prior to November 1995, he was an
attorney with the law firm of Skadden, Arps,
Slate, Meagher & Flom LLP.
John C. Wilkinson.................. President and Chief Operating Officer of
Imperial Group, L.P. Prior to November 1997,
he was General Manager of Imperial Group,
L.P.
Brent Williams..................... Controller. He has served in various
financial capacities at TCI and Gunite
Corporation for the past five years.
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act and regulations of the Commission
thereunder require the Company's officers and directors and persons who own more
than ten percent of the Company's Common Stock, as well as certain affiliates of
such persons, to file initial reports of ownership and changes in ownership with
the Commission. Officers, directors and persons owning more than ten percent of
the Company's Common Stock are additionally required to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it and written representations that no other
reports were required for those persons, the Company believes that all filing
requirements applicable to its officers, directors and owners of more than ten
percent of the Company's Common Stock have been made as required with respect to
fiscal year 1999.
BOARD; COMMITTEES OF THE COMPANY BOARD; MEETINGS
Currently, the Board consists of five members. The Board is divided into
three classes and each director serves a term of three years and until his
successor is duly elected and qualified or until his earlier death, resignation
or removal.
The Company has a Compensation Committee, an Audit Committee and an
Executive Committee.
The Compensation Committee, comprised of Messrs. Begel and Santomero,
reviews and makes recommendations to the Board of Directors regarding salaries,
compensation and benefits of executive officers and key employees of the
Company, and grants options to purchase shares of Common Stock.
52
<PAGE>
The Audit Committee, which is comprised of Messrs. Silver and Stroble,
reviews the internal and external financial reporting of the Company, reviews
the scope of the independent audit and considers comments by the auditors
regarding internal controls and accounting procedures, and management's response
to these comments.
The Executive Committee, which is comprised of Messrs. Begel and Weller,
exercises the powers of the Board of Directors during intervals between Board
meetings and acts as an advisory body to the Board by reviewing various matters
prior to their submission to the Board.
During 1999, the Board of Directors met four times. Each director
attended 75% or more of the meetings. The Compensation Committee held one
meeting in 1999, which was attended by both of the committee members. The Audit
Committee held two meetings in 1999, each of which were attended by both of the
committee members. The Executive Committee held no meetings during 1999. The
Board of Directors does not have a Nominating Committee.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The directors of the Company receive a retainer of $20,000 per annum in
addition to an attendance fee of $500 for each committee meeting attended, and a
reasonable expense in connection with each Board or committee meeting attended.
Board members who are also employees of the Company do not receive directors'
fees. In addition, options to purchase 5,000 shares of Common Stock are granted
to each new non-employee director upon such director's initial election an d
qualification for the Board. On the date of each annual meeting of shareholders
subsequent to a director's initial election and qualification for the Board,
each continuing non-employee director will be granted additional options to
purchase 3,000 shares of Common Stock.
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation for
services in all capacities to the Company for 1999, 1998 and 1997 of (i) the
Chief Executive Officer of the Company and (ii) the Company's four most highly
compensated executive officers other than the Chief Executive Officer who were
serving as executive officers as of December 31, 1999 (the "Named Officers").
<TABLE>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------ -------------------------------------
FISCAL OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) STOCK($)(3) SARS(#)(4) COMPENSATION(5)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THOMAS M. BEGEL 1999 $750,000 $1,250,000 $113,112 $473,844 -- $241,964
CHAIRMAN OF THE 1998 350,000 750,000 -- -- -- 221,004
BOARD AND CHIEF 1997 300,000 350,000 -- -- 25,000 222,066
EXECUTIVE OFFICER
THOMAS W. COOK 1999 $350,000 $470,702 -- -- -- $8,621
FORMER SENIOR VICE 1998 300,000 485,608 -- -- -- 8,647
PRESIDENT AND 1997 275,016 457,900 -- -- 25,000 8,092
PRESIDENT AND CHIEF
EXECUTIVE OFFICER OF
TRUCK COMPONENTS INC.
DONALD C. MUELLER 1999 $160,000 $220,000 -- -- 10,000 $17,135
VICE PRESIDENT AND CHIEF 1998 70,000 70,000 -- -- 20,000 2,950
FINANCIAL OFFICER
KENNETH M. TALLERING 1999 $200,000 $750,000 -- $313,219 -- $16,272
VICE PRESIDENT, 1998 150,000 200,000 -- -- -- 15,861
GENERAL COUNSEL 1997 125,000 75,000 -- -- 10,000 11,386
AND SECRETARY
53
<PAGE>
ANDREW M. WELLER 1999 $500,000 $1,000,000 -- $473,844 -- $87,257
PRESIDENT, CHIEF 1998 300,000 500,000 -- -- -- 74,032
OPERATING OFFICER 1997 260,000 350,000 -- -- 25,000 58,211
AND DIRECTOR
- --------------
</TABLE>
(1) In 1999, includes bonus of $500,000 to Messrs. Begel, Weller and
Tallering and $50,000 to Mr. Mueller following consummation of the sale
of the Company's freight car operations and includes bonus of $20,000
to Mr. Mueller following relocation of his residence. For Messrs. Begel
and Cook includes a portion of 1998 bonus voluntarily deferred by them
under the Company's Deferred Compensation Plan and for Mr. Cook and
includes a portion of 1997 bonus voluntarily deferred by him under the
Company's Deferred Compensation Plan. The Deferred Compensation Plan
was terminated in 1999.
(2) For the reimbursement of travel, club dues and other expenses to Mr.
Begel. The value of the perquisites received by Mr. Begel in 1997 and
1998 and by the other Named Officers in each year was below the
threshold requiring disclosure thereof.
(3) On February 1, 1999, Messrs. Begel and Weller were issued 29,500
shares of restricted common stock and Mr. Tallering was issued 19,500
shares of restricted common stock. All such restricted stock vests on
the third anniversary of the date of grant, or earlier in certain
circumstances such as a change in control. The value of such restricted
stock for Messrs. Begel, Weller and Tallering was $473,844, $473,844
and $313,219, respectively, as of February 1, 1999 and $532,844,
$532,844 and $352,219, respectively, as of December 31, 1999.
(4) The options granted to Messrs. Begel, Cook, Tallering and Weller in
1997 are vested. One-third of the options granted to Mr. Mueller in
1998 are vested.
(5) 1999 includes the following amounts: for Mr. Begel, $235,964 for
life insurance and supplemental pension premium and $6,000 Company
contribution to the Company's 401(k) plan; for Mr. Cook, $621 for life
insurance premium and $8,000 Company profit sharing contribution; for
Mr. Mueller, $11,135 for life insurance and supplemental pension
premium and $6,000 Company contribution to the Company's 401(k) plan;
for Mr. Tallering, $10,272 for life insurance and supplemental pension
premium and $6,000 Company contribution to the Company's 401(k) plan;
and for Mr. Weller, $81,257 for life insurance and supplemental pension
premium and $6,000 Company contribution to the Company's 401(k) plan.
1998 includes the following amounts: for Mr. Begel, $215,004 for life
insurance and supplemental pension premium and $6,000 Company
contribution to the Company's 401(k) plan; for Mr.Cook, $647 for life
insurance premium and $8,000 Company profit sharing contribution; for
Mr. Mueller, $150 for life insurance and $2,800 Company contribution to
the Company's 401(k) Plan; for Mr. Tallering, $9,861 for life insurance
and supplemental pension premium and $6,000 Company contribution to the
Company's 401(k) plan; and for Mr.Weller, $68,032 for life insurance
and supplemental pension premium and $6,000 Company contribution to the
Company's 401(k) plan. 1997 includes the following amounts: for
Mr. Begel, $216,066 for life insurance and supplemental pension premium
and $6,000 Company contribution to the Company's 401(k) plan; for
Mr. Cook, $592 for life insurance premium and $7,500 Company profit
sharing contribution; for Mr. Tallering, $5,386 for life insurance and
supplemental pension premium and $6,000 Company contribution to the
Company's 401(k) plan; and for Mr. Weller, $52,211 for life insurance
and supplemental pension premium and $6,000 Company contribution to the
Company's 401(k) plan. Each executive's right to receive their
respective supplemental pensions upon termination of employment are
generally subject to a three-year cliff vesting requirement (other than
in the event of termination of employment due to a change in control).
In the event any such person is not entitled to receive his
supplemental pension, the value of such pension funds would revert to
the Company.
54
<PAGE>
OPTION GRANTS
During the 1999 fiscal year, options were not granted to the Named
Officers, except that Mr. Mueller was granted 10,000 options with an exercise
price of $17.50, which options would have a potential realizable value of
$110,057 based on a 5% appreciation during the option term and $278,905 based on
a 10% appreciation during the option term.
OPTION EXERCISES
The table below sets forth information with respect to the value of
options held by the Named Officers as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND OPTION VALUE
AS OF DECEMBER 31, 1999
<TABLE>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ACQUIRED ON VALUE ----------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXRCISABLE
- ---- ------------- ------------ ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas M. Begel -- -- 50,000 -- $362,550 --
Thomas W. Cook -- -- 100,000 -- 1,165,625 --
Donald C. Mueller -- -- 6,667 23,333 30,418 $66,457
Kenneth M. Tallering -- -- 37,500 -- 382,964 --
Andrew M. Weller -- -- 105,000 -- 454,363 --
</TABLE>
PENSION PLANS
The Company, maintains a tax-qualified defined benefit pension plan in
which Messrs. Begel, Mueller, Tallering and Weller are eligible to participate.
Benefits under the plan are based primarily upon the participant's average
monthly earnings and his years of continuous service. Benefits under the plan
are not subject to reduction for social security benefits but are reduced by
certain other amounts received under certain public pension programs, and
certain disability and severance payments. The following table sets forth the
benefits payable under the plan at age 65 on a straight line annuity basis for
participants with the indicated levels of compensation and service.
ESTIMATED ANNUAL RETIREMENT BENEFITS
Years of Continuous Service
- ----------------- ------------------------------------------------------------
AVERAGE EARNINGS 15 20 25 30 35 40
-------- --------- -------- --------- --------- --------
$ 75,000 $15,390 $20,520 $25,650 $30,780 $35,910 $41,816
100,000 21,296 28,395 35,494 42,592 49,691 57,566
125,000 27,202 36,270 45,337 54,405 63,472 73,316
150,000 33,109 44,145 55,181 66,217 77,254 89,066
200,000 35,471 47,295 59,119 70,942 82,766 95,366
250,000 35,471 47,295 59,119 70,942 82,766 95,366
300,000 35,471 47,295 59,119 70,942 82,766 95,366
55
<PAGE>
The compensation and years of service under the plan for Messers. Begel,
Mueller, Tallering and Weller are as follows:
HIGHEST FIVE-YEAR
AVERAGE ANNUAL
COMPENSATION YEARS OF SERVICE
------------------- ----------------
Thomas M. Begel $720,000 6.25
Donald C. Mueller 185,000 1.50
Kenneth M. Tallering 345,000 4.16
Andrew M. Weller 479,400 5.33
Mr. Cook was eligible to participate in a tax-qualified defined benefit
plan formerly maintained by a subsidiary of Truck Components Inc. ("TCI") (the
"Pension Plan"). The Pension Plan provided a pension benefit at normal
retirement age of 65, based on average monthly pay through December 31, 1991, or
if service is less than five years, the average monthly earnings of the years
worked up to December 31, 1991, and credited service for the years and months
employed by TCI and its subsidiaries up to August 31, 1995. The salary component
for persons hired subsequent to December 31, 1991, was the participant's initial
monthly salary at employment date. At age 65, based on Mr. Cook's covered
compensation and years of service of $150,000 and 4.6 years, respectively, he
would have been entitled to receive an annual pension of $9,080 under the
Pension Plan. The Pension Plan was terminated during 1998 and Mr. Cook rolled
his allocated pension proceeds into an individual retirement account. Mr. Cook
also participates in the Gunite Corporation Salaried Employees Profit Sharing
Plan pursuant to which Gunite Corporation, a subsidiary of the Company,
contributes 5% of Mr. Cook's gross earnings up to a maximum contribution of
$8,000.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company is a party to substantially identical employment contracts
with Messrs. Begel, Mueller, Tallering and Weller which became effective on July
1, 1999 and continue for a rolling three-year period (a rolling two-year period
for Mr. Mueller) unless terminated as provided in the agreement. Pursuant to
their respective agreements, each will receive annual base salaries, plus
bonuses as determined by the Board of Directors. Each of these agreements
contains customary employment terms and provides that upon termination of
employment by the Company other than for "Cause" or by the employee for "Good
Reason" (each as defined in the agreements) during the term, the Company will
pay a severance payment to the employee, in addition to other benefits, equal to
three times (two times for Mr. Mueller) the sum of (i) the employee's base
salary as of his date of termination and (ii) the greatest of (w) the employee's
guaranteed bonus, if any, for the year during which the termination occurs, (x)
the employee's target bonus, if any, for the year during which the termination
occurs, (y) the employee's bonus received with respect to the year immediately
preceding the date of termination and (z) the employee's average bonus received
during the three years immediately preceding the date of termination, plus
certain additional amounts.
The Company is a party to an employment agreement with James D. Cirar,
the President and Chief Executive Officer of Gunite, which agreement will only
become effective upon completion of the acquisition previously described in
"Recent Event." The agreement is identical to the agreements described above for
Messrs. Begel, Tallering, and Weller except that Mr. Cirar's bonus will be an
amount equal to one percent of Gunite's earnings before interest, taxes and
amortization.
In connection with the Company's acquisition of TCI in August 1995, the
Company assumed the existing employment agreement between TCI and Mr. Cook. Such
agreement was terminated as of January 11, 2000 upon Mr. Cook's retirement.
Pursuant to the termination, Mr. Cook will receive one year's salary, plus a
bonus equal to Mr. Cook's average bonus for 1998 and 1999.
The Company is a party to employment contracts with certain other
officers and key employees generally with two or three year terms.
COMPENSATION COMMITTEE REPORT
Under the supervision of the Compensation Committee of the Board of
Directors (the "Committee"), the Company has attempted to develop and implement
compensation policies, plans and programs which seek to enhance the
profitability of the Company and to maximize shareholder value by closely
aligning the financial interests of the
56
<PAGE>
Company's executive officers with those of its shareholders. The Committee is
currently comprised of Messrs. Begel and Santomero.
The Company's general compensation philosophy, which is determined by
the Committee, is to offer compensation so as to enable the Company to attract
and retain talented and experienced executive officers who are able to assist
the Company in accomplishing its strategic and performance goals and to allow
such executive officers to participate in the increase in value of the Company
upon attaining such goals. Such compensation consists of salary,
performance-based bonus and stock options/restricted stock. In determining the
salary, bonus and stock option/restricted stock awards for the Company's
executive officers, the Committee takes into account the overall performance of
the Company as well as its subjective determination of the contribution of each
executive officer to that performance. The Committee does not limit its
evaluation of Company performance to any particular performance measure, nor
does it apply any specific formula in relating Company performance to salary,
bonus or stock option/restricted stock award levels.
Four of the five Named Officers are parties to employment agreements
with the Company, which are described herein in the section entitled "Employment
and Severance Agreements." The Committee believes that the compensation offered
pursuant to such agreements is consistent with the Company's compensation
philosophy. In 1999, Mr. Begel's salary was $750,000 and, given the Company's
significant improvement in results of operations and financial condition during
1999, received a $750,000 bonus for 1999. He also received a bonus of $500,000
following completion of the successful sale of the Company's freight car
operations. Mr. Begel's economic interests are further aligned with the
shareholders of the Company due to his significant ownership interest in the
Company (see "Principal Shareholders and Security Ownership of Management").
The Committee has not developed a formal policy on the rules regarding
deductability of executive compensation because the Company's compensation of
its executive officers is considerably less than the applicable thresholds, but
rather will make such determinations as appropriate.
57
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF COMMON STOCK BY CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information, based on reports filed by
such persons with the Commission, with respect to ownership of the shares of
Common Stock held by the directors and executive officers of the Company, and
with respect to ownership by persons believed by the Company to be the
beneficial owners of more than 5% of its outstanding Common Stock.
<TABLE>
PERCENT OF
NUMBER OF SHARES OF OUTSTANDING
COMMON STOCK COMMON STOCK
------------------- ------------
<S> <C> <C>
State Street Research & Management Company (1)........... 723,000 7.0%
Dimensional Fund Advisors Inc. (2)....................... 677,700 6.6%
Thomas M. Begel (3)...................................... 404,402 3.9%
James D. Cirar (4)....................................... 135,398 1.3%
Fred D. Culbreath........................................ 106,756 *
Joseph A. Hicks.......................................... 49,984 *
Robert L. Jackson (5).................................... 15,105 *
Timothy A. Masek (6)..................................... 43,428 *
John D. McClain.......................................... 0 --
Donald C. Mueller (7).................................... 7,142 *
Camillo M. Santomero III (8)............................. 173,000 1.7%
R. Philip Silver (9)..................................... 20,000 *
Francis A. Stroble (9)................................... 22,000 *
Kenneth M. Tallering (10)................................ 62,096 *
Andrew M. Weller (11).................................... 151,933 1.5%
John C. Wilkinson (12)................................... 30,000 *
Brent Williams (13)...................................... 7,500 *
Directors and Executive Officers as a group (15 persons)(14) 1,228,744 11.9%
</TABLE>
- ----------
* Less than 1%.
(1) The number of shares beneficially held by State Street Research and
Management Company is based upon the Schedule 13G held by State Street
Research and Management Company dated February 1, 2000. The address of
State Street Research Management Company is One Financial Center, 30th
Floor, Boston, MA 02111-2690.
(2) The number of shares beneficially held by Dimensional Fund Advisors
Inc. is based upon the Schedule 13G filed by Dimensional Fund Advisors
Inc. on February 12, 1999. The address of Dimensional Fund Advisors
Inc. is 12999 Ocean Avenue, Santa Monica, CA 90401.
(3) Includes 50,000 shares of common stock subject to currently exercisable
options, 3,390 shares of common stock held through the Company's 401(k)
plan as of December 31, 1999 and 29,500 shares of restricted common
stock.
(4) Includes 100,000 shares of common stock subject to currently
exercisable options and 13,398 shares of common stock held in a
self-directed IRA.
(5) Includes 13,333 shares of common stock subject to currently exercisable
options and 1,772 shares of common stock held through the Company's
401(k) plan as of December 31, 1999.
58
<PAGE>
(6) Includes 18,800 shares of common stock subject to currently exercisable
options, 2,228 shares of common stock held through the Company's 401(k)
plan as of December 31, 1999 and 19,500 shares of restricted common
stock.
(7) Includes 6,667 shares of common stock subject to currently exercisable
options and 475 shares of common stock held through the Company's
401(k) plan as of December 31, 1999.
(8) Mr. Santomero is a private investor and Senior Consultant to Chase
Capital Partners (formerly Chemical Venture Partners), which
beneficially owns shares of common stock, but Mr. Santomero disclaims
beneficial ownership of such shares. Mr. Santomero, however, has an
interest in a pool of securities, including shares of common stock of
the Company, acquired by Chemical Equity Associates at the time he was
a General Partner of Chemical Venture Partners (now Chase Capital
Partners). Mr. Santomero holds options to purchase 23,000 shares of
common stock, of which 20,000 are currently exercisable.
(9) Messrs. Silver and Stroble each hold options to purchase 23,000 shares
of common stock, of which 20,000 are currently exercisable.
(10) Includes 37,500 shares of common stock subject to currently exercisable
options, 3,796 shares of common stock held through the Company's 401(k)
plan as of December 1, 1999 and 19,500 shares of restricted common
stock.
(11) Includes 105,000 shares of common stock subject to currently
exercisable options, 3,433 shares of common stock held through the
Company's 401(k) plan as of December 31, 1999 and 29,500 shares of
restricted common stock.
(12) Includes 30,000 shares of restricted common stock.
(13) Includes 7,500 shares of common stock subject to currently exercisable
options.
(14) Includes 398,800 shares of common stock subject to currently
exercisable options, 15,694 shares of common stock held through the
Company's 401(k) plan as of December 31, 1999 and 128,000 shares of
restricted common stock.
ITEM 13. CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS
SALE OF FREIGHT CAR OPERATIONS
On June 3, 1999, the Company completed the sale of its freight car
operations, which were comprised of three wholly owned subsidiaries- JAC, FCS,
and JAIX- to Rabbit Hill Holdings, Inc. The Company received consideration
consisting of approximately $101.3 million in cash, contingent additional
consideration of $20.0 million and a 20% equity interest in the buyer. In
addition, the buyer assumed substantially all of the liabilities of the freight
car operations, including $14.4 million of debt. The 20% equity interest in the
buyer is comprised of common and preferred stock, some of which is non-voting.
Further, the Company's rights with respect to voting and the transferability of
our equity interest are limited and, in particular, the Company granted a proxy
to vote its equity interest to another shareholder of the buyer under certain
circumstances.
59
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A)(1)AND(A)(2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
- --------------------------------------------------------------------------------
The following documents are included in Item 8 hereto.
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants.
(A)(3) LIST OF EXHIBITS:
----------------
3.1 Form of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.3 to Form S-1,
Registration Statement 33-63132 (the "Initial S-1")).
3.2 Form of Restated By-laws of the Company (incorporated by
reference to Exhibit 3.4 to the Initial S-1).
4.1 Form of certificate for the Company's common stock, par value
$.01 per share (incorporated by reference to Exhibit 4.1 to
the Initial S-1).
4.2 Form of certificate for the Company's Class B common stock,
par value $.01 per share (incorporated by reference to Exhibit
4.2 to the Initial S-1).
4.3 Indenture relating to the 11.75% Senior Subordinated Notes of
the Company due 2005, dated as of August 23, 1995, including
form of note (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated August 30, 1995).
4.4 Indenture relating to the 11.75% Series C Subordinated Notes
of the Company due 2005, dated as of August 11, 1997,
including form of note (incorporated by reference to Exhibit
4.2 to Form S-4, Registration Statement 333-35277 (the "Form
S-4")).
4.5 Rights Agreement, dated as of October 4, 1995, between the
Company and BancBoston State Street Investor Services, L.P.
(incorporated by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A dated October 5, 1995 and
Amendment to Rights Agreement, dated as of January 28, 2000).
10.1 Agreement and Plan of Merger, dated as of June 13, 1995, among
the Company, JTN Acquisition Corp. and Truck Components Inc.
(incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated June 13, 1995).
10.2 Stockholders Agreement, dated as of June 13, 1995, among the
Company, JTN Acquisition Corp. and the stockholders party
thereto (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated June 13, 1995), and
Amendment No.1 to Stockholders Agreement, dated as of June 23,
1995, among the Company, JTN Acquisition Corp., and the
stockholders party thereto (incorporated by reference to
Exhibit 2.3 to Amendment No.1 to the Company's Current Report
on Form 8-K dated June 13, 1995).
10.3 Stock Purchase Agreement, dated as of December 21, 1994, and
the First Amendment thereto, dated as of January 13, 1995,
each among the sellers, Bostrom Seating, Inc. and the Company,
(incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated January 24, 1995).
10.4 Credit Agreement, dated as of April 29, 1999, among the
Company, the financial institutions named therein, The Chase
Manhattan Bank, as Administrative Agent, Collateral Agent and
Swingline Lender, The Chase Manhattan Bank, as Issuing Bank,
and Bank Boston, N.A.and The First National Bank of Chicago,
as Co-Agents (incorporated by reference to Exhibit 10.4 to the
Company's Form 10-Q for the quarter ended March 31, 1999 (the
"March 31, 1999 10-Q")).
10.5 Bond Guaranty Agreement, dated April 1, 1999, by Bostrom
Seating, Inc. and Lease Agreement dated April 1, 1999 between
Bostrom Seating, Inc. and the Industrial Development Bond of
the City of Piedmont, relating to $3.1 million of industrial
revenue bonds (incorporated by reference to Exhibit 10.5 to
the March 31, 1999 10-Q).
60
<PAGE>
10.6 Asset Purchase Agreement, dated as of March 22, 1999, among
the Company, Imperial Group Acquisition, L.P., Imperial
Fabricating Company of Tennessee, Inc., Fleet Design, Inc.,
Imperial Group, Inc., Fred D. Culbreath and Joseph A. Hicks
(incorporated by reference to Exhibit 10.1 to the March 31,
1999 10-Q).
10.7 Asset Purchase Agreement, dated as of April 30, 1999, among
Gunite Corporation, Gunite Acquisition Corp., Hitachi Metals
America, Ltd. and Ward Manufacturing, Inc. (incorporated by
reference to Exhibit 10.2 to the March 31, 1999 10-Q).
10.8 Share Purchase Agreement, dated as of May 10, 1999, between
the Company and Rabbit Hill Holdings, Inc. (incorporated by
reference to Exhibit 99.2 of the Company's Current Report on
Form 8-K dated May 12, 1999).
10.9 Merger Agreement, dated as of January 28, 2000, between the
company and Transportation Acquisition I Corp. (incorporated
by reference to Exhibit (e) (1) to the Company's Schedule
14D-9 dated February 3, 2000).
10.10 1993 Stock Option Plan (incorporated by reference to Exhibit
10.8 to the Initial S-1).
10.11 Johnstown America Corporation Salaried Pension Plan
(incorporated by reference to Exhibit 10.11 to the Initial
S-1).
10.12 Amended and Restated Stockholder and Warrant holder Agreement
(incorporated by reference to Exhibit 10.14 to the Initial
S-1).
10.13 Employment Agreement of Thomas M. Begel, Andrew M. Weller,
Timothy A. Masek, Donald C. Mueller and Kenneth M. Tallering
(incorporated by reference to Exhibit 99.1 to the Company's
Form 10-Q for the quarter ended June 30, 1999).
10.14 Employment Agreement of James D. Cirar.
10.15 Form of Severance Agreement (incorporated by reference to
Exhibit 10.15 to the 1995 Form 10-K).
10.16 Form of Stay Bonus Agreement (incorporated by reference to
Exhibit 10.16 to the 1995 Form 10-K).
10.17 Form of Stock Option Agreement (incorporated by reference to
Exhibit 10.17 to the 1995 Form 10-K).
10.18 Form of Supplemental Life Insurance Agreement (incorporated by
reference to Exhibit 10.21 to the 1996 Form 10-K).
10.19 Gunite Corporation Salaried Employees Retirement Plan
(incorporated by reference to Exhibit 10.18 to the 1995 Form
10-K).
10.20 Gunite Corporation Profit Sharing Plan (incorporated by
reference to Exhibit 10.19 to the 1995 Form 10-K).
10.21 Form of Restricted Stock Agreement (incorporated by reference
to Exhibit 10.22 to the Company's 10-K for the fiscal year
ended December 31, 1998).
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
(2) Financial Statement Schedules:
All schedules have been omitted since the required information is
either not significant, included in the consolidated financial
statements of the Company or the notes thereto or not applicable.
(3) Reports on Form 8-K
The Company filed the following current report on Form 8-K:
None
61
<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 .
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
BY:/S/ DONALD C. MUELLER
-------------------------------
Donald C. Mueller
Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ THOMAS M. BEGEL
- --------------------------- Chairman of the Board February 17, 2000
Thomas M. Begel and Chief Executive Officer
(Principal Executive Officer)
/S/ ANDREW M. WELLER President, Chief Operating Officer February 17, 2000
- --------------------------- and Director
Andrew M. Weller
/S/ CAMILLO SANTOMERO Director February 17, 2000
- ---------------------------
Camillo Santomero
/S/ R. PHILIP SILVER Director February 17, 2000
- ---------------------------
R. Philip Silver
/S/ FRANCIS S. STROBLE Director February 17, 2000
- ---------------------------
Francis S. Stroble
</TABLE>
62
AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT DATED AS OF OCTOBER 4, 1995 BETWEEN
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC. AND BANKBOSTON, N.A., AS RIGHTS
AGENT
AMENDMENT NO. 1 DATED AS OF JANUARY 28, 2000, TO THE RIGHTS AGREEMENT
(THE "RIGHTS AGREEMENT") dated as of October 4, 1995 between Transportation
Technologies Industries, Inc., a Delaware corporation (formerly known AS
JOHNSTOWN AMERICA INDUSTRIES, INC., THE "COMPANY"), and BankBoston, N.A., a
national banking association (FORMERLY BANCBOSTON STATE STREET INVESTOR
SERVICES, L.P., THE "RIGHTS AGENT").
WITNESSETH
WHEREAS, the Company and the Rights Agent have previously entered into
the Rights Agreement;
WHEREAS, IT IS PROPOSED THAT THE COMPANY ENTER INTO AN AGREEMENT AND
PLAN OF MERGER (THE "MERGER AGREEMENT") dated as of January 28, 2000 between the
Company and Transportation Acquisition I Corp., a Delaware CORPORATION
("ACQUISITION");
WHEREAS, the Merger Agreement provides that a business combination of
the Company and Acquisition will BE EFFECTED IN TWO STEPS: (I) A JOINT CASH
TENDER OFFER (THE "OFFER") by the Company and Acquisition for all of the issued
and outstanding shares of common stock, par value $0.01 per share, of the
Company, followed by (ii) a MERGER OF ACQUISITION WITH AND INTO THE COMPANY (THE
"MERGER"); and
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Board of
Directors of the Company has determined that an amendment to the Rights
Agreement as set forth herein is necessary and desirable in order to reflect the
foregoing, and the Company and the Rights Agent desire to evidence such
amendment in writing.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions Generally.
Capitalized terms not otherwise defined herein shall have the definitions
assigned to them in the Rights Agreement.
Section 2. Effectiveness.
This Amendment shall be deemed effective as of January 28, 2000. Except as
amended hereby, the Rights Agreement shall remain in full force and effect and
shall otherwise remain unaffected hereby.
Section 3. Amendments.
(a)Section 1(a) of the Rights Agreement is amended to add the following sentence
at the end thereof:
"Notwithstanding anything in this Agreement to the contrary,
none of Acquisition or the Participants (as such term is defined in the
Merger Agreement), individually or collectively, shall be deemed to be
an Acquiring Person solely as a result of (i) the announcement,
approval, execution or delivery of the Merger Agreement, (ii) the
commencement of the Offer, (iii) the acceptance for payment of Common
Shares in the Offer, (iv) the consummation of the Merger or (v) the
consummation of the other transactions contemplated by the Merger
Agreement."
<PAGE>
(b) Section 1(l) of the Rights Agreement is amended to add the
following sentence at the end thereof:
"Notwithstanding anything in this Agreement to the contrary, a
Stock Acquisition Date shall not be deemed to have occurred solely as a
result of (i) the announcement, approval, execution or delivery of the
Merger Agreement, (ii) the commencement of the Offer, (iii) the
acceptance for payment of Common Shares in the Offer, (iv) the
consummation of the Merger or (v) the consummation of any of the other
transactions contemplated by the Merger Agreement."
(c) Section 1(n) of the Rights Agreement is amended to add the
following at the end thereof:
"Notwithstanding anything in this Agreement to the contrary, a
Triggering Event shall not be deemed to have occurred solely as a
result of (i) the announcement, approval, execution or delivery of the
Merger Agreement, (ii) the commencement of the Offer, (iii) the
acceptance for payment of Common Shares in the Offer, (iv) the
consummation of the Merger or (v) the consummation of any of the other
transactions contemplated by the Merger Agreement."
(d) Section 1 of the Rights Agreement is amended to add the following
at the end thereof:
"ACQUISITION" means Transportation Acquisition I Corp., a
Delaware corporation.
"MERGER" means the "Merger" as defined in the Merger Agreement.
"MERGER AGREEMENT" means the Agreement and Plan of Merger
dated as of January 28, 2000 between the Company and Acquisition, as
amended from time to time.
"OFFER" means the "Offer" as defined in the Merger
Agreement.
(e) Section 2 of the Rights Agreement is amended by deleting the final
sentence thereof and inserting in lieu thereof the following:
"The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable, upon
ten (10) days' prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and shall in no
event be liable for, the acts or omission of any such
Co-Rights Agent."
(f) Section 3(a) of the Rights Agreement is amended to add the
following sentence at the end thereof:
"Notwithstanding anything in this Agreement to the contrary, a
Distribution Date shall not be deemed to have occurred solely as a
result of (i) the announcement, approval, execution or delivery of the
Merger Agreement, (ii) the commencement of the Offer, (iii) the
acceptance for payment of Common Shares in the Offer, (iv) the
consummation of the Merger or (v) the consummation of any of the other
transactions contemplated by the Merger Agreement."
(g) Subsection 7(a) of the Rights Agreement is amended and restated to
read as follows:
"(a) Subject to Section 7(e) hereof, the registered holder of
any Rights Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein including, without limitation, the
restrictions on exercisability set forth in Section 9(c), Section
11(a)(iii) and Section 23(a) hereof) in whole or in part at any time
after the Distribution Date upon surrender of the Rights Certificate,
with the form of election to purchase and the certificate on the
reverse side thereof duly executed, to the Rights Agent at the office
or offices of the Rights Agent designated for such purpose, together
with payment of the aggregate Purchase Price with respect to the total
number of one one-thousandths of a share (or other securities, cash or
other assets, as the case may be) as to which such surrendered Rights
are then exercisable, at or prior to the earliest of (i) the close of
business ON OCTOBER 4, 2005 (THE "FINAL EXPIRATION DATE"), (ii) the
time at which the Rights are redeemed as PROVIDED IN SECTION 23 HEREOF
(THE "REDEMPTION DATE") or (iii) the effective time of the Merger
pursuant TO THE MERGER AGREEMENT (THE EARLIEST OF (I), (II) AND (III)
BEING REFERRED TO AS THE "EXPIRATION Date")."
(h) Section 13 of the Rights Agreement is amended to add the following
sentence at the end thereof:
"Notwithstanding anything in this Agreement to the contrary,
(i) the announcement, approval, execution or delivery of the Merger
Agreement, (ii) the commencement of the Offer, (iii) the acceptance for
payment of Common Shares in the Offer, (iv) the consummation of the
Merger or (v) the consummation of the other transactions contemplated
in the Merger Agreement shall not be deemed to be an event described in
this Section 13 and shall not cause the rights to be adjusted or
exercisable in accordance with this Section 13."
(i) Section 18(a) of the Rights Agreement is amended by deleting the
second sentence thereof in its entirety and inserting in lieu thereof
the following:
"The Company also agrees to indemnify the Rights
Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without gross negligence, bad
faith or willful misconduct on the part of the Rights Agent,
for anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement,
including the costs and expenses of defending against any
claim of liability in the premises."
(j) Section 20(c) of the Rights Agreement is amended by deleting such
Section 20(c) in its entirety and inserting in lieu thereof the
following:
"(c) The Rights Agent shall be liable hereunder only
for its own gross negligence, bad faith or willful
misconduct."
(k) Section 25 of the Rights Agreement is amended by deleting the name
and address of the Rights Agent in its entirety and inserting in lieu
thereof the following:
<PAGE>
"BankBoston, N.A
Equiserve Limited Partnership
150 Royall Street
Canton, MA 02021
Attn: Client Administration"
Section 4. Severability.
If any term, provision, covenant or restriction of this Amendment is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Amendment shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
Section 5. Governing Law.
This Amendment shall be deemed to be a contract made under the laws of Delaware
and for all purposes shall be governed by and construed in accordance with such
laws applicable to contracts to be made and performed entirely within such
jurisdiction.
Section 6. Counterparts.
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 one and the same instrument.
Section 7. Descriptive Headings.
The captions herein are included for convenience of reference only, do not
constitute a part of this Amendment and shall be ignored in the construction and
interpretation hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
<PAGE>
ATTEST: TRANSPORTATION TECHNOLOGIES
INDUSTRIES, INC.
By: _________________________ By: __________________________
Name: Name:
Title: Title:
<PAGE>
ATTEST: BANKBOSTON, N.A.
By:_________________________ By:__________________________
Name: Name:
Title: Title:
- 1 -
EMPLOYMENT AGREEMENT FOR JAMES D. CIRAR
AGREEMENT made effective as of the 28th day of January 2000, among Gunite
Corporation ("Gunite"), Transportation Technologies Industries, Inc., a Delaware
corporation (the "Company"), and James D. Cirar (the "Executive"). This
Agreement shall become effective only if the closing under the Merger Agreement,
dated the date hereof, between the Company and Transportation Acquisition I
Corp. occurs.
WHEREAS, the Company, through its wholly-owned subsidiaries,
including Gunite, is engaged in the business of manufacturing equipment for the
transportation industry including wheel-end components and air suspension and
static seating for medium and heavy-duty trucks, body and chassis components for
heavy duty trucks, and complex iron castings for a variety of industries
including trucking, automotive, agricultural, construction and industrial
machinery (such business hereinafter referred to as the "Business"); and
WHEREAS, the Executive, as a result of training, expertise and
personal application over the years, has acquired and will continue to acquire
considerable and unique expertise and knowledge which are of substantial value
to Gunite and the Company in the conduct, management and operation of its
Business, and Gunite and the Company consider it essential to the best interests
of Gunite and the Company's shareholders to foster the continuous employment of
key management personnel; and
WHEREAS, the Executive currently serves as President and Chief
Executive Officer of Gunite, and the Company desires to continue the employment
and service of the Executive in such capacities and is willing to provide the
Executive with certain benefits in the event of the termination of the
Executive's employment with Gunite;
NOW THEREFORE, in consideration of Gunite's continued
employment of the Executive and the benefits to be derived by the Executive
hereunder, and of the Executive's agreement to continued employment by Gunite as
provided herein, the parties mutually agree as follows:
1. EMPLOYMENT. Gunite hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve Gunite, on the
terms and conditions set forth herein.
2. TERM. The employment of the Executive by Gunite pursuant to this
Agreement will continue as of the date hereof (the "Effective Date") and shall
expire on the third anniversary of the Effective Date (the "Term"), unless
extended, as set forth below, or otherwise terminated pursuant to the provisions
of this AGREEMENT; PROVIDED, HOWEVER, that commencing on the first anniversary
from the Effective Date and on each anniversary thereafter, the Term of this
Agreement shall automatically be extended for one additional year unless, not
later than 90 days prior to such anniversary, the Executive or Gunite shall have
given notice in writing that he or it does not wish to extend this Agreement;
and provided further, if a Change in Control shall have occurred during the
Term, this Agreement shall continue in effect and the Term shall be extended
until at least the later of the third anniversary of such Change in Control or,
if such Change in Control shall be caused by the shareholder approval of a
merger or consolidation described in Section 6(d)(iii)(C) hereof, the third
ANNIVERSARY OF THE CONSUMMATION OF SUCH MERGER OR CONSOLIDATION.3. POSITION AND
DUTIES. The Executive shall serve as President and Chief Executive Officer of
Gunite, and shall have such responsibilities, duties and authority as are
customarily associated with such offices, including but not limited to, those he
may have as of the Effective Date. The Executive shall devote such time to the
performance of his duties as is necessary to SATISFACTORILY PERFORM HIS
RESPONSIBILITIES AND DUTIES.4. PLACE OF PERFORMANCE. In connection with the
Executive's employment by Gunite, the Executive shall be based at the offices of
Gunite in Rockford, Illinois, except for required travel on Gunite's business to
the extent consistent with Company practices prior to the Effective Date. Gunite
shall pay all expenses related to such office facilities (or comparable office
facilities selected by the Executive), including, without limitation, rent,
salaries, equipment, utilities and other OPERATING COSTS AND EXPENSES.5.
COMPENSATION AND RELATED MATTERS. As compensation and consideration for the
performance by the Executive of the Executive's duties, responsibilities and
covenants pursuant to this Agreement, Gunite will pay the Executive and the
Executive agrees to accept in full payment for such performance THE AMOUNTS AND
BENEFITS SET FORTH BELOW.(A) SALARY. During the Term of the Executive's
employment hereunder, Gunite shall pay to the Executive an annual base salary at
a rate of $250,000 commencing on the first day of the calendar year of the
Effective Date or such higher rate as may from time to time be determined by the
Board, such salary to be paid in substantially equal installments no less
frequently than monthly. This salary may be increased from time to time by
Gunite in its sole discretion. Compensation of the Executive by salary payments
shall not be deemed exclusive and shall not prevent the Executive from
participating in any other compensation or benefit plan of Gunite or the Company
or any of the Company's subsidiaries or affiliates. The salary payments
(including any increased salary payments) hereunder shall not in any way limit
or reduce any other obligation of Gunite or the Company hereunder or under any
other compensation or benefit plan or agreement under which the Executive is
entitled to receive payments or other benefits from Gunite or the Company or any
of the Company's subsidiaries or affiliates, and no other compensation, benefit
or payment hereunder or under any other compensation or benefit plan or
agreement under which the Executive is entitled to receive payments or other
benefits from Gunite or the Company shall in any way limit or reduce the
obligation of Gunite to pay the
EXECUTIVE'S SALARY HEREUNDER.(B) BONUS. During the Term of the
Executive's employment hereunder, the Executive shall receive an annual bonus
equal to one percent (1%) of Gunite's earnings before interest, taxes, and
amortization ("EBITA") for such year. The bonus shall be earned on a pro rata
basis during the year and shall be based on Gunite's financial statements for
such year. Following the Executive's Date of Termination for any reason other
than Cause, Gunite shall pay to the Executive a lump sum amount, in cash, equal
to one percent (1%) OF GUNITE'S EBITA FROM JANUARY 1 OF SUCH YEAR THROUGH THE
DATE OF TERMINATION.(C) EXPENSES. During the Term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
reasonable living expenses in Rockford, Illinois (unless Executive relocates his
residence to Rockford), and all reasonable travel and entertainment expenses or
other out-of-pocket business expenses incurred by the Executive during the Term
in fulfilling the Executive's duties and responsibilities hereunder, including
all expenses of travel and living while away from home on business or at the
request of and in the service of Gunite, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by GUNITE.(D) OTHER BENEFITS AND PERQUISITES. During the Term of the
Executive's employment hereunder:(i) the Executive shall be entitled to
participate in or receive benefits under any employee retirement or welfare
benefit plan or arrangement made available by the Company at any time during his
employment hereunder to its executive employees (collectively the "Benefit
Plans"), including without limitation each qualified or non-qualified
retirement, thrift or profit sharing plan, life insurance and accident plan,
supplemental pension and life insurance, medical and dental insurance plans, and
disability plan, subject to and on a basis consistent with the terms, conditions
and overall administration of such plans and arrangements; and
(ii) Gunite shall reimburse the Executive for
reasonable expenses of an automobile chosen by the Executive, in an
amount of up to eight hundred fifty dollars ($850) per month as well as
automobile insurance and maintenance, according to Gunite's policies
and upon the Executive's presentation of appropriate documentation. The
Executive shall also be entitled to all other perquisites the Company
gives to its executive employees.
Gunite shall pay the Executive such additional amount as is
necessary (after taking into account all federal, state and local income taxes
imposed upon the Executive as a result of the receipt of the benefits and
perquisites contemplated by this Section 5(e)) to place the Executive in the
same after-tax position the Executive would have been in had no income taxes
been imposed upon or incurred or paid by the Executive with respect to such
benefits and perquisites (the "Benefit Gross-Up").Nothing paid to the Executive
under any plan, arrangement or perquisite currently in effect or made available
in the future shall be deemed to be in lieu of the salary payable to the
Executive pursuant to paragraph (a) of this Section 5. Any payments or benefits
payable to the Executive under this Section 5 in respect of any year during
which the Executive is employed by Gunite for less than the entire such year
shall, unless otherwise provided in the applicable plan or arrangement, be
prorated in accordance with the number of days in such year during which he is
so employed.(e) VACATIONS. During his employment hereunder, the Executive shall
be entitled to paid vacation in each calendar year, determined in accordance
with Gunite's vacation policy. The Executive shall also be entitled to all paid
HOLIDAYS AND PERSONAL DAYS GIVEN BY GUNITE TO ITS EXECUTIVE EMPLOYEES.6.
TERMINATION. The Executive's EMPLOYMENT HEREUNDER MAY BE TERMINATED UNDER THE
FOLLOWING CIRCUMSTANCES:(A) DEATH. The Executive's employment HEREUNDER SHALL
TERMINATE UPON HIS DEATH.(B) DISABILITY. If, in the written opinion of a
qualified physician selected by Gunite, the Executive shall become unable to
perform his duties hereunder due to physical or mental illness which continues
for one year, Gunite may terminate the Executive's employment hereunder.n (c)
CAUSE. Gunite may terminate the Executive's employment hereunder for Cause. For
purposes of this Agreement, Gunite shall have "Cause" to terminate the
Executive's employment hereunder upon:(i) the willful and continuous neglect or
refusal to perform the Executive's duties or responsibilities, or the willful
taking of actions (or willful failures to take actions) which materially impair
the Executive's ability to perform his duties or responsibilities which in each
case continues after being brought to the attention of the Executive (other than
any such failure resulting from the Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of a
Notice of Termination (as defined in subsection (e) hereof ); or
(ii) any act by the Executive which constitutes gross
negligence or willful misconduct in the performance of his duties
hereunder, or the conviction of the Executive for any felony, in each
case which is materially and manifestly injurious to Gunite or the
Company and which is brought to the attention of the Executive in
writing not more than thirty days from the date of its discovery by
Gunite or the Company.
For purposes of this subsection (c), no act, or
failure to act, on the Executive's part shall be considered "willful", unless
done, or omitted to be done, by him not in good faith or without reasonable
belief that his action or omission was in the best interest of Gunite or the
Company. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause without (1) reasonable written notice to the
Executive specifying in detail the specific reasons for Gunite's intention to
terminate for Cause, (2) an opportunity for the Executive, together with his
counsel, to be heard before the Board, (3) with respect to actions or inaction
specified in paragraph (i) above, a reasonable opportunity for the Executive to
cure the action or inaction specified by Gunite, and (4) delivery to the
Executive of a Notice of Termination, as defined in subsection (e) hereof.
(D) GOOD REASON.
-----------
(i) The Executive may terminate his employment
hereunder for Good Reason.
(ii) For purposes of this Agreement, "Good Reason"
shall mean, without the Executive's express written consent, the
occurrence of any of the following circumstances unless such
circumstances are fully corrected prior to the Date of Termination (as
defined in subsection (f) of this Section 6) specified in the Notice of
Termination (as defined in subsection (e) of this Section 6) given in
respect thereof: (A) a material change in the Executive's position,
duties, responsibilities (including reporting responsibilities) or
authority (except during periods when the Executive is unable to
perform all or substantially all of the Executive's duties and/or
responsibilities on account of the Executive's illness (either physical
or mental) or other incapacity), which, in the Executive's reasonable
judgment, represent an adverse change, (B) a reduction in either the
Executive's annual rate of base salary or bonus formula as specified
under Section 5(b) hereof, (C) failure to provide facilities or
services which are suitable as determined by the Board of the Company
to the Executive's position and adequate for the performance of the
Executive's duties and responsibilities, including the failure to
maintain the Rockford office without the prior written consent of the
Executive, or (D) any purported termination by Gunite of the
Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of subsection (e) of this
Section 6 (and for purposes of this Agreement no such purported
termination shall be effective). The Executive's right to terminate
employment pursuant to this subsection shall not be affected by the
Executive's incapacity due to physical or mental illness.
(iii) A "Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(A) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or
its affiliates) representing 20% or more of the combined
voting power of the Company's then outstanding securities; or
(B) during any period of two consecutive
years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a
director designated by a Person who has entered into an
agreement with the Company to effect a transaction described
in clause (A), (B) or (C) of this paragraph) whose election by
the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors, at the beginning of the period or whose election or
nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or
(C) the shareholders of the Company approve
a merger or consolidation of the Company with any other
corporation, other than (i) merger or consolidation which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination
with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(D) the shareholders of the Company approve
a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all the Company's assets.
<PAGE>
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Notwithstanding the foregoing, a Change in Control
shall not include any transaction with any entity or group which is
wholly or partly controlled by the Chief Executive Officer and one or
more of the other executive officers of the Company in office
immediately prior to such transaction.(iv) For purposes of this
Agreement, "Beneficial Owner" shall have the meaning defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(v) For purposes of this Agreement, "Person" shall
have the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used herein; however, a Person shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
of its subsidiaries, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, (iv) the
stockholders of the Company immediately after the merger; or (v) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company.
(E) NOTICE OF TERMINATION. Any termination of the Executive's
employment by Gunite or by the Executive (other than a termination pursuant to
subsection (a) hereof) shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 12. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.(f) "Date of Termination" shall mean (i) if the Executive's employment
is terminated pursuant to subsection (a) above, the date of his death, (ii) if
the Executive's employment is terminated pursuant to subsection (b) above,
thirty days after Notice of Termination is given (provided that the Executive
shall not have returned to the full-time performance of the Executive's duties
during such thirty day period), (iii) if the Executive's employment is
terminated pursuant to subsection (c) or (d) above, the date specified in the
Notice of Termination which, in the case of a termination for Cause shall be the
date such Notice of Termination is given (or such later date as provided
therein), and in the case of a termination for Good Reason shall not be less
than twenty (20) nor more than thirty (30) days from the date such Notice of
Termination is given, or (iv) if the Executive terminates his employment and
fails to provide written notice to Gunite of such termination, the date of such
termination; PROVIDED, HOWEVER, that if within fifteen (15) days after any
Notice of Termination is given or, if later, prior to the Date of Termination
(as determined without regard to this proviso), the party receiving such Notice
of Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties, by a
binding arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no APPEAL HAS BEEN PERFECTED); AND
PROVIDED, FURTHER, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the foregoing, if the dispute is resolved in favor of Gunite,
the Date of Termination shall not he deemed to have been extended for purposes
of this Agreement. If the Date of Termination is extended by a notice of
dispute, the rights and the obligations of the parties upon a final
determination shall be governed by the terms of this Agreement, regardless of
whether the Agreement otherwise remains in effect on the date of such final
determination. Notwithstanding the pendency of any such dispute, Gunite will
continue to pay to the Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, base
salary) and continue the Executive as a participant in all compensation, benefit
and insurance plans and perquisites in which the Executive was participating
when the notice giving rise to the dispute was given and the Executive shall, at
Gunite's request, continue to perform his obligations hereunder, in each case,
until the dispute is finally resolved in accordance with this subsection.If
Gunite elects not to have the Executive continue to perform his obligations
hereunder during the pendency of such dispute, and Gunite prevails in such
dispute, then the Executive shall promptly return to Gunite any monies (or the
value of any benefits) received with respect to service performed by him after
the originally STATED DATE OF TERMINATION TO WHICH THE EXECUTIVE WOULD NOT HAVE
BEEN OTHERWISE ENTITLED.7. COMPENSATION UPON TERMINATION, DEATH OR DURING
DISABILITY.
(a) During any period that the Executive fails to perform his
duties hereunder as a result of incapacity due to physical or mental illness,
the Executive shall continue to receive his full base salary and other benefits
at the rate then in effect for such period (offset by any payments to the
Executive received pursuant to disability benefit plans maintained by Gunite or
the Company) until his employment is terminated pursuant to Section 6(b) hereof,
and upon such termination, Gunite shall pay all other unpaid amounts, if any, to
which the Executive is entitled as of such Date of Termination, including any
expenses owed pursuant to Section 5(c) (which amounts shall be paid in a lump
sum within 10 days of such Date of Termination) and amounts under any
compensation plan or program of Gunite or the Company, at the time, if any, such
payments are payable to the Executive under the terms of such plan in light of
the circumstances in which such termination occurred, and neither Gunite nor the
Company shall, thereafter, have no further obligations to the Executive under
this Agreement.(b) If the Executive's employment is terminated by his death,
Gunite shall within ten days following the date of the Executive's death, (i)
pay any amounts due to the Executive under Section 5 through the date of his
death and (ii) pay to the Executive's legal representative (A) any death
benefits provided under any Benefit Plan in accordance with their terms and (B)
all other unpaid amounts, if any, to which the Executive is entitled as of the
Date of Termination, including any expenses owed pursuant to Section 5(c) (which
amounts shall he paid in a lump sum within 10 days of such Date of Termination)
and amounts under any compensation plan or program of Gunite or the Company, at
the time, if any, such payments are payable to the Executive under the terms of
such plan in light of the circumstances in which such termination occurred, and
neither Gunite nor the Company shall, thereafter, have no further obligations to
the Executive under this Agreement.(c) If the Executive's employment is
terminated by Gunite for Cause or by the Executive for other than Good Reason,
Gunite shall pay the Executive his full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given and
all other unpaid amounts, if any, to which the Executive is entitled as of the
Date of Termination, including any expenses owed pursuant to Section 5(c) and
amounts under any compensation plan or program of Gunite or the Company, at the
time, if any, such payments are payable to the Executive under the terms of such
plan in light of the circumstances in which such termination occurred, and
neither Gunite nor the Company shall, thereafter, have no further obligations to
the Executive under this Agreement.(d) Subject to Section 8 hereof, if (A) in
breach of this Agreement, Gunite shall terminate the Executive's employment (it
being understood that a purported termination pursuant to Section 6(b) hereof or
Section 6(c) hereof which is disputed and finally determined not to have been
proper shall be a termination by Gunite in breach of this Agreement) or (B) the
Executive shall terminate his employment for Good Reason, then Gunite shall
provide the following payments and benefits (collectively, the "Severance
Payments"):(i) Gunite shall pay the Executive his full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given and all other unpaid amounts, if any, to which the Executive is entitled
as of the Date of Termination including any amounts owed pursuant to Section
5(c) and amounts under any compensation plan or program of Gunite or the
Company, at the time such payments are payable to the Executive under the terms
of such plan in light of the circumstances in which such termination occurred;
and
(ii) in lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, Gunite
shall pay as liquidated damages to the Executive on the Date of
Termination, a lump sum amount equal to the product of (1) the sum of
(a) the Executive's annual base salary rate in effect as of the date
Notice of Termination is given and (b) the greatest of (i) the
Executive's guaranteed annual bonus (if any) with respect to the fiscal
year in which the Date of Termination occurs, (ii) the target annual
bonus which may become payable to the Executive with respect to the
fiscal year in which the Date of Termination occurs, (iii) the annual
bonus payments made to the Executive with respect to the fiscal year
immediately prior to the fiscal year in which the Date of Termination
occurs and (iv) the average of the annual bonus payments made to the
Executive with respect to the three fiscal years immediately prior to
the fiscal year in which the Date of Termination occurs (or such
shorter period as the Executive has been employed by Gunite) multiplied
by (2) the number three; and
(iii) notwithstanding any provision of Gunite's
annual incentive plans, Gunite shall pay to the Executive a lump sum
amount, in cash, equal to the sum of (a) any annual incentive
compensation which has been allocated or awarded to the Executive for
the completed fiscal year preceding the Date of Termination but has not
yet been paid (pursuant to clause (i) above or otherwise), and (b) the
difference between (1) a pro rata portion to the Date of Termination of
the value of any annual contingent incentive compensation award to the
Executive for an uncompleted fiscal year, as provided in Section 5(b),
and (2) the amount of any annual incentive compensation award Gunite
has already paid to the Executive for the uncompleted fiscal year; and
(iv) Gunite shall at its own cost continue the
participation of the Executive for a period of three years, in all
medical, life and other employee "welfare" benefit plans and programs
(including, without limitation, all qualified, non-qualified, and
supplemental retirement and welfare benefit plans) in which the
Executive was entitled to participate immediately prior to the Date of
Termination, provided that the Executive's continued participation is
permitted under the terms and provisions of such plans and programs as
in effect on the date of such Termination. In the event that the
Executive's participation in any such plan or program is barred, Gunite
shall arrange to provide the Executive with benefits substantially
similar to those which the Executive would otherwise have been entitled
to receive under such plans and programs from which his continued
participation is barred; and
(v) Gunite shall, at its own cost, continue to
provide the Executive for a period of three years with the perquisites,
reimbursements and payments Gunite gave or provided to the Executive,
pursuant to Section 5(e) of this Agreement, immediately prior to the
Date of Termination; and
(vi) Gunite shall pay to the Executive (upon
presentation of appropriate invoices and other documentation) an amount
equal to the amount of all legal fees and expenses incurred by the
Executive in contesting, arbitrating or disputing any such termination
or in seeking to obtain or ENFORCE ANY RIGHT OR BENEFIT PROVIDED BY
THIS AGREEMENT; PROVIDED that, such claim has been brought in good
faith by the Executive and if the Executive shall not be successful,
the Executive shall return 50% of the legal fees and expenses
previously reimbursed to the Executive by Gunite; and
(vii) if Gunite shall fulfill its obligations to the
Executive pursuant to this Section 7(d) then neither Gunite nor the
Company shall, thereafter, have no further obligations to the Executive
under this Agreement.
(e) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 7 be
reduced by any compensation earned by the Executive as the result of employment
by another employer, by retirement benefits, by offset against any amount
claimed to be owed by the Executive to Gunite or the Company, or otherwise.(f)
The obligations of Gunite to make payments and provide benefits under this
SECTION 7 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.8. TREATMENT OF
PARACHUTE PAYMENTS.
(a) Notwithstanding any other provisions of this Agreement,
and except as set forth below, in the event that any payment or benefit received
or to be received by the Executive in connection with a Change in Control or the
termination of the Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with Gunite or the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (all such payments and benefits,
including the Severance Payments, being hereinafter called "Total Payments") is
determined to be an "excess parachute payment" pursuant to Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or any successor or
substitute provision of the Code, with the effect that Executive is liable for
the payment of the excise tax described in Code Section 4999 or any successor or
substitute provision of the Code (the "Excise Tax"), then, after taking into
account any reduction in the Total Payments provided by reason of Code Section
280G in such other plan, arrangement or agreement, the cash payments provided in
Section 7(d)(ii) of this Agreement shall first be reduced, and the noncash
payments and benefits shall thereafter be reduced, to the extent necessary so
that no portion of the Total Payments is subject to the Excise Tax; provided,
however, that Executive may elect (at any time prior to the payment of any Total
Payment under this Agreement) to have the noncash payments and benefits reduced
(or eliminated) prior to any reduction of the cash payments under this
Agreement. NOTWITHSTANDING THE FOREGOING, PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT WILL NOT be reduced unless: (i) the net amount of the Total Payments,
as so reduced (and after subtracting the net amount of federal, state and local
INCOME TAXES ON SUCH REDUCED TOTAL PAYMENTS) IS GREATER than (ii) the difference
of (A) the net amount of such Total Payments, without reduction (but after
subtracting the net amount of federal, state and local income taxes on such
Total Payments), minus (B) the amount of Excise Tax to which the Executive would
be subject in respect of such unreduced Total Payments.(b) All determinations
required to be made under this Section 8, and the assumptions to be utilized in
arriving at such determination, shall be made by the certified public accounting
firm used for auditing purposes by the Company immediately prior to the Date of
Termination (the "Accounting Firm"), which shall provide detailed supporting
calculations both to each of Gunite, the Company and the Executive not later
than 5 days prior to the Date of Termination. The Company shall pay all fees and
expenses of the Accounting Firm. Any determination by the Accounting Firm shall
be binding upon Gunite, the Company and the Executive, except as provided in
paragraph (c) below.(c) As a result of the uncertainty in the application of
Code Sections 280G and 4999 at the time of the initial determination by the
Accounting Firm hereunder, it is possible that the Internal Revenue Service
("IRS") or other agency will claim that an Excise Tax, or a greater Excise Tax,
is due. If the Executive is required to make a payment of any such Excise Tax,
Gunite will promptly pay the Executive an additional amount equal to the amount,
or greater amount, of Excise Tax the Executive is required to pay (plus a gross
up payment for any income taxes, interest, penalties or additional Excise Tax
payable by Executive with respect to such Excise Tax or additional payment), as
determined by the Accounting Firm. Executive will notify Gunite and the Company
in writing of any claim by the IRS or other agency that, if successful, would
require payment by Gunite of the additional payments under this paragraph. The
Executive, Gunite and the Company shall each reasonably cooperate with the other
in connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Total
Payments. Gunite shall pay all fees and expenses of the Executive relating to a
claim by the IRS or other AGENCY.9.RESTRICTIVE COVENANTS.
(A) COVENANT NOT TO COMPETE. The Executive acknowledges that, as a key
management employee, the Executive will be involved, on a high level, in the
development, implementation and management of the Company's strategies and
plans, including those which involve the Company's finances, research,
marketing, planning, operations, industrial relations and acquisitions, and that
he will have access to Confidential Information, as defined in Section 10. By
virtue of the Executive's unique and sensitive position and special background,
employment of the Executive by a competitor of the Company represents a serious
competitive danger to the Company, and the use of the Executive's talent and
knowledge and information about the Company's business, strategies and plans can
and would constitute a valuable competitive advantage over the Company. In view
of the foregoing, the Executive covenants and agrees that, if the Executive's
employment is terminated (i) by the Company in breach of this Agreement, (ii)
pursuant to an event constituting Good Reason or (iii) under any other
circumstances, then, for a period of two years in the case of clauses (i) and
(ii) of this sentence, and for a period of one year in the case of clause (iii)
of this sentence, after the Date of Termination (the "Non-Compete Period"), the
Executive will not engage or be engaged, in any capacity, directly or
indirectly, including but not limited to, as an employee, agent, consultant,
manager, executive, owner or stockholder (except as a passive investor holding
less than a 5% equity interest in any enterprise) in any business entity
anywhere in North America which is engaged in direct competition with any
business of the Company on the Date of Termination which had revenues of ten
percent (10%) or more of the Company's consolidated revenues for the four most
completed fiscal quarters (a business meeting this requirement shall be referred
to as a "Competitor").If any court determines that the covenant not to compete
contained in this Section 9, or any part hereof, is unenforceable, such court
shall have the power to reduce the duration or scope of such provision, or make
any other changes, provided that such changes are as close to the terms hereof
as possible and, in its reduced form, such provision SHALL THEN BE
ENFORCEABLE.(B) NON-SOLICITATION OF EMPLOYEES. Executive agrees that, during the
Non-Compete Period, he shall not, without the prior written consent of Gunite or
the Company, solicit any current employee of Gunite or the Company or any of its
subsidiaries, or any individual who becomes an employee at or before the Date of
Termination, to leave such employment and join or become affiliated with any
business that is, during the NON-COMPETE PERIOD, A COMPETITOR.(C) SURVIVAL OF
NON-COMPETE TERMS. The provisions set forth in this SECTION 9 SHALL SURVIVE
TERMINATION OF THIS AGREEMENT.10. CONFIDENTIALITY. The Executive recognizes that
he will have access to confidential information, trade secrets, proprietary
methods and other data that are the property of and integral to the operations
and success of the Company ("Confidential Information") and therefore agrees to
be bound by the provisions of this Section 10, which each of Gunite, the Company
and Executive agree and acknowledge to be reasonable and to be necessary to
Gunite and the Company. In recognition of this fact, the Executive agrees that
the Executive will not disclose any Confidential Information (except (i)
information which becomes publicly available without violation of this
Agreement, (ii) information which the Executive did not know and should not have
known was disclosed to the Executive in violation of any other person's
confidentiality obligation and (iii) disclosure required in connection with any
legal process (after giving Gunite or the Company the opportunity to dispute
such requirement)) to any person, firm, corporation, association or other
entity, for any reason or purpose whatsoever, nor shall the Executive make use
of any such information for the benefit of any person, firm, corporation or
other entity except Gunite or the Company. The Executive's obligation to keep
all of such information confidential shall be in effect during and for a period
of two years after the Date of TERMINATION; PROVIDED, HOWEVER, that the
Executive will keep confidential and will not disclose any trade secret or
similar information protected under law as intangible property (subject to the
same exceptions set forth in THE PARENTHETICAL CLAUSE ABOVE) FOR SO LONG AS SUCH
PROTECTION UNDER LAW IS EXTENDED.11. BINDING Agreement. This Agreement and all
rights of the Executive hereunder shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts would still be payable to him hereunder
if he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there BE NO SUCH DESIGNEE, TO THE
EXECUTIVE'S ESTATE.12. NOTICE. Notices, demands and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered, if delivered personally, or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, and when received if delivered otherwise, addressed
as follows:If to the Executive:
James D. Cirar
4855 Cider Hill Drive
Rochester, Michigan 48306
If to Gunite or the Company:
Transportation Technologies Industries, Inc.
980 North Michigan Avenue
Suite 1000
Chicago, Illinois 60611
Attn: Secretary
With a copy to:
Robert F. Wall, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
or to such other address as any party may have furnished to the other
in writing in accordance herewith, EXCEPT THAT NOTICES OF CHANGE OF ADDRESS
SHALL BE EFFECTIVE ONLY UPON RECEIPT.13. INDEMNIFICATION. Following the
Executive's Date of Termination, the Company will: (i) indemnify and hold
harmless the Executive for all costs, liability and expenses (including
reasonable attorneys' fees) for all acts and omissions of the Executive that
relate to the Executive's employment with Gunite, to the maximum extent
permitted by law; and (ii) continue the Executive's coverage under the
directors' and officers' liability coverage maintained by the Company, as in
effect from time to time, to the same extent as other current or former senior
executive officers AND DIRECTORS OF THE COMPANY.14. GENERAL PROVISIONS. No
provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing signed by the
Executive and such officer of Gunite and the Company as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware without regard to its conflicts of law
PRINCIPLES.15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in FULL FORCE AND
EFFECT.16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.17. ENTIRE AGREEMENT. This
Agreement sets forth the entire agreement of the parties hereto in respect of
the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto; and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby TERMINATED AND CANCELED.18.
IRREPARABLE HARM. The Executive acknowledges that: (i) the Executive's
compliance with this Agreement is necessary to preserve and protect the
proprietary rights, Confidential Information and the goodwill of Gunite and the
Company as going concerns; (ii) any failure by the Executive to comply with the
provisions of this Agreement will result in irreparable and continuing injury
for which there will be no adequate remedy at law; and (iii) in the event that
the Executive should fail to comply with the terms and conditions of this
Agreement, Gunite and the Company shall be entitled, in addition to such other
relief as may be proper, to all types of equitable relief (including, but not
limited to, the issuance of an injunction and/or temporary restraining order) as
may be necessary to cause the Executive to comply with this Agreement, to
RESTORE TO GUNITE OR THE COMPANY ITS PROPERTY, AND TO MAKE GUNITE OR THE COMPANY
WHOLE.19. CONSENT TO JURISDICTION AND FORUM; LEGAL FEES AND COSTS. Gunite and
the Executive hereby expressly and irrevocably agree that any action, whether at
law or in equity, arising out of or based upon this Agreement or the Executive's
employment by Gunite shall only be brought in a federal or state court located
in Chicago, Illinois. The Executive hereby irrevocably consents to personal
jurisdiction in such court and to accept service of process in accordance with
the provisions of such court. Except as provided in Section 7(d)(v), in
connection with any dispute arising out of or based upon this Agreement or the
Executive's employment by Gunite, each party shall be responsible for its or his
own legal fees and expenses and all court costs shall be shared equally by
Gunite and the Executive unless the court apportions such legal fees or court
costs in a different manner.20. WITHHOLDING. All payments made to the Executive
pursuant to this Agreement shall be subject to applicable withholding taxes, if
any, and any amount so withheld shall be deemed to have been paid to the
Executive for purposes of amounts due to the Executive under this Agreement.IN
WITNESS WHEREOF, the parties have executed this AGREEMENT ON THE DATE AND YEAR
FIRST ABOVE WRITTEN.GUNITE CORPORATION TRANSPORTATION TECHNOLOGIES INDUSTRIES,
INC.
By: _________________________ By:____________________________
Name: _______________________ Name:__________________________
Title:________________________ Title:_________________________
______________________________________
JAMES D. CIRAR
EXHIBIT 21.1
Subsidiaries
Truck Components Inc.
Gunite Corporation
Gunite EMI Corporation
Brillion Iron Works, Inc.
Fabco Automotive Corporation
Bostrom Holdings, Inc.
Bostrom Seating, Inc.
Bostrom Mexico S.A. de C.V. (Mexican company)
Bostrom Specialty Seating, Inc.
Imperial Holdings Corp. - 1 (General Partner - 1% in Imperial Group, LP)
Imperial Holdings Corp. - 2 (Limited Partner - 99% in Imperial Group LP)
Imperial Group, LP
TTII Sales Corporation
JAII Management Company
All subsidiaries are Delaware corporations and are 100% directly or indirectly
owned, except (1) Imperial Group, LP which is a Delaware limited partnership,
(2) Bostrom Mexico S.A. de C.V. which is a Mexican corporation and (3) TTII
Sales Corporation which is a Barbados corporation.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report incorporated by reference in this Form 10-K into the Company's
previously filed Form S-8 Registration Statements, File No. 333-12677, File
333-12679 and File No. 333-62525.
/s/Arthur Andersen LLP
- ---------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 18, 2000
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