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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-63274
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CHATWINS GROUP, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 74-2156829
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
300 WEYMAN PLAZA, SUITE 340
PITTSBURGH, PENNSYLVANIA 15236
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(Address of principal executive offices, including zip code)
(412) 885-5501
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
At July 15, 1998, 289,677 shares of common stock, par value $.01 per share,
were outstanding.
Exhibit index is on page 23.
Page 1 of 24 pages.
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CHATWINS GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statement of Income and
Comprehensive Income for the three and six
months ended June 30, 1998 and 1997 4
Condensed Consolidated Statement of Cash Flows for
the six months ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 22
(b) Reports on Form 8-K 22
SIGNATURES 22
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHATWINS GROUP, INC.
CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1998 AND DECEMBER 31, 1997
(in thousands)
At June 30, At December 31,
1998 1997
----------- --------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 210 $ 734
Receivables, net 33,059 34,246
Inventories, net (note 2) 21,582 16,964
Other current assets 5,212 4,687
-------- --------
Total current assets 60,063 56,631
Property, plant and equipment, net 31,807 31,380
Investments, net 8,116 12,013
Goodwill, net 4,626 4,764
Other assets, net 7,195 6,481
-------- --------
Total assets $111,807 $111,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving Credit Facility $ 27,775 $ 26,061
Current maturities of debt 801 700
Trade payables 17,883 16,239
Other current liabilities 10,786 11,412
-------- --------
Total current liabilities 57,245 54,412
Senior notes due 2003, net 49,912 49,900
Other long-term debt 775 823
Other liabilities 3,503 4,416
-------- --------
Total liabilities 111,435 109,551
Commitments and contingent liabilities (note 5) - -
Minority interests 1,056 1,033
Redeemable preferred stock 8,254 8,026
Warrant value 210 210
Stockholders' equity (note 3) (9,148) (7,551)
-------- --------
Total liabilities and stockholders' equity $111,807 $111,269
======== ========
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands, except share and per share information)(unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------- ------- ------- -------
Net sales $46,582 $48,110 $90,329 $90,752
Cost of sales 37,266 38,998 71,918 73,363
------- ------- ------- -------
Gross profit 9,316 9,112 18,411 17,389
Selling, general & administrative 6,054 5,584 11,865 10,825
Other (income) expense, net (56) 260 37 482
------- ------- ------- -------
Operating profit 3,318 3,268 6,509 6,082
Interest expense, net 2,463 2,461 4,900 4,867
Minority interests 21 (48) 19 (102)
------- ------- ------- -------
Income before income taxes and
equity in earnings of affiliate 834 855 1,590 1,317
Provision for income taxes 313 251 620 346
------- ------- ------- -------
Income before equity in earnings
of affiliate 521 604 970 971
Equity loss from continuing
operations of affiliate (2,127) (97) (2,065) (30)
Equity loss from discontinued
operations of affiliate (274) - (274) -
------- ------- ------- -------
Net income (loss) and
comprehensive income (loss) $(1,880) $ 507 $(1,369) $ 941
======= ======= ======= =======
Earnings applicable to common stock $(1,994) $ 393 $(1,597) $ 713
======= ======= ======= =======
Earnings per common share (basic) $ (8.20) $ 1.62 $ (6.58) $ 2.94
======= ======= ======= =======
Average equivalent common
shares outstanding (basic) 242,887 242,887 242,887 242,887
======= ======= ======= =======
Earnings per common share (diluted) $ (6.81) $ 1.34 $ (5.45) $ 2.43
======= ======= ======= =======
Average equivalent common
shares outstanding (diluted) 292,887 292,887 292,887 292,887
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands)
(unaudited)
Six Months Ended
June 30,
1998 1997
------- -------
Cash flow from operating activities:
Net income (loss) and comprehensive income (loss) $(1,369) $ 941
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 1,980 1,708
Amortization 476 460
Provision for losses on inventories - 80
Minority share of income (losses) 19 (102)
Equity in net loss of affiliate 2,339 30
Changes in assets and liabilities, net of
the purchase of a business:
Decrease (increase) in receivables 1,187 (6,553)
Increase in inventories (4,618) (656)
Increase in trade payables 1,644 3,087
Net change in other assets and liabilities (1,381) 487
------- -------
Cash provided by (used in) operating activities 277 (548)
------- -------
Cash flow from investing activities:
Capital expenditures (2,468) (2,679)
Investment in joint venture (100) -
------- -------
Cash used in investing activities (2,568) (2,679)
------- -------
Cash flow from financing activities:
Repayments of debt (48) (48)
Repayments to related parties - (579)
Net change in Revolving Credit Facility 1,714 3,670
Increase in consolidated subsidiary indebtedness 101 201
------- -------
Cash provided by (used in) financing activities 1,767 3,244
------- -------
Net increase (decrease) in cash and cash equivalents (524) 17
Cash and cash equivalents, beginning of year 734 356
------- -------
Cash and cash equivalents, end of period $ 210 $ 373
======= =======
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal recurring
adjustments considered necessary for a fair statement of the results of
operations have been included. The results of operations for the three and
six month periods ended June 30, 1998 are not necessarily indicative of the
results of operations for the full year. The results of operations for the
three and six months ended June 30, 1997 are restated as the result of an
adjustment as discussed in note 2 to the consolidated financial statements for
the year ended December 31, 1997. When reading the financial information
contained in this Quarterly Report, reference should be made to the financial
statements, schedules and notes contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
NOTE 2: INVENTORIES
Inventories are comprised of the following (in thousands):
At June 30, At December 31,
1998 1997
----------- --------------
(unaudited)
Raw materials $ 7,285 $ 7,679
Work-in-process 8,328 5,678
Finished goods 6,881 4,501
------- -------
Total inventories 22,494 17,858
Less: LIFO reserves (912) (894)
------- -------
Inventories, net $21,582 $16,964
======= =======
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NOTE 3: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
The following represents a reconciliation of the change in stockholders'
equity for the six month period ended June 30, 1998 (in thousands):
Par Capital Accum-
Value in ulated
of Trea- Excess Notes Accum- Trans-
Common sury of Par Receiv- ulated lation
Stock Stock Value able Deficit Adjmt. Total
------ ----- ------- ------- -------- ------ --------
At January 1,
1998 $ 3 $(500) $1,664 $(1,001) $ (7,029) $(688) $ (7,551)
Activity
(unaudited):
Net loss - - - - (1,369) - (1,369)
Preferred stock
accretions - - - - (228) - (228)
--- ----- ------ ------- -------- ----- --------
At June 30,
1998 $ 3 $(500) $1,664 $(1,001) $ (8,626) $(688) $ (9,148)
=== ===== ====== ======= ======== ===== ========
The computations of basic and diluted earnings per common share (EPS) for
the six month periods ended June 30, 1998 and 1997 are as follows (in
thousands, except share and per share amounts)(unaudited):
Income Shares EPS
-------- -------- -------
Six months ended June 30, 1998:
Net loss $ (1,369)
Less: Preferred stock dividend accretions (228)
--------
Income available to common stockholders,
shares outstanding and basic EPS (1,597) 242,887 $ (6.58)
=======
Dilutive effect of Warrants 50,000
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ (1,597) 292,887 $ (5.45)
======== ======== =======
Six months ended June 30, 1997:
Net income as restated (note 1) $ 941
Less: Preferred stock dividend accretions (228)
--------
Income available to common stockholders,
shares outstanding and basic EPS 713 242,887 $ 2.94
=======
Dilutive effect of Warrants 50,000
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ 713 292,887 $ 2.43
======== ======== =======
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NOTE 4: RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with Stanwich Partners, Inc. under
which $75,000 and $150,000 were expensed in each of the three and six month
periods ended June 30, 1998 and 1997, respectively.
During 1997 and the first half of 1998, the Company entered into various
operating lease agreements with CPS Leasing, Inc. (CPSL), a company owned 80%
by Consumer Portfolio Services and 20% by Charles E. Bradley Jr., President of
Consumer Portfolio Services, a director of the Company and son of Charles E.
Bradley Sr., Chairman of the Board, Director and a beneficial shareholder of
the Company. During the first half of 1998, the Company made lease payments
totaling $71,428 to CPSL.
NOTE 5: COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various litigation matters in the ordinary
course of business. In the opinion of management, settlement of these various
litigation matters and other contingent matters will not have any material
effect on the Company's financial position. The Company does not have any
adverse commitments at June 30, 1998.
NOTE 6: OPERATING SEGMENT DISCLOSURES
The Company considers its separately identifiable divisions to be its
operating segments pursuant to the management approach. The following
represents a description of each division and a disaggregation of certain
financial information by operating segment for the six month periods ended
June 30, 1998 and 1997.
Alliance - Alliance designs, engineers and manufactures cranes used in a
wide range of steel and aluminum mill applications and large special purpose
cranes used in marine and aerospace applications and heavy industrial plants.
Alliance also manufactures lighter duty cranes for various industrial
applications, coke oven machinery and other large steel-related fabrications.
In recent years, Alliance has expanded and diversified its engineering and
manufacturing capabilities to offer a variety of equipment and related
engineering, fabrication, maintenance and repair services.
Auto-Lok - Auto-Lok manufactures high quality roll formed and structural
steel fabricated storage racks for industrial and commercial handling systems
and general storage applications. In addition, Auto-Lok participates on
larger contracts in the sale of total material handling systems through
purchasing and reselling related components such as decking and carton flow
devices, and subcontracting of rack erection.
CPI - CPI specializes in manufacturing large, seamless pressure vessels
for the above ground storage and transportation of highly pressurized gases
such as natural gas, hydrogen, nitrogen, oxygen and helium. These pressure
vessels are provided to customers such as industrial gas producers and
suppliers, the alternative fueled vehicle compressed natural gas fuel
industry, chemical and petrochemical processing facilities, shipbuilders,
NASA, public utilities and gas transportation companies.
Hanna - Hanna designs and manufactures a broad line of hydraulic and
pneumatic cylinders, actuators, accumulators and manifolds. These products
are used in a wide variety of industrial and mobile machinery and equipment
requiring the application of force in a controlled and repetitive process.
Hanna's specialty is custom cylinders in both small quantities packaged by its
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distributors with valves, pumps and controls as complete fluid power systems
and large quantities sold directly to equipment manufacturers.
Klemp - Klemp is a highly diversified manufacturer of metal grating
products. Klemp manufactures quality steel and aluminum bar grating products
in a variety of sizes, configurations and finishes, and also custom fabricates
bar grating products for specialized applications. Klemp products are sold
for use in many industrial applications where a combination of strength, light
weight, access and a free flow of air, heat, water or light is desired. Its
products are used in water and wastewater treatment plants, railroad tank
cars, petroleum storage facilities, aircraft, mines, roads, bridge decks and
general manufacturing facilities.
Steelcraft - Steelcraft manufactures and sells cold-rolled steel leaf
springs. Its principal customers are manufacturers of trailers for boats,
small utility vehicles and golf carts and makers of recreational vehicles and
agricultural trailers.
The following represents the disaggregation of financial data at and for
the six months ended June 30, 1998 and 1997 (in thousands)(unaudited):
Total
Net Sales EBITDA(1) Assets(2)
--------- --------- ---------
Six months ended
June 30, 1998:
Alliance $ 19,419 $ 1,571 $ 14,556
Auto-Lok 12,010 859 10,721
CPI 12,662 2,496 17,483
Hanna 16,698 2,784 16,596
Klemp(3) 27,325 1,670 32,352
Steelcraft 2,215 460 1,964
Headquarters/Other - (1,134) 18,135
-------- -------- --------
Totals $ 90,329 8,706 $111,807
======== ========
Depreciation and amortization (2,456)
Interest expense(4) (4,660)
--------
Income before income taxes $ 1,590
========
Six months ended
June 30, 1997:
Alliance $ 19,301 $ 1,629 $ 14,133
Auto-Lok 12,914 498 10,212
CPI 13,612 2,797 18,123
Hanna 17,740 2,394 16,548
Klemp(3) 24,807 1,644 28,576
Steelcraft 2,288 417 1,697
Headquarters/Other 90 (1,291) 21,295
-------- -------- --------
Totals $ 90,752 8,088 $110,584
======== ========
Depreciation and amortization (2,168)
Interest expense(4) (4,603)
--------
Income before income taxes $ 1,317
========
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(1) EBITDA is presented due to its relationship to the Company's financial
covenants benefitting the Senior Notes (as defined).
(2) Headquarters total assets at June 30, 1998 and 1997 are primarily
comprised of deferred tax assets and the Company's investment in Reunion
common stock.
(3) Financial data of Klemp de Mexico and Shanghai Klemp are reported as part
of the Klemp division.
(4) Excludes amortization of debt issuance expenses of $240,000 and $264,000
for the six month periods ended June 30, 1998 and 1997, respectively.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
During 1997 and the first half of 1998, the Company's organizational
structure included six divisions that design, manufacture and market metal
products, two majority-owned foreign joint ventures which manufacture and
fabricate metal grating, an oil and gas division and an equity investment in
Reunion Industries, Inc. (Reunion). During 1997 and the first half of 1998,
substantially all of the Company's operations related to metal products.
On June 20, 1995, the Company acquired 1,450,000 shares of Reunion common
stock constituting approximately 38% of the then outstanding common stock of
Reunion. Reunion acquired Oneida Molded Plastics Corp. (Oneida), the
Company's former plastics subsidiary, from the Company in September 1995.
Reunion also merged Oneida with Rostone, Inc. (Rostone) in February 1996,
resulting in Oneida Rostone Corporation (ORC). As a result, Reunion is
primarily engaged in the manufacture of high volume, precision plastics
products, providing engineered plastics services and compounding and molding
thermoset polyester resins. Reunion also has wine grape agricultural
operations in Napa County, California. The Company's investment in Reunion is
being accounted for under the equity method of accounting. The Company's
proportional share of Reunion's operating results is included in the
accompanying condensed consolidated statement of income for the three and six
month periods ended June 30, 1998 and 1997 as equity loss from operations of
affiliate. See "Recent Developments", "Possible Merger with Reunion" and
"Results of Operations" below.
Recent Developments
Pursuant to a Warrant Agreement dated as of May 1, 1993 (Warrant
Agreement), the Company issued 50,000 warrants (Warrants), each of which
entitles the holder thereof to purchase one share of the common stock of the
Company at an exercise price of $.01 per share. The Warrants were issued in a
transaction pursuant to which the Company issued $50 million of 13% senior
notes (Senior Notes). The Warrants were not exercisable except upon the
occurrence of certain Trigger Events as defined in the Warrant Agreement or,
if no Trigger Event had occurred prior to May 3, 1998, upon the Company's
failure to consummate a Repurchase Offer due to a Payment Blockage, both as
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defined in the Warrant Agreement. No Trigger Event had occurred through May
3, 1998 and a Payment Blockage existed on such date, resulting in the Warrants
becoming exercisable as of May 3, 1998. Consistent with the Warrant
Agreement, the Company notified holders of the Warrants of the existence of a
Payment Blockage within 30 days of such date. Due to its impending merger
with Reunion (see "Possible Merger with Reunion"), the Company simultaneously
gave holders of the Warrants a Bring Along Notice (as defined in the Warrant
Agreement) notifying them that their Warrants would lapse if not exercised
within thirty days. The thirty-day period was subsequently extended
indefinitely when the merger with Reunion was delayed. See "Possible Merger
with Reunion." Through the date of this Quarterly Report on Form 10-Q, 46,790
Warrants have been exercised at $.01 per share resulting in an additional
46,790 shares of the Company's common stock outstanding. See "Liquidity and
Capital Resources."
The Company has notified its warrantholders that because of the
announcement of its prospective merger with Reunion, the Company's
registration statement on Form S-1 filed with the Securities and Exchange
Commission could not be used in connection with any resale of the Warrants.
For the same reasons the Company's registration statement covering the
Warrants remains unavailable until further notice. Accordingly, any
transactions in the Warrants or the Company's common stock into which the
Warrants are convertible, other than the conversion itself, must meet the
conditions of Rule 144A or another exemption from the registration
requirements of the Securities Act of 1933. The Company will update and
restore the availability of this registration statement in the event that the
merger with Reunion is delayed significantly. See "Possible Merger with
Reunion" and "Liquidity and Capital Resources."
In May of 1998, the Company executed a joint venture agreement pursuant
to which it contributed $100,000 to Suzhou Grating, Ltd., a fiberglass
reinforced plastic grating manufacturer in China. The investment constitutes
a default under the Indenture dated May 1, 1993 with State Street Bank & Trust
Company (Trustee), as amended (Indenture), pursuant to which the Company
issued $50 million principal amount of 13% senior notes (Senior Notes).
In May of 1998, Mr. Bradley transferred all of his shares of the
Company's common stock to the Charles E. Bradley, Sr. Family Limited
Partnership (Bradley FLP). Because the Bradley FLP has granted voting control
over such shares to Stanwich Partners, Inc. which in turn has granted voting
control over such shares to Mr. John G. Poole, a director of the Company, Mr.
Bradley does not have sole voting control over such shares of the Company's
common stock thereby causing a breach of the Securities Pledge Agreement (as
defined in the Indenture) for which there is no remedy provided under the
Securities Pledge Agreement but which creates a default under the Indenture.
The Indenture provides that neither of the aforementioned defaults will
mature into an Event of Default subject to the remedies, including
acceleration of the Senior Notes, therein provided until the Trustee under the
Indenture or the holders of at least twenty-five percent (25%) of the Senior
Notes notify the Company of the default and the default remains unremedied for
thirty (30) days after said notice. Although the Company does not expect
either of these two defaults to mature into an Event of Default, there can be
no assurance that an Event of Default will not occur.
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The Company has been named as a defendant in two class action lawsuits
filed in the Court of Chancery of the State of Delaware by stockholders of
Reunion, purportedly on behalf of all the public stockholders of Reunion,
seeking to prevent or rescind the merger and/or obtain damages from Reunion,
the Company and the directors of Reunion on account of the merger. The
lawsuit essentially alleges that based on the relative values of Reunion and
the Company, the public shareholders of Reunion would be excessively diluted
in the merger as compared with the shareholders of the Company. The Company
believes that the exchange ratio fixed for the merger fairly reflected the
relative values of the Company and Reunion at the time the merger terms were
agreed. The Company therefore believes that these lawsuits are without merit
and intends to pursue their dismissal vigorously. See "Possible Merger with
Reunion."
On May 1, 1998, approximately 75 employees of the Company's Klemp
division in Chicago, IL that are represented by the International Association
of Bridge, Structural and Ornamental Iron Workers (Union) went on strike
citing differences over wage increases and other benefits. Such employees had
been working under a collective bargaining agreement which expired on April
30, 1998. By a vote of the Union's membership on May 19, 1998, a new contract
was ratified and the strike ended on May 22, 1998. This strike adversely
affected the second quarter 1998 results of operations of the Company's Klemp
division. See "Results of Operations."
As previously reported by Reunion, on April 24, 1998, a jury in state
district court of Harris County, Texas returned a verdict against Reunion
related to a November 1995 contract for the sale of all outstanding shares of
capital stock of Reunion's wholly owned oil and gas subsidiary to Bargo Energy
Company (Bargo). The jury found that Bargo had a right to terminate the
November 1995 contract with Reunion and that Reunion fraudulently induced
Bargo into signing the agreement. In July 1998, the court entered judgement
affirming the $5.0 million punitive damages jury verdict and awarded
approximately $3.0 million in attorneys' fees and costs. Reunion reported
that it intends to vigorously oppose the judgement including, if necessary,
posting a bond in the approximate amount of $8.8 million, including
anticipated interest, in order to appeal. Reunion's management has informed
the Company that although it believes, based on consultation with counsel,
that it is more likely than not that the judgment will be overturned on
appeal, Reunion has recorded an accrual for the amount of the bond by a charge
to its continuing operations for the second quarter of 1998 in accordance with
generally accepted accounting principles. The Company's results of operations
for the second quarter of 1998 and the carrying value of the Company's
investment in Reunion common stock on the equity method of accounting were
adversely affected by this action. See "Results of Operations."
In a recent press release, Reunion repeated its previous report that it
will not have sufficient resources to meet its corporate, legal and
environmental expenses over the next twelve months, now including the required
$8.8 million appeal bond discussed above, unless financing is arranged.
Reunion reported that it is investigating temporary financing alternatives now
that the merger refinancing has been delayed. See "Possible Merger with
Reunion."
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Possible Merger with Reunion
As previously announced by the Company, the Company and Reunion have
executed a merger agreement providing for a stock-for-stock merger of the
Company with and into Reunion. However, the closing of the Company's
prospective merger into Reunion has been delayed. Reunion announced that the
vote on the proposed merger with the Company included on its ballot for the
Special Meeting of Reunion Stockholders held on August 4, 1998 will be delayed
until a future time citing the results of its operations for the 1998 second
quarter having caused Reunion's prospective refinancing sources to require
significant changes in the terms of the proposed refinancing of the combined
company. Reunion also announced that it is seeking to arrange acceptable
replacement financing to fund the ongoing operations of the combined companies
and the possible redemption of the Senior Notes, which is expected to delay
the closing of the merger and refinancing until later in the year. Reunion
stated that, once it has received commitments for a revised refinancing
package, additional information will be distributed to its stockholders and
the meeting will be reconvened for a vote on the proposed merger. Although a
new closing date has not been scheduled, the Company and Reunion intend to
proceed with the merger as expeditiously as possible. Such transaction was
previously approved by the Boards of Directors of Reunion and the Company and
the shareholders of the Company.
Such transaction will be subject to compliance with the Company's and
Reunion's operative documents, including, in the case of the Company if the
Senior Notes are not concurrently redeemed, with the covenants in the
Company's Indenture, as amended, between the Company and State Street Bank and
Trust Company (Indenture) pursuant to which the Company's Senior Notes are
issued and, if not concurrently refinanced, the Company's $28.0 million
revolving credit facility, as amended (Revolving Credit Facility), with
Congress Financial Corporation (Congress). If such a merger is consummated,
the consideration paid to the Company's preferred stockholders of record on
the effective date of the transaction could include notes in lieu of or in
addition to stock.
Although the Boards of Directors of Reunion and the Company and the
shareholders of the Company have approved the merger, there can be no
assurances that this merger will be approved by the Reunion stockholders or
consummated.
King-Way
On November 3, 1997, Stanwich Acquisition Corporation (SAC) acquired the
King-Way Material Handling Company business (Kingway) from the Kingston-Warren
Corporation for a purchase price of $18.1 million. SAC is a privately-held
company whose common stock is owned 42.5% by Mr. Charles E. Bradley Sr. (Mr.
Bradley) (Chairman of the Board and Director of Chatwins), 42.5% by Mr.
Kimball J. Bradley (Senior Vice President of Chatwins) and 15% by Mr. Richard
L. Evans (Executive Vice President, Chief Financial Officer and Secretary of
Reunion). Similar to Auto-Lok, King-way is in the business of producing
industrial and commercial storage racks and materials handling systems.
At the time King-Way was available for purchase, the Company's management
was desirous of acquiring King-Way as a strategic acquisition by its Auto-Lok
division as King-Way's computerized systems were thought to be an important
line extension to Auto-Lok's more traditional storage and materials handling
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systems. The Company was not, however, able to consummate the acquisition
because of restrictions under its existing financing documents. Mr. Bradley
therefore organized and capitalized SAC to acquire and hold King-Way until
such time as it could be acquired by the Company.
Because King-Way had been operating as a division of Kingston-Warren
Corporation, it was necessary to establish King-Way's business in new
facilities with appropriate overhead support. Meanwhile, Auto-Lok possessed
surplus floor space, production workforce, administrative organization and
equipment that could be utilized to continue King-Way's operations.
Accordingly, SAC and Auto-Lok entered into a service agreement pursuant to
which King-Way would utilize Auto-Lok's surplus capacity in exchange for fees
approximately equal to Auto-Lok's costs of providing the surplus capacity plus
a right of first negotiation to acquire King-Way from SAC. The integration of
King-Way's business into Auto-Lok's facility took place primarily during the
first quarter of 1998 with King-Way's initial operations at such facility
beginning in April 1998.
If the Company successfully acquires or negotiates the irrevocable right
to acquire King-Way for SAC's cost of acquisition plus interest, the shares of
Reunion issuable to the Company's stockholders upon consummation of the merger
pursuant to the Merger Agreement will increase from 8.5 million to 9.0
million. There can be no assurance that the Company will consummate or have
the right to consummate the King-Way acquisition at or prior to the effective
time of the Company's proposed merger into Reunion. See "Possible Merger with
Reunion."
Prior Period Adjustment
The Company restated its consolidated financial statements at and for the
years ended December 31, 1996 and 1995 in the Company's annual report on Form
10-K for the year ended December 31, 1997 as filed with the Securities and
Exchange Commission on April 15, 1998 to correct errors in the recorded book
value of inventory at one of the Company's significant divisions. In early
1998, the Company's corporate management became aware of an overstatement in
the December 31, 1997 recorded book value of inventory at its Klemp division
in the aggregate amount of $2,239,000. The overstatement came to the
attention of the Company's corporate management as a result of physical counts
made at year end 1997. A review of this difference by corporate management
led to the discovery that quantities and costing standards used to value
inventory at the Klemp division had been overstated in prior periods and that
such overstatements had intentionally not been disclosed to the Company's
corporate management by Klemp division management. Of the $2,239,000,
$158,000 relates to 1997, $338,000 relates to 1996 and $312,000 relates to
1995. The remainder relates to periods prior to 1995. Of the $158,000 that
relates to 1997, $40,000 relates to the first quarter of 1997 and $40,000
relates to the second quarter. The condensed consolidated statements of
income for the three and six month periods ended June 30, 1997 presented
herein have been restated accordingly.
The Year 2000 (Y2K)
The Company, like most companies, utilizes electronic technology which
includes computer hardware and software systems that process information and
perform calculations that are date- and time-dependent. The Company is aware
that the coming of Y2K poses pervasive and complex problems in that virtually
<PAGE>
<PAGE> 15
every computer operation, unless it is Y2K compliant, will be affected in some
way by the rollover of the two-digit year value from "99" to "00" and the
inadvertent recognition by the electronic technology of "00" as the year 1900
rather than Y2K. The Company is also aware that it may not only be negatively
impacted by the failure of its own systems to be Y2K compliant, but may also
be negatively impacted by the Y2K non-compliance of its vendors, customers,
lenders and any other party with which the Company transacts business.
In 1995, the Company undertook a project to invest in and install a time-
critical manufacturing and management information system at certain of its
significant divisions in an effort directed towards the goals of cost savings
and improved information flow by substantially improving all operational
processes. Y2K compliant technology is part of this system and the Company
anticipates no material adverse effects to its new operating systems from Y2K.
In addition to internal Y2K compliance, the Company is surveying all
significant vendors, customers, lenders and other outside parties with which
it transacts business in an effort to identify Y2K non-compliance by such
parties. Initial results indicate that those important parties with which the
Company does business are Y2K conscious and will be substantially compliant by
the end of 1998.
The Company has incurred and expects to continue to incur internal staff
and other costs as a result of modifying existing systems to be Y2K compliant.
Such costs will continue to be expensed as incurred and funded through
internally generated cash while costs to acquire new equipment and software
will be capitalized and depreciated over their useful lives. Management does
not expect the incremental cost to the Company of enterprise-wide Y2K
compliance to be material to its operations but recognizes that the failure of
the Company or any party with which the Company conducts business to be Y2K
compliant in a timely manner could have a material adverse impact on the
operations of the Company.
New Accounting Pronouncement
In February 1998, The FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pensions and other postretirement benefit plans
but does not change the measurement or recognition of those plans. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company expects to adopt SFAS No. 132 in 1998. Although this statement will
require the Company to evaluate its current reporting and disclosure
requirements, its adoption is not expected to affect amounts recorded in the
primary consolidated financial statements.
Forward-Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding, among other things, growth strategies and
penetrations of new markets, mergers and joint ventures, financings and/or
refinancings, transactions with affiliates and the effects of Y2K on
electronic technology on which the Company is directly or indirectly
dependent. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks, uncertainties and
restrictions, certain of which are beyond the Company's control. Actual
<PAGE>
<PAGE> 16
outcomes could differ from these forward-looking statements as a result of,
among other things, adverse economic conditions, competition, demand for the
Company's and competitors' products, financing and/or refinancing difficulties
and unanticipated Y2K noncompliance effects. In light of these risks,
uncertainties and restrictions, there can be no assurance that actual outcomes
will equal or approximate the forward-looking statements. Furthermore, the
Company undertakes no obligation to publicly update or revise any forward-
looking statement whether as a result of new information, future events or
otherwise.
Results of Operations
Six Months Ended June 30, 1998 Compared to
Six Months Ended June 30, 1997
Net sales for the first half of 1998 totalled $90.3 million, compared to
$90.8 million for the first half of 1997. Sales for the first half of 1998
decreased $0.5 million, or less than 1%, compared to the first half of 1997.
The decrease in sales was primarily at Hanna, CPI and Auto-Lok, partially
offset by an increase in sales at Klemp. Sales decreased almost $1.1 million
at Hanna, $1.0 million at CPI and $0.9 million at Auto-Lok. Klemp's sales,
including its international entities, increased $2.5 million. Sales at all
other divisions of the Company were flat compared with last year's first half.
The decrease in sales at Hanna was primarily in its mobile cylinder line,
which decreased $1.5 million, while its industrial cylinder line was up $0.4
million. The decrease in its mobile cylinder volume was due to a decrease in
order levels from one of its customers, a trend that is expected to continue
during 1998. Decreases at CPI and Auto-Lok were general in nature and not
indicative of adverse trends. The increase in sales at Klemp is reflective of
an improving domestic market trend over the softening in its markets which
began in 1996 and continued through much of 1997 and the ramp-up in operations
at Shanghai Klemp which had an increase in sales of $1.0 million.
Gross profit for the first half of 1998 was $18.4 million, compared to
$17.4 million for the first half of 1997. First half 1998 gross profit
increased $1.0 million, or 6%. Gross profit margin was 20.4% in the first
half of 1998, compared to 19.2% in the comparable 1997 period. Gross profit
during the first half of 1998 compared to 1997 improved $0.5 million at Hanna
and $0.4 million at Auto-Lok. Gross profit margin was also up at Hanna and
Auto-Lok. Except for Klemp, gross profits and gross profit margins at the
other divisions of the Company either increased or decreased slightly,
primarily as the result of increases or decreases in their respective volumes.
Although Hanna's overall volume decreased in the first half of 1998 compared
to 1997, the increase in gross profit and margin at Hanna was primarily due to
the efficiencies of the increased volume in its industrial cylinder line,
which has higher margin products than its mobile cylinder line. Although
Auto-Lok's overall volume decreased in the first half of 1998 compared to
1997, the increase in gross profit and margin at Auto-Lok was primarily due to
a slight increase in its selling prices and the absorption of a portion of the
Auto-Lok facility's fixed and semi-variable overhead costs by King-Way's
operations beginning in April 1998. See "King-Way." Although Klemp's overall
volume increased in the first half of 1998 compared to 1997, the decrease in
gross profit and margin at Klemp was primarily due to the three week strike at
its Chicago plant and the resulting inability to absorb fixed production
costs. See "Recent Developments."
<PAGE>
<PAGE> 17
Selling, general and administrative (SGA) expenses for the first half of
1998 were $11.9 million, compared to $10.8 million for the first half of 1997.
SGA expenses as a percentage of sales increased to 13.1% for the first half of
1998 compared to 11.9% in the first half of 1997. The increase in SGA as a
percentage of sales was due to an overall increase in administrative spending
at most divisions due to several management hirings and increased domestic and
international marketing efforts.
Other expense for the first half of 1998 was less than $0.1 million,
compared to $0.5 million for the first half of 1997, a net decrease of $0.4
million. There were no individually significant or offsetting items in either
of the first halves of 1998 or 1997.
Interest expense, net, for the first half of 1998 was $4.9 million, which
was about equal to interest expense, net, for the first half of 1997. In
general, average borrowing levels and the effective rates on the Company's
debt did not increase in the first half of 1998 when compared to the first
half of 1997.
Minority interests represent results during the first halves of 1998 and
1997 allocated to the minority ownerships of the Company's CFI-Klemp and
Shanghai Klemp joint ventures. Minority interests are calculated based on the
percentage of minority ownership.
There was a tax provision of $0.6 million in the first half of 1998,
compared to $0.3 million in the first half of 1997. The increase in the tax
provision for the 1998 first half compared to the 1997 first half was
primarily due to the increase in pre-tax income and a $0.2 million reduction
in the valuation allowance for deferred tax assets during the first half of
1997.
The Company's results of operation for the first half of 1998 and the
carrying value of the Company's investment in Reunion common stock on the
equity method of accounting were adversely affected by Reunion's results of
operation for the first half of 1998 which included an $8.8 million charge to
its second quarter continuing operations resulting from an adverse litigation
judgment entered against Reunion (see "Recent Developments") and a $1.2
million charge to its second quarter discontinued operations related to
environmental remediation costs for certain Louisiana oil and gas properties.
The equity loss of $2.4 million in the first half of 1998 represents the
Company's proportionate share of Reunion's first half 1998 results, compared
to $0.1 million for the first half of 1997.
Three Months Ended June 30, 1998 Compared to
Three Months Ended June 30, 1997
Net sales for the second quarter of 1998 totalled $46.6 million, compared
to $48.1 million for the second quarter of 1997. Sales for the second quarter
of 1998 decreased $1.5 million, or 3%, compared to the second quarter of 1997.
The decrease in sales was primarily at Hanna, CPI and Auto-Lok, partially
offset by an increase in sales at Klemp. Sales decreased $0.6 million at
Hanna, $0.7 million at CPI and $0.8 million at Auto-Lok. Klemp's sales,
including the international entities, increased $0.6 million. Sales at all
other divisions of the Company were flat compared with last year's second
quarter. The decrease in sales at Hanna was primarily in its mobile cylinder
line, which decreased $0.8 million, while its industrial cylinder line was up
<PAGE>
<PAGE> 18
$0.2 million. The decrease in its mobile cylinder volume was due to a
decrease in order levels from one of its customers, a trend that is expected
to continue during 1998. Decreases at CPI and Auto-Lok were general in nature
and not indicative of adverse trends. The increase in sales at Klemp is
reflective of the ramp-up in operations at Shanghai Klemp which had an
increase in sales of $0.7 million.
Gross profit for the second quarter of 1998 was $9.3 million, compared to
$9.1 million for the second quarter of 1997. Second quarter 1998 gross profit
increased $0.2 million, or 2%. Gross profit margin was 20.0% in the second
quarter of 1998, compared to 18.9% in the comparable 1997 period. Gross
profit during the second quarter of 1998 compared to 1997 improved $0.3
million at both Hanna and Auto-Lok. Gross profit margin was also up at Hanna
and Auto-Lok. Except for Klemp, gross profits and gross profit margins at the
other divisions of the Company either increased or decreased slightly,
primarily as the result of increases or decreases in their respective volumes.
Although Hanna's overall volume decreased in the second quarter of 1998
compared to 1997, the increase in gross profit and margin at Hanna was
primarily due to the efficiencies of the increased volume in its industrial
cylinder line, which has higher margin products than its mobile cylinder line.
Although Auto-Lok's overall volume decreased in the second quarter of 1998
compared to 1997, the increase in gross profit and margin at Auto-Lok was
primarily due to a slight increase in its selling prices and the absorption of
a portion of the Auto-Lok facility's fixed and semi-variable overhead costs by
King-Way's operations beginning in April 1998. See "King-Way." Although
Klemp's overall volume increased in the second quarter of 1998 compared to
1997, the decrease in gross profit and margin at Klemp was primarily due to
the three week strike at its Chicago plant and the resulting inability to
absorb fixed production costs. See "Recent Developments."
Selling, general and administrative (SGA) expenses for the second quarter
of 1998 were $6.1 million, compared to $5.6 million for the second quarter of
1997. SGA expenses as a percentage of sales increased to 13.0% for the second
quarter of 1998 compared to 11.6% in the second quarter of 1997. The increase
in SGA as a percentage of sales was due to an overall increase in
administrative spending at most divisions due to several management hirings
and increased domestic and international marketing efforts.
Other income for the second quarter of 1998 was less than $0.1 million,
compared to other expense $0.3 million for the second quarter of 1997, a net
change of $0.4 million. There were no individually significant or offsetting
items in either of the first halves of 1998 or 1997.
Interest expense, net, for the second quarter of 1998 was almost $2.5
million, which was about equal to interest expense, net, for the second
quarter of 1997. In general, average borrowing levels and the effective rates
on the Company's debt did not increase in the second quarter of 1998 when
compared to the second quarter of 1997.
Minority interests represent results during the second quarters of 1998
and 1997 allocated to the minority ownerships of the Company's CFI-Klemp and
Shanghai Klemp joint ventures. Minority interests are calculated based on the
percentage of minority ownership.
There was a tax provision of just over $0.3 million in the second quarter
of 1998, compared to just under $0.3 million in the second quarter of 1997.
<PAGE>
<PAGE> 19
The increase in the tax provision for the 1998 second quarter compared to the
1997 second quarter was primarily due to a $0.1 million reduction in the
valuation allowance for deferred tax assets during the second quarter of 1997
which did not recur in the second quarter of 1998.
The Company's results of operation for the second quarter of 1998 and the
carrying value of the Company's investment in Reunion common stock on the
equity method of accounting were adversely affected by Reunion's results of
operation for the second quarter of 1998 which included an $8.8 million charge
to its second quarter continuing operations resulting from an adverse
litigation judgment entered against Reunion (see "Recent Developments") and a
$1.2 million charge to its second quarter discontinued operations related to
environmental remediation costs for certain Louisiana oil and gas properties.
The equity loss of over $2.3 million in the second quarter of 1998 represents
the Company's proportionate share of Reunion's second quarter 1998 results,
compared to almost $0.1 million for the second quarter of 1997.
Liquidity and Capital Resources
General
The Company manages its liquidity as a consolidated enterprise. The
operating divisions of the Company carry minimal cash balances. Cash
generated from the divisions' operating activities generally is used to repay
previous borrowings under the Company's Revolving Credit Facility with
Congress Financial Corporation (Revolving Credit Facility), as well as other
uses (e.g. corporate headquarters expenses, debt service, capital
expenditures, etc.). Conversely, cash required for the divisions' operating
activities generally is provided from funds available under the Revolving
Credit Facility. Although the Company operates in relatively mature markets,
it intends to continue to invest in and grow its businesses through selected
capital expenditures as cash generation permits. Management believes that all
required principal and interest payments, as well as capital expenditures,
will be met by cash flows from operations and/or borrowings under the
Revolving Credit Facility or other financing or refinancing arrangements, if
necessary.
Each of the Warrants entitles the holder thereof to purchase one share of
the common stock of the Company at an exercise price of $.01 per share. The
Warrants were issued in a transaction pursuant to which the Company issued the
Senior Notes. The Warrants were not exercisable except upon the occurrence of
certain Trigger Events as defined in the Warrant Agreement or, if no Trigger
Event had occurred prior to May 3, 1998, upon the Company's failure to
consummate a Repurchase Offer due to a Payment Blockage, both as defined in
the Warrant Agreement. No Trigger Event had occurred through May 3, 1998 and
a Payment Blockage existed on such date, resulting in the Warrants becoming
exercisable as of May 3, 1998. Consistent with the Warrant Agreement, the
Company notified holders of the Warrants of the existence of a Payment
Blockage within 30 days of such date. Due to its impending merger with
Reunion (see "Possible Merger with Reunion"), the Company simultaneously gave
holders of the Warrants a Bring Along Notice (as defined in the Warrant
Agreement) notifying them that their Warrants would lapse if not exercised
within thirty days. The thirty-day period was subsequently extended
indefinitely when the merger with Reunion was delayed. See "Possible Merger
with Reunion." Through the date of this Quarterly Report on Form 10-Q, 46,790
Warrants have been exercised at $.01 per share resulting in an additional
46,790 shares of the Company's common stock outstanding.
<PAGE>
<PAGE> 20
The Company has notified its warrantholders that because of the
announcement of its prospective merger with Reunion, the Company's
registration statement on Form S-1 filed with the Securities and Exchange
Commission could not be used in connection with any resale of the Warrants.
For the same reasons the Company's registration statement covering the
Warrants remains unavailable until further notice. Accordingly, any
transactions in the Warrants or the Company's common stock into which the
Warrants are convertible, other than the conversion itself, must meet the
conditions of Rule 144A or another exemption from the registration
requirements of the Securities Act of 1933. The Company will update and
restore the availability of this registration statement in the event that the
merger with Reunion is delayed significantly. See "Possible Merger with
Reunion."
In May of 1998, the Company executed a joint venture agreement pursuant
to which it contributed $100,000 to Suzhou Grating, Ltd., a fiberglass
reinforced plastic grating manufacturer in China. The investment constitutes
a default under the Indenture.
In May of 1998, Mr. Bradley transferred all of his shares of the
Company's common stock to the Bradley FLP. Because the Bradley FLP has
granted voting control over such shares to Stanwich Partners, Inc. which in
turn has granted voting control over such shares to Mr. John G. Poole, a
director of the Company, Mr. Bradley does not have sole voting control over
such shares of the Company's common stock thereby causing a breach of the
Securities Pledge Agreement (as defined in the Indenture) for which there is
no remedy provided under the Securities Pledge Agreement but which creates a
default under the Indenture.
The Indenture provides that neither of the aforementioned defaults will
mature into an Event of Default subject to the remedies, including
acceleration of the Senior Notes, therein provided until the Trustee under the
Indenture or the holders of at least twenty-five percent (25%) of the Senior
Notes notify the Company of the default and the default remains unremedied for
thirty (30) days after said notice. Although the Company does not expect
either of these two defaults to mature into an Event of Default, there can be
no assurance that an Event of Default will not occur.
Under the Revolving Credit Facility with Congress, the Company is subject
to compliance with various covenants, representations and warranties, all as
defined in the Loan and Security Agreement (Loan Agreement) between Congress
and the Company. The Maximum Credit (as defined in the Loan Agreement) under
the Revolving Credit Facility was temporarily increased to $30.0 million
pursuant to an April 28, 1998 amendment as discussed below. At June 30, 1998,
the Company was in compliance with all covenants and there were no events of
default under the Revolving Credit Facility. Borrowings outstanding under the
Revolving Credit Facility at June 30, 1998 totalled $27.8 million.
Borrowings under the Revolving Credit Facility bear interest at an annual
rate of the Philadelphia National Bank Prime Rate plus 1.5%. The facility
also contains an unused line fee of 0.5% and a $5,000 monthly servicing fee.
The Loan Agreement was scheduled to expire on June 30, 1998 but was extended
to August 31, 1998, pursuant to an amendment as discussed below, and is
renewable annually thereafter.
<PAGE>
<PAGE> 21
On April 28, 1998, the Revolving Credit Facility was amended to provide a
temporary increase in the Maximum Credit to $30.0 million from $28.0 million
and a temporary $3.0 million overadvance availability. The proceeds from this
$3.0 million overadvance were used for various purposes, including the
Company's May 1, 1998 $3.25 million interest payment on its Senior Notes.
During the temporary increase period, which ended on August 5, 1998, the $3.0
million overadvance was required to be reduced in increments of $1.0 million
on each of June 5, July 6 and August 5, 1998. Additionally, as part of this
amendment, the expiration date of the Loan Agreement was extended to August
31, 1998. The $3.0 million overadvance was reduced by $1.0 million on June 5
and, along with the Maximum Credit, further reduced by $1.0 million on July 6,
1998. However, as a result of the delay in merger negotiations (see "Possible
Merge with Reunion"), the Company and Congress agreed to revise this amendment
to extend the August 5, 1998 $1.0 million overadvance and Maximum Credit
incremental reduction to October 6, 1998 and to further extend the expiration
date of the Loan Agreement to October 31, 1998.
At December 31, 1997, the Company had net operating loss carryforwards
for tax return reporting purposes of approximately $2.2 million, of which $1.0
million expires in 2008 with the remainder of $1.2 million expiring in 2011.
The availability of these carryforwards may be subject to limitations imposed
by the Internal Revenue Code. A U.S. federal corporate income tax return
examination has been completed for the Company's 1995 tax year. The Company
believes adequate provisions for income taxes have been recorded for all
years.
SFAS 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The Company periodically reviews
the adequacy of the valuation allowance as a result of changes in its
profitability and other factors. Based on reviews during 1997, the Company
reduced the valuation allowance by $180,000 in the first half of 1997.
Operating Activities
Operating activities provided almost $0.3 million of cash during the
first half of 1998, compared to cash used of $0.5 million in the first half of
1997, an increase of $0.8 million. An increase in income before depreciation,
amortization, minority interests and equity income (loss) of $0.3 million in
the first half of 1998 compared to 1997 and a decrease of $2.3 million in cash
used during the first half of 1998 compared to 1997 as the result of changes
in net working capital (defined as receivables, inventories and trade payables
for cash flow purposes) were partially offset by a $1.9 million decrease in
cash provided by changes in other assets and liabilities. The decrease of
$1.9 million in cash provided by changes in other assets and liabilities was
primarily the result of decrease in current liabilities at the Company's
headquarters and several major divisions.
Investing Activities
Investing activities used $2.6 million of cash during the first half of
1998, compared to cash used of $2.7 million during the first half of 1997, a
decrease in cash used of $0.1 million, all related to a decrease in capital
expenditures during the first half of 1998 compared to the first half of 1997.
During the second quarter of 1998, the Company made a $0.1 million investment
in a fiberglass grating joint venture in China. See "Recent Developements."
<PAGE>
<PAGE> 22
Financing Activities
Financing activities during the first half of 1998 provided $1.8 million
in cash, compared to $3.2 million of cash provided during the first half of
1997, a decrease in cash provided of $1.4 million. This decrease in cash
provided is the result of an increase of only $1.7 million in the level of net
borrowings under the Revolving Credit Facility during the first half of 1998
compared to an increase of $3.7 million in the first half of 1997, partially
offset by a $0.6 million decrease in repayments of related party indebtedness.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith in accordance
with Item 601 of Regulation S-K:
Exhibit No. Exhibit Description
----------- -------------------
27 Financial Data Schedule (electronically
filed report only).
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Date: August 10, 1998 CHATWINS GROUP, INC.
--------------- (Registrant)
By: /s/ Joseph C. Lawyer
-------------------------------
Joseph C. Lawyer
President and Chief
Executive Officer
By: /s/ John M. Froehlich
-------------------------------
John M. Froehlich
Vice President, Chief Financial
Officer and Treasurer
(chief financial and accounting officer)
<PAGE>
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
----------- ------------------- --------
27 Financial Data Schedule 24
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's financial statements included in the Form 10-Q for the period-end
indicated below and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 210
<SECURITIES> 0
<RECEIVABLES> 33,718
<ALLOWANCES> 659
<INVENTORY> 21,582
<CURRENT-ASSETS> 60,063
<PP&E> 56,703
<DEPRECIATION> 24,896
<TOTAL-ASSETS> 111,807
<CURRENT-LIABILITIES> 29,470<F1>
<BONDS> 49,912
0
8,254
<COMMON> 3
<OTHER-SE> (9,151)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 111,807
<SALES> 90,329
<TOTAL-REVENUES> 90,329
<CGS> 71,918
<TOTAL-COSTS> 71,918
<OTHER-EXPENSES> 11,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,900
<INCOME-PRETAX> 1,590
<INCOME-TAX> 620
<INCOME-CONTINUING> 970
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,369)
<EPS-PRIMARY> (6.58)
<EPS-DILUTED> (5.45)
<FN>
<F1>Excludes revolving credit facility borrowings of $27,775 at 6/30/98.
<F2>Includes charges to retained earnings of $14.2 million for redemption
value of and dividend accretions on preferred stock.
</FN>
</TABLE>
