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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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The capital stock of the Registrant is not traded in public markets.
Accordingly, the aggregate market value of the voting stock of the Registrant
cannot be determined.
At March 31, 1998, 242,887 shares of common stock, par value $.01 per share,
were outstanding.
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CHATWINS GROUP, INC.
TABLE OF CONTENTS
Page No.
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PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosures 59
PART III
Item 10. Directors and Executive Officers of the Registrant 59
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial
Owners and Management 65
Item 13. Certain Relationships and Related Transactions 68
PART IV
Item 14. Exhibits, Financial Statements Schedules,
and Reports on Form 8-K 76
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PART I
Item 1. Business.
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GENERAL
Chatwins Group, Inc. (referred to herein as the "Company" or
"Registrant"), through its six manufacturing divisions, designs, manufactures
and markets a broad range of fabricated and machined industrial parts and
products, primarily for sale to original equipment manufacturers in a variety
of industries. The Company's principal fabricated and machined products, and
the divisions that produce them, include large, seamless pressure vessels for
highly pressurized gases produced by the CP Industries division (CPI), high
quality steel and aluminum grating produced by the Klemp division (Klemp),
industrial hydraulic and pneumatic cylinders produced by the Hanna division
(Hanna), industrial cranes and large mill equipment produced by the Alliance
Machine Company division (Alliance), cold-rolled steel leaf springs produced
by the Steelcraft division (Steelcraft) and high quality roll formed storage
racks produced by the Auto-Lok division (Auto-Lok). The Company also has a
small oil and gas division (Europa).
The Company emphasizes internal development of products, enhancement of
manufacturing capabilities, market development and cost control. As a result
of this strategy, the Company has maintained stable cash flows from
operations. Although its manufacturing divisions share common characteristics
as basic metal fabrication concerns, the Company believes that the variety of
market niches served by these divisions lessens the impact of adverse economic
conditions on the Company.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Annual Report on Form 10-K 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 the year 2000
(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
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.
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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 are not excercisable except upon the
occurrence of certain Trigger Events as defined in the Warrant Agreement or,
if no Trigger Event has 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. The Company believes that no Trigger Event
will occur prior to and a Payment Blockage will exist on such date, resulting
in the Warrants becoming exercisable on May 3, 1998.
STRATEGY
The Company's strategy is the establishment of large market share
positions in well established niche markets. In this regard, the Company
intends to continue to consider acquisitions that enhance its existing
capabilities and profitability, or that are otherwise compatible with its
strategies and management expertise. Since 1989, the Company has consummated
nine such acquisitions. Additionally, the Company has undertaken efforts to
expand export and international sales by exploring the potential for increased
marketing of certain products in targeted foreign countries and joint
venturing with selected international partners. The Company and Reunion are
considering the possible merger of the Company with and into Reunion
Industries, Inc. (Reunion). See "Possible Merger" which follows.
INVESTMENTS
Reunion - On June 20, 1995, the Company acquired 1,450,000 shares, or
approximately 38%, of the then issued and outstanding shares of common stock
of Reunion, a publicly traded company, and purchased 75,000 warrants to
purchase shares of Reunion common stock, both from unrelated parties.
Reunion's common stock is listed for quotation on the NASDAQ Small-Cap. Market
under the symbol "RUNI" and on the Pacific Stock Exchange under the symbol
"RUN".
The aggregate purchase price of the common stock consisted of $5.8
million paid in cash and a $5.8 million promissory note (Parkdale Note). The
aggregate purchase of the warrants consisted of $0.3 million paid in cash and
a $0.2 million two-year promissory note (Gesterkamp Note). The Parkdale Note
was subsequently purchased by Charles E. Bradley Sr. (Mr. Bradley), Reunion's
President and Chief Executive Officer and Chairman of the Board of the
Company. The Gesterkamp Note was subsequently purchased by Mr. Franklin Myers
(Mr. Myers), a director of Reunion.
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 real estate development
and wine grape agricultural operations in Napa County, California. During the
fourth quarter of 1996, Reunion classified its agricultural operations as
discontinued operations. During the fourth quarter of 1997, Reunion
reclassified its agricultural operations as continuing operations as its
agricultural operations were not disposed of within one year.
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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 consolidated statement of
income for the years ended December 31, 1997, 1996 and 1995 as equity income
(loss) from operations of affiliate.
The Company made a final repayment of the Parkdale Note to Mr. Bradley in
full in January 1997 with a $0.5 million payment, including interest.
Pursuant to the terms of the Gesterkamp Note, on each of January 6 and June 6,
1997, the Company made the final two principal repayments on the Gesterkamp
Note of $50,000 each, plus interest, to Mr. Myers. Mr. Bradley is President,
Chief Executive Officer and a director of Reunion. Thomas L. Cassidy, a
director of the Company through June 16, 1997, is also a director and
stockholder of Reunion. John G. Poole (Mr. Poole), a director and stockholder
of the Company, is a director of Reunion.
See "Management's Discussion and Analysis of Results of Operations",
"Certain Relationships and Related Transactions." Also, see "Possible Merger"
below.
CGII - The Company owns 49% of CGI Investment Corp. (CGII), which owned 100%
of the outstanding preferred stock and fully diluted common stock of Rostone,
Inc. (Rostone). Rostone compounds and molds thermoplastic polyester resin
(bulk and sheet molding compound) primarily for the electrical distribution
market and business machine market.
On December 22, 1995, Rostone and Oneida entered into a merger agreement
whereby Rostone was subsequently merged into Oneida Molded Plastics Corp.
(Oneida), the Company's former plastics division which was sold to Reunion in
September 1995, and, as the surviving corporation, Oneida's name was changed
to Oneida Rostone Corp. (ORC). In the merger, ORC acquired from CGII all of
the issued and outstanding preferred and common stock of Rostone. The merger
agreement provided for the payment of deferred merger proceeds of up to $4.0
million ($2.0 million in 1997 and $2.0 million in 1998) to CGII contingent
upon Rostone's achieving specified levels of earnings before interest and
taxes in 1996 and 1997. Rostone did not achieve the level of earnings before
interest and taxes in either 1996 or 1997 as specified in the merger agreement
for the payment of deferred merger proceeds in 1997 or 1998. As such, CGII
will not receive any merger proceeds pursuant to the merger agreement.
The Company made three loans to CGII; $1.5 million in December 1990,
$1.35 million in December 1993 and $0.3 million in February 1994. Rostone's
preferred stock was previously pledged by CGII to the Company to secure the
Company's December 1993 loan of $1.35 million. As such, any merger proceeds
were to be paid to the Company until the debt and related interest was paid in
full. Over time, the Company has provided reserves for a substantial portion
of the principal on its notes receivable from CGII. At December 31, 1997, the
net carrying value of the Company's investment in CGII common stock and net
notes receivable was $0.6 million.
CGII's primary assets remaining after the sale of Rostone are two notes
receivable from affiliates of the Company and a minimal amount of cash, the
sum of which total $0.7 million at December 31, 1997. Upon liquidation, these
assets would be allocated among CGII's remaining creditors, one of which is
the Company. See "Certain Relationships and Related Transactions - Certain
Loans - Rostone and CGII."
Klemp de Mexico - In 1993, the Company entered into a joint venture with a
Mexican company for the purpose of manufacturing, selling and distributing
metal bar grating in Mexico. This affiliate, Acervalco-Klemp, S.A. de C.V.,
was 49% owned by the Company. During May 1994, the Company increased its
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ownership in Acervalco-Klemp, S.A. de C.V., to 85% and has consolidated the
results since such date. In January 1995, the subsidiary's name was changed
to Klemp de Mexico.
CFI-Klemp de Mexico - During 1996, Klemp de Mexico entered into a joint
venture agreement with Consolidated Fabricators, Inc., a Massachusetts
company, to form CFI-Klemp de Mexico (CFI-Klemp), a Mexican corporation. CFI-
Klemp is in the business of metal fabrications. As Klemp de Mexico has a
50.1% interest in CFI-Klemp, CFI-Klemp is consolidated with Klemp de Mexico
for financial reporting purposes.
Shanghai Klemp - In December 1995, the Company entered into a joint venture
agreement with China Metallurgical Import & Export Shanghai Company (CMIESC)
and Wanggang Township Economic Development Corporation (Wanggang) to form
Shanghai Klemp Metal Products Co. Ltd., (Shanghai Klemp). CMIESC is a state-
owned foreign trade enterprise which trades in steel and equipment used in the
manufacture of steel products. Wanggang is an independently owned, industrial
development corporation focusing on economic growth in the Pudong New Area of
Shanghai. As the Company has a 65% interest in Shanghai Klemp, Shanghai Klemp
is consolidated for financial reporting purposes.
CGI Sales - The Company also has a wholly-owned subsidiary, CGI Sales
Corporation (CGI Sales), which is a Barbados corporation that functions as the
Company's foreign sales corporation. In 1997, approximately $5.0 million of
the Company's sales passed-through CGI Sales.
POSSIBLE MERGER
The Company and Reunion are considering the possible merger of the
Company with and into Reunion in a tax-free exchange of stock, possibly
coincident with a redemption of the Senior Notes. Such transaction, if
proposed, will be subject to approvals by the Boards of Directors and
stockholders of Reunion and the Company and, where appropriate, compliance
with the Company's and Reunion's operative documents, including, in the case
of the Company, 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 consummated
prior to its expiration on June 30, 1998 and not renewed by the Company or
Congress Financial Corporation (Congress), the Company's $28.0 million
revolving credit facility (Revolving Credit Facility) with Congress. Reunion
has retained an investment banking firm that conducted appraisals of the
values of each party independent to the possible merger. The Company and
Reunion have jointly engaged in discussions with prospective lenders. If such
a merger is proposed, requisite approvals obtained and other conditions
satisfied, consummation of the merger and, perhaps, redemption of the Senior
Notes, could occur during 1998. If such a merger is consummated,
consideration paid to the Company's stockholders of record on the effective
date of the transaction would likely be a combination of Reunion common stock
and cash. There can be no assurance that this transaction will be proposed
or, if proposed, consummated.
INDIVIDUAL OPERATING DIVISIONS
CPI - Founded in 1897, CPI, the former Christy Park division of USX
Corporation, specializes in manufacturing large, seamless pressure vessels for
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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.
Klemp - Founded in 1901, 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. For financial reporting
purposes, operations of Klemp de Mexico, the Company's Mexican subsidiary, and
Shanghai Klemp, the Company's Chinese joint venture, are reported as part of
the Klemp division.
Alliance - Founded in 1901, 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.
Hanna - Founded in 1901, 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 distributors with valves, pumps and controls as
complete fluid power systems and large quantities sold directly to equipment
manufacturers.
Steelcraft - Founded in 1972, 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
vehicle and agricultural trailers.
Europa - The Company was originally incorporated as Europa Petroleum, Inc. in
1980. The Europa division continues the Company's original oil and gas
business, holding interests in a small number of leases for oil and gas
properties, investing in low-risk gas exploration and managing a portfolio of
oil and gas participations.
Auto-Lok - Founded in 1946, 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.
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The following represents net sales, EBITDA (as defined), and total assets
by division and subsidiary at and for the years ended December 31, 1997, 1996
and 1995 (in thousands, including notes hereto, unless otherwise indicated):
Total
Net Sales EBITDA(1) Assets(2)
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At and for the year ended
December 31, 1997:
CPI $ 28,171 $ 5,882 $17,071
Klemp 52,501 2,952 29,545
Alliance 43,791 3,817 14,872
Hanna 33,420 4,721 15,916
Steelcraft 4,378 889 1,705
Europa 135 29 1,326
Auto-Lok 26,524 899 10,054
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Totals $188,920 $19,189 $90,489
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At and for the year ended
December 31, 1996:
CPI $ 25,107 $ 5,377 $16,236
Klemp(3) 49,643 4,012 25,115
Alliance 28,091 1,546 12,662
Hanna 29,617 3,127 15,972
Steelcraft 4,010 771 1,766
Europa 148 94 1,433
Auto-Lok 16,864 (154) 7,860
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Totals $153,480 $14,773 $81,044
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At and for the year ended
December 31, 1995:
CPI $ 21,191 $ 4,096 $14,633
Klemp(3) 49,203 4,530 23,422
Alliance 31,448 2,400 13,080
Hanna 27,541 3,872 17,388
Steelcraft 3,949 878 1,873
Europa 224 101 1,367
Auto-Lok 23,626 2,190 9,538
Oneida (to September 14, 1995) 26,226 2,504 -
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Totals $183,408 $20,571 $81,301
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(1) Excludes Headquarters expenses in the years ended December 31, 1997, 1996
and 1995 of $2,398, $1,558 and $1,952, respectively. See Item 6 for operating
income and a definition of EBITDA.
(2) Excludes Headquarters assets at December 31, 1997, 1996 and 1995 of
$20,780, $20,286 and $24,989, respectively.
(3) EBITDA and total assets for the Klemp division have been restated to
reflect the corrections of errors in inventory values at December 31, 1996 and
1995. See Item 8. "Financial Statements and Supplementary Data, Notes to
Consolidated Financial Statements, Note 2."
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GENERAL ASPECTS APPLICABLE TO THE DIVISIONS
Raw Materials - The major raw materials used by the Company in its fabricated,
cold-rolled and machined products manufacturing divisions include steel hot-
rolled bands, structural bars, stainless steel coils, welded and seamless
steel tubing and pipe, steel alloy bars, steel plates, brass tubing and bars
and aluminum extrusions, all of which are supplied by various domestic
sources. Prices for most of these raw materials used by the Company remained
relatively constant during 1997. There can be no assurance that prices for
these and other raw materials used by the Company will not increase in the
future.
Competition - Most of the Company's products are sold in highly competitive
markets both in the U.S. and internationally. The Company competes with a
significant number of companies of varying sizes, including divisions or
subsidiaries of larger companies, on the basis of price, service, quality and
the ability to supply customers in a timely manner. A number of the Company's
competitors have financial and other resources that are substantially greater
than those of the Company. Competitive pressures or other factors could cause
the Company's products to lose market share or result in significant price
erosion which would have a material effect on the Company's results of
operations.
Export Sales - The Company's export sales for 1997 were approximately 4% of
total sales. Export sales were primarily made in four areas during 1997 - the
Middle and Far Easts, Canada and the United Kingdom. CPI accounted for a
significant majority of export sales during 1997, recording sales in all four
areas, mostly in the Far East. Hanna represented almost all of the remainder,
primarily to Canada. CPI, Hanna and Alliance also had minor amounts of export
sales to South America and China.
Backlog - The Company's consolidated backlog at December 31, 1997 and 1996 was
approximately $63.4 million and $65.5 million. Except for Alliance, all
backlog orders at December 31, 1997 are expected to ship within a year. Due
to the nature of its business, Alliance's backlog, which represented 45% of
consolidated backlog at December 31, 1997 and 1996, is expected to ship within
two years.
Research and Development - The Company operates in relatively mature markets
and the majority of its research and development work is related to improving
the quality and performance of its existing products, meeting design
requirements and specifications of its customers that require customized
products and developing greater production efficiencies. To meet these
objectives, the Company has engineering departments at all of its major
manufacturing divisions.
Major Customers - During 1997, no customer accounted for more than 10% of the
net sales of the Company. Individual divisions of the Company have had
customers in certain calendar years that have accounted for in excess of 10%
of that division's net sales. This occurs principally at CPI, Alliance, the
Brooks operation of Hanna and Auto-Lok due to the large contract nature of
their businesses, and commonly occurs for different customers from one year to
the next.
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Patents and Trademarks - The Company owns a number of patents and trademarks
that are registered in the United States Patent and Trademark Office and
internationally. The Company does not believe that any of its registered
trademarks or patents are material to the Company's business or that such
business is dependent on any trademark or patent.
Marketing and Distribution - The Company markets and distributes its products
in a variety of ways including in-house marketing and sales personnel at all
of its divisions, domestic independent and manufacturers representatives,
domestic and international agents and North American networks of independent
distributors that specialize in a product of the Company's various divisions.
Employees - As of December 31, 1997, the Company had a total of 1,322 people
in manufacturing, sales and administrative positions. The Company believes
its relations with its employees are good. However, on December 2, 1997, the
employees of Klemp's Liberty, MO location staged a brief walkout as a result
of the October 31, 1997 expiration of the labor agreement between the Company
and the International Union of Operating Engineers. A new agreement with that
union was reached and executed effective December 8, 1997 without any
significant effect on the operations or business of that location. A
breakdown by location and function follows.
General and
Division Location Manufacturing Administrative Total
- -------- -------- ----------------- ----------------- -----
Union Non-Union Union Non-Union
----- --------- ----- ---------
CPI McKeesport, PA 83(1) 9(2) 29 121
Klemp Oak Brook, IL 12 12
Chicago, IL 78(3) 27 105
Orem, UT 101 32 133
Dayton, TX 60 21 81
Liberty, MO 47(4) 25 72
Dallas, TX 12 3 15
Atlanta, GA 6 3 9
Lerma, State of
Mexico (KDM) 19 28 47
Lerma, State of
Mexico (KDM-CFI) 17 6 23
Alliance Alliance, OH 187(5) 35 59 281
Hanna Chicago, IL 82 31 113
Milwaukee, WI 72 12 84
Steelcraft Miami, OK 31 9 40
Hdqtrs. Pittsburgh, PA 14 14
Auto-Lok Acworth, GA 137 35 172
--- --- - --- -----
Totals 395 572 9 346 1,322
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(1) United Steelworkers of America - Contract expires May 31, 2001.
(2) United Steelworkers of America - Contract expires May 31, 2001.
(3) International Association of Bridge, Structural and Ornamental Iron
Workers - Contract expires April 30, 1998.
(4) International Union of Operating Engineers - Contract Expires December 8,
2001.
(5) United Steelworkers of America - Contract expires June 14, 1999.
Insurance - The Company maintains general liability, product liability,
property, workers' compensation, and other insurance in amounts and on terms
that it believes are customary for companies similarly situated.
Environmental - Since 1988, the Company has followed procedures and maintained
strict policies designed to protect the environmental welfare of its employees
and the communities surrounding its various locations.
As a part of a refinancing by the Company in 1990, environmental audits
were performed at the Company's various locations by independent environmental
engineering companies. Recommendations contained in those audits were
implemented by the Company. Each facility is monitored as part of the
Company's internal environmental and hazardous materials management program.
The Company has also completed a compliance program for polychlorinated
biphenyls and to remove or encapsulate asbestos at all of its facilities. A
policy of seeking substitutes for hazardous materials has been established and
many potentially hazardous substances have been replaced by environmentally
safe items. The Company's employees have been trained to work properly with
potentially hazardous substances and to read and understand Material Safety
Data Sheets.
In September 1988, U.S. Metalsource Corp. (Metalsource), the owner of the
Ipsen facility prior to the Company, removed substantial quantities of solvent
contaminated soil from the Ipsen facility to a licensed landfill. While
almost all of the contaminated soil was removed, isolated areas could not be
removed due to building safety concerns. A residual groundwater contamination
problem remains. Alco Standard Corporation (Alco), the owner of the Ipsen
facility during the time when the vast majority of the contamination occurred,
has agreed to perform, pay for and assume direct responsibility and liability
for, and hold the Company harmless in respect of, the remediation of the
remaining contamination including an ongoing groundwater remediation plan
which has been approved by the Illinois Environmental Protection Agency.
Concurrent with its sale of the Ipsen assets, the Company assigned to the
purchaser the Company's rights to this agreement with Alco. The Company also
covenanted with the purchaser to complete or cause to be completed the
remediation of the remaining contamination if Alco should fail to honor its
agreement. As of December 31, 1997, the Company had received no notice that
Alco was not performing under the approved groundwater remediation plan.
As a result of these efforts, the Company believes that its business,
operations and facilities are being operated in substantial compliance with
applicable environmental and health and safety laws and regulations. In
addition, the Company is aware of no environmental claims that have been or
could be asserted against the Company, other than those claims that the
Company believes have been resolved or are the subject of indemnification
agreements with former owners of the Company's properties.
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Item 2. Properties.
-----------
The Company has a total of 97.3 acres and 1,869,716 square feet being
used for ongoing operations throughout the United States, China and Mexico.
During 1997, Klemp established a global headquarters in Oak Brook, IL, for its
executive management and administrative staff and CPI established a sales
office in Beijing, China. Except for these offices, Klemp de Mexico's sales
offices as discussed below, and the Company's corporate headquarters in
Pittsburgh, PA, which is administrative, all locations are both manufacturing
and administrative facilities:
Lease
Square Land Expiration
Division Location Feet Acres Title Date
- -------- -------- ------- ----- ----- ----------
CPI McKeesport, PA 602,772 37.0 Owned -
Beijing, China 808 - Leased 10/31/00
Klemp Oak Brook, IL 4,871 - Leased 4/30/02
Chicago, IL 196,461 7.6 Owned -
Orem, UT 90,000 5.0 Owned -
Dayton, TX 41,250 7.8 Owned -
Dallas, TX 21,600 - Leased 1/31/02
Liberty, MO 55,551 5.7 Owned -
Atlanta, GA 12,000 - Leased 5/31/99
Lerma, State of
Mexico (KDM) 25,000 - Leased 3/20/01
Lerma, State of
Mexico (KDM-CFI) 33,750 - Leased 6/30/99
Alliance Alliance, OH 383,865 14.8 Owned -
Hanna Chicago, IL 85,283 2.7 Owned -
Milwaukee, WI 48,000 3.2 Owned -
Steelcraft Miami, OK 39,120 13.5 Owned -
Headquarters Pittsburgh, PA 6,485 - Leased 8/31/01
Auto-Lok Acworth, GA 222,900 - Leased 3/12/08
In addition to the above facilities, Klemp de Mexico has sales offices
rented under informal arrangements throughout Mexico in the cities of
Coatzacoalcos, Guadalajara, Mexico City, Monterrey, Tampico and Villahermosa.
Hanna's location in Milwaukee, WI includes two buildings; one of
approximately 41,000 square feet and the other of approximately 7,000 square
feet. During the first quarter of 1998, the Company undertook a project to
expand the smaller building by 20,000 square feet as the result of a sole-
source supply agreement for double welded hydraulic cylinders executed with
one of Brooks' major customers located in Horicon, WI. See "Business -
Hanna." The Company is currently pursuing the sale and short-term leaseback
of its Klemp division facility in Chicago with the ultimate intent to relocate
such operations to a newer and improved facility in the greater Chicago area.
The Company believes that all of its facilities have been in operation
for a sufficient period of time to demonstrate their suitability for their
<PAGE>
<PAGE> 13
individual purposes. The production capacities of the Company's facilities,
subject to the completion of the expansion of Hanna's Milwaukee, WI facility
and relocation of Klemp's Chicago operations, both discussed above, are
believed by the Company to be sufficient for the Company's anticipated future
needs.
In addition to the property listed above, the Company owns 92.7 acres of
farm land adjacent to its former Ipsen facility, in Boone County, IL, which
were retained by the Company after the Ipsen sale.
Item 3. Legal Proceedings.
------------------
In June 1993, the U.S. Customs Service (Customs) made a demand on the
Company's former industrial rubber distribution division for $612,948.30 in
marking duties pursuant to 19 U.S.C. Sec. 1592. The duties are claimed on
importations of "unmarked" hose products from 1982 to 1986. Following the
Company's initial response raising various arguments in defense, Customs
responded in January 1997 by reducing its demand to $370,968.00 and
reiterating that demand in October 1997. Should the claim not be resolved,
Customs threatens suit in the International Court of Claims. The Company
continues to believe there are facts which raise a number of procedural and
substantive defenses to this claim, which will be vigorously defended. There
is no applicable insurance coverage.
In addition to the aforementioned Customs claim, the Company is involved
in other various legal proceedings and product liability claims and believes
that none of these individually or in the aggregate will have a material
effect on the financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of the Company's security holders
during 1997.
PART II
Item 5. Market for the Registrant's Common Stock and
--------------------------------------------
Related Stockholder Matters.
----------------------------
The common stock of the Registrant (Common Stock), par value $0.01 (whole
dollars) per share, is not traded in public markets. As of March 31, 1998,
there were twelve holders of record of the Common Stock. The Company has not
paid, and does not expect to pay in the foreseeable future, dividends on the
Common Stock. The Company intends to retain its earnings for the future
operation and expansion of the business. In addition, the Indenture and the
Loan Agreement place restrictions on the Company's ability to declare or pay
dividends on, or make any distribution in respect of, the Company's capital
stock, or purchase, redeem or otherwise acquire or retire for value any shares
of the Company's capital stock. See Item 1. "Business - Possible Merger", for
a discussion of a possible merger of the Company with Reunion.
<PAGE>
<PAGE> 14
Item 6. Selected Financial Data.
------------------------
SELECTED HISTORICAL FINANCIAL DATA(13)
(in thousands, including notes hereto,
except for share and per share amounts and ratios)
Year Ended December 31, 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
EARNINGS DATA(1):
Net sales $188,920 $153,480 $183,408 $154,710 $111,457
Cost of sales 153,394 123,722 146,698 125,135 89,416
-------- -------- -------- -------- --------
Gross profit 35,526 29,758 36,710 29,575 22,041
Selling, general and
administrative expenses(2) 22,283 19,899 21,169 19,653 14,141
Other (income) expense, net 436 275 407 (176) 589
-------- -------- -------- -------- --------
Operating profit 12,807 9,584 15,134 10,098 7,311
Interest expense, net(3) 9,776 9,559 9,800 8,567 6,179
Minority interests (141) - - - -
-------- -------- -------- -------- --------
Income before income taxes
from continuing operations 3,172 25 5,334 1,531 1,132
Provision for income taxes(4) 851 8 909 276 470
-------- -------- -------- -------- --------
Income from continuing
operations $ 2,321 $ 17 $ 4,425 $ 1,255 $ 662
======== ======== ======== ======== ========
Income (loss) from continuing
operations applicable to
common stock(5) $ 1,865 $ (439) $ 3,969 $ 805 $ 87
======== ======== ======== ======== ========
Average equivalent common
shares outstanding(12) 292,887 292,887 292,887 293,242 304,655
======== ======== ======== ======== ========
Income (loss) from continuing
operations per common
share(12) $ 6.37 $ (1.49) $ 13.55 $ 2.74 $ 0.29
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges(6) 1.30x 1.00x 1.52x 1.16x -
======== ======== ======== ======== ========
OPERATING AND OTHER DATA:
EBITDA(7) $ 16,791 $ 13,215 $ 18,619 $ 12,546 $ 11,698
======== ======== ======== ======== ========
Cash flow from (used in)
operating activities 3,616 3,761 2,472 (1,432) 4,071
======== ======== ======== ======== ========
Cash flow from (used in)
investing activities (5,044) (1,190) (6,866) (4,321) (5,004)
======== ======== ======== ======== ========
Cash flow from (used in)
financing activities 1,806 (2,303) 4,725 5,271 1,703
======== ======== ======== ======== ========
<PAGE>
<PAGE> 15
Depreciation and
amortization(8) 3,843 3,631 3,974 3,900 3,392
======== ======== ======== ======== ========
Capital expenditures 5,044 4,704 4,852 5,085 1,682
======== ======== ======== ======== ========
Ratio of EBITDA to interest
expense(7) 1.82x 1.48x 2.02x 1.54x 2.02x
======== ======== ======== ======== ========
At December 31, 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital(11) $ 28,280 $ 25,042 $ 24,786 $ 22,804 $ 18,426
======== ======== ======== ======== ========
Total assets 111,269 101,330 106,290 94,491 71,953
======== ======== ======== ======== ========
Total long-term debt(10) 50,723 50,746 50,770 51,646 55,943
======== ======== ======== ======== ========
Redeemable preferred stock 8,026 7,570 7,114 6,658 6,208
======== ======== ======== ======== ========
Stockholders' equity(9) (7,551) (9,354) (8,190) (11,608) (12,121)
======== ======== ======== ======== ========
(1) The Company holds a minority voting interest in Reunion which it accounts
for under the equity method. On September 14, 1995, the Company sold Oneida
to Reunion. Such transaction was treated as the disposal of a portion of a
line of business with Oneida's historical operating results and resulting gain
on sale classified within continuing operations through September 14, 1995.
(2) Includes Performance Unit Plans (PUPs) expense related to plans that were
terminated concurrently with the issuance and sale of the Senior Notes. Such
expense for 1993 was $995.
(3) Includes amortization of debt issuance expenses of the following amounts
for the following years: 1997: $550; 1996: $632; 1995: $564; 1994: $444 and
1993: $395.
(4) See Note 19 to the consolidated financial statements of the Company for
the year ended December 31, 1997. Due primarily to the use of net operating
loss carryforwards, the Company's actual cash payments, net of refunds,
relating to state and federal income taxes for the years ended December 31,
1993 through December 31, 1997 have been approximately $72, $533, $20, $53 and
$205, respectively.
(5) In determining income (loss) from continuing operations applicable to
common stock, income from continuing operations is reduced by accretions of
dividends on preferred stock as follows: 1997: $456; 1996: $456; 1995: $456;
1994: $450 and 1993: $575.
(6) See Item 14, Exhibit 12.1.
<PAGE>
<PAGE> 16
(7) EBITDA is calculated as follows:
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Income from continuing
operations $ 3,172 $ 25 $ 5,334 $ 1,531 $ 1,132
Interest expense, net(3) 9,776 9,559 9,800 8,567 6,179
Depreciation and amortization(8) 3,843 3,631 3,974 3,900 3,392
Gain on sale of business - - (1,190) (1,452) -
Loss on notes receivable - - 701 - -
PUPs expense(2) - - - - 995
-------- -------- -------- -------- --------
EBITDA $ 16,791 $ 13,215 $ 18,619 $ 12,546 $ 11,698
======== ======== ======== ======== ========
The Company has included EBITDA and the ratio of EBITDA to interest expense in
the Selected Historical Financial Data due to the close relationship of these
line items to the Company's financial covenants benefitting the Senior Notes.
(8) Excludes amortization of debt issuance expenses. See footnote (3) above.
(9) Stockholders' equity has been reduced by accretions for redemption value
of and dividends on preferred stock of $14.0 million through 1997.
(10) Excludes borrowings under revolving credit facilities.
(11) Represents current assets less current liabilities excluding borrowings
under revolving credit facilities.
(12) Includes the dilutive effect of the Warrants.
(13) Certain amounts for the years from 1993 through 1996 have been restated
to reflect the correction of errors in inventory values at the Company's Klemp
division. See Item 8. "Financial Statements and Supplementary Data, Notes to
Consolidated Financial Statements, Note 2."
<PAGE>
<PAGE> 17
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
------------------------------------
General
Through September 14, 1995, the date Oneida was sold, the Company's
organizational structure included six divisions that design, manufacture and
market metal products, a wholly-owned subsidiary that manufactures high
volume, precision plastic products and provides engineered plastic services,
an oil and gas division and an equity investment in an oil, gas and real
estate development company. In 1995, the combined operations of the six metal
manufacturing divisions accounted for approximately 85% of the Company's net
sales and approximately 91% of the Company's operating income before corporate
office expenses. In 1996 and 1997, substantially all of the Company's
operations related to metal products. As discussed below, several changes to
the Company's structure transpired in 1995 and 1996. There were no
significant changes to the Company's structure during 1997.
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 from Parkdale and purchased the Gesterkamp Warrants from P. Dean
Gesterkamp. Subsequent to Reunion's acquisition of Oneida in September 1995
and the merger of Oneida and Rostone in February 1996, 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 real estate development and wine grape
agricultural operations in Napa County, California. During the fourth quarter
of 1996, Reunion classified its agricultural operations as discontinued
operations. During the fourth quarter of 1997, Reunion reclassified its
agricultural operations as continuing operations as its agricultural
operations were not disposed of within one year. Reunion was also engaged in
producing and selling crude oil and natural gas in the United States until May
1996, when Reunion sold substantially all of its oil and gas assets to a
Houston-based corporation for approximately $8.0 million in cash and a $2.2
million note. Of the $8.0 million in cash proceeds, Reunion used
approximately $5.1 million to pay in full related-party indebtedness, which
included $1.4 million owed to Mr. Bradley and $3.7 million owed to the Company
as a result of the acquisition of Oneida by Reunion. 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 consolidated statement of income for the years ended December 31,
1997, 1996 and 1995 as equity income (loss) from operations of affiliate.
On September 14, 1995, the Company, through Chatwins Holdings Inc. (CHI),
sold its holdings of all of the issued and outstanding shares of common stock
and preferred stock of Oneida to Reunion, approximately 38% of the common
stock of which is owned by the Company. See "Liquidity and Capital
Resources."
The Company considered Oneida to be a segment of a business as defined in
APB 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The Company holds a minority
voting interest in Reunion which, as discussed above, purchased Oneida from
the Company. Accordingly, Oneida's historical operating results and the pre-
tax gain on sale are included as part of the Company's continuing operations,
pursuant to SAB 93. As Oneida was sold to an affiliate, the Company reduced
the carrying value of its investment in Reunion by approximately $0.7 million,
<PAGE>
<PAGE> 18
which represented 38% of the pre-tax gain of approximately $1.9 million from
the sale of Oneida. The remaining pre-tax gain of $1.2 million was recorded
as part of other income in the accompanying consolidated statement of income
for the year ended December 31, 1995. For the 1995 period ended on September
14, 1995, Oneida had income before income taxes of $1.3 million. See
"Liquidity and Capital Resources."
On December 22, 1995, Rostone and Oneida entered into a merger agreement
whereby Rostone was subsequently merged into Oneida, which is owned by
Reunion, and, as the surviving corporation, Oneida's name was changed to ORC.
In the merger, ORC acquired from CGII all of the issued and outstanding
preferred and common stock of Rostone. See "Liquidity and Capital Resources."
In December 1995, the Company entered into a joint venture agreement with
CMIESC and Wanggang to form Shanghai Klemp. See "Liquidity and Capital
Resources."
During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc. to form CFI-Klemp. CFI-Klemp is in the
business of metal fabrications.
Pursuant to paragraph 11 of Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation," a highly inflationary economy is one
that has cumulative inflation of approximately 100% or more over a three-year
period. During 1996, the three-year cumulative inflation rate in Mexico
exceeded 100%. Accordingly, effective January 1, 1997, the functional
currency for the financial statements of Klemp de Mexico changed from the
Mexican Peso to the U.S. dollar. Therefore, foreign currency exchange gains
and losses are included in income currently.
The Company's products and services are sold primarily to customers in
the U.S. for use in a variety of industries. Consequently, its businesses are
generally affected by the levels of industrial activity and economic
conditions in the U.S. Overall industrial growth, levels of capital spending
and interest rates are among the factors that affect the demand for the
Company's products and services.
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
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.
<PAGE>
<PAGE> 19
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 Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." Generally, SFAS No. 130 requires the reporting of other
comprehensive income, which refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are excluded from net
income. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997 and requires reclassification of prior period comparative financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 requires that a
publicly-held company report financial and descriptive information about its
operating segments in financial statements for interim and annual periods.
SFAS No. 131 also requires disclosures with respect to products and services,
geographic areas of operation, and major customers which have not previously
been presented in consolidated financial statements and related notes. SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997.
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 Nos. 130, 131 and 132 in 1998.
Although these statements will require the Company to evaluate its current
reporting and disclosure requirements, their adoptions are not expected to
affect amounts recorded in the primary consolidated financial statements.
Possible Merger
The Company and Reunion are considering the possible merger of the
Company with and into Reunion in a tax-free exchange of stock, possibly
coincident with a redemption of the Senior Notes. Such transaction, if
proposed, will be subject to approvals by the Boards of Directors and
stockholders of Reunion and the Company and, where appropriate, compliance
with the Company's and Reunion's operative documents, including, in the case
of the Company, 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 consummated
prior to its expiration on June 30, 1998 and not renewed by the Company or
Congress Financial Corporation (Congress), the Company's $28.0 million
revolving credit facility (Revolving Credit Facility) with Congress. Reunion
has retained an investment banking firm that conducted appraisals of the
values of each party independent to the possible merger. The Company and
Reunion have jointly engaged in discussions with prospective lenders. If such
a merger is proposed, requisite approvals obtained and other conditions
satisfied, consummation of the merger and, perhaps, redemption of the Senior
<PAGE>
<PAGE> 20
Notes, could occur during 1998. If such a merger is consummated,
consideration paid to the Company's stockholders of record on the effective
date of the transaction would likely be a combination of Reunion common stock
and cash. There can be no assurance that this transaction will be proposed
or, if proposed, consummated.
Prior Period Adjustment
The Company's consolidated financial statements at and for the years
ended December 31, 1996 and 1995 have been restated 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.
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales for 1997 totaled $188.9 million, compared to $153.5 million for
1996, increasing $35.4 million, or 23%. Sales increased at all divisions of
the Company. Sales increased $15.7 million at Alliance, $9.6 million at Auto-
Lok, $3.8 million at Hanna, $3.1 million at CPI, $2.8 million at Klemp and
$0.4 million at Steelcraft. Included in Klemp's sales increase was $0.6
million at Shanghai Klemp and $0.4 million at Klemp de Mexico. The increase
in sales at CPI was primarily due to an increase in orders from and shipments
to one of CPI's largest domestic customers. The increases at Auto-Lok and
Hanna are primarily due to a general increase in demand for their products,
which has resulted in higher levels of orders and shipments. The increase in
sales at Alliance is primarily due to a significant increase in orders
associated with the steel industry that began in the fourth quarter of 1996
and continued into 1997. The sales increase at Klemp was achieved in the
fourth quarter of 1997 reflecting an improving market trend over the softening
market that began in 1996.
Gross profit for 1997 was $35.5 million, compared to $29.8 million for
1996. Gross profit for 1997 increased $5.8 million, or 19%. Gross profit
margin was 18.8% in 1997, compared to 19.4% in 1996. Gross profit during 1997
compared to 1996 improved at all divisions of the Company except for Klemp.
Excluding Klemp, the increases in gross profit were due to higher volumes in
1997 while Klemp's gross profit was negatively affected by competitive pricing
pressures in the markets it serves, primarily the Midwest, and non-cash
charges to 1997 and 1996 earnings for provisions for losses on inventories.
See "General - Prior Period Adjustments" above. Gross profit margin improved
significantly at Hanna due to the efficiencies of increased volume and cost
savings programs and, except for Klemp, increased at the Company's other
divisions, all related to volume increases as well. Profit margin at Klemp
was negatively affected by competitive pricing pressures in the markets it
<PAGE>
<PAGE> 21
serves, primarily the Midwest, and the non-cash inventory charge discussed
above.
Selling, general and administrative (SGA) expenses for 1997 were $22.3
million, compared to $19.9 million for 1996. However, SGA expenses as a
percentage of sales decreased to 11.8% for 1997 compared to 13.0% in 1996.
The decrease in SGA expenses as a percentage of sales was primarily due to the
23% increase in sales while SGA expenses increased only 12% as a result of the
fixed and semi-variable nature of certain expenses.
Other expense for 1997 was $0.4 million compared to $0.3 million in 1996.
There were no individually significant or offsetting items in either 1997 or
1996.
Interest expense, net, for 1997 was $9.8 million, compared to almost $9.6
million for 1996. A slightly higher level of interest expense under the
Revolving Credit Facility in 1997 compared to 1996 was offset by a lower level
of interest expense on related party indebtedness. The increase in interest
expense on the Revolving Credit Facility was due to a .25% increase in the
prime lending rate (as defined) and a higher level of average borrowings. The
decrease in interest expense on related party indebtedness was due to the full
repayments of the Parkdale Note and Gesterkamp Note during the first half of
1997.
Minority interests of $0.1 million represent losses during 1997 allocated
to the minority ownerships of the Company's CFI-Klemp de Mexico and Shanghai
Klemp joint ventures. Minority interests are calculated based on the
percentage of minority ownership.
There was a tax provision of $0.9 million in 1997 compared to less than
$0.1 million in 1996. The increase in the provision for income taxes was due
to the increase in pre-tax earnings, partially offset by the $360,000
reduction in the valuation allowance for deferred tax assets. See "Liquidity
and Capital Resources."
During the fourth quarter of 1996, Reunion classified its agricultural
operations as discontinued operations. During the fourth quarter of 1997,
Reunion reclassified its agricultural operations as continuing operations as
such operation was not sold within one year. In its 1996 annual report,
Reunion reported a loss from discontinued operations of $1,317,000, which
included a gain on disposal of its previously discontinued oil and gas
operations of $1,122,000, an estimated loss on disposal of its discontinued
agricultural operations of $2,000,000, and a loss on discontinued agricultural
operations of $439,000. The Company's proportional share of Reunion's loss
from discontinued operations in 1996 was stated in its 1996 annual report as
$301,000, net of taxes. As the result of the reclassification of its
previously discontinued agricultural operations to continuing operations in
late 1997, in its 1997 annual report, Reunion reclassified its 1996 loss from
agricultural operations of $439,000 to continuing operations and $1,290,000 of
its estimated loss on disposal of discontinued agricultural operations to
writedown of agricultural development costs in continuing operations. Reunion
reversed the remaining estimated loss on disposal of its previously
discontinued agricultural operations of $710,000 in 1997, which was offset by
a 1997 writedown of agricultural development costs. The Company's
consolidated statement of income for the year ended December 31, 1996
presented herein has been reclassified accordingly.
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 for 1997, 1996 and 1995 is included in the accompanying
consolidated statement of income for each of the three years ended December
31, 1997 as equity income (loss) from operations of affiliate.
<PAGE>
<PAGE> 22
The equity losses from continuing operations of affiliate of $0.2 million
in 1997 and $0.5 million in 1996 represent the Company's proportionate shares
of Reunion's results from continuing operations for each period.
The equity income from discontinued operations of affiliate of $0.2
million in 1997 and $0.1 million in 1996 represent the Company's proportionate
shares of Reunion's results from discontinued operations.
The classification of Mexico as a highly-inflationary economy effective
January 1, 1997 pursuant to paragraph 11 of SFAS No. 52, "Foreign Currency
Translation" had an insignificant impact on the Company's results of
operations for 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales for 1996 totaled $153.5 million, compared to $183.4 million for
1995 (including $26.2 million from Oneida, which was sold on September 14,
1995). Excluding the sales of Oneida, net sales decreased $3.7 million, or
2%. Sales increased at the Company's CPI, Hanna and Klemp divisions but
decreased at Auto-Lok and Alliance. By division, sales increased $3.9 million
at CPI, $2.1 million at Hanna and $0.4 million at Klemp. Sales decreased $6.8
million, or 29%, at Auto-Lok and $3.4 million at Alliance. The increases in
sales at CPI and Hanna are primarily due to an increase in demand for their
products as a result of increased marketing efforts, with CPI experiencing
increased sales both domestically and in direct and indirect export sales.
The decrease in sales at Auto-Lok and Alliance was primarily due to soft
markets for their products and the resulting increase in competition which
held down orders through nearly the first eight months of 1996. Orders began
to increase in August 1996 at both Auto-Lok and Alliance, with consolidated
orders for the last four months of 1996 totalling $72 million, which included
a total of $35 million at Alliance and Auto-Lok, the highest level over a four
month period in Company history, resulting in a total-Company backlog at year-
end 1996 of $66 million, its highest level since month-end August 1995.
Gross profit for 1996 was $29.8 million, compared to $36.7 million for
1995. Gross profit for 1995 included $4.6 million from Oneida. Excluding
Oneida's 1995 gross profit, 1996 gross profit decreased $2.3 million. Profit
margin decreased to 19.4% in 1996, compared to 20.0% in 1995, excluding the
gross profit and sales of Oneida. Gross profit and profit margin in 1996
compared to 1995 improved at CPI but decreased at the other divisions of the
Company. The improvements in gross profit and margin at CPI were primarily
due to the efficiencies of higher volume. The decreases at Auto-Lok were
primarily due to lower volume as a result of a softening in the markets for
Auto-Lok's products. The decreases at Alliance were primarily due to a
decline in volume during the second half of 1996 as well as a change in
product mix from higher margin fabrication sales to lower margin engineered
products caused by a change in customer demand. The decreases at Steelcraft
were primarily due to unfavorable labor and overhead variances. Hanna was
affected by competitive pressures in the hydraulic cylinder industry which
resulted in sales price compression and a change in product mix to lower
margin specialty cylinders caused by a change in customer demand, in addition
to manufacturing inefficiencies caused by the harsh weather conditions in the
Midwest during the first and fourth quarters of 1996. Klemp's gross profit
and margin were affected by competitive pricing pressures, primarily in its
Midwest market, which began in the fourth quarter of 1996, as well as non-cash
charges to 1996 and 1995 earnings for provisions for losses on inventories.
See "General - Prior Period Adjustments" above.
Selling, general and administrative (SGA) expenses for 1996 were $19.9
million, compared to $21.2 million for 1995. SGA expenses for 1995 included
$2.5 million from Oneida. Excluding Oneida's SGA expenses, year-to-date 1996
<PAGE>
<PAGE> 23
SGA expenses increased $1.2 million compared to 1995. SGA expenses as a
percentage of sales, excluding the SGA expenses and sales of Oneida, increased
to 13% in 1996 compared to 12% in 1995. The increase in SGA expenses
primarily relates to additional expenses incurred in connection with increased
marketing and sales efforts, both domestically and internationally.
Other expense for 1996 was $0.3 million, compared to other expense of
$0.4 million for 1995, which included other expenses of Oneida of $0.2
million. Other expense for 1995 included a $1.2 million gain on the sale of
Oneida and a $0.7 million loss on the settlement of notes receivable from an
affiliated company. Excluding Oneida's other expenses of $0.2 million, the
$0.7 million settlement loss on affiliated notes receivable and the $1.2
million gain on the sale of Oneida, 1995 had other expenses of $0.7 million
compared to $0.3 million for 1996. Other expenses for 1995 included
approximately $0.3 million related to the devaluation of the Mexican Peso
during 1995, which resulted in foreign currency transaction losses at the
Company's Mexican subsidiary. Such losses did not recur in 1996.
Interest expense, net, for 1996 was $9.6 million, which was approximately
$0.2 million less than interest expense, net, for 1995. Interest expense for
1995 included $0.6 million related to Oneida. Excluding Oneida's interest
expense, 1996 interest expense increased $0.4 million over 1995. The increase
is primarily due to a higher level of debt during the first nine months of
1996 as a result of the investment in Reunion common stock.
There was a tax provision of less than $0.1 million in 1996, compared to
a tax provision of $0.9 million in 1995. The tax provisions were attributable
to the pre-tax incomes in each period. Additionally, in 1995, the provision
for income taxes was reduced by a $1.3 million reduction in the valuation
allowance for deferred taxes.
During the fourth quarter of 1996, Reunion classified its agricultural
operations as discontinued operations. During the fourth quarter of 1997,
Reunion reclassified its agricultural operations as continuing operations as
such operation was not sold within one year. In its 1996 annual report,
Reunion reported a loss from discontinued operations of $1,317,000, which
included a gain on disposal of its previously discontinued oil and gas
operations of $1,122,000, an estimated loss on disposal of its discontinued
agricultural operations of $2,000,000, and a loss on discontinued agricultural
operations of $439,000. The Company's proportional share of Reunion's loss
from discontinued operations in 1996 was stated in its 1996 annual report as
$301,000, net of taxes. As the result of the reclassification of its
previously discontinued agricultural operations to continuing operations in
late 1997, in its 1997 annual report, Reunion reclassified its 1996 loss from
agricultural operations of $439,000 to continuing operations and $1,290,000 of
its estimated loss on disposal of discontinued agricultural operations to
writedown of agricultural development costs in continuing operations. The
Company's consolidated statement of income for the year ended December 31,
1996 presented herein has been reclassified accordingly.
The Company's investment in Reunion is being accounted for under the
equity method of accounting. The Company's proportionate share of Reunion's
operating results for 1996 and 1995 is included in the accompanying
consolidated statement of income for each of the two years ended December 31,
1996 as equity income (loss) from operations of affiliate.
The equity loss from continuing operations of affiliate of $0.5 million
in 1996 and $0.1 million in 1995 represent the Company's proportionate shares
of Reunion's results from such periods.
The equity income from discontinued operations of affiliate of $0.1
million in 1996 relates to the Company's proportionate share of Reunion's
results from discontinued operations for 1996. Reunion had no results from
discontinued operations in 1995.
<PAGE>
<PAGE> 24
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 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, if necessary,
under the Revolving Credit Facility or other line-of-credit facility should
the Revolving Credit Facility be refinanced. While Oneida was a subsidiary of
the Company, its liquidity was managed separately.
On May 3, 1993, the Company issued the Senior Notes and the Warrants.
The Senior Notes bear interest at a rate equal to 13% per annum. Interest on
the Senior Notes is payable semiannually in arrears on May 1 and November 1 of
each year. The Senior Notes mature on May 1, 2003. The Senior Notes are
redeemable at the option of the Company in whole or in part at any time on or
after May 1, 1998. If the Company and Reunion merge, it is possible that the
Company will redeem the Senior Notes coincident with the merger. See
"Possible Merger" above and Item 1. "Business - Possible Merger." The Company
is required to redeem $12.5 million principal amount of the Senior Notes on
each of May 1, 2000, May 1, 2001 and May 1, 2002, at a redemption price of
100% of the principal amount thereof, plus interest accrued thereon to the
redemption date. The Company is required to offer to purchase $25 million in
principal amount of the Senior Notes (being 50% of the principal amount of the
Senior Notes originally issued) on each of June 1, 1999 and June 1, 2000 at a
purchase price of 100% of the principal amount, plus accrued interest on the
principal amount purchased to the purchase date. The Senior Notes are senior
obligations of the Company, ranking senior in right of payment to all current
and future subordinated indebtedness of the Company and pari passu in right of
payment to all current and future senior indebtedness of the Company, subject,
however, to the security interests in certain assets granted to Congress
pursuant to the Revolving Credit Facility. The Company's obligations under
the Senior Notes are secured by a pledge by Mr. Bradley and Mr. Poole of an
aggregate of approximately 60% of the outstanding shares of the Common Stock
of the Company pursuant to a securities pledge agreement dated May 1, 1993
(Securities Pledge Agreement).
The Warrants entitle the holders thereof to purchase an aggregate of
50,000 shares of common stock, or approximately 17% of the Company's
outstanding common stock on a fully diluted basis, at $.01 per share. The
Warrants expire on May 3, 2003. The Warrants are not exercisable except upon
the occurrence of certain trigger events, including an initial public
offering, a failure to offer to repurchase the Warrants on May 3, 1998 for
their fair market value or certain changes in ownership control. No Warrants
have been exercised through December 31, 1997. The Company has notified the
Warrant holders that it does not expect to be able to offer to repurchase the
Warrants on May 3, 1998, in which case the Warrants will become exercisable.
On March 4, 1994, the Company refinanced an existing facility into the
Revolving Credit Facility under which Congress agreed to make revolving loans
to the Company of up to $20.0 million, subject to compliance with various
<PAGE>
<PAGE> 25
covenants, representations and warranties, and contingent upon there being no
events of default, all as defined in the Loan and Security Agreement (Loan
Agreement) between Congress and the Company. In May 1997 the Maximum Credit
(as defined in the Loan Agreement) under the Revolving Credit Facility was
increased to $28 million through the remainder of the term of the Loan
Agreement. At December 31, 1997, 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
December 31, 1997 totalled $26.1 million.
The Revolving Credit Facility consists of three availability components
(the "Availability A Component", the "Availability B Component" and the
"Availability C Component") under which Congress makes advances to the
Company. Availability under the Revolving Credit Facility with respect to the
Availability A Component is determined by reference to a borrowing base
consisting of (i) 85% of the Net Amount of Eligible Accounts (as defined in
the Loan Agreement) plus (ii) the lesser of (A) the sum of (1) 50% of the
Value of the Eligible Inventory (as defined in the Loan Agreement) consisting
of finished goods or raw materials, plus (2) 10% of the Value of Eligible
Work-in-Process (as defined in the Loan Agreement) or (B) $7 million, less
(iii) under certain circumstances, availability reserves established by
Congress. Additionally, the total advanced under the Availability A Component
is limited by the Maximum Credit, less amounts outstanding under Availability
B and C Components. The Availability B and C Components were fully drawn in
1994 and are being repaid according to a monthly amortization schedule which,
once repaid, may not be reborrowed. Additionally, as part of the availability
under the Revolving Credit Facility, Congress will provide letter of credit
accommodations of up to $4.0 million. At December 31, 1997, the Company had a
total of $0.5 million of letters of credit outstanding.
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 originally scheduled to expire on March 4, 1997 but has
been extended to June 30, 1998 and is renewable annually thereafter. At
December 31, 1997, borrowings outstanding under the Revolving Credit Facility
included $25.8 million under the Availability A Component, $0.1 million under
the Availability B Component and $0.2 million under the Availability C
Component. The Company and Congress made various amendments to the Revolving
Credit Facility, discussions of which follow.
The Revolving Credit Facility is secured by a lien in favor of Congress
on the Company's inventory, accounts receivable and certain related property,
such as documents, instruments, books and records, to the extent necessary to
permit foreclosure on the inventory and accounts receivable. Additionally, at
December 31, 1997, $0.1 million of this borrowing is secured by the real
property of Klemp's Liberty, MO location.
The Loan Agreement contains certain events of default, including the
failure by the Company's current majority stockholder to own or control more
than 50% of the outstanding shares of the Company, and other covenants
customary for loans of this type.
From April 1, 1994 to September 15, 1995, the period during which Oneida
was a wholly-owned subsidiary of the Company, the Company made advances to
Oneida totalling $4.9 million (Oneida Advances), including interest and
certain charges. The liabilities of Oneida upon its sale to Reunion included
these advances. Subsequent to the sale of Oneida, the Company received cash
payments of $1.6 million in 1995 and $3.7 million in 1996, each including
interest at 10% per annum, in full repayment of these advances.
<PAGE>
<PAGE> 26
Prior to the sale of Oneida, Oneida had a $5.0 million credit facility
with Congress. This facility consisted of a term loan and a revolving loan.
In addition to the above advances, this facility provided a primary source of
liquidity to Oneida.
On June 20, 1995, the Company acquired the Reunion common stock. The
purchase price consisted of $5.8 million in cash and the Parkdale Note. On
September 14, 1995, Mr. Bradley purchased the Parkdale Note from Parkdale and
the Company made a partial repayment of the Parkdale Note as required by the
terms thereof equal to the $3.1 million proceeds from the sale of Oneida. In
May 1996, the Company made a partial repayment of the Parkdale Note totalling
$1.7 million, including interest thereon, primarily from the $3.7 million in
cash received by the Company from Reunion in final payment of the Oneida
advances. The remainder of the proceeds were paid to Congress. During 1996,
the Company made payments totalling $2.6 million to Mr. Bradley in partial
repayment, including interest, of the Parkdale Note. At December 31, 1996,
the Company's liability to Mr. Bradley under the Parkdale Note was $0.5
million, including interest, which was repaid in full in January 1997. In
connection with the purchase of the Reunion common stock, the Company
purchased the Gesterkamp Warrants. The purchase price for the Gesterkamp
Warrants totalled $0.5 million and consisted of $0.3 million paid in cash and
the Gesterkamp Note. Subsequent to its issuance, the Gesterkamp Note was
purchased by Mr. Franklin Myers, a director of Reunion. Pursuant to the terms
of the Gesterkamp Note, the Company made principal repayments of $50,000, plus
interest at 10% per annum, on each of January 6 and June 6, in each of 1996
and 1997. As of June 6, 1997, the Gesterkamp Note was fully repaid.
The cash portions of the above transactions, as well as, among other
things, the Company's May 1 and November 1, 1996 semi-annual interest payments
on the Senior Notes, were funded with borrowings, including temporary
overadvances, under the Revolving Credit Facility.
On May 1, 1997, Congress and the Company amended the Revolving Credit
Facility to provide for an increase in the Maximum Credit to $28.0 million
from $25.0 million. The proceeds from this increase in the Maximum Credit
were used for various purposes, including the Company's May 1, 1997 semi-
annual interest payment on its $50.0 million of 13% per annum Senior Notes.
The Company anticipates funding its May 1, 1998 semi-annual interest
payment on the Senior Notes from one or more sources, including availability
under the Revolving Credit Facility, possibly under a temporary overadvance,
if necessary, and/or proceeds from the sale and short-term leaseback of the
Klemp division's manufacturing facility in Chicago. See Item 2. "Properties."
The Company owns 49% of CGII, which owned 100% of the outstanding
preferred stock and fully diluted common stock of Rostone. On December 22,
1995, Rostone and Oneida entered into a merger agreement whereby Rostone was
subsequently merged into Oneida, which is owned by Reunion, and, as the
surviving corporation, Oneida's name was changed to ORC. In the merger, ORC
acquired from CGII all of the issued and outstanding preferred and common
stock of Rostone. The merger agreement provided for the payment of merger
proceeds of up to $4.0 million ($2.0 million in 1997 and $2.0 million in 1998)
to CGII contingent upon Rostone's achieving specified levels of earnings
before interest and taxes in 1996 and 1997. Rostone did not achieve the level
of earnings before interest and taxes in either 1996 or 1997 as specified in
the merger agreement for the payment of deferred merger proceeds in 1997 or
1998. As such, CGII will not receive any merger proceeds pursuant to the
merger agreement.
The Company made three loans to CGII; $1.5 million in December 1990,
$1.35 million in December 1993 and $0.3 million in February 1994. Rostone's
preferred stock was previously pledged by CGII to the Company to secure the
Company's December 1993 loan of $1.35 million. As such, any merger proceeds
<PAGE>
<PAGE> 27
were to be paid to Chatwins until the debt and related interest was paid in
full. Over time, the Company has provided reserves for a substantial portion
of the principal on its notes receivable from CGII. At December 31, 1997, the
net carrying value of the Company's investment in CGII common stock and net
notes receivable was $0.6 million.
CGII's primary assets remaining after the sale of Rostone are two notes
receivable from affiliates of the Company and a minimal amount of cash, the
sum of which total $0.7 million at December 31, 1997. Upon liquidation, these
assets would be allocated among CGII's remaining creditors, one of which is
the Company. See "Certain Relationships and Related Transactions - Certain
Loans - Rostone and CGII."
In December 1995, the Company entered into a joint venture agreement with
CMIESC and Wanggang to form Shanghai Klemp. The joint venture will provide
metal grating to the expanding construction industries in China and nearby
countries. During the first quarter of 1996 the Company satisfied its
obligation to make contributions of assets, primarily machinery, to the joint
venture with an estimated fair market value totalling approximately $1.9
million.
During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc. to form CFI-Klemp. CFI-Klemp is in the
business of metal fabrications.
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 a current review, the Company
reduced the valuation allowance by $360,000 in 1997.
Operating Activities
Operating activities provided $3.6 million of cash during 1997, compared
to cash provided of $3.8 million in 1996, a decrease of $0.2 million. An
increase in income before depreciation, amortization and provision for losses
on inventories of $2.6 million in 1997 compared to 1996 and a net increase in
cash provided of $2.4 million from changes in other assets and liabilities,
primarily from an increase in other current liabilities, were more than offset
by an increase of $5.2 million in cash used during 1997 compared to 1996 to
fund increases in net working capital (defined as receivables, inventories and
trade payables for cash flow purposes), primarily an increase in cash used of
$11.4 million to fund changes in receivables as a result of the increase in
sales volume only partially offset by an increase of $6.6 million in cash
provided from changes in trade payables. The increase in other current
liabilities is primarily due to increases in certain accruals at corporate
headquarters and an increase in customer deposits at Hanna related to a supply
agreement with one of its customers.
Operating activities provided $3.8 million of cash during 1996, compared
to $2.5 million in 1995, an increase in cash provided of $1.3 million. This
increase in cash provided by operating activities is primarily the result of a
decrease in net working capital (considered to be receivables, inventories and
<PAGE>
<PAGE> 28
trade payables) of $5.0 million, primarily due to improved asset management
resulting in lower levels of receivables and inventories during 1996,
partially offset by a $3.8 million decrease in earnings before depreciation,
amortization and gain on sale of business.
Investing Activities
Investing activities used over $5.0 million of cash during 1997, compared
to cash used of $1.2 million during 1996, an increase in cash used of $3.8
million. During 1996, the Company received $3.7 million in cash in repayment
of previous advances made to Oneida and made a $0.2 million investment in
Shanghai Klemp, none of which recurred in 1997. Additionally, there was a
$0.3 million increase in capital expenditures, from $4.7 million in 1996 to
over $5.0 million during 1997.
Investing activities used $1.2 million of cash during 1996, compared to
cash used of $6.9 million during 1995, a decrease in cash used of $5.7
million. This decrease in cash used is primarily the result of the Company's
purchase of the Reunion common stock and the Gesterkamp Warrants in June 1995,
which included $6.7 million of cash, compared to the $0.2 million in cash used
to make an equity investment in Shanghai Klemp during 1996. Additionally, the
Company received $3.7 million in cash from Reunion in final repayment of the
Oneida Advances during 1996, compared to $1.6 million of such repayments
received during 1995. These increases in cash from investing activities were
partially offset by a decrease as a result of the $3.1 million of cash
received in 1995 from the sale of Oneida which did not recur in 1996. Capital
expenditures in 1996 and 1995 were almost equal at approximately $4.8 million.
Financing Activities
Financing activities during 1997 provided $1.8 million in cash, compared
to $2.3 million of cash used from financing activities during 1996, an
increase in cash provided of $4.1 million. This increase in cash provided is
primarily the result of an increase of $2.4 million in the level of net
borrowings under the Revolving Credit Facility during 1997 compared to an
increase of only $0.5 million in 1996, as well as a decrease of $2.1 million
in repayments to related parties, from $2.7 million in 1996 to $0.6 million in
1997.
Financing activities during 1996 used $2.3 million in cash, compared to
$4.7 million of cash provided from financing activities during 1995, a
decrease in cash from financing activities of $7.0 million. This is primarily
the result of an increase of $0.5 million in the level of net borrowings under
the Revolving Credit Facility compared to an increase of $9.6 million in 1995.
This $9.1 million decrease in the level of net borrowings under the Revolving
Credit Facility was partially offset by a $1.7 million decrease in required
debt payments during 1996 compared to 1995 and a decrease of $0.4 million in
repayments to related parties related to the Company's obligation under the
Parkdale and Gesterkamp notes.
<PAGE>
<PAGE> 29
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Chatwins Group, Inc.:
- ---------------------
Report of Independent Accountants 29
Consolidated Balance Sheet as of December 31, 1997 and 1996 30
Consolidated Statement of Income for the years
ended December 31, 1997, 1996 and 1995 31
Consolidated Statement of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 32
Notes to Consolidated Financial Statements 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Chatwins Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and of cash flows, after the restatement
described in Note 2, present fairly, in all material respects, the financial
position of Chatwins Group, Inc. and its subsidiaries (Chatwins) at December
31, 1997 and 1996, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Chatwins' management; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 26, 1998, except as to Note 2, which is
as of April 13, 1998
<PAGE>
<PAGE> 30
CHATWINS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
At December 31,
1997 1996
-------- --------
ASSETS:
Cash and equivalents (note 1) $ 734 $ 356
Receivables, net (note 1) 34,246 26,405
Inventories (notes 1, 2 and 3) 16,964 17,025
Other current assets 4,687 4,344
-------- --------
Total current assets 56,631 48,130
Property, plant and equipment, net (note 4) 31,380 29,734
Investments, net (note 5) 12,013 12,452
Goodwill, net (note 1) 4,764 4,849
Other assets, net (note 6) 6,481 6,165
-------- --------
Total assets $111,269 $101,330
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving credit facility (note 8) $ 26,061 $ 23,629
Current maturities of debt (note 9) 700 767
Trade payables 16,239 12,879
Amount due to related parties (note 15) - 579
Other current liabilities (note 7) 11,412 8,863
-------- --------
Total current liabilities 54,412 46,717
Long-term debt (note 9) 50,723 50,746
Other liabilities (note 10) 4,416 4,316
-------- --------
Total liabilities 109,551 101,779
-------- --------
Commitments and contingent liabilities (note 21) - -
Minority interests (note 11) 1,033 1,125
Redeemable preferred stock (note 12) 8,026 7,570
Warrant value (note 9) 210 210
Stockholders' equity (note 13):
Common stock (400,000 shares authorized,
242,887 shares outstanding) 3 3
Capital in excess of par value 1,664 1,664
Treasury stock (500) (500)
Notes receivable from stockholders (1,001) (1,001)
Accumulated translation adjustments (note 1) (688) (688)
Accumulated deficit (7,029) (8,832)
-------- --------
Total stockholders' equity (7,551) (9,354)
-------- --------
Total liabilities and stockholders' equity $111,269 $101,330
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> 31
CHATWINS GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except share and per share data)
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Net sales $188,920 $153,480 $183,408
Cost of sales 153,394 123,722 146,698
-------- -------- --------
Gross profit 35,526 29,758 36,710
Selling, general and administrative 22,283 19,899 21,169
Other (income) expense, net 436 275 407
-------- -------- --------
Operating profit 12,807 9,584 15,134
Interest expense, net 9,776 9,559 9,800
Minority interests (141) - -
-------- -------- --------
Income before income taxes and
equity income (loss) from affiliate 3,172 25 5,334
Provision for income taxes 851 8 909
-------- -------- --------
Income before equity income (loss)
from affiliate 2,321 17 4,425
Equity loss from continuing operations
of affiliate (224) (549) (132)
Equity income from discontinued operations
of affiliate 162 93 -
-------- -------- --------
Net income (loss) $ 2,259 $ (439) $ 4,293
======== ======== ========
Earnings applicable to common stock $ 1,803 $ (895) $ 3,837
======== ======== ========
Earnings per common share (note 14):
Income before equity income (loss)
from affiliate $ 6.37 $ (1.49) $ 13.55
Continuing operations of affiliate (1.77) (1.87) (0.45)
Discontinued operations of affiliate 1.56 0.31 -
-------- -------- --------
Earnings per common share $ 6.16 $ (3.05) $ 13.10
======== ======== ========
Average equivalent common
shares outstanding 292,887 292,887 292,887
======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> 32
CHATWINS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Cash flow from operating activities:
Net income (loss) $ 2,259 $ (439) $ 4,293
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 3,438 3,279 3,359
Amortization 955 984 1,179
Provision for losses on inventories 158 338 312
Gain on sale of business - - (1,190)
Equity in net loss of affiliate 62 456 132
Changes in assets and liabilities, net of
the purchase of a business:
Decrease (increase) in receivables (7,841) 3,553 (8,164)
Decrease (increase) in inventories (97) 381 (3,511)
Decrease (increase) in other current assets (343) 909 (1,888)
Increase (decrease) in trade payables
and other current liabilities 5,909 (3,612) 7,913
Net change in other assets and liabilities (884) (2,088) 37
-------- -------- --------
Cash provided by operating activities 3,616 3,761 2,472
-------- -------- --------
Cash flow from investing activities:
Proceeds from sale of business - - 3,107
Receipts from related parties - 3,664 1,550
Investment in Shanghai Klemp - (150) -
Equity investment - - (6,671)
Capital expenditures (5,044) (4,704) (4,852)
-------- -------- --------
Cash used in investing activities (5,044) (1,190) (6,866)
-------- -------- --------
Cash flow from financing activities:
Repayments of debt (47) (48) (1,750)
Repayments to related parties (579) (2,737) (3,107)
Gross revolving credit facilities borrowings 180,115 159,449 183,456
Gross revolving credit facilities repayments (177,683) (158,967) (173,874)
-------- -------- --------
Cash provided by (used in) financing activities 1,806 (2,303) 4,725
-------- -------- --------
Effect of exchange rate changes on cash - (269) (419)
-------- -------- --------
Net increase (decrease) in cash and equivalents 378 (1) (88)
Cash and equivalents, beginning of year 356 357 445
-------- -------- --------
Cash and equivalents, end of year $ 734 $ 356 $ 357
======== ======== ========
Supplemental cash flow information:
Interest paid $ 9,226 $ 8,938 $ 9,333
======== ======== ========
Income taxes paid $ 205 $ 53 $ 20
======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Nature of Business
Chatwins Group, Inc. (Company), is composed of six divisions and two
foreign subsidiaries that design, manufacture and market metal products and an
oil and gas division. Until its sale in September 1995, the Company also had
a subsidiary that manufactured high volume, precision plastics products and
provided engineered plastics services. The Company's principal products
include large, seamless pressure vessels for highly pressurized gases; high
quality steel and aluminum grating; industrial hydraulic and pneumatic
cylinders; high quality, roll-formed storage racks; industrial cranes; large
mill equipment; and cold-rolled steel leaf springs. The Company's metals
manufacturing divisions accounted for substantially all of the Company's net
sales in 1997 and 1996. See note 20.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority- and wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated. Certain prior-year amounts may have been
reclassified for comparative purposes.
Investments in other companies over which the Company does not have
control, generally less than a 50% equity interest, and in which the Company
has the ability to exercise significant influence over operating or financial
policies are accounted for by the equity method. See note 5.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amounts of assets, liabilities, revenues, expenses, and
disclosures of contingencies during the reporting period, which in the normal
course of business are subsequently adjusted to actual results.
Cash and Equivalents
Cash and equivalents consist of demand deposit accounts and other cash
equivalents with maturities of 3 months or less.
Accounts Receivable
Accounts receivable are net of $734,000 and $922,000 in allowance for
doubtful accounts at December 31, 1997 and 1996, respectively. The Company
has no concentration of credit risks and generally does not require collateral
or other security from its customers.
<PAGE>
<PAGE> 34
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined on the "last-in, first-out" (LIFO) method of inventory valuation
for approximately 78% and 75% of total inventories at December 31, 1997 and
1996, respectively, and on the "first-in, first-out" (FIFO) method for the
remaining inventories. See notes 2 and 3.
Other Current Assets
Other current assets are primarily comprised of current deferred taxes,
net assets, of $3.9 million and $3.6 million at December 31, 1997 and 1996,
respectively. See note 19.
Property, Plant and Equipment
Properties for the manufacturing businesses are stated at cost and
depreciated over their estimated useful lives using the straight-line method
for financial statement purposes. Estimated useful lives in years for the
calculation of book depreciation are as follows: 25 to 40 for buildings and
improvements; 7 to 12 for machinery and equipment; 5 to 8 for computer
systems; 7 to 10 for furniture and fixtures. Additions, betterments and
replacements are capitalized, while expenditures for repairs and maintenance
are charged to income. As units of property are sold or retired, the related
cost and accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in income.
Oil and gas properties are accounted for by the full-cost method whereby
all exploration and development costs are capitalized. Depreciation and
depletion are provided based on a unit-of-production method. Dispositions of
properties are treated as reductions of the cost pool and no gain or loss is
recognized subject to certain limitations.
Goodwill
The excess of the purchase consideration over the fair value of the
assets acquired is being amortized generally over 20 years using the
straight-line method. Accumulated amortization of goodwill at December 31,
1997 and 1996, is $1,710,000 and $1,434,000, respectively.
Other Assets
Other assets primarily include capitalized debt issuance costs on
presently outstanding debt, which are being amortized ratably to interest
expense over the term of the related debt agreements and the cash surrender
value of life insurance policies.
<PAGE>
<PAGE> 35
Revenue Recognition
Sales are recorded primarily as products are shipped and services are
rendered. The percentage-of-completion method of accounting is used at one
division for orders in excess of $100,000 with long cycle times. Under this
method, income is recognized as work on contracts progresses. The percentage
of work completed is determined principally by comparing the accumulated costs
to date with management's current estimate of costs at contract completion.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance. If estimates indicate a loss, the
Company provides currently for the total amount of the estimated loss.
Foreign Currency Translation
Pursuant to paragraph 11 of Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation," a highly inflationary economy is one
that has cumulative inflation of approximately 100% or more over a three-year
period. During 1996, the three-year cumulative inflation rate in Mexico
exceeded 100%. Accordingly, effective January 1, 1997, the functional
currency for the financial statements of Klemp de Mexico changed from the
Mexican Peso to the U.S. dollar. Therefore, foreign currency exchange gains
and losses are included in income currently.
At December 31, 1997 and 1996, the Company had two majority-owned,
consolidated foreign subsidiaries; Klemp de Mexico and Shanghai Klemp Metal
Products Co., Ltd. (Shanghai Klemp). Prior to 1997, the financial statements
of Klemp de Mexico were measured using the Mexican Peso. Shanghai Klemp's are
measured using the Chinese Renminbi. The assets and liabilities are
translated generally at the exchange rate in effect at the end of a period.
Income statement amounts are translated generally at the average rate of
exchange prevailing during each month in the reporting period. Translation
adjustments arising from differences in exchange rates from period to period
are included in accumulated translation adjustments in stockholders' equity.
Transaction gains and losses resulting from foreign currency transactions are
included in income currently. See notes 11 and 13.
Earnings per share
Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period.
Diluted earnings per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding plus all dilutive
potential common shares outstanding during the period. The Warrants (see
notes 9 and 14) are dilutive common shares under the treasury stock method,
which assumes they are exercised at the beginning of the period.
<PAGE>
<PAGE> 36
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." Generally, SFAS No. 130 requires the reporting of other
comprehensive income, which refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are excluded from net
income. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997 and requires reclassification of prior period comparative financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 requires that a
publicly-held company report financial and descriptive information about its
operating segments in financial statements for interim and annual periods.
SFAS No. 131 also requires disclosures with respect to products and services,
geographic areas of operation, and major customers which have not previously
been presented in consolidated financial statements and related notes. SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997.
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 Nos. 130, 131 and 132 in 1998.
Although these statements will require the Company to evaluate its current
reporting and disclosure requirements, their adoptions are not expected to
affect amounts recorded in the primary consolidated financial statements.
Fair Market Value Disclosure
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of the fair
value of certain items, including debt and investments. The Company believes
that the amounts disclosed for such amounts in the consolidated balance sheet
do not differ significantly from fair value as defined in SFAS 107. The
carrying value of cash and cash equivalents approximates fair value because of
the short maturity of those instruments. The carrying value of amounts due
from related parties and other investments (see note 5), insofar as it was
practical to determine, was deemed to approximate fair value based on current
market conditions, as well as the relationship of the parties. The carrying
value of debt approximates fair value based on the Company's incremental
borrowing rate. The carrying value of redeemable preferred stock approximates
fair value based on the accretion of such amounts to liquidation value. The
carrying value of the warrants is based on estimates received from outside
investment bankers regarding the overall value of the Company at the time of
the issuance of the $50 million principal amount of 13% Senior Notes due 2003
(Senior Notes) (see note 9).
<PAGE>
<PAGE> 37
Note 2: Prior Period Adjustments
The Company's consolidated financial statements at and for the years
ended December 31, 1996 and 1995 have been restated 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. The effect of the
restatement is as follows (in thousands, except per share amounts):
As Previously As
Reported Restated
------------- --------
At and for the year ended December 31, 1996:
Balance sheet:
Inventories $ 19,106 $ 17,025
Accumulated deficit (7,583) (8,832)
Other current assets 3,512 4,344
Statement of income:
Income before income taxes $ 363 $ 25
Provision for income taxes 143 8
Net loss (236) (439)
Loss per common share (diluted) (2.36) (3.05)
At and for the year ended December 31, 1995:
Balance sheet:
Inventories $ 19,487 $ 17,744
Accumulated deficit (6,891) (7,937)
Other current assets 4,556 5,253
Statement of income:
Income before income taxes $ 5,646 $ 5,334
Provision for income taxes 1,034 909
Net income 4,480 4,293
Earnings per common share (diluted) 13.74 13.10
At January 1, 1995:
Balance sheet:
Accumulated deficit $(10,915) $(11,774)
<PAGE>
<PAGE> 38
Note 3: Inventories
Inventories are comprised of the following (in thousands):
At December 31,
1997 1996
-------- --------
Raw material $ 7,679 $ 8,821
Work-in-process 5,678 6,843
Finished goods 4,501 2,159
-------- --------
Gross inventories 17,858 17,823
Less: LIFO reserves (894) (798)
-------- --------
Inventories $ 16,964 $ 17,025
======== ========
See note 2 for a discussion of adjustments of prior period inventories.
The following long-term contract amounts are included in accounts
receivable at December 31, 1997 and 1996 (in thousands):
At December 31,
1997 1996
-------- --------
Uncompleted contract costs over related billings $ 6,820 $ 1,761
Uncompleted contract billings over related costs (3,499) (926)
-------- --------
$ 3,321 $ 835
======== ========
Note 4: Property, Plant and Equipment
Property, plant and equipment is comprised of the following (in thousands):
At December 31,
1997 1996
-------- --------
Land $ 2,038 $ 2,038
Oil and gas properties 1,686 1,686
Buildings and improvements 13,223 11,755
Machinery and equipment 29,442 27,392
Computer systems 4,714 4,302
Furniture and fixtures 1,386 616
Construction-in-progress 1,937 1,702
-------- --------
Property, plant and equipment 54,426 49,491
Less: Accumulated depreciation and depletion (23,046) (19,757)
-------- --------
Property, plant and equipment, net $ 31,380 $ 29,734
======== ========<PAGE>
<PAGE> 39
Note 5: Investments
Investments are comprised of the following (in thousands):
At December 31,
1997 1996
-------- --------
Reunion common stock $ 10,930 $ 11,032
Warrants to purchase Reunion common stock 483 483
CGII common stock and notes receivable 600 937
-------- --------
Investments $ 12,013 $ 12,452
======== ========
Reunion Industries, Inc.
On June 20, 1995, the Company acquired 1,450,000 shares, or approximately
38%, of the then issued and outstanding shares of common stock of Reunion
Industries, Inc. (Reunion). 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 real estate development and wine grape agricultural operations in Napa
County, California. During the fourth quarter of 1996, Reunion classified its
agricultural operations as discontinued operations. During the fourth quarter
of 1997, Reunion reclassified its agricultural business as continuing
operations as such business was not disposed of within one year. See note 15.
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 for 1997, 1996 and 1995 is included in the accompanying
consolidated statement of income for each of the three years ended December
31, 1997 as equity income (loss) from operations of affiliate. In its 1996
annual report, Reunion reported a loss from discontinued operations of
$1,317,000, which included a gain on disposal of its previously discontinued
oil and gas operations of $1,122,000, an estimated loss on disposal of its
discontinued agricultural operations of $2,000,000, and a loss on discontinued
agricultural operations of $439,000. As the result of the reclassification of
its previously discontinued agricultural operations to continuing operations
in late 1997, in its 1997 annual report, Reunion reclassified its 1996 loss
from agricultural operations of $439,000 to continuing operations and
$1,290,000 of its estimated loss on disposal of discontinued agricultural
operations to writedown of agricultural development costs in continuing
operations. Reunion reversed the remaining estimated loss on disposal of its
previously discontinued agricultural operations of $710,000 in 1997, which was
offset by a 1997 writedown of agricultural development costs.
<PAGE>
<PAGE> 40
The Company's equity results from operations of affiliate for the year
ended December 31, 1996 reflect these reclassifications as follows (in
thousands):
Continuing Discontinued
---------- ------------
As previously reported $ (155) $ (301)
-------- --------
Reunion reclassifications:
Agricultural operations (439) 439
Loss on disposal of agricultural operations (1,290) 1,290
-------- --------
(1,729) 1,729
CGI's proportional share 38% 38%
Tax effect 60% 60%
-------- --------
Effect of reclassifications (394) 394
-------- --------
As reclassified $ (549) $ 93
======== ========
Certain summarized financial information related to Reunion as of and for
the year ended December 31, 1997 and 1996 is set forth in the following table
(in thousands):
1997 1996
-------- --------
Current assets $ 24,207 $ 25,285
======== ========
Other assets $ 47,852 $ 49,891
======== ========
Current liabilities $ 28,034 $ 27,421
======== ========
Other liabilities $ 15,708 $ 18,811
======== ========
Shareholders' equity $ 28,317 $ 28,944
======== ========
Net sales $ 93,378 $ 60,305
======== ========
Operating income $ 2,513 $ 1,449
======== ========
Loss from continuing operations $ (981) $ (2,694)
======== ========
Income from discontinued operations $ 710 $ 412
======== ========
Net loss $ (271) $ (2,282)
======== ========
<PAGE>
<PAGE> 41
CGI Investment Corp.
In April 1990, the Company acquired a 49% interest in CGI Investment
Corp. (CGII), a company controlled by Stanwich Partners, Inc. (SPI). The
principals of SPI are also the majority owners of the Company. Since April
1990, the Company has made loans to CGII of $1.5 million, $1.35 million and
$299,000. These loans are evidenced by notes and bear interest at various
rates. As of December 31, 1997, none of the principal or accrued interest
thereon has been repaid under these obligations. The Company has fully
reserved for all interest receivable related to these loans and significant
portions of the principal amounts of the loans. At December 31, 1997, the net
carrying value of amounts due the Company related to these loans and the
investment in CGII's common stock totalled $0.6 million.
Prior to December 22, 1995, CGII owned 100% of the outstanding preferred
stock and fully diluted common stock of Rostone, Inc. (Rostone). Rostone
compounds and molds thermoplastic polyester resin (bulk and sheet molding
compound) primarily for the electrical distribution market and business
machine market. On December 22, 1995, Rostone and Oneida Molded Plastics
Corp. (Oneida) entered into a merger agreement whereby Rostone was
subsequently merged into Oneida, which is owned by Reunion, and, as the
surviving corporation, Oneida's name was changed to Oneida Rostone Corp.
(ORC). In the merger, ORC acquired from CGII all of the issued and
outstanding preferred and common stock of Rostone. The merger agreement
provided for the payment of deferred merger proceeds of up to $4.0 million
($2.0 million in 1997 and $2.0 million in 1998) to CGII contingent upon
Rostone's achieving specified levels of earnings before interest and taxes in
1996 and 1997. Rostone did not achieve the level of earnings before interest
and taxes in either 1996 or 1997 as specified in the merger agreement for the
payment of deferred merger proceeds in 1997 or 1998. As such, CGII will not
receive any merger proceeds pursuant to the merger agreement.
Rostone's preferred stock was previously pledged by CGII to the Company
to secure the Company's December 1993 loan of $1.35 million. As such, any
merger proceeds were to be paid to Chatwins until the debt and related
interest was paid in full.
CGII's primary assets remaining after the sale of Rostone are two notes
receivable from affiliates of the Company and a minimal amount of cash, the
sum of which total $0.7 million at December 31, 1997. Upon liquidation, these
assets would be allocated among CGII's remaining creditors, one of which is
the Company.
Note 6: Other Assets
Other assets consist of the following (in thousands):
At December 31,
1997 1996
-------- --------
Deferred financing costs (net of accumulated
amortization of $2,324 and $1,798) $ 2,043 $ 2,441
Cash surrender value of life insurance policies 1,975 1,440
Other 2,463 2,284
-------- --------
Total other assets $ 6,481 $ 6,165
======== ========
<PAGE>
<PAGE> 42
Note 7: Other Current Liabilities
Other current liabilities consist of the following (in thousands):
At December 31,
1997 1996
-------- --------
Accrued wages and benefits $ 4,186 $ 3,523
Accrued pension costs (note 16) 322 327
Accrued postretirement benefits (note 17) 994 842
Accrued interest 1,089 1,089
Other 4,821 3,082
-------- --------
Total other current liabilities $ 11,412 $ 8,863
======== ========
Note 8: Revolving Credit Facility
The Company's Revolving Credit Facility is with Congress Financial
Corporation (Congress). Prior to March 4, 1994, the Company had a $20.0
million revolving credit facility with another lender. On March 4, 1994, the
Company refinanced this facility into the Revolving Credit Facility under
which Congress agreed to make revolving loans to the Company of up to $20.0
million, subject to compliance with various covenants, representations and
warranties, and contingent upon there being no events of default, all as
defined in the 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 $26.0 million on June 20, 1995 in connection with
the investment in Reunion common stock (see note 5), and permanently fixed at
$25.0 million on October 18, 1995. On May 1, 1996, the Revolving Credit
Facility was amended to provide a temporary, 97-day increase in the Maximum
Credit to $27.5 million from $25.0 million, which included a temporary $2.5
million overadvance availability. The proceeds from this temporary increase
in the Maximum Credit were used for various purposes, including the Company's
May 1, 1996 interest payment on its Senior Notes. By June 10, 1996, all
amounts borrowed under this overadvance had been paid by the Company.
Additionally, as part of this amendment, the expiration date of the Loan
Agreement was extended to June 30, 1998 and is renewable annually thereafter.
On November 1, 1996, the Revolving Credit Facility was amended to provide a
temporary, 120-day $2.5 million overadvance availability. The Maximum Credit
remained at $25.0 million. The proceeds from this temporary overadvance were
used for various purposes, including the Company's November 1, 1996 interest
payment on its Senior Notes. As of the end of February 1997, this overadvance
had been fully reduced. On May 1, 1997, Congress and the Company amended the
Revolving Credit Facility to provide for an increase in the Maximum Credit to
$28.0 million from $25.0 million. The proceeds from this increase in the
Maximum Credit were used for various purposes, including the Company's May 1,
1997 semi-annual interest payment on its $50.0 million of 13% per annum senior
notes. At December 31, 1997 the Company was in compliance with all covenants
and there were no events of default under the Revolving Credit Facility.
The Revolving Credit Facility consists of three availability components
(the "Availability A Component", the "Availability B Component" and the
"Availability C Component") under which Congress makes advances to the
Company. Availability under the Revolving Credit Facility with respect to the
<PAGE>
<PAGE> 43
Availability A Component is determined by reference to a borrowing base
consisting of (i) 85% of the Net Amount of Eligible Accounts (as defined in
the Loan Agreement) plus (ii) the lesser of (A) the sum of (1) 50% of the
Value of the Eligible Inventory (as defined in the Loan Agreement) consisting
of finished goods or raw materials, plus (2) 10% of the Value of Eligible
Work-in-Process (as defined in the Loan Agreement) or (B) $7 million, less
(iii) under certain circumstances, availability reserves established by
Congress. Additionally, the total advanced under the Availability A Component
is limited by the Maximum Credit, less amounts outstanding under Availability
B and C Components. The Availability B and C Components were fully drawn in
1994 and are being repaid according to a monthly amortization schedule which,
once repaid, may not be reborrowed.
The Loan Agreement expires on June 30, 1998 and is renewable annually
thereafter. As part of the availability under the Revolving Credit Facility,
Congress will provide letter of credit accommodations of up to $4.0 million.
At December 31, 1997, $0.5 million of such letter of credit accommodations
were outstanding. The Revolving Credit Facility bears interest at the Prime
Rate (as defined in the Loan Agreement) plus 1.5% per annum, and also includes
a 0.5% line of credit fee on the average unused portion. During 1997, the
effective interest rate for borrowings under the Revolving Credit Facility was
approximately 10.7%. At December 31, 1997, the interest rate for borrowings
under the Revolving Credit Facility, excluding the line of credit fee, was
10.0%. At December 31, 1997, borrowings outstanding under the Revolving
Credit Facility included $25.8 million under the Availability A Component,
$0.1 million under the Availability B Component and $0.2 million under the
Availability C Component.
The Revolving Credit Facility is secured by a lien in favor of Congress
on the Company's inventory, accounts receivable and certain related property,
such as documents, instruments, books and records, to the extent necessary to
permit foreclosure on the inventory and accounts receivable. Limited real
estate also secures the Availability B Component.
Note 9: Long-Term Debt
Long-term debt consists of the following (in thousands):
At December 31,
1997 1996
-------- --------
13% Senior Notes due May 1, 2003 (net of
unamortized discount of $100 and $124)(1) $ 49,900 $ 49,876
Note payable due May 1, 2001(2) 680 680
Other 843 957
-------- --------
Total long-term debt 51,423 51,513
Current maturities (700) (767)
-------- --------
Total long-term debt, less current maturities $ 50,723 $ 50,746
======== ========
(1) - On May 3, 1993, the Company issued an aggregate of $50.0 million
principal amount of Senior Notes and 50,000 Warrants (Warrants) to purchase
50,000 shares of the Company's common stock (Common Stock). The Senior Notes
bear interest at a rate equal to 13% per annum. Interest on the Senior Notes
<PAGE>
<PAGE> 44
is payable semiannually in arrears on May 1 and November 1 of each year. The
Senior Notes mature on May 1, 2003. The Senior Notes are redeemable at the
option of the Company in whole or in part at any time on or after May 1, 1998.
The Company is required to redeem $12.5 million principal amount of the Senior
Notes on each of May 1, 2000, May 1, 2001 and May 1, 2002, at a redemption
price of 100% of the principal amount thereof, plus interest accrued thereon
to the redemption date. The Company is required to offer to purchase $25
million in principal amount of the Senior Notes (being 50% of the principal
amount of the Senior Notes originally issued) on each of June 1, 1999 and
June 1, 2000 at a purchase price of 100% of the principal amount, plus accrued
interest on the principal amount purchased to the purchase date. The Senior
Notes are senior obligations of the Company, ranking senior in right of
payment to all current and future subordinated indebtedness of the Company and
pari passu in right of payment to all current and future senior indebtedness
of the Company, subject, however, to the security interests in certain assets
granted to Congress pursuant to the Company's $28.0 million Revolving Credit
Facility. The Company's obligations under the Senior Notes are secured by a
pledge by Charles E. Bradley, Sr. (Mr. Bradley) and John G. Poole (Mr. Poole),
both directors and stockholders of the Company, of an aggregate of
approximately 60% of the outstanding shares of the Common Stock of the Company
pursuant to a securities pledge agreement dated May 1, 1993 (Securities Pledge
Agreement). At December 31, 1997, an aggregate of $4.2 million of these notes
were owned by various executive officers and directors of the Company, which
were purchased in open market transactions.
Each Warrant is entitled to purchase one share of the Company's common
stock at an exercise price of $.01 per share. The Warrants expire on May 3,
2003. The Warrants entitle the holders thereof to purchase an aggregate of
50,000 shares of common stock, or approximately 17% of the Company's
outstanding common stock on a diluted basis. The Warrants are not exercisable
except upon the occurrence of certain trigger events, including an initial
public offering or certain changes in ownership control. If no trigger event
has occurred prior to May 3, 1998, the Company's failure to offer to
repurchase the Warrants on that date would constitute a payment blockage (as
defined) and the Warrants would become exercisable. The Company believes that
no trigger event will occur prior to and a payment blockage will exist on such
date, resulting in the Warrants becoming exercisable on May 3, 1998. The
Company has valued the Warrants at an aggregate balance of $210,000 based on
estimates received from investment bankers at the time of the issuance of the
Senior Notes regarding the overall value of the Company. No Warrants have
been exercised through December 31, 1997.
(2) - Note payable due May 1, 2001 represents a loan agreement related to an
industrial development revenue bond issue by Orem City, Utah. Interest is
payable quarterly at 62% of the prevailing prime rate. During 1997, the
effective interest rate under this note payable was 5.2%
Aggregate maturities of long-term debt for the next five years are as
follows (in thousands)(excludes borrowings under the Revolving Credit
Facility):
Year ended December 31,
Total 1998 1999 2000 2001 2002
- ------- ------- ------- ------- ------- -------
$51,423 $ 700 $25,048 $25,048 $ 627 $ -
======= ======= ======= ======= ======= =======
<PAGE>
<PAGE> 45
Note 10: Other Liabilities
Other liabilities consist of the following (in thousands):
At December 31,
1997 1996
-------- --------
Deferred taxes, net liability (note 19) $ 2,598 $ 1,568
Negative goodwill 1,276 1,392
Other 542 1,356
-------- --------
Total other liabilities $ 4,416 $ 4,316
======== ========
Negative goodwill is being amortized to income on a straight-line basis
over a 15-year period.
Note 11: Minority Interests
Klemp de Mexico
In 1993, the Company entered into a joint venture with a Mexican company
for the purpose of manufacturing, selling and distributing metal bar grating.
This affiliate, Acervalco-Klemp, S.A. de C.V., was 49% owned by the Company.
During May 1994, the Company increased its ownership in Acervalco-Klemp, S.A.
de C.V., to 85% and has consolidated the results since such date. In January
1995, the subsidiary's name was changed to Klemp de Mexico.
During 1996, Klemp de Mexico entered into a joint venture agreement with
Consolidated Fabricators, Inc., a Massachusetts company, to form CFI-Klemp de
Mexico (CFI-Klemp), a Mexican corporation. CFI-Klemp is in the business of
metal fabrications. As Klemp de Mexico has a 50.1% interest in CFI-Klemp,
CFI-Klemp is consolidated with Klemp de Mexico for financial reporting
purposes.
Total sales related to Klemp de Mexico included in the Company's
consolidated statement of income for the years ended December 31, 1997 and
1996, approximated $3.7 million and $3 million, respectively. Klemp de
Mexico's sales for 1997 and 1996 included approximately $1.2 million and $0.7
million, respectively, related to CFI-Klemp. Klemp de Mexico had losses
before taxes for the years ended December 31, 1997, 1996 and 1995 of
approximately $0.4 million, $0.1 million and $0.6 million, respectively.
Included in Klemp de Mexico's 1997 results was a $0.1 million loss before
taxes related to CFI-Klemp. CFI-Klemp had no income or loss for 1996.
The devaluation of the Mexican Peso during 1995 resulted in foreign
currency transaction losses of $241,000 which are included in the Company's
consolidated statement of income for the year ended December 31, 1995.
Shanghai Klemp
In December 1995, the Company entered into a joint venture agreement with
China Metallurgical Import & Export Shanghai Company (CMIESC) and Wanggang
Township Economic Development Company (Wanggang) to form Shanghai Klemp. As
the Company has a 65% interest in Shanghai Klemp, Shanghai Klemp is
consolidated for financial reporting purposes.
<PAGE>
<PAGE> 46
CMIESC is a state-owned foreign trade enterprise which trades in steel
and equipment used in the manufacture of steel products. Wanggang is an
independently owned, industrial development corporation focusing on economic
growth in the Pudong New Area of Shanghai. The purpose of Shanghai Klemp will
be to expand Klemp's presence as an international grating company and to
benefit from future growth and economic development in East Asia by providing
metal grating to the expanding construction industries of China and nearby
countries. During 1996, the Company satisfied its obligation to make
contributions of assets, primarily machinery, to the joint venture with an
estimated fair market value totalling approximately $1.9 million, which
included $150,000 in cash. Shanghai Klemp's manufacturing facilities are
located in Wanggang Township, Pudong New Area, Shanghai. Production began in
late December 1996 and its results were insignificant. During 1997, Shanghai
Klemp had sales of $0.7 million and a loss before taxes of $0.2 million.
Note 12: Redeemable Preferred Stock
The Company has one class of preferred stock, which has a par value of
$.01 per share and contains redemption privileges and obligations. The
outstanding preferred stock activity consisted of (in thousands):
Class D
--------------------------------
Series A Series B Series C Total
-------- -------- -------- --------
Balance at January 1, 1995 $ 3,466 $ 1,331 $ 1,861 $ 6,658
Accretions 225 80 151 456
-------- -------- -------- --------
Balance at December 31, 1995 3,691 1,411 2,012 7,114
Accretions 225 80 151 456
-------- -------- -------- --------
Balance at December 31, 1996 3,916 1,491 2,163 7,570
Accretions 225 80 151 456
-------- -------- -------- --------
Balance at December 31, 1997 $ 4,141 $ 1,571 $ 2,314 $ 8,026
======== ======== ======== ========
The Class D preferred stock is entitled to receive preferential and
cumulative dividends at an annual rate of $100 per share. In liquidation,
Class D preferred stock is entitled to a preference in the amount of $1,000
per share plus an amount equal to the dividends accumulated but unpaid to the
date of final payment or dissolution and is not entitled to vote, except as
may be required by law. The Company has the option to redeem any or all of
the shares of Class D preferred stock, and the holders have the option to
require the Company to redeem all (but not less than all) of the shares. The
redemption price is $1,000 per share plus an amount equal to the dividends
accumulated but unpaid on the date of the redemption.
The authorized, issued and outstanding preferred stock at December 31,
1997, 1996 and 1995 consisted of 2,249 shares of Class D, Series A; 800 shares
of Class D, Series B; and 1,510 shares of Class D, Series C.
<PAGE>
<PAGE> 47
The Company is not permitted to reissue any shares of its preferred stock
that have been redeemed, and all such shares redeemed shall cease to be a part
of the authorized shares of the Company. Additionally, the covenants in the
Company's indenture, as amended, between the Company and State Street Bank and
Trust Company (Indenture), pursuant to which the Senior Notes are issued,
place restrictions on dividend payments and redemptions of shares. Such
payments and redemptions are limited to approximately 50% of net income, as
defined, from the issuance date of the Senior Notes, provided that the Company
meets an interest coverage ratio (as defined) of at least 2 to 1 for the four
full fiscal quarters immediately preceding any proposed payments prior to May
1, 1996, a ratio of 2.25 to 1 for proposed payments from May 1, 1996, to May
1, 1999, and a ratio of 2.5 to 1 for proposed payments thereafter. The
Company's interest coverage ratio for 1997 was 1.82 to 1.
Redeemable preferred stocks are being accreted by a charge against
retained earnings for the accumulated but unpaid dividends on such stock. At
December 31, 1997 and 1996, dividends in arrears were $3,467,000 and
$3,011,000, respectively.
Note 13: Stockholders' Equity
In September 1993, 38,412 shares of common stock were acquired by the
Company from two stockholders for $500,000. In February 1994, the Company
acquired 2,697 shares of its common stock from one stockholder of the Company
for $.01 per share. Such reacquired stock is being held as treasury stock.
The majority of the Company's stock is owned by one of the principals of
SPI. Such principal has pledged approximately 53% of the total outstanding
shares of the Company to the Senior Notes collateral agent for the benefit of
the holders of the Senior Notes.
During 1995, the devaluation of the Mexican Peso resulted in an
accumulated translation adjustment loss. At December 31, 1997, 1996 and 1995,
the accumulated translation adjustment, which is shown as a separate component
of stockholders' equity, totalled $688,000, $688,000 and $419,000,
respectively.
<PAGE>
<PAGE> 48
See note 2 for a discussion of prior period adjustments. The following
represents all activity in stockholders' equity for the 3-year period ended
December 31, 1997 (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,
1995, before
restatement $ 3 $(500) $1,664 $(1,001) $(10,915) $ - $(10,749)
Prior period
adjustment - - - - (859) - (859)
--- ----- ------ ------- -------- ----- --------
At January 1,
1995 3 (500) 1,664 (1,001) (11,774) - (11,608)
Activity:
Net income - - - - 4,293 - 4,293
Preferred stock
accretions - - - - (456) - (456)
Translation
adjustment - - - - - (419) (419)
--- ----- ------ ------- -------- ----- --------
At December 31,
1995 3 (500) 1,664 (1,001) (7,937) (419) (8,190)
Activity:
Net loss - - - - (439) - (439)
Preferred stock
accretions - - - - (456) - (456)
Translation
adjustment - - - - - (269) (269)
--- ----- ------ ------- -------- ----- --------
At December 31,
1996 3 (500) 1,664 (1,001) (8,832) (688) (9,354)
Activity:
Net income - - - - 2,259 - 2,259
Preferred stock
accretions - - - - (456) - (456)
--- ----- ------ ------- -------- ----- --------
At December 31,
1997 $ 3 $(500) $1,664 $(1,001) $ (7,029) $(688) $ (7,551)
=== ===== ====== ======= ======== ===== ========
<PAGE>
<PAGE> 49
Note 14: Earnings per Common Share
The computations of basic and diluted earnings per common share (EPS) for
the years ended December 31, 1997, 1996 and 1995 are as follows (in thousands,
except share and per share amounts):
Income Shares EPS
-------- -------- -------
Year ended December 31, 1997:
Net income $ 2,259
Less: Preferred stock dividend accretions (456)
--------
Income available to common stockholders,
shares outstanding and basic EPS 1,803 242,887 $ 7.42
=======
Dilutive effect of Warrants 50,000
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ 1,803 292,887 $ 6.16
======== ======== =======
Year ended December 31, 1996:
Net loss as restated (note 2) $ (439)
Less: Preferred stock dividend accretions (456)
--------
Income available to common stockholders,
shares outstanding and basic EPS (895) 242,887 $ (3.68)
=======
Dilutive effect of Warrants 50,000
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ (895) 292,887 $ (3.05)
======== ======== =======
Year ended December 31, 1995:
Net income as restated (note 2) $ 4,293
Less: Preferred stock dividend accretions (456)
--------
Income available to common stockholders,
shares outstanding and basic EPS 3,837 242,887 $ 15.80
=======
Dilutive effect of Warrants 50,000
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ 3,837 292,887 $ 13.10
======== ======== =======
For a discussion of the Warrants and preferred stock dividend accretions,
see notes 9 and 12, respectively.
<PAGE>
<PAGE> 50
Note 15: Other Related-Party Transactions
The Company has maintained various consulting agreements with SPI under
which $300,000 was recorded as expense during each of the years ended December
31, 1997, 1996 and 1995, respectively. The current consulting agreement
expires on March 31, 1998, unless terminated by SPI with 30 days' notice.
Under the consulting agreement, the Company retains SPI to render consulting
services in the field of financial planning and reporting. Annual payments
are permitted on this agreement as long as the Company meets an interest
coverage ratio of at least 1.5 to 1 for the prior 4 full fiscal quarters. All
amounts owed to SPI from the Company have been paid in full at December 31,
1997 and 1996.
During 1990, the Company loaned $0.8 million to Robinson Inc. (Robinson),
a company in the oil and gas business that is controlled by certain
stockholders of the Company. The loan was evidenced by two notes receivable
totaling $0.8 million and each bore interest at 2 percentage points above the
prime rate of a major U.S. bank. Through December 1995, the Company received
$111,000 in payment of interest on the loan, of which $40,000 was used to
partially reserve the loan principal. In December 1995, the Company agreed to
settle in full the two notes receivable from Robinson for the cash payment of
$58,000 plus warrants to purchase up to 50% of the common stock of Robinson at
any time in the future. As a result of this agreement, the Company recognized
a $0.7 million loss on the settlement of these notes which is included in
other expense in the consolidated statement of income for 1995.
Since its acquisition and through its disposition, Oneida maintained two
related-party agreements which accrued guaranty fees payable to one of the
principals of SPI and the majority stockholder of the Company. During the
1995 period ended on September 14, 1995, Oneida accrued approximately $68,000
of fees related to the related-party agreements and made payments of amounts
due to related parties totaling $350,000.
From April 1, 1994, the date Oneida was acquired by the Company, to
September 15, 1995, the period during which Oneida was a wholly-owned
subsidiary of the Company, the Company made advances to Oneida totalling $4.9
million, including interest and certain charges. The liabilities of Oneida
upon its sale to Reunion, an affiliate of the Company, included these
advances. Subsequent to the sale of Oneida, the Company received in 1995 a
cash payment of $1.6 million, including interest at 10% per annum. In May
1996, Reunion sold substantially all of its oil and gas assets to a Houston-
based corporation for approximately $8.0 million in cash and a $2.2 million
note. Of the $8.0 million in cash proceeds, Reunion used approximately $5.1
million to pay in full related-party indebtedness, which included $1.4 million
owed to Mr. Bradley and $3.7 million to the Company, including interest at 10%
per annum, in full repayment of the above advances.
As part of the aggregate purchase price paid to Parkdale for the Reunion
common stock, the Company issued the Parkdale Note to Parkdale, which bears
interest at 10% per annum, in the original principal amount of $5.8 million.
On September 14, 1995, Mr. Bradley purchased the Parkdale Note.
Contemporaneously with Mr. Bradley's purchase of the Parkdale Note and as
required by the terms thereof, the Company made a partial repayment of the
Parkdale Note totalling $3.1 million, representing the cash proceeds received
by the Company from the sale of Oneida. During 1996, the Company made
payments totalling $2.6 million to Mr. Bradley in partial repayment, including
interest, of the Parkdale Note. At December 31, 1996, the Company's liability
to Mr. Bradley under the Parkdale Note totalled $0.5 million, including
interest, which was repaid in full in January 1997.
<PAGE>
<PAGE> 51
On each of January 6 and June 6, 1996 and 1997, the Company made
principal repayments of $50,000 each, plus interest, to Mr. Myers in partial
repayment of the Gesterkamp Note. At December 31, 1997, the Company's
liability to Mr. Myers under the Gesterkamp Note was fully repaid. Mr. Myers
is a director of Reunion.
Note 16: Pensions
The Company and its subsidiaries have various retirement plans that cover
substantially all of their employees. Prior to 1995, these included two
noncontributory, defined benefit plans that covered salary and collective
bargaining employees at one division and one noncontributory, defined benefit
plan that covered all employees at the Company's former Oneida subsidiary.
During 1995, the Company terminated the noncontributory defined benefit plan
covering salary employees by making lump-sum cash payments to the plan
participants in exchange for their rights to receive specified pension
benefits. An approximate $200,000 loss was recognized on the termination of
this plan. Additionally, in 1995, the Company sold all the assets and
liabilities of its Oneida subsidiary. Benefits under the one remaining
noncontributory, defined benefit plan are based solely on continuous years of
service and are not affected by changes in compensation rates.
The Company's funding policy provides that payments to the pension trusts
be at least equal to the minimum funding requirements of the Employee
Retirement Income Security Act of 1974. Assets of the plan are invested
principally in fixed income and equity securities. The Company participates
in a separate multiemployer defined benefit pension plan covering certain
employees at one division and has defined contribution plans covering most of
its other employees. The Company's policy with respect to these plans is to
fund the amounts accrued.
Net periodic pension cost is as follows (in thousands):
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Service cost $ 96 $ 93 $ 71
Interest cost on projected benefit obligation 120 107 195
Amortization of unrecognized net obligation 12 12 128
Amortization of unrecognized net loss 10 9 4
-------- -------- --------
238 221 398
-------- -------- --------
Return on plan assets:
Actual return on plan assets (221) (122) (328)
Unrecognized (return) loss on plan assets 128 43 59
-------- -------- --------
Recognized return on plan assets (93) (79) (269)
-------- -------- --------
Defined contribution plan expense 1,038 1,104 1,035
Multiemployer plan expense 19 17 11
-------- -------- --------
Net periodic pension costs $ 1,202 $ 1,263 $ 1,175
======== ======== ========
<PAGE>
<PAGE> 52
The following table sets forth the funded status of the defined benefit
plans (in thousands):
At December 31,
1997 1996
-------- --------
Actuarial present value of
accumulated benefit obligation:
Vested $ 1,983 $ 1,775
Nonvested 19 25
-------- --------
Accumulated benefit obligation 2,002 1,800
Effect of projected future compensation levels - -
-------- --------
Projected benefit obligation for
service rendered to date 2,002 1,800
Plan assets at fair value (1,365) (1,104)
-------- --------
Projected benefit obligation in excess
of plan assets 637 696
Unrecognized prior service costs (76) (84)
Unrecognized net loss (178) (212)
Unrecognized transition obligation, net (61) (73)
-------- --------
Accrued pension cost $ 322 $ 327
======== ========
Assumptions used to develop the net periodic pension costs and projected
benefit obligations for the defined benefit plans are as follows:
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Discount rate (net periodic pension costs) 7.0% 7.0% 7.0%
======== ======== ========
Discount rate (projected benefit obligations) 6.75% 7.0% 7.0%
======== ======== ========
Expected rate of return on plan assets 8.0% 8.0% 8.0%
======== ======== ========
For the calculation of the net periodic pension costs to be recorded in
1998, the expected rate of return on plan assets was increased to 8.25%
<PAGE>
<PAGE> 53
Note 17: Postretirement Benefits
The Company maintains various postretirement healthcare and life
insurance benefit plans for certain active and retired employees. Covered
active and retired employees include those of one operating division of the
Company and, pursuant to a November 1997 plan amendment to become effective
January 1, 1998, employees of the Company's Corporate Executive Payroll (as
defined in the plan document).
Eligible active and retired employees of the one operating division for
which postretirement benefits are provided include both union and nonunion
employees. Healthcare benefits for both union and nonunion retirees are
provided for the most part through comprehensive major medical and other
health benefit provisions subject to various retiree cost-sharing features.
The majority of employees eligible for healthcare benefits upon retirement are
former employees of USX Corporation (USX). A significant portion of
postretirement healthcare earned by such employees prior to 1987 is the
responsibility of USX. Life insurance benefits provided to eligible union
retirees are based on fixed amounts negotiated in labor agreements. Life
insurance benefits provided to eligible nonunion retirees are based on the
employee's annual base salary at retirement subject to a maximum benefit.
Postretirement healthcare benefits for eligible active and retired (none
as of 12/31/97) employees of the Company's Corporate Executive Payroll are
paid for by the Company and subject to various retiree cost-sharing features.
Postretirement healthcare benefits for Corporate Executive Payroll employees
terminate when the retiree becomes Medicare eligible. Postretirement life
insurance benefits for eligible active and retired (none as of 12/31/97)
employees of the Company's Corporate Payroll are paid for by the Company and
are based on the employee's annual base salary at retirement.
Except for certain life insurance benefits paid from reserves held by
insurance carriers, benefits have not been prefunded. A summary table
reconciling the funded status of the plans with the amount shown in the
financial statements follows (in thousands):
At December 31,
1997 1996
-------- --------
Accumulated postretirement benefit obligation:
Active employees $ 592 $ 947
Retirees 350 416
-------- --------
Total 942 1,363
Unrecognized net gain 738 260
Transition obligation, net of amortization (686) (781)
-------- --------
Accrued postretirement benefit obligation $ 994 $ 842
======== ========
<PAGE>
<PAGE> 54
The components of net periodic postretirement benefit cost for the years
ended December 31, 1997, 1996 and 1995, are as follows (in thousands):
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Service cost $ 50 $ 60 $ 101
Interest cost 105 90 104
Amortization of net gain (10) (10) (2)
Amortization of transition obligation 49 53 51
-------- -------- --------
Net periodic postretirement benefit cost $ 194 $ 193 $ 254
======== ======== ========
Assumptions used to develop the net periodic postretirement benefit costs
and accumulated postretirement benefit obligations are as follows:
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Discount rate (net periodic postretirement
benefit costs) 8.0% 8.0% 8.0%
======== ======== ========
Discount rate (accumulated postretirement
benefit obligations) 7.5% 8.0% 8.0%
======== ======== ========
Healthcare cost trend rate (net periodic
postretirement benefit costs) 8.0% 8.0% 8.0%
======== ======== ========
Healthcare cost trend rate (accumulated
postretirement benefit obligations) 3.0% 8.0% 8.0%
======== ======== ========
Rate of compensation increase 2.0% 2.0% 2.0%
======== ======== ========
USX administers the postretirement healthcare plans for the eligible
employees of the operating division of the Company previously owned by USX and
bills the Company for its share of the postretirement costs related to the
Company's retirees covered by the plans. During 1997, the Company's actuary
reviewed several years of rates charged to the Company by USX for retiree
medical coverage and, as a result, elected to reduce the applicable healthcare
cost trend rate for all years subsequent to 1997 to 3%. This reduction in
healthcare cost trend rate resulted in a reduction in the Company's
accumulated postretirement benefit obligation and an increase in the
unrecognized net gain from December 31, 1996 to December 31, 1997. A one
percentage point increase in the assumed healthcare cost trend rates for each
future year would increase the accumulated postretirement benefit obligation
at December 31, 1997 by approximately $101,000 and increase projected 1998 net
periodic cost by approximately $22,000.
<PAGE>
<PAGE> 55
Note 18: Leases
Minimum rental commitments under all noncancellable operating and capital
leases, the majority of which are operating leases related to real property,
in effect at December 31, 1997, were as follows (in thousands):
Year ended December 31,
Total 1998 1999 2000 2001 2002 After 2002
- ------- ------ ------ ------ ------ ------ ----------
$12,962 $2,313 $2,085 $1,788 $1,531 $1,169 $4,076
======= ====== ====== ====== ====== ====== ======
Operating lease rental expense for the years ended December 31, 1997,
1996 and 1995, amounted to $2,290,000, $1,407,000 and $1,254,000,
respectively.
Note 19: Income Taxes
The tax provision comprises the following amounts (in thousands):
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Current:
Federal $ 91 $ 16 $ 137
State and local 48 9 219
-------- -------- --------
Total 139 25 356
-------- -------- --------
Deferred:
Federal 712 (17) 553
-------- -------- --------
Total 712 (17) 553
-------- -------- --------
Total tax provision $ 851 $ 8 $ 909
======== ======== ========
The Company's effective income tax rate, reflected in the accompanying
consolidated statement of income, differs from the statutory rate due to the
following (in thousands):
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Computed amount at statutory rate (34%) $ 1,078 $ 9 $ 1,814
Net change in valuation allowance (360) - (1,300)
State and local income taxes 48 9 219
Goodwill 25 51 70
Foreign sales corporation dividends (59) (52) (44)
Other - net 119 (9) 150
-------- -------- --------
Total tax provision $ 851 $ 8 $ 909
======== ======== ========
<PAGE>
<PAGE> 56
Components of consolidated income taxes consist of the following (in
thousands):
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Income from continuing operations $ 851 $ 8 $ 909
Equity loss from continuing operations
of affiliate (149) (366) (88)
Equity income from discontinued operations
of affiliate 108 63 -
-------- -------- --------
Total consolidated tax provision (benefit) $ 810 $ (295) $ 821
======== ======== ========
Temporary differences and carryforwards that gave rise to significant
portions of deferred tax assets and liabilities are as follows (in thousands):
At December 31,
1997 1996
-------- --------
Depreciation $ (3,503) $ (3,564)
Inventory basis differences (389) (453)
Other (1,131) (886)
-------- --------
Deferred tax liabilities (5,023) (4,903)
-------- --------
Loss carryforwards (NOLs) 871 3,124
Book reserves 3,835 2,980
Deferred compensation 408 226
Tax credit carryforwards 720 622
Unicap adjustments 240 227
Other 885 773
-------- --------
Deferred tax assets 6,959 7,952
Less: Valuation allowance (640) (1,000)
-------- --------
Deferred tax assets, net 6,319 6,952
-------- --------
Deferred taxes, net asset $ 1,296 $ 2,049
======== ========
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 a current review, the Company
reduced the valuation allowance by $360,000 in 1997. Based on rates in effect
at December 31, 1997 and after consideration of the valuation allowance,
approximately $3.3 million of future taxable income is required prior to
expiration of the Company's NOL and credit carryforwards for full realization
of net deferred tax assets. The Company believes that its future taxable
income will be sufficient for full realization of the deferred tax assets.
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.
<PAGE>
<PAGE> 57
The current and noncurrent classifications of the deferred tax balances
are as follows (in thousands):
At December 31,
1997 1996
-------- --------
Current:
Deferred tax assets $ 4,754 $ 4,682
Deferred tax liabilities (400) (476)
Less: Valuation allowance (460) (589)
-------- --------
Current deferred taxes, net asset 3,894 3,617
-------- --------
Noncurrent:
Deferred tax assets 2,205 3,270
Deferred tax liabilities (4,623) (4,427)
Less: Valuation allowance (180) (411)
-------- --------
Noncurrent deferred taxes, net liability (2,598) (1,568)
-------- --------
Deferred taxes, net asset $ 1,296 $ 2,049
======== ========
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.
Note 20: Segment Information
Prior to 1994, the Company operated principally as a manufacturer of
metal products. With the March 31, 1994, acquisition of Oneida, a plastics
company, the Company became significantly involved in nonmetal-related
products. As a result, the Company had two significant segments during 1995
in which it conducted business. With the September 1995 disposition of
Oneida, the Company operated principally as a manufacturer of metal products
during 1997 and 1996. Financial information by segment, as of and for the
year ended December 31, 1995 is summarized as follows:
As of and for the year Metal Plastic Corporate
ended December 31, 1995: Products Products and other Total
- -------------------------- -------- -------- --------- ---------
Net sales $156,958 $ 26,226 $ 224 $183,408
======== ======== ======== ========
Operating profit (loss) $ 15,674 $ 2,150 $ (2,690) $ 15,134
======== ======== ======== ========
Identifiable assets $ 80,631 $ - $ 25,659 $106,290
======== ======== ======== ========
Capital expenditures $ 4,420 $ 188 $ 244 $ 4,852
======== ======== ======== ========
Depreciation/amortization $ 3,274 $ 572 $ 692 $ 4,538
======== ======== ======== ========
<PAGE>
<PAGE> 58
Corporate and other's operating loss is primarily comprised of
administrative expenses and includes a gain of approximately $1.2 million for
the year ended December 31, 1995 related to the sale of Oneida.
Identifiable assets by segment are those assets that are used in the
applicable operations of each segment. Corporate assets as of December 31,
1995 are principally the Company's investment in Reunion (see note 5),
advances to Oneida, deferred financing costs and deferred income tax assets.
Note 21: 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 and
other contingent matters will not have any material effect on the Company's
financial position, results of operations or liquidity. The Company does not
have any adverse commitments at December 31, 1997.
<PAGE>
<PAGE> 59
Item 9. Changes in and Disagreements With Accountants
---------------------------------------------
on Accounting and Financial Disclosures.
----------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The following sets forth the names and ages of the Company's directors
and executive officers and certain executive officers of its operating
divisions and the positions they hold.
Name Age Position
- ---- --- --------
Charles E. Bradley 68 Chairman of the Board and Director
Joseph C. Lawyer 52 President, Chief Executive Officer and Director
John G. Poole 55 Director
Charles E. Bradley, Jr. 38 Director
John M. Froehlich 55 Vice President, Chief Financial Officer
and Treasurer
Russell S. Carolus 47 Vice President and Secretary
Jack T. Croushore 52 Vice President and Division President - CPI
Christopher Sause 48 Vice President and Division President - Alliance
Gerald W. McClure 56 Vice President and Division President - Klemp
Alan S. Wippman 55 Vice President and Division President - Steelcraft
Robert L. Rakstang 51 Vice President and Division President - Hanna
Kimball J. Bradley 32 Vice President and Division President - Auto-Lok
Thomas J. Vogel 47 Division President - Europa
CHARLES E. BRADLEY has been a Director of the Company since shortly after
its acquisition by Stanwich Partners, Inc. (SPI), a company engaged in
consulting services within the field of financial planning and reporting, in
1986 and Chairman of the Board since 1988. Mr. Bradley is the father of
Charles E. Bradley, Jr. and Kimball J. Bradley. Mr. Bradley was a co-founder
of SPI in 1982 and has served as its President since that time. Mr. Bradley
is a director of DeVlieg-Bullard, Inc. (DBI), a machine tools parts and
services company, General Housewares Corp., a manufacturer and distributor of
housewares, Consumer Portfolio Services, Inc. (CPS), engaged in the business
of purchasing, selling and servicing retail automobile installment sales
contracts, Zydeco Energy, Inc., engaged in oil and gas exploration and
development, NAB Asset Corporation (NAB), a diversified financial services
holding company, and Audits and Surveys Worldwide, Inc., an international
marketing research firm. Mr. Bradley is currently the Chairman of the Board
of DBI, President and acting Chief Financial Officer and a director of
Sanitas, Inc. and Texon Energy Corporation (Texon), both currently inactive
companies.
JOSEPH C. LAWYER has been President, Chief Executive Officer and a
director of the Company since 1988. Prior to purchasing CP Industries, Inc.,
the corporate predecessor of the Company's CPI division, with SPI in 1986, Mr.
<PAGE>
<PAGE> 60
Lawyer was General Manager of USX's Specialty Steel Products division, where
he was employed for over 17 years. Mr. Lawyer has been a director of
Respironics, Inc., a company engaged in design, manufacture and sale of home
and hospital respiratory medical products, since November 16, 1994.
JOHN G. POOLE has been a director of the Company since 1988. Mr. Poole
was a co-founder of SPI in 1982 and has served as its Vice President since
that time. Mr. Poole is a director of Reunion, DBI, CPS and Sanitas, Inc.
Mr. Poole has also been a Vice Chairman of CPS since January 1996.
CHARLES E. BRADLEY, JR. was elected a director of the Company on
September 22, 1993. Mr. Bradley has been the President and a director of CPS
since CPS' formation in March 1991. In January 1992, Mr. Bradley was
appointed to the additional office of Chief Executive Officer of CPS. From
January 1991 through March 1992, Mr. Bradley also was an employee of SPI.
From April 1989 to November 1990, he served as Chief Operating Officer of
Barnard and Company, a private investment firm. Mr. Bradley is the son of
Charles E. Bradley and the brother of Kimball J. Bradley. Mr. Bradley is also
a director of NAB, Texon and Thomas Nix Distributor, Inc.
JOHN M. FROEHLICH has been a Vice President of the Company since 1989 and
its Chief Financial Officer and Treasurer since 1988. Mr. Froehlich was
Assistant Treasurer and Director of Accounting for Incom International, Inc.
from 1975 to 1988.
RUSSELL S. CAROLUS has been a Vice President of the Company since 1989
and its Secretary since 1988. Mr. Carolus was Director of Business
Development and Acquisitions for CP Industries, Inc. from 1986 to 1988.
JACK T. CROUSHORE has been a Vice President of the Company since 1989 and
Division President of CPI since 1988. Mr. Croushore was Executive Vice
President and Chief Operating Officer of CP Industries, Inc. and its
predecessor division of USX Corporation from 1984 to 1988.
CHRISTOPHER SAUSE has been a Vice President of the Company since 1990 and
Division President of Alliance since 1989. Mr. Sause was President and Chief
Operating Officer and co-owner of The Alliance Machine Company prior to its
acquisition by the Company in 1989. Prior to joining The Alliance Machine
Company in 1987, Mr. Sause was employed by the Fordees Corporation, where he
served as head of Production Control, Plant Superintendent and Vice President
of Sales and Manufacturing.
GERALD W. McCLURE has been a Vice President of the Company since 1992 and
Division President of Klemp since May 1991. Mr. McClure was associated with
The Lamp Group, a leveraged buyout investment group from 1990 to 1991, was
President of Chapman Products, Inc. from 1988 to 1990 and General Manager of
the Linac division of ITW from 1984 to 1988.
ALAN S. WIPPMAN has been Division President of Steelcraft since 1986 and
a Vice President of the Company since 1988. Mr. Wippman has been with
Steelcraft for over 20 years.
ROBERT L. RAKSTANG has been a Vice President of the Company since January
1995 and Division President of Hanna since 1991. In the course of his more
than 20 years with Hanna, he has served as Production Manager, Materials
Manager, Vice President of Sales and Marketing and Vice President of
Operations.
KIMBALL J. BRADLEY has been a Vice President of the Company since January
1996 and Division President of Auto-Lok since November 1995 after having
served as acting President of Auto-Lok beginning in August 1995. Prior to
assuming that position, Mr. Bradley managed various special projects at the
Company's corporate office beginning in November 1993 and at CPI from February
1993 to November 1993. Mr. Bradley was employed by Metalsource, a company
<PAGE>
<PAGE> 61
engaged in the steel service center business, from 1990 to 1993, completing
the executive training program and holding various sales and purchasing
positions. Mr. Bradley is the son of Charles E. Bradley, Sr. and the brother
of Charles E. Bradley, Jr.
THOMAS J. VOGEL has been Division President of Europa since 1991. Mr.
Vogel has also been the Manager of Administration, Risk Management, Benefits
and Human Resources and Environmental Compliance for the Company since 1987.
The directors of the Company are elected to serve until their respective
successors have been elected and qualified or until their earlier death,
resignation or removal in the manner specified by the Company's by-laws. The
officers of the Company are elected to hold their respective offices until the
first meeting of the Board of Directors after the next annual meeting of the
Company's stockholders and until their respective successors have been
elected, or until their earlier death, resignation or removal in the manner
specified by the Company's by-laws.
Item 11. Executive Compensation.
-----------------------
The following table sets forth a summary of the compensation paid or
accrued by the Company in the fiscal years ended December 31, 1997, 1996 and
1995 to its Chief Executive Officer and its four other most highly compensated
executive officers (collectively, the "Named Executive Officers") (in whole
dollars, including notes hereto):
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Joseph C. Lawyer, President and Chief
Executive Officer:
Annual compensation - salary $388,404 $354,144 $330,763
Annual compensation - bonus 65,000 - 187,441
All other compensation 52,777(1) 52,277(1) 52,027(1)
Jack T. Croushore, Vice President and
Division President - CPI:
Annual compensation - salary $164,616 $162,720 $157,380
Annual compensation - bonus 205,000 187,890 207,585
All other compensation 13,409(2) 12,990(2) 12,703(2)
Robert L. Rakstang, Vice President and
Division President - Hanna:
Annual compensation - salary $145,320 $139,728 $135,000
Annual compensation - bonus 97,215 - 32,416
All other compensation 12,016(3) 11,736(3) 11,250(3)
Christopher Sause, Vice President and
Division President - Alliance:
Annual compensation - salary $154,454 $154,104 $148,887
Annual compensation - bonus 87,754 - 62,979
All other compensation 12,333(4) 15,110(4) 14,012(4)
John M. Froehlich, Vice President, Chief
Financial Officer and Treasurer:
Annual compensation - salary $138,276 $132,960 $128,456
Annual compensation - bonus 52,266 20,043 100,000
All other compensation 11,664(5) 11,398(5) 10,277(5)
<PAGE>
<PAGE> 62
(1) Includes 401(k) matching payments of $4,750, $4,750 and $4,500 in 1997,
1996 and 1995, respectively; premiums paid by the Company for life insurance
for the benefit of the employee of $40,027 in each of 1997, 1996 and 1995,
respectively; and payments under the Chatwins Group, Inc. Money Purchase
Pension Plan of $8,000 in 1997 and $7,500 in each of 1996 and 1995. Regarding
the premiums paid by the Company for life insurance, the employee has agreed
with the Company that if the policy proceeds are insufficient to reimburse the
Company for the full amount of premiums paid, the employee will pay the
shortfall to the Company. The policy has a face value of $1.5 million. See
"Executive Compensation - Executive Employment Agreements."
(2) Includes 401(k) matching payments of $4,750, $4,750 and $4,500 in 1997,
1996 and 1995, respectively; premiums paid by the Company for life insurance
for the benefit of the employee of $740, $740 and $703 in 1997, 1996 and 1995,
respectively; and payments under the Chatwins Group, Inc. Money Purchase
Pension Plan of $8,000 in 1997 and $7,500 in each of 1996 and 1995.
(3) Includes 401(k) matching payments of $4,750, $4,750 and $4,500 in 1997,
1996 and 1995, respectively; and payments under the Chatwins Group, Inc. Money
Purchase Pension Plan of $7,266, $6,986 and $6,750 in 1997, 1996 and 1995,
respectively.
(4) Includes 401(k) matching payments of $4,750, $4,750 and $4,467 in 1997,
1996 and 1995, respectively; premiums paid by the Company for life insurance
for the benefit of the employee of $2,860, $2,860 and $2,100 in 1997, 1996 and
1995, respectively and payments under the Chatwins Group, Inc. Money Purchase
Pension Plan of $7,723, $7,500 and $7,445 in 1997, 1996 and 1995,
respectively.
(5) Includes 401(k) matching payments of $4,750, $4,750 and $3,854 in 1997,
1996 and 1995, respectively; and payments under the Chatwins Group, Inc. Money
Purchase Pension Plan of $6,914, $6,648 and $6,423 in 1997, 1996 and 1995,
respectively.
Executive Employment Agreements
The Company entered into an Employment Agreement, dated as of August 1,
1996 (Lawyer Employment Agreement), with Joseph C. Lawyer to serve as
President and Chief Executive Officer of the Company. The Lawyer Employment
Agreement expires on July 31, 1999. The Lawyer Employment Agreement replaced
an earlier agreement between Mr. Lawyer and the Company that expired on July
31, 1996. Pursuant to the Lawyer Employment Agreement, Mr. Lawyer receives
(i) an annual base salary, which was established at $354,144 for 1996,
$388,404 for 1997 and $435,027 for 1998, (ii) an annual bonus of up to 65% of
his base salary based on the Company's performance relative to its annual
projections, (iii) a $600 per month automobile allowance, (iv) two club
memberships, (v) a $1.0 million life insurance policy and a $1.5 million
split-dollar life insurance policy, and (vi) coverage under the Company's
other fringe benefit plans for executive officers. The annual base salary for
1999 shall be determined by the Board of Directors on January 1, 1999. In the
event that the Lawyer Employment Agreement is terminated due to Mr. Lawyer's
death or disability, the Company will continue to pay the base salary for not
less than a one year period. In the event that the Company otherwise
terminates the Lawyer Employment Agreement without cause or in the event that
Mr. Lawyer resigns with good reason or following a change of control approved
by the Company's Board of Directors and stockholders (other
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<PAGE> 63
than a change of control resulting from a foreclosure or bankruptcy of one or
more stockholders of the Company or the threat of such an action), Mr. Lawyer
will be entitled to receive his base salary (subject to a dollar-for-dollar
reduction for any salary received from other employment), health coverage and
life insurance coverage for one and one-half years or for the balance of the
term of the Lawyer Employment Agreement, whichever is greater.
Performance Unit Plans
Performance Unit Plans (PUPs) were established by the Company for certain
management employees of its Klemp, Steelcraft, Hanna and CPI divisions and its
Alliance division on May 12, 1988 and June 30, 1989, respectively. A PUP was
also established by Auto-Lok on November 13, 1990 for certain management
employees (Auto-Lok PUP). The Company terminated the PUPs, including the
Auto-Lok PUP, in connection with the sale of the Senior Notes. The Company
entered into agreements with all of the participants in the PUPs to redeem all
of the outstanding performance units for an aggregate payment of approximately
$5.5 million, approximately $2.75 million of which was paid in cash out of the
proceeds of the sale of the Senior Notes with the balance paid in two year
subordinated notes of the Company bearing interest at the prime rate of The
First National Bank of Chicago. In May 1994, the Company paid the
participants approximately $1.75 million in principal and $.17 million in
interest pursuant to the terms of the two year subordinated notes. In June
1995, the Company paid the participants approximately $1.0 million in
principal and $89,000 in interest in final satisfaction of the two year
subordinated notes. The executive officers listed in "Directors and Executive
Officers of the Registrant" received an aggregate of approximately $1.4
million of the initial cash payment, $.89 million of the May 1994 principal
payment, $.49 million of the June 1995 principal payment, $.11 million of the
May 1994 interest payment and $.04 million of the June 1995 interest payment.
The Named Executive Officers received $819,900 of the initial cash payment,
$521,784 of the May 1994 principal payment, $298,116 of the June 1995
principal payment, $50,271 of the May 1994 interest payment and $26,590 of the
June 1995 interest payment.
Long Term Incentive Plan
On June 29, 1994, the Board of Directors of the Company adopted the
Chatwins Group, Inc. Long Term Incentive Plan (LTIP) effective as of January
1, 1994. The LTIP is an unfunded, noncontributory incentive compensation plan
designed to provide a long term incentive to certain key management executives
of the Company (Participants) to enhance the value of the Company. The LTIP
terminates by its terms on December 31, 2002, but may be terminated by the
Board of Directors of the Company at any time. The Company may grant a total
of 100 incentive units (Incentive Units) pursuant to the LTIP. An Incentive
Unit equals one percent of the product of the Equity Pool (as defined in the
LTIP) multiplied by the Equity Factor (as defined in the LTIP). The Equity
Pool means the equity value of the Company at a Valuation Date (as defined in
the LTIP) which is determined by subtracting the Company's total indebtedness
for borrowed money from the product of the Company's EBIT (as defined in the
LTIP) multiplied by five. The Equity Factor equals 5% but may be increased or
decreased by the Board of Directors of the Company.
Incentive Units granted to a Participant vest as follows: (i) 20% upon
the completion of one year of service to the Company following the date the
Incentive Units were allocated (Allocation Date); (ii) 50% upon completion of
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<PAGE> 64
two years of service following the Allocation Date; and (iii) 100% upon
completion of three years of service following the Allocation Date. A
Participant may exchange his vested Incentive Units as follows: (a) one-third
of such Incentive Units at any time on or after the third anniversary date of
the Allocation Date; (b) two-thirds of such Incentive Units at any time on or
after the fourth anniversary date of the Allocation Date; and (c) all of such
Incentive Units on or after the fifth anniversary of the Allocation Date.
Payments pursuant to the LTIP shall be one-half in cash and one-half in a one-
year note bearing interest at the applicable prime rate. If the Company has
sold shares of Common Stock in a public offering, the Company may offer to
exchange vested Incentive Units for shares of Common Stock. As of December
31, 1997 there were 86 Incentive Units granted to certain executives of the
Company, including 49 Incentive Units to the Named Executive Officers. At
December 31, 1997, the Incentive Units had no value.
Pension Plan
Effective September 1, 1986, and pursuant to the acquisition of
substantially all of the operating assets of the Christy Park facility of USX
Corporation, CP Industries, Inc., the corporate predecessor-in-interest of the
Company's CPI division, adopted the Pension Plan for Salaried Employees of CP
Industries, Inc. (Salaried Pension Plan). The Salaried Pension Plan was
frozen (i.e., accrual of further benefits ceased) effective August 31, 1989.
Notice to terminate the Salaried Pension Plan was filed by the Company with
the Internal Revenue Service and the Pension Benefits Guaranty Corporation in
early 1995. Termination approval was granted by these entities in July 1995.
The Salaried Pension Plan assets were distributed on October 16, 1995, at the
participants' election, either in a lump sum payment or through the purchase
of an annuity from an insurance company. Lump sum payments made to Mr. Lawyer
and Mr. Croushore were $128,615 and $70,352, respectively.
Compensation of Directors
Charles E. Bradley is entitled to receive a stipend as Chairman of the
Board at a rate of $100,000 per year. The Company paid Mr. Bradley's $100,000
stipend in 1997. As of June 29, 1994, the Company and Mr. Bradley agreed to a
split dollar life insurance arrangement (Bradley Arrangement). Pursuant to
the Bradley Arrangement, the Company agreed to maintain three universal type
life policies on Mr. Bradley and his wife. The Company will be reimbursed for
the premiums it pays for such policies from either the death benefit of the
policies or their cash surrender value. Mr. Bradley has agreed with the
Company that if the policy proceeds are insufficient to reimburse the Company
for the full amount of premiums paid, Mr. Bradley will pay the shortfall to
the Company. The annual premiums paid by the Company totalled $347,135 in
1997.
John G. Poole is entitled to receive a stipend as a director and liaison
with investment banks of $42,000 per year. The Company paid Mr. Poole's
$42,000 stipend in 1997. As of December 12, 1995, the Company and Mr. Poole
agreed to a split dollar life insurance arrangement (Poole Arrangement).
Pursuant to the Poole Arrangement, the Company agreed to maintain two
universal type life policies on Mr. Poole. The Company will be reimbursed for
the premiums it pays for such policies from either the death benefit of the
policies or their cash surrender value. Mr. Poole has agreed with the Company
that if the policy proceeds are insufficient to reimburse the Company for the
full amount of premiums paid, Mr. Poole will pay the shortfall to the Company.
<PAGE>
<PAGE> 65
The annual premiums paid by the Company totalled $111,656 in 1997.
The Company paid Thomas L. Cassidy (Mr. Cassidy) for the period during
1997 he was a director of the Company at the rate of $1,000 per month and
$1,000 for each meeting of the Board of Directors plus all reasonable out-of-
pocket expenses incurred in attending such meetings. The other directors of
the Company are not currently compensated for services they provide to the
Company as directors, but all directors are reimbursed for reasonable out-of-
pocket expenses incurred in attending meetings of the Board of Directors.
Compensation Committee Interlocks and Insider Participation
In January of 1994 through 1998, Charles E. Bradley, Chairman of the
Board, and Joseph C. Lawyer, President and Chief Executive Officer of the
Company, participated in deliberations of the Company's Board of Directors
concerning executive officer compensation for 1994 through 1998. No other
officer or employee of the Company participated in such deliberations
regarding executive officer compensation for these years.
See "Certain Relationships and Related Transactions" for a discussion of
Mr. Bradley's relationship to Reunion, the Company's investment in Reunion,
and the transactions which transpired between the Company and Reunion during
1995, 1996 and 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
As of March 31, 1998, the Company had (i) 242,887.4 shares of Common
Stock outstanding, (ii) 2,249.0 shares of Class D Series A Preferred Stock,
par value $.01 per share (Class D Series A Preferred Stock) outstanding, (iii)
800.0 shares of Class D Series B Preferred Stock, par value $.01 per share
(Class D Series B Preferred Stock) outstanding and (iv) 1,510.0 shares of
Class D Series C Preferred Stock, par value $.01 per share (Class D Series C
Preferred Stock) outstanding (the preferred stock described in clauses (ii)-
(iv) being herein referred to as the "Preferred Stock"). The following table
sets forth information, as of March 31, 1998, as to the beneficial and
percentage of ownership of each class of the Company's capital stock by (i)
each person owning beneficially more than five percent of the outstanding
shares of each class of the Company's outstanding capital stock, (ii) each
director and Named Executive Officer of the Company and (iii) all directors
and officers of the Company as a group. Except as otherwise indicated in the
notes to the following table, each stockholder has sole voting and investment
power with respect to the shares shown to be beneficially owned by such
stockholder.
<PAGE>
<PAGE> 66
Beneficial Shares and Percentage Ownership
------------------------------------------------
Preferred Stock - Class D
------------------------------
Common Stock Series A Series B Series C
------------ -------- -------- --------
Charles E. Bradley 138,946.6(1) 2,249.0(2) 800.0(2) 1,510.0(3)
c/o Stanwich Partners, Inc. ========= ======= ====== =======
One Stamford Landing 57.2% 100.0% 100.0% 100.0%
62 Southfield Ave. ========= ======= ====== =======
Stamford CT 06902
- ---------------------------------------------------------------------------
John G. Poole 54,407.0(1)(4) 2,249.0(2) 800.0(2) 1,510.0(3)
c/o Stanwich Partners, Inc. ========= ======= ====== =======
One Stamford Landing 22.4% 100.0% 100.0% 100.0%
62 Southfield Ave. ========= ======= ====== =======
Stamford CT 06902
- ---------------------------------------------------------------------------
Kimball J. Bradley 24,000.0 - - -
c/o Stanwich Partners, Inc. ========= ======= ====== =======
One Stamford Landing 9.9% - - -
62 Southfield Ave. ========= ======= ====== =======
Stamford CT 06902
- ---------------------------------------------------------------------------
Joseph C. Lawyer 17,984.0 - - -
c/o Chatwins Group, Inc. ========= ======= ====== =======
300 Weyman Plaza, Suite 340 7.4% - - -
Pittsburgh PA 15236 ========= ======= ====== =======
- ---------------------------------------------------------------------------
Jack T. Croushore 4,045.4 - - -
c/o Chatwins Group, Inc. ========= ======= ====== =======
300 Weyman Plaza, Suite 340 1.7% - - -
Pittsburgh PA 15236 ========= ======= ====== =======
- ---------------------------------------------------------------------------
All directors 239,383.0 2,249.0 800.0 1,510.0
and officers ========= ======= ====== =======
as a group 98.6% 100.0% 100.0% 100.0%
========= ======= ====== =======
- ---------------------------------------------------------------------------
(1) Pursuant to the Securities Pledge Agreement, dated as of May 1, 1993
(Securities Pledge Agreement), Mr. Bradley pledged 127,799 shares of Common
Stock to the Collateral Agent (as defined therein) for the benefit of the
holders of the Senior Notes and Mr. Poole pledged 17,040 shares of Common
Stock to secure the Company's obligations under the Indenture and the Senior
Notes.
(2) Held of record by KSB Acquisition Corp., the former owner of the
corporate predecessor-in-interest to the Klemp and Steelcraft divisions of the
Company, of which Messrs. Bradley and Poole are the sole executive officers
and directors. Pursuant to Rule 13d-3, Messrs. Bradley and Poole would be
deemed to be the beneficial owners of these shares, with shared voting and
dispositive power with respect thereto.
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<PAGE> 67
(3) Held of record by Hanna Investment Corp., the former owner of the
corporate predecessor-in-interest to the Hanna division of the Company, of
which Messrs. Bradley and Poole are the sole executive officers and Mr. Poole
is the sole director. Pursuant to Rule 13d-3, Messrs. Bradley and Poole would
be deemed to be the beneficial owners of these shares, with shared voting and
dispositive power with respect thereto.
(4) Includes 42,949.2 shares held of record by John Grier Poole Family
Limited Partnership, established by Mr. Poole in 1995 for estate planning
purposes, and of which Mr. Poole owns 1% and is the sole general partner.
Pursuant to Rule 13d-3, Mr. Poole would be deemed to be the beneficial owner
of these shares, with sole voting and dispositive power with respect thereto.
Also includes 11,457.8 shares as to which Mr. Poole has voting rights, but no
dispositive rights. Pursuant to Rule 13d-3, Mr. Poole would be deemed to be
the beneficial owner of these shares, with sole voting power with respect
thereto.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
General
Since the Offering, all transactions between the Company and its
affiliated entities, executive officers, directors or stockholders have been
on terms which are no less favorable to the Company than the Company could
obtain from non-affiliated parties as required by the terms of the Indenture
and the Loan Agreement.
Ownership of Senior Notes by Management
As of March 31, 1998, certain of the Company's executive officers and
directors own Senior Notes of the Company, which were purchased in open market
transactions, as shown in the following table.
Name Principal Amount
---- ----------------
Charles E. Bradley..............................$2,000,000
Jack T. Croushore...................................20,000
John M. Froehlich...................................55,000
Joseph C. Lawyer....................................60,000
Gerald W. McClure...................................25,000
John G. Poole....................................2,000,000
Alan S. Wippman.....................................25,000
<PAGE>
<PAGE> 68
SPI Consulting Agreement
The Company has entered into a consulting agreement with SPI, dated and
effective as of March 31, 1993, as amended (as amended, the "Consulting
Agreement"). Under the Consulting Agreement, the Company retains SPI to
render consulting services within the field of financial planning and
reporting. The Consulting Agreement will expire on March 31, 1998, but has
been extended for an additional five-year period to expire on March 31, 2003
unless terminated earlier by SPI on 30 days' notice. The Consulting Agreement
provides for the payment of an annual consulting fee to SPI of $300,000, and
the reimbursement of any reasonable and necessary out-of-pocket expenses
incurred by SPI in connection with its performance under the Consulting
Agreement. The Consulting Agreement provides that SPI's right to receive
consulting fees is subordinated to the right of the holders of the Senior
Notes to receive payments of principal and interest on the Senior Notes.
Consulting fees expensed by the Company to SPI were $300,000 in 1997 in
accordance with the Consulting Agreement. All consulting fees owed to SPI by
the Company under the Consulting Agreement were paid in full at December 31,
1997.
Acquisition and Disposition of Oneida
On March 31, 1994, the Company purchased (i) the then issued and
outstanding common stock of Oneida (Oneida Common Stock) for $1.00 from Oneida
Products Corp. (OPC), a wholly-owned subsidiary of Oneida Products Acquisition
Corp. (OPAC), (ii) 16,016 shares of Oneida preferred stock for $160.16 from
SPI, and (iii) 8,984 shares of Oneida preferred stock for $89.84 from SOG
(together the Oneida Preferred Stock). Messrs. Bradley and Poole are
officers, directors and controlling stockholders of SPI and SOG. Mr. Bradley
is the President, acting Chief Financial Officer, a director and a stockholder
of Texon, the sole stockholder of OPAC. SPI is the holder of an out-of-the-
money and currently exercisable warrant to purchase from Texon 1,480,000 newly
issued shares of common stock of Texon, representing approximately 13.7% of
the issued and outstanding shares of common stock of Texon after the exercise
of such warrant.
Immediately prior to the acquisition, Oneida assumed $2,500,000 of
liabilities (Assumed Liabilities) of OPAC, as consideration for OPAC's
authorizing the acquisition. The Assumed Liabilities included (i) $1,993,367
of liabilities of OPAC to SPI (SPI Assumed Liabilities), (ii) $40,166
outstanding under two Promissory Notes, each issued on June 17, 1988 by OPAC
to David N. Harrington and each in the original principal amount of $30,000
and bearing interest at 9% per annum and (iii) $466,467 outstanding under
three Subordinated Promissory Notes, each issued on January 25, 1991 by OPAC
to a former owner of Oneida, in the respective original principal amounts of
$270,000, $350,000 and $515,000 and each bearing no interest. At all relevant
times, Mr. Harrington was an executive officer and director of Oneida. In
connection with the assumption of the Assumed Liabilities, (a) SPI exchanged
$1,601,600 of the SPI Assumed Liabilities for 16,016 shares of Oneida
Preferred Stock, which SPI then sold to the Company for $160.16 as described
in the preceding paragraph, and (b) SOG exchanged $898,400 of indebtedness
outstanding under a Subordinated Promissory Note issued by Oneida to SOG on
May 31, 1990 in the original principal amount of $750,000 bearing interest at
12% per annum and a Subordinated Promissory Note issued by Oneida to SOG on
May 10, 1991 in the original principal amount of $9,000 bearing interest at
12% per annum for 8,984 shares of Oneida Preferred Stock, which SOG then sold
<PAGE>
<PAGE> 69
to the Company for $89.84 as described in the preceding paragraph. As further
consideration for OPAC's approval of the acquisition, Oneida cancelled
intercompany receivables relating to the payment of legal and accounting fees
and taxes from Texon and its subsidiaries of approximately $865,000.
The portion of SPI Assumed Liabilities that was not exchanged for shares
of Oneida Preferred Stock consists of (i) $273,400 outstanding under a
Subordinated Promissory Note (SPI Subordinated Note) issued by OPAC to SPI on
June 17, 1988 in the original principal amount of $500,000 bearing interest at
10% per annum and (ii) a $118,367 transaction fee (SPI Transaction Fee) owed
by OPAC to SPI for investment banking services rendered by SPI in connection
with OPAC's acquisition of OPC in June 1988. Oneida did not assume OPAC's
obligation to pay interest on the SPI Subordinated Note. With the consent of
Congress, Oneida paid SPI $45,000 in October 1994 as partial payment of the
SPI Transaction Fee, leaving a balance of $73,367 at December 31, 1994. As of
August 31, 1995, there were no amounts outstanding under the SPI Subordinated
Note or the SPI Transaction Fee.
Prior to the acquisition of Oneida by the Company, OPC had pledged all of
its shares of Oneida capital stock to Signal Capital Corporation (Signal) to
secure OPC's indebtedness to Signal of approximately $28.7 million (OPC Signal
Debt). As consideration for its consent to the acquisition and the release of
the pledge, Signal entered into the Deferred Payments Agreement on March 30,
1994 with Oneida and the Company which provided that Oneida would pay Signal
(i) 50% of Oneida's EBT (as defined in the Deferred Payments Agreement) in
excess of $750,000 per year for the five fiscal years ending December 31, 1994
through December 31, 1998, subject to certain conditions, and (ii) 20% of the
net proceeds which Oneida received from any sale of shares of its capital
stock in any underwritten public offering of such shares prior to December 31,
1998. Signal was obligated to apply these payments by Oneida to the reduction
of the OPC Signal Debt. As of August 18, 1995, Oneida had incurred no payment
obligations to Signal under the Deferred Payments Agreement. Mr. Bradley had
guaranteed the payment of the OPC Signal Debt. On August 18, 1995, Mr.
Bradley settled in full all claims of Signal against him. The Deferred
Payments Agreement was terminated as part of that settlement.
On September 14, 1995, the Company, through its wholly-owned subsidiary,
CHI, sold its Oneida Common Stock and Oneida Preferred Stock in the Oneida
Disposition to Reunion, 38% of the common stock of which is owned by the
Company. The Company had contributed all of the Oneida Common Stock and
Oneida Preferred Stock to CHI on June 2, 1995. The total purchase price paid
by Reunion for the Oneida Common Stock and Oneida Preferred Stock was
$3,107,484 in cash. The purchase price was determined based on Oneida's
financial position and results of operations at and for the six-month period
ended June 30, 1995. The Oneida Disposition was unanimously approved by the
Board of Directors of the Company after considering the opinion from Jefferies
& Co. as to the fairness of the sale to the Company from a financial point of
view, in accordance with the requirements of the Indenture. One hundred
percent of the $3,107,484 proceeds from the Oneida Disposition were applied to
repay a portion of the Company's obligations under the Parkdale Note, then
held by Mr. Bradley, as required by the terms thereof. See "The Parkdale and
Gesterkamp Notes". Mr. Bradley is Chairman and a director of the Company and
President, Chief Executive Officer and a director of Reunion. At the time of
the Oneida Disposition, Mr. Cassidy was also a director of Reunion and the
Company.
Between March 31, 1994 when the Company acquired Oneida and August 31,
1995, the Company had made advances to Oneida, including interest, fees and
charges thereon totalling $4,932,940. The Oneida Advances were funded from
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<PAGE> 70
the Company's working capital and amounts available under its Revolving Credit
Facility. The liabilities of Oneida upon the Oneida Disposition included the
Oneida Advances. The stock purchase agreement between CHI and Reunion (Stock
Purchase Agreement), required Reunion to cause Oneida to repay the Oneida
Advances on or before the second anniversary of the Sale Date, including
interest thereon from September 1, 1995 at 10% per annum. The Company
received cash payments of $1.6 million in 1995 and $3.7 million in 1996, each
including interest at 10% per annum, in full repayment of these advances. As
a condition precedent to the consummation of the merger of Rostone and Oneida
on February 2, 1996, Congress, a lender to both the Company and Oneida,
required the Company to subordinate its right to repayment of the Oneida
Advances to the prior payment of Oneida's indebtedness to Congress, except to
the extent provided in the subordination agreement executed by the Company on
February 2, 1996. See "Certain Loans - Rostone," which follows.
Since its disposition, Oneida has continued to obtain its property,
casualty, and product and general liability insurance coverage through the
Company. The rate was $27,500 per month for the first three months of 1997
and $24,600 per month for the remainder of the year, which represented the
cost of such insurance to the Company.
The Parkdale and Gesterkamp Notes
As part of the aggregate purchase price paid to Parkdale for the Reunion
common stock, the Company issued the Parkdale Note to Parkdale, which bore
interest at 10% per annum and which was originally due on September 18, 1995
in the original principal amount of $5,800,000. The Parkdale Note was
guaranteed by Mr. Bradley and secured by a pledge of 100% of the stock of CHI
(Pledge). In a letter agreement dated September 14, 1995 (Letter Agreement),
Parkdale informed the Company of its desire to sell the Parkdale Note to Mr.
Bradley. In connection with this proposed sale and as part of the Letter
Agreement, the Company and Parkdale amended the terms of the Parkdale Note to
extend its maturity date to December 31, 1995. Also as part of the Letter
Agreement, the Company and Parkdale terminated the Pledge. On September 14,
1995, Mr. Bradley purchased the Parkdale Note from Parkdale for $5,946,192,
being the principal thereof and accrued interest thereon through September 14,
1995, less the portion of said interest Mr. Bradley was required to withhold
and remit to the Internal Revenue Service under U.S. tax laws.
Contemporaneously with Mr. Bradley's purchase of the Parkdale Note and as
required by the terms thereof, the Company made a partial repayment of the
Parkdale Note totalling $3,107,484, being 100% of the proceeds of the Oneida
Disposition described above. During 1996, the Company made further payments
of the Parkdale Note totalling $2,619,609, including interest, and the Company
and Mr. Bradley agreed to further amendments of the Parkdale Note, extending
its maturity date until December 31, 1996. At December 31, 1996, the amount
still owed by the Company under the Parkdale Note was $473,196 and in January
1997, which was within the 45-day grace period from the maturity date as
stipulated in the original note agreement, the Company paid Mr. Bradley
$475,306, including interest, in final repayment of the Parkdale Note.
In connection with the purchase of the Reunion common stock, the Company
purchased the Gesterkamp Warrants. The purchase price for the Gesterkamp
Warrants totalled $483,000 and consisted of $283,000 paid in cash and the
Gesterkamp Note in the original principal amount of $200,000. Subsequent to
its issuance, the Gesterkamp Note was purchased by Mr. Myers, a director of
Reunion. The Gesterkamp Note bore interest at 10% per annum. On each of
January 6 and June 6, in each of 1996 and 1997, the Company made principal
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repayments of $50,000 each, plus interest, to Mr. Myers in repayment of the
Gesterkamp Note. At December 31, 1997, the Company's liability to Mr. Myers
under the Gesterkamp Note was fully repaid. The Gesterkamp Note was secured
by the Gesterkamp Warrants.
Certain Loans
Robinson
The Company had outstanding loans to Robinson Incorporated (Robinson), a
corporation controlled by Charles E. Bradley, John G. Poole, Joseph C. Lawyer
and Jack T. Croushore. Robinson is an oil and gas company operating in
Oklahoma. The aggregate amount of such loans and the largest principal amount
ever outstanding under such loans was $800,000. The Company advanced $500,000
of these funds to Robinson on April 19, 1990 and an additional $300,000 on
August 15, 1990, in connection with Robinson's acquisition of the assets of
the Chapter 11 bankruptcy estates of Robinson Brothers Drilling Inc. and
Robinson Brothers Drilling Company. The loans were evidenced by two notes
bearing interest at the prime rate of Chemical Bank plus 2%. The entire
principal and accrued interest on the notes was payable on demand at any time
between March 31 and April 19 of each year. In 1992 and 1993, the Company
demanded and received $59,700 and $51,200, respectively, in payment of
interest due for all of 1990 and a portion of 1991. In December 1995, the
Company agreed to settle in full the two notes receivable from Robinson for
the cash payment of $58,000 plus a warrant to purchase up to 50% of the common
stock of Robinson at any time in the future. As a result of this agreement,
the Company recognized a $701,000 loss on the settlement of these notes which
is included in other expense in the 1995 income statement. On December 29,
1997, Reunion purchased the Robinson warrant from the Company for $22,676 in
cash.
Rostone and CGII
In April 1990, the Company purchased from CGII 490 shares (49%) of the
common stock of CGII for $490 and SPI acquired from CGII 510 shares (51%) for
$510. CGII in turn borrowed $3.0 million (CGII-TCW Loan) from TCW Placements
Fund III (together with certain other Trust Company of the West investment
funds, "TCW"), which was used by CGII to acquire 100% of the outstanding
preferred stock and approximately 80% of the fully diluted common stock of
Rostone for an aggregate purchase price of approximately $2.9 million. On
February 2, 1996, CGII acquired the minority equity interest in Rostone's
common stock it did not already own. Rostone compounds and molds
thermoplastic polyester resin (bulk and sheet molding compound) primarily for
the electrical distribution market and business machine market.
To induce TCW to lend $3.0 million to CGII (i) the Company issued TCW
warrants to acquire 4,707 shares of Common Stock, (ii) TCW was given the right
to acquire all the outstanding CGII equity from the Company and SPI at a price
of $1.00 per share, (iii) Messrs. Bradley and Poole and another of their
affiliated companies guaranteed CGII's obligations to TCW and secured these
obligations with pledges of certain of their assets, including all of the
Class E Preferred Stock of the Company, (iv) the Company executed a
subordinated guaranty of CGII's $3.0 million debt obligation to TCW and (v)
the Company and SPI granted each other cross-call options on their shares of
CGII's equity.
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As part of the Company's 1990 refinancing of its indebtedness and
repayment of its outstanding obligations to TCW, the Company's participation
in the April 1990 CGII transaction was restructured as follows: (i) the
Company loaned CGII $1.5 million evidenced by a note bearing interest, payable
monthly, at the prime rate of the First National Bank of Chicago plus 1.5%
(9.75% at December 31, 1996) (CGII-Chatwins Note One); (ii) CGII used the $1.5
million loan from the Company to repay a portion of its indebtedness to TCW;
(iii) the Company's warrants were returned by TCW and cancelled and were
replaced by warrants issued by CGII to purchase 112 shares of CGII's common
stock; (iv) the Company's subordinated guaranty in favor of TCW was
terminated; and (v) the cross-call option was amended to provide that (a) the
Company has the right to acquire (Chatwins Call) SPI's 510 shares in CGII for
$510 until such time as the CGII-Chatwins Note One is paid in full, subject to
TCW's prior right to acquire such equity for $1.00 per share until such time
as CGII's remaining obligations to TCW are paid in full, and (b) if the CGII-
Chatwins Note One shall be paid in full prior to the Company's exercise of its
right to acquire SPI's fifty-one percent (51%) interest in CGII, then SPI
shall have the right for five years to acquire (for $440) 440 of the Company's
490 shares in CGII commencing after the Chatwins Call has terminated and
expired (without having been exercised). As of the date hereof, the cross-
call option is still in effect.
On May 3, 1993, Messrs. Bradley and Poole applied $76,480 and $505,140,
respectively, of the proceeds they received for the redemption of the
Company's Preferred Stock, receiving notes from CGII in exchange, to reduce
the CGII-TCW Loan in accordance with the guarantees made by Messrs. Bradley
and Poole for the benefit of TCW, thus reducing TCW's exposure under the CGII-
TCW Loan. In connection with this payment, TCW agreed to subordinate its
rights to repayment by CGII with respect to the remaining amounts outstanding
under the CGII-TCW Loan to the Company's right to repayment of the CGII-
Chatwins Note One.
In December 1993, the Company loaned an additional $1,350,000 to CGII
evidenced by a note having a maturity of two years and bearing interest,
payable annually, at a rate of 10% (CGII-Chatwins Note Two). The proceeds of
the CGII-Chatwins Note Two were used to pay TCW $1.2 million in full and final
satisfaction of the CGII-TCW Loan and prepay to the Company interest of
$150,000 on the CGII-Chatwins Note Two. Rostone's preferred stock was
previously pledged by CGII to the Company to secure the CGII-Chatwins Note
Two. However, as discussed below, on December 22, 1995, Rostone and Oneida
entered into a merger agreement whereby Rostone was subsequently merged into
Oneida and Oneida's name was changed to Oneida Rostone Corp. (ORC), which
acquired from CGII all of the issued and outstanding preferred and common
stock of Rostone.
The largest principal amount ever outstanding under the CGII-Chatwins
Note One was $1.5 million. The CGII-Chatwins Note One is in default both as
to the payment of interest and the repayment of principal. Under the terms of
the CGII-Chatwins Note One, from April 16, 1991 CGII became obligated to pay,
in addition to said interest and principal, an amount which when combined
therewith would yield the Company a 25% internal rate of return on the $1.5
million loan. As of December 31, 1997, an aggregate of $7,876,839 was due to
the Company under the CGII-Chatwins Note One and $1,741,500 under the CGII-
Chatwins Note Two.
In February 1994, the Company loaned $299,000 to CGII evidenced by a
demand promissory note bearing interest at an annual rate of 7.5% payable with
the repayment of principal. As of December 31, 1997, an aggregate of $386,365
principal and interest was outstanding under this loan from the Company to
CGII.
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On May 19, 1995, the Company became obligated to Krause Maffei
Corporation for $1,022,944 for the production of three plastic injection
molding machines which the Company intended to purchase and lease to Rostone
for $19,500 per month for 60 months. The equipment was delivered to Rostone
in June 1995. In November 1995, Mr. Bradley agreed to become a co-venturer in
the purchase and lease of the equipment to Rostone by paying to the equipment
manufacturer the $439,684 balance due thereon. In April 1996, Rostone
purchased the equipment and the Company received $602,702 from Rostone which
represented the amount paid by the Company to the manufacturer plus interest
thereon at 13.5% per annum.
On December 22, 1995, Rostone and Oneida entered into a merger agreement
whereby Rostone was subsequently merged into Oneida which is owned by Reunion,
and, as the surviving corporation, Oneida's name was changed to Oneida Rostone
Corp. (ORC). In the merger, ORC acquired from CGII all of the issued and
outstanding preferred and common stock of Rostone. The merger agreement
provided for the payment of deferred merger proceeds of up to $4.0 million
($2.0 million in 1997 and $2.0 million in 1998) to CGII contingent upon
Rostone's achieving specified levels of earnings before interest and taxes in
1996 and 1997. Rostone did not achieve the level of earnings before interest
and taxes in either 1996 or 1997 as specified in the merger agreement for the
payment of deferred merger proceeds in 1997 or 1998. As such, CGII will not
receive any merger proceeds pursuant to the merger agreement.
The Company made three loans to CGII; $1.5 million in December 1990,
$1.35 million in December 1993 and $0.3 million in February 1994. Rostone's
preferred stock was previously pledged by CGII to the Company to secure the
Company's December 1993 loan of $1.35 million. As such, any merger proceeds
were to be paid to the Company until the debt and related interest was paid in
full. Over time, the Company has provided reserves for a substantial portion
of the principal on its notes receivable from CGII. At December 31, 1997, the
net carrying value of the Company's investment in CGII common stock and net
notes receivable was $0.6 million.
CGII's primary assets remaining after the sale of Rostone are two notes
receivable from affiliates of the Company and a minimal amount of cash, the
sum of which total $0.7 million at December 31, 1997. Upon liquidation, these
assets would be allocated among CGII's remaining creditors, one of which is
the Company.
Stockholder Notes
In January 1988, Mr. Bradley, Mr. Poole and two former stockholders of
the Company subscribed for preferred stock in the Company in consideration of
their payment of an aggregate of $57,500 in cash and their personal interest
free demand notes, dated January 15, 1988, payable to the Company in the
aggregate principal amount of $1,092,500 (Stockholder Notes). The class of
preferred stock acquired by them was converted into Common Stock in connection
with the May 1988 merger that combined most of the Company's business lines as
divisions of the Company. At the time the Stockholder Notes were executed,
the Company and Messrs. Bradley and Poole and such other former stockholders
had an unwritten understanding that payment on the Stockholder Notes would not
be demanded until such time as the Company was sold or funds for the repayment
of the Stockholder Notes were distributed to them as dividends on their shares
of Common Stock.
At the time of the May 1988 merger, Messrs. Bradley, Poole and one of the
former stockholders granted the Company the option to acquire from them an
aggregate of 9,175.5 shares of Common Stock at their original cost of $10 per
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share, as follows: Mr. Bradley granted the Company an option to purchase
6,422.85 shares; Mr. Poole granted the Company an option to purchase 2,064.49
shares; and the former stockholder granted the Company an option to purchase
688.16 shares. As part of the December 1990 refinancing, the Company
exercised its option in full and paid for said shares by reducing the amounts
due under the respective Stockholder Notes to the amounts currently
outstanding as set forth below.
In September 1993, the Company purchased all the shares of Common Stock
owned by the obligors of the Stockholders Notes other than Messrs. Bradley and
Poole. In connection with the Company's purchase of such shares, Messrs.
Bradley and Poole assumed the obligations of such former stockholders under
their respective Stockholder Notes. The amount outstanding at December 31,
1997 under (i) Mr. Bradley's Stockholder Note was $643,166, (ii) Mr. Poole's
Stockholder Note was $206,704, and (iii) the two other Stockholder Notes
assumed by Messrs. Bradley and Poole was $150,874.
Bradley Guarantees
The Availability C Component of the Revolving Credit Facility is
guaranteed by Mr. Bradley. Mr. Poole has agreed with Mr. Bradley to assume
one third of this guarantee. In consideration of this guarantee, the Company
agreed to pay Mr. Bradley and Mr. Poole a total guarantee fee equal to 5% per
annum on the outstanding principal amount of the Advances (as defined in the
Loan Agreement) under the Availability C Component. During 1997, the Company
paid guarantee fees to Mr. Bradley and Mr. Poole of $14,275 and $7,137,
respectively. In addition, Mr. Bradley guaranteed $4 million of borrowings
under the Loan Agreement that the Company incurred in connection with the
investment in Reunion common stock. The guarantee was amended on October 18,
1995, to provide, among other things, that the amount of this supplemental
guarantee be reduced to $1.5 million. No fees were payable by the Company to
Mr. Bradley in connection with this guarantee. As of December 31, 1995, the
balance of the Company's borrowings under the Revolving Credit Facility
related to the investment in Reunion common stock had been repaid and the
other conditions to Mr. Bradley's supplemental guarantee were satisfied,
thereby releasing Mr. Bradley from any obligations thereunder.
On August 12, 1991, Mr. Bradley agreed to guarantee up to $2 million
under the Oneida Credit Facility. In connection with this guarantee, Oneida
entered into a Subordinated Guaranty Fee Agreement (Subordinated Guaranty Fee
Agreement) with Mr. Bradley. Pursuant to the Subordinated Guaranty Fee
Agreement, Oneida agreed to pay Mr. Bradley a guarantee fee equal to 5% of the
lesser of $2,000,000 or the actual outstanding principal balance under the
Oneida Credit Facility from time to time. 40% of the guarantee fee was
payable in equal monthly installments commencing on August 31, 1991 and 60% of
the guarantee fee was payable on the date that both the Oneida Credit Facility
and the OPC Signal Debt were fully paid. Mr. Bradley agreed to subordinate
payment of the guarantee fee to the payment of the obligations under the
Oneida Credit Facility. With the consent of Congress, Oneida paid Mr. Bradley
$240,533 of accrued guarantee fees during 1994. During the 1995 period ended
on September 14, 1995, no further payments under the Subordinated Guaranty Fee
Agreement had been made and any amounts owing thereunder were part of the
liabilities of Oneida upon its sale to Reunion.
On March 31, 1994 in connection with the Company's acquisition of Oneida,
Mr. Bradley and SPI agreed to guarantee the obligations of Oneida pursuant to
the promissory note issued by Oneida on March 31, 1994 to GE in the original
principal amount of $687,500 (GE Note). The GE Note bore interest at 7% and
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matured on June 30, 1995. Oneida repaid the note through monthly principal
and interest payments. Oneida agreed to pay Mr. Bradley a guarantee fee of
2.5% per annum on the outstanding balance of the GE Note. With the consent of
Congress, Oneida paid Mr. Bradley $5,000 of these accrued guarantee fees in
1994. During the 1995 period ended on September 14, 1995, no further payments
under this guaranty agreement had been made and any amounts owing thereunder
were part of the liabilities of Oneida upon its sale to Reunion.
CPS Leasing, Inc.
In February 1997, the Company entered into an operating lease agreement with
CPS Leasing, Inc. (CPSL), a company owned 80% by CPS and 20% by Mr. Bradley
Jr., to lease a machining center for Alliance with a cost of $143,600. The
terms of the lease include sixty monthly payments aggregating $161,006 and an
option to purchase the equipment at fair market value at the end of the lease
term. In June 1997, the Company entered into an operating lease with CPSL of
a computer system for Hanna with a cost of $61,667. The terms of the lease
include thirty-six monthly payments aggregating $62,830 and an option to
purchase the system at fair market value at the end of the lease term. In
January 1998, the Company entered into an operating lease with CPSL of two
vehicles for Alliance with a cost of $69,494. The terms of the lease include
sixty monthly payments aggregating $77,400 and an option to purchase at fair
market value at the end of the lease term. In March 1998, the Company entered
into an operating lease with CPSL of an ultrasonic testing system for CPI with
a cost of $115,300. The terms of the lease include ninety-six monthly
payments aggregating $164,448 and an option to purchase the system at fair
market value at the end of the lease term. The Company has entered and
intends to continue to enter into various operating leases in the course of
its normal operations. Such future leases may involve CPSL.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(a) Financial Statements
1. The following financial statements are included in this
Annual Report on Form 10-K as part of Part II, Item 8, and are incorporated by
reference herein:
Page No.
--------
Report of Independent Accountants 29
Consolidated Balance Sheet as of December 31, 1997 and 1996 30
Consolidated Statement of Income for the years
ended December 31, 1997, 1996 and 1995 31
Consolidated Statement of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 32
Notes to Consolidated Financial Statements 33
(b) Reports on Form 8-K
None filed by the Registrant during 1997.
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(c) Exhibits
The following exhibits are filed herewith in accordance with
Item 601 of Regulation S-K:
Exhibit No. Exhibit Description
- ----------- -------------------
2.1(a) Loan and Pledge Agreement, dated as of November 13, 1990,
made by Auto-Lok Holdings, Inc. to Chatwins Group, Inc.
2.2(a) Notice of Exercise, dated April 27, 1993, from Chatwins
Group, Inc. to Auto-Lok Holdings, Inc.
2.3(a) Certificate of Ownership and Merger merging Auto-Lok, Inc.
with and into Chatwins Group, Inc. filed with the Secretary
of State of the State of Delaware on and effective as of
May 4, 1993.
2.4(e) Stock Purchase Agreement, dated as of December 1, 1993,
among Chatwins Group, Inc., BKO Industries, Inc. and
William J. Kral.
2.5(b) Schedules attached to Stock Purchase Agreement, dated as of
December 1, 1993, among Chatwins Group, Inc., BKO
Industries, Inc. and William J. Kral:
Schedule 2.1(a) - Corporate Organization
Schedule 2.1(c) - No Conflicts
Schedule 2.1(d) - Capitalization
Schedule 2.1(f) - Broker's or Finder's Fees
Schedule 2.1(g) - Investments
Schedule 2.1(h) - Financial Statements
Schedule 2.1(i) - Absence of Certain Changes or Events
Schedule 2.1(j) - Management and Employees
Schedule 2.1(k)(i) - Land
Schedule 2.1(d)(ii) - Permitted Owned Real Property Exceptions
Schedule 2.1(k)(iii) - Leased Real Property
Schedule 2.1(k)(iv) - Real Property Permits
Schedule 2.1(k)(v) - Loan Documents
Schedule 2.1(k)(vi) - Assessed Valuation
Schedule 2.1(k)(vii) - Encroachments
Schedule 2.1(l) - Liens of Equipment, Etc.
Schedule 2.1(m) - Condition of Assets
Schedule 2.1(n) - Insurance
Schedule 2.1(o) - Trademarks and Patents
Schedule 2.1(p) - Contracts
Schedule 2.1(p)(vi) - Employment Agreements
Schedule 2.1(p)(viii) - Contracts for Services
Schedule 2.1(p)(ix) - Environmental Matters
Schedule 2.1(p)(xi) - Union Contracts
Schedule 2.1(p)(xii) - Employee Benefits/Policy
Schedule 2.1(p)(xiii) - Open Sales Order Exceeding $50,000
Schedule 2.1(q) - Compliance with Contracts
Schedule 2.1(r) - Litigation
Schedule 2.1(s) - Compliance with Laws
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Schedule 2.1(t) - Benefit Plans
Schedule 2.1(u) - Licenses
Schedule 2.1(v) - Transactions with Affiliates
Schedule 2.1(x) - Depositories
Schedule 2.1(y) - Employment-Related Matters
Schedule 2.1(z) - Tax Matters
Schedule 2.1(aa) - Customers and Suppliers
Schedule 2.1(ab) - Environmental Matters
2.6(e) Plan and Agreement of Merger, dated December 20, 1993, merging
Arrowhead Grating & Metalworks, Inc. with and into Chatwins
Group, Inc. filed with the Secretary of State of the State of
Delaware.
2.7(e) Articles of Merger of Arrowhead Grating & Metalworks, Inc.,
dated December 20, 1993, filed with the Secretary of State of
the State of Missouri.
2.8(d) Stock Purchase Agreement, dated March 31, 1994, between
Chatwins Group, Inc. and Oneida Products Corp.
2.9(d) Stock Purchase Agreement, dated March 31, 1994, between
Chatwins Group, Inc. and Stanwich Partners, Inc.
2.10(d) Stock Purchase Agreement, dated March 31, 1994, between
Chatwins Group, Inc. and Stanwich Oil & Gas, Inc.
2.11(f) Stock Purchase Agreement, dated August 25, 1994, among
Chatwins Group, Inc., Melody Brooks Dill, T.J. Brooks,
Jonathan C. Dill and Melody Brooks Dill as Trustees of The
Jonathan Brooks Dill 1992 Trust and Melody Brooks Dill as
custodian for Jonathan B. Dill under the Wisconsin Uniform
Transfers to Minors Act.
2.12(f) Asset Purchase Agreement, dated September 30, 1994, between
Chatwins Group, Inc. and F P M, L.P., a Delaware limited
partnership.
2.13(i) Stock Purchase Agreement, dated June 20, 1995, between
Chatwins Group, Inc. and Parkdale Holdings Corporation, N.V.
2.14(j) Stock Purchase Agreement, dated September 14, 1995, between
Chatwins Holdings, Inc. and Reunion Resources Company.
3.1(a) Restated Certificate of Incorporation of Chatwins Group, Inc.
3.2(a) Certificate of Retirement of Class E Preferred Stock filed
with the Secretary of State of the State of Delaware on and
effective as of May 3, 1993.
3.3(a) By-laws of Chatwins Group, Inc.
4.1(e) Loan and Security Agreement dated March 4, 1994, by and
between Congress Financial Corporation and Chatwins Group,
Inc.
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4.2(a) Specimen Share Certificate representing Chatwins Group, Inc.'s
Common Stock, par value $0.01 per share.
4.3(a) Purchase Agreement, dated April 22, 1993, by and between
Chatwins Group, Inc. and Bear, Stearns & Co. Inc.
4.4(a) Indenture, dated as of May 1, 1993, by and between Chatwins
Group, Inc. and The First National Bank of Boston, as trustee.
4.5(a) Global Note No. 1, dated as of May 3, 1993, issued by Chatwins
Group, Inc. to The Depository Trust Company and registered in
the name of Cede & Co. in the principal amount of $49,000,000.
4.6(a) Senior Note No. 2, dated May 3, 1993, issued by Chatwins
Group, Inc. to Streamview & Co. in the principal amount of
$1,000,000.
4.7(a) Form of Certificated Senior Notes issued pursuant to the
Indenture, dated May 1, 1993, by and between Chatwins Group,
Inc. and The First National Bank of Boston.
4.8(a) Warrant Agreement, dated as of May 1, 1993, by and between
Chatwins Group, Inc. and The First National Bank of Boston, as
warrant agent.
4.9(a) Global Warrant No. 1, dated as of May 3, 1993, issued by
Chatwins Group, Inc. to The Depository Trust Company and
registered in the name of Cede & Co. for 49,000 Warrants.
4.10(a) Warrant No. 2, dated May 3, 1993, issued by Chatwins Group,
Inc. to Streamview & Co. for 1,000 Warrants.
4.11(a) Form of Certificated Warrants issued pursuant to the Warrant
Agreement, by and between Chatwins Group, Inc. and The First
National Bank of Boston, as warrant agent.
4.12(a) Exchange and Registration Rights Agreement, dated as of May 1,
1993, by and between Chatwins Group, Inc. and Bear, Stearns &
Co. Inc.
4.13(e) Availability A Component note, dated March 4, 1994, issued by
Chatwins Group, Inc. to Congress Financial Corporation, in the
principal amount of $20,000,000.
4.14(e) Availability C Component Note, dated March 4, 1994, issued by
Chatwins Group, Inc. to Congress Financial Corporation, in the
principal amount of $1,000,000.
4.15(a) Loan Agreement, dated as of May 1, 1981, by and between Orem
City, Utah and Klemp Corporation relating to $680,000 Orem
City, Utah Industrial Development Revenue Bonds, Series A
(Klemp Corporation Project).
4.16(a) Promissory Note, dated May 5, 1981, from Klemp Corporation to
Orem City, Utah in the principal amount of $680,000 due May 1,
2001.
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4.17(a) Promissory Note, dated June 30, 1989, issued by Alli
Acquisition Corp. to the Pension Benefit Guaranty Corporation,
with guarantee of Chatwins Group, Inc. annexed thereto.
4.18(a) Note Payment Agreement, dated as of June 26, 1989, between
Alli Acquisition Corp. and the Pension Benefit Guaranty
Corporation.
4.19(c) Availability B Component Note, dated April 1, 1994, issued by
Chatwins Group, Inc. to Congress Financial Corporation, in the
principal amount of $800,000.
4.20(a) Non-Negotiable Promissory Note, dated January 9, 1989, issued
by Chatwins Group, Inc. to John P. Nasci in the principal
amount of $600,000.
4.21(a) Form of Promissory Note, dated May 3, 1993, issued by Chatwins
Group, Inc. to certain management employees in connection with
termination of Chatwins Group, Inc.'s performance unit plans.
4.22(a) Form of Senior Exchange Note to be issued pursuant the
Indenture, dated May 1, 1993, by and between Chatwins Group,
Inc. and The First National Bank of Boston, as trustee.
4.23(l) Amendment No. 5 to Loan and Security Agreement dated May 1,
1996, between Chatwins Group, Inc. and Congress Financial
Corporation.
4.24(l) Third Amended and Restated Availability A Promissory Note by
Chatwins Group, Inc. payable to Congress Financial Corporation
in the principal amount of $27,500,000.
4.25(o) Amendment No. 6 to Loan and Security Agreement dated November
1, 1996, between Chatwins Group, Inc. and Congress Financial
Corporation.
4.26(p) Fourth Amended and Restated Availability A Promissory Note
dated May 1, 1997 between Chatwins Group, Inc. and Congress
Financial Corporation.
4.27(i) Promissory Note of Chatwins Group, Inc. in the principal
amount of $5,800,000 issued to Parkdale Holdings Corporation,
N.V.
4.28(i) Guaranty, dated June 20, 1995, from Charles E. Bradley, Sr. to
and in favor of Parkdale Holdings Corporation, N.V.
4.29(i) Promissory Note of Chatwins Group, Inc. in the principal
amount of $200,000 issued to P. Dean Gesterkamp.
4.30(i) Amendment No. 1 to Loan and Security Agreement and Consent,
dated June 20, 1995, between Congress Financial Corporation
and Chatwins Group, Inc.
4.31(i) Amended and Restated Availability A Promissory Note by
Chatwins Group, Inc., payable to Congress Financial
Corporation in the principal amount of $26,000,000.
<PAGE>
<PAGE> 81
4.32(i) First Supplemental Indenture and Waiver of Covenants of
Indenture between The First National Bank of Boston as trustee
and Chatwins Group, Inc.
4.33(i) Second Supplemental Indenture between Chatwins Group, Inc. and
the Trustee.
4.34(i) Allonge to Senior Note.
4.35(j) Amendment No. 2 to Loan and Security Agreement, dated
September 14, 1995, between Chatwins Group, Inc. and
Congress Financial Corporation.
4.36(j) Allonge dated September 14, 1995 to Promissory Note of
Chatwins Group, Inc. in the principal amount of $5,800,000
issued to Parkdale Holdings Corporation, N.V.
4.37(k) Amendment No. 3 to Loan and Security Agreement dated October
18, 1995 between Chatwins Group, Inc. and Congress Financial
Corporation.
4.38(k) Second Amendment and Restated Availability A Promissory Note
dated October 18, 1995 between Chatwins Group, Inc. and
Congress Financial Corporation.
4.39(m) Amendment No. 4 to Loan and Security Agreement dated
December 29, 1995 between Chatwins Group, Inc. and
Congress Financial Corporation.
4.40(m) Second Allonge dated January 31, 1996 to Promissory Note of
Chatwins Group, Inc. in the amount of $5,800,000 issued to
Parkdale Holdings Corporation, N.V., purchased by
Charles E. Bradley, Sr.
4.41(m) Subordination Agreement dated February 2, 1996 between
Chatwins Group, Inc. and Congress Financial Corporation.
4.42(m) Notification Letter dated October 26, 1995 regarding purchase
of Gesterkamp Note by Franklin Myers.
4.43(p) Amendment No. 7 to Loan and Security Agreement dated
May 1, 1997 between Chatwins Group, Inc. and Congress
Financial Corporation.
10.1(a) Securities Pledge Agreement, dated May 1, 1993, among Chatwins
Group, Inc., Charles E. Bradley, John G. Poole and The First
National Bank of Boston.
10.2(e) Guarantee, dated March 4, 1994, from Charles E. Bradley to
Congress Financial Corporation.
10.3 Intentionally left blank.
10.4(e) Agreement, dated as of September 2, 1993, among Chatwins
Group, Inc., Lawrence A. Siebert, Charles E. Bradley and John
G. Poole.
<PAGE>
<PAGE> 82
10.5(e) Agreement, dated as of September 2, 1993, among Chatwins
Group, Inc., John S. Hall, Charles E. Bradley and John G.
Poole.
10.6(h) Collective Bargaining Agreement, dated March 6, 1995,
by and between Arrowhead Grating & Metalworks, Inc.,
Operating Engineers Local No. 6-6A-6B.
10.7(n) Agreement, dated June 1, 1996, between CP Industries, Inc. and
United Steelworkers of America on behalf of Local #1514-01.
10.8(n) Agreement, dated June 1, 1996, between CP Industries, Inc. and
United Steelworkers of America on behalf of Local #1514.
10.9(a) Agreement, effective May 1, 1992, between Shopmen's Local
Union No. 473 of the International Association of Bridge,
Structural and Ornamental Iron Workers (Affiliated AFL-CIO)
and Klemp Corporation.
10.10(a) Consulting Agreement, dated and effective as of March 31,
1993, between Chatwins Group, Inc. and Stanwich Partners, Inc.
10.11(a) Amendment No. 1 to Consulting Agreement, dated as of April 16,
1993, between Chatwins Group, Inc. and Stanwich Partners, Inc.
10.12 -
10.15 Intentionally left blank.
10.16(a) Asset Purchase Agreement, dated as of June 26, 1989, among The
Alliance Machine Company, Alli Acquisition Corp., George S.
Hofmeister and Christopher Sause.
10.17(a) Amendment to Asset Purchase Agreement, dated June 30, 1989,
among The Alliance Machine Company, George S. Hofmeister,
Christopher Sause and Alli Acquisition Corp.
10.18(a) Letter Agreement, dated June 30, 1989, among Alli Acquisition,
George S. Hofmeister and Christopher Sause.
10.19(a) Reimbursement and Loan Agreement, dated April 19, 1990 between
Robinson Incorporated and Chatwins Group, Inc.
10.20(a) Amended and Restated Promissory Note, dated April 19, 1990,
issued by Robinson Incorporated to Chatwins Group, Inc., in
the original principal amount of $500,000.
10.21(a) Amended and Restated Promissory Note, dated August 15, 1990,
issued by Robinson Incorporated to Chatwins Group, Inc., in
the original principal amount of $300,000.
10.22(a) Option Agreement, dated December 12, 1990, between Stanwich
Partners, Inc. and Chatwins Group, Inc.
10.23(a) Promissory Note, dated December 12, 1990, issued by CGI
Investment Corp. to Chatwins Group, Inc., in the original
principal amount of $1,500,000.
<PAGE>
<PAGE> 83
10.24(a) Letter regarding Release of Security Interest, Subordination
and Payment Instructions, dated May 3, 1993, from TCW Capital
and TCW Special Placement Fund III.
10.25(a) Letter Agreement, dated December 12, 1990, among Chatwins
Group, Inc., CGI Investment Corp., Stanwich Partners, Inc.,
Lawrence A. Siebert, John G. Poole, Charles E. Bradley, TCW
Special Placements Fund II, TCW Capital, TCW Special
Placements Fund III and TCW Capital.
10.26(a) Letter Agreement dated April 16, 1990, among Chatwins Group,
Inc., CGI Investment Corp., Lawrence A. Siebert, John G.
Poole, Charles E. Bradley, Stanwich Partners, Inc. and TCW
Special Placements Fund III.
10.27(a) Promissory Note, dated January 15, 1988, issued by John G.
Poole to Chatwins Group, Inc. in the original principal amount
of $227,349.25.
10.28(a) Promissory Note, dated January 15, 1988, issued by Lawrence A.
Siebert to Chatwins Group, Inc. in the original principal
amount of $75,819.50.
10.29(a) Promissory Note, dated January 15, 1988, issued by John S.
Hall to Chatwins Group, Inc. in the original principal amount
of $81,937.50.
10.30(a) Promissory Note, dated January 15, 1988, issued by Charles E.
Bradley to Chatwins Group, Inc. in the original principal
amount of $707,394.
10.31(a) Noncompetition Agreement, dated December 27, 1991, by and
between Chatwins Group, Inc. and Lewis, Goetz and Company,
Inc.
10.32 Intentionally left blank.
10.33(c) Lease Agreement, dated as of May 31, 1994, by and between RTF
Properties, L.P. and Chatwins Group, Inc.
10.34(m) Joint Venture Agreement dated November 27, 1995 between
Chatwins Group, Inc. and Charles E. Bradley, Sr. regarding
Purchase and Lease of certain Manufacturing Equipment.
10.35(c) Letter Agreement, dated June 8, 1994, between Klemp
Corporation Division of Chatwins Group, Inc. and Ferretera
Sabe, S.A. terminating the Joint Venture Agreement, dated
August 25, 1993, by and between Klemp Corporation Division of
Chatwins Group, Inc. and Ferretera Sabe, S.A.
10.36(m) Equipment Lease Agreement dated July 1, 1995 between
Chatwins Group, Inc. and Rostone Corporation.
10.37(o) Employment Agreement, dated as of August 1, 1996, between
Chatwins Group, Inc. and Joseph C. Lawyer.
<PAGE>
<PAGE> 84
10.38(m) Joint Venture Contract dated December 6, 1995 by and among
China Metallurgical Import & Export Shanghai Company,
Wang Gang Township Economic Development Corporation
and Chatwins Group, Inc.
10.39(a) Export Related Services Agreement, dated March 20, 1991, by
and between CGI Sales Corporation and Chatwins Group, Inc.
10.40(a) Foreign Trade Commission, Sale Lease and Services Agreement,
dated March 20, 1991 by and between CGI Sales Corporation and
Chatwins Group, Inc.
10.41(e) Employment Agreement, dated as of December 1, 1993, by and
between Chatwins Group, Inc. and William J. Kral.
10.42 Intentionally left blank.
10.43(m) Subordinated Promissory Note dated September 1, 1995 issued by
Oneida Molded Plastics Corp. to Chatwins Group, Inc.
10.44(n) Agreement, dated June 14, 1996, between The Alliance Machine
Company and Local Union No. 2361 United Steelworkers of
America AFL-CIO.
10.45 -
10.49 Intentionally left blank.
10.50(m) Letter Agreement dated January 31, 1996 between Chatwins
Group, Inc. and Charles E. Bradley, Sr. extending the
maturity date of the Parkdale Note to June 30, 1996.
10.51(n) Letter Agreement dated June 18, 1996, between Chatwins Group,
Inc. and Charles E. Bradley, Sr., extending the maturity date
of the Parkdale Note to December 31, 1996.
10.52(n) Joint Venture Agreement by and among Klemp de Mexico, S.A. de
C.V. and Consolidated Fabricators, Inc.
10.53(n) Second Amendment dated March 25, 1996, to Lease Agreement
dated May 31, 1994, between RTF Properties, L.P. and Chatwins
Group, Inc.
10.54(n) Third Amendment dated June 10, 1996, to Lease Agreement dated
May 31, 1994, between RTF Properties, L.P. and Chatwins Group,
Inc.
10.55 -
10.61 Intentionally Left Blank.
10.62(c) Chatwins Group, Inc. Long Term Incentive Plan, effective
January 1, 1994.
10.63(g) Indemnity Agreement, dated as of June 29, 1994, between
Chatwins Group, Inc. and Charles E. Bradley.
<PAGE>
<PAGE> 85
10.64(g) Form of Indemnity Agreement, between Chatwins Group, Inc. and
each of Charles E. Bradley, Jr., Thomas L. Cassidy, Joseph C.
Lawyer, James A. O'Donnell and John G. Poole.
10.65(g) Form of Indemnity Agreement, between Chatwins Group, Inc. and
each of Russell S. Carolus and John M. Froehlich.
10.66(A)(f) Employment Agreement, dated August 29, 1994, by and between
T.J. Brooks Company, a Wisconsin corporation and Jonathan C.
Dill.
10.66*(B)(i) Stock Pledge Agreement, dated June 20, 1995, between Chatwins
Group, Inc. and Parkdale Holdings Corporation N.V.
10.67(i) Escrow Agreement, dated June 20, 1995, among Chatwins Group,
Inc., Parkdale Holdings Corporation, N.V., Franklin Myers and
IBJ Schroder.
10.68*(i) Irrevocable Proxy, dated June 20, 1995, between Chatwins
Group, Inc. and Parkdale Holdings Corporation, N.V.
10.69*(i) Irrevocable Proxy, dated June 20, 1995, between Chatwins
Group, Inc. and Franklin Myers.
10.70(i) Letter Agreement, dated June 20, 1995, between Chatwins Group,
Inc. and P. Dean Gesterkamp.
10.71*(i) Security Agreement, dated June 20, 1995, between Chatwins
Group, Inc. and P. Dean Gesterkamp.
10.72(i) Letter from Chatwins Group, Inc. to Wertheim Schroder
Investment Services.
10.73(i) Letter Agreement, dated June 20, 1995, between Chatwins Group,
Inc. and Franklin Myers.
10.74(i) Pledge and Security Agreement, dated June 20, 1995, between
Congress Financial Corporation and Chatwins Group, Inc.
10.75(i) Collateral Assignment in favor of Congress Financial
Corporation executed by Chatwins Group, Inc.
10.76(i) Amendment No. 1 of the Securities Pledge Agreement among
Chatwins Group, Inc., Charles E. Bradley, Sr., John G. Poole
and The First National Bank of Boston as collateral agent.
10.77(j) Letter Agreement, dated September 4, 1995, between Chatwins
Group, Inc. and Parkdale Holdings Corporation, N.V.
10.78(j) Side Indemnity Letter Agreement, dated September 14, 1995,
between Chatwins Group, Inc. and Reunion Resources Company.
11.1 Statement of Computation of per Share Earnings.
12.1 Statement of Computation of Ratios.
<PAGE>
<PAGE> 86
21.1 Subsidiaries of Chatwins Group, Inc.
27 Financial Data Schedule
*Document dated June 20, 1995, pursuant to a letter agreement.
(a) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1 (No. 33-63274) as filed on July 30, 1993.
(b) This Exhibit was not included in the Company's Annual Report on Form 10-K
dated March 29, 1994 (Form 10-K) since it did not contain information which
was material. The Company agrees to furnish supplementally this Exhibit to the
Securities and Exchange Commission (Commission) upon request.
(c) Previously filed as an Exhibit to Post-effective Amendment No. 1 to this
Registration Statement.
(d) Incorporated by reference from the Company's Current Report on Form 8-K
dated April 13, 1994 and filed with the Commission on April 14, 1994.
(e) Incorporated by reference from the Company's Annual Report on Form 10-K
dated March 29, 1994 for the year ended December 31, 1993.
(f) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated November 11, 1994 for the quarterly period ended September 30,
1994.
(g) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated August 12, 1994 for the quarterly period ended June 30, 1994.
(h) Incorporated by reference from the Company's Annual Report on Form 10-K
dated March 29, 1995 for the year ended December 31, 1994.
(i) Incorporated by reference from the Company's Current Report on Form 8-K
dated June 30, 1995 and filed with the Commission on July 3, 1995.
(j) Incorporated by reference from the Company's Current Report on Form 8-K
dated September 28, 1995 and filed with the Commission on September 29, 1995.
(k) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated November 14, 1995 for the quarterly period ended September 30, 1995.
(l) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated May 2, 1996 for the quarterly period ended March 31, 1996.
(m) Incorporated by reference from the Company's Annual Report on Form 10-K
dated March 26, 1996 for the year ended December 31, 1995.
(n) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated August 12, 1996 for the quarterly period ended June 30, 1996.
(o) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated November 13, 1996 for the quarterly period ended September 30, 1996.
(p) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated May 15, 1997 for the quarterly period ended March 31, 1997.
<PAGE>
<PAGE> 87
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 13th day of April, 1998.
CHATWINS GROUP, INC.
By: /s/ Joseph C. Lawyer
----------------------
Joseph C. Lawyer
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons in the
capacities and on this 13th day of April, 1998.
Signature Title
- --------- -----
/s/ Charles E. Bradley Chairman of the Board and Director
- ---------------------------
Charles E. Bradley
/s/ Joseph C. Lawyer President, Chief Executive Officer
- --------------------------- and Director
Joseph C. Lawyer
/s/ John G. Poole Director
- ---------------------------
John G. Poole
/s/ Charles E. Bradley, Jr. Director
- ---------------------------
Charles E. Bradley, Jr.
/s/ John M. Froehlich Vice President, Chief Financial Officer
- --------------------------- and Treasurer (chief financial and
John M. Froehlich accounting officer)
<PAGE>
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
and Stockholders of
Chatwins Group, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 26, 1998, except as to Note 2 which is as of April 13, 1998,
appearing on page 29 of this Annual Report on Form 10-K of Chatwins Group,
Inc., and its subsidiaries, also included an audit of the Financial Statement
Schedule below. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 26, 1998
CHATWINS GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
(dollars in thousands)
Charged to
Beginning Costs and Ending
Balance Expenses Other Deductions Balance
--------- ---------- ------- ---------- -------
Year ended
December 31, 1997:
Allowance for doubtful
accounts $ 922 $ 347 $ - $ 535 (1) $ 734
Product warranty 365 818 - 895 (2) 288
Accrued self insurance 1,167 1,774 - 1,604 (3) 1,337
Year ended
December 31, 1996:
Allowance for doubtful
accounts $ 733 $ 449 $ - $ 260 (1) $ 922
Product warranty 434 725 - 794 (2) 365
Accrued self insurance 1,255 1,804 - 1,892 (3) 1,167
Year ended
December 31, 1995:
Allowance for doubtful
accounts $ 812 $ 226 $(249)(4) $ 56 (1) $ 733
Product warranty 442 344 - 352 (2) 434
Accrued self insurance 1,322 1,629 (120)(4) 1,576 (3) 1,255
_________________________
(1) Uncollectible accounts written off, net of recoveries.
(2) Product warranty claims honored during the year.
(3) Self insurance payments made during the year.
(4) Disposition of Oneida.
<PAGE>
<PAGE> 89
EXHIBIT INDEX
Exhibit No.
in Document
Sequential Incorporated
Exhibit No. Exhibit Page by Reference
- ----------- ------- ---------- ------------
2.1(a) Loan and Pledge Agreement, dated
as of November 13, 1990, made by
Auto-Lok Holdings, Inc. to Chatwins
Group, Inc. 2.1
2.2(a) Notice of Exercise, dated April 27,
1993, from Chatwins Group, Inc.
to Auto-Lok Holdings, Inc. 2.2
2.3(a) Certificate of Ownership and Merger
merging Auto-Lok, Inc. with and into
Chatwins Group, Inc. filed with the
Secretary of State of the State of
Delaware on and effective as of
May 4, 1993. 2.3
2.4(e) Stock Purchase Agreement, dated
as of December 1, 1993, among
Chatwins Group, Inc., BKO Industries,
Inc. and William J. Kral. 2.4
2.5(b) Schedules attached to Stock Purchase
Agreement, dated as of December 1,
1993, among Chatwins Group, Inc., BKO
Industries, Inc. and William J. Kral: 2.5
2.1(a) - Corporate Organization
2.1(c) - No Conflicts
2.1(d) - Capitalization
2.1(f) - Broker's or Finder's Fees
2.1(g) - Investments
2.1(h) - Financial Statements
2.1(i) - Absence of Certain
Changes or Events
2.1(j) - Management and Employees
2.1(k)(i) - Land
2.1(d)(ii) - Permitted Owned Real
Property Exceptions
2.1(k)(iii) - Leased Real Property
2.1(k)(iv) - Real Property Permits
2.1(k)(v) - Loan Documents
2.1(k)(vi) - Assessed Valuation
2.1(k)(vii) - Encroachments
2.1(l) - Liens of Equipment, Etc.
2.1(m) - Condition of Assets
2.1(n) - Insurance
2.1(o) - Trademarks and Patents
2.1(p) - Contracts
2.1(p)(vi) - Employment Agreements
<PAGE>
<PAGE> 90
2.1(p)(viii) - Contracts for Services
2.1(p)(ix) - Environmental Matters
2.1(p)(xi) - Union Contracts
2.1(p)(xii) - Employee Benefits/Policy
2.1(p)(xiii) - Open Sales Order
Exceeding $50,000
2.1(q) - Compliance with Contracts
2.1(r) - Litigation
2.1(s) - Compliance with Laws
2.1(t) - Benefit Plans
2.1(u) - Licenses
2.1(v) - Transactions with Affiliates
2.1(x) - Depositories
2.1(y) - Employment-Related Matters
2.1(z) - Tax Matters
2.1(aa) - Customers and Suppliers
2.1(ab) - Environmental Matters
2.6(e) Plan and Agreement of Merger, dated
December 20, 1993, merging Arrowhead
Grating & Metalworks, Inc. with and
into Chatwins Group, Inc. filed with
the Secretary of State of the State
of Delaware. 2.6
2.7(e) Articles of Merger of Arrowhead Grating
& Metalworks, Inc., dated December 20,
1993, filed with the Secretary of State
of the State of Missouri. 2.7
2.8(d) Stock Purchase Agreement, dated March
31, 1994, between Chatwins Group, Inc.
and Oneida Products Corp. 2.8
2.9(d) Stock Purchase Agreement, dated March
31, 1994, between Chatwins Group, Inc.
and Stanwich Partners, Inc. 2.9
2.10(d) Stock Purchase Agreement, dated March
31, 1994, between Chatwins Group,
Inc. and Stanwich Oil & Gas, Inc. 2.10
2.11(f) Stock Purchase Agreement, dated
August 25, 1994, among Chatwins Group,
Inc., Melody Brooks Dill, T.J. Brooks,
Jonathan C. Dill and Melody Brooks Dill
as Trustees of The Jonathan Brooks Dill
1992 Trust and Melody Brooks Dill as
custodian for Jonathan B. Dill under
the Wisconsin Uniform Transfers to
Minors Act. 2.11
2.12(f) Asset Purchase Agreement, dated
September 30, 1994, between Chatwins
Group, Inc. and F P M, L.P., a Delaware
limited partnership. 2.12
<PAGE>
<PAGE> 91
2.13(i) Stock Purchase Agreement, dated June 20,
1995, between Chatwins Group, Inc. and
Parkdale Holdings Corporation, N.V. 2.13
2.14(j) Stock Purchase Agreement, dated
September 14, 1995, between Chatwins
Holdings, Inc. and Reunion Resources
Company. 2.14
3.1(a) Restated Certificate of Incorporation
of Chatwins Group, Inc. 3.1
3.2(a) Certificate of Retirement of Class E
Preferred Stock filed with the
Secretary of State of the State of
Delaware effective as of May 3, 1993. 3.2
3.3(a) By-laws of Chatwins Group, Inc. 3.3
4.1(e) Loan and Security Agreement dated
March 4, 1994, by and between Congress
Financial Corporation and Chatwins
Group, Inc. 4.1
4.2(a) Specimen Share Certificate representing
Chatwins Group, Inc.'s Common Stock,
par value $0.01 per share. 4.2
4.3(a) Purchase Agreement, dated April 22,
1993, by and between Chatwins Group,
Inc. and Bear, Stearns & Co. Inc. 4.3
4.4(a) Indenture, dated as of May 1, 1993,
by and between Chatwins Group, Inc.
and The First National Bank of Boston,
as trustee. 4.4
4.5(a) Global Note No. 1, dated as of May 3,
1993, issued by Chatwins Group, Inc.
to The Depository Trust Company and
registered in the name of Cede & Co.
in the principal amount of $49,000,000. 4.5
4.6(a) Senior Note No. 2, dated May 3, 1993,
issued by Chatwins Group, Inc. to
Streamview & Co. in the principal
amount of $1,000,000. 4.6
4.7(a) Form of Certificated Senior Notes
issued pursuant to the Indenture,
dated May 1, 1993, by and between
Chatwins Group, Inc. and The First
National Bank of Boston. 4.7
<PAGE>
<PAGE> 92
4.8(a) Warrant Agreement, dated as of May 1,
1993, by and between Chatwins Group,
Inc. and The First National Bank of
Boston, as warrant agent. 4.8
4.9(a) Global Warrant No. 1, dated as of
May 3, 1993, issued by Chatwins Group,
Inc. to The Depository Trust Company
and registered in the name of
Cede & Co. for 49,000 Warrants. 4.9
4.10(a) Warrant No. 2, dated May 3, 1993,
issued by Chatwins Group, Inc. to
Streamview & Co. for 1,000 Warrants. 4.10
4.11(a) Form of Certificated Warrants issued
pursuant to the Warrant Agreement, by
and between Chatwins Group, Inc. and
The First National Bank of Boston,
as warrant agent. 4.11
4.12(a) Exchange and Registration Rights
Agreement, dated as of May 1, 1993,
by and between Chatwins Group, Inc.
and Bear, Stearns & Co. Inc. 4.12
4.13(e) Availability A Component Note, dated
March 4, 1994, issued by Chatwins
Group, Inc. to Congress Financial
Corporation, in the principal amount
of $20,000,000. 4.13
4.14(e) Availability C Component Note, dated
March 4, 1994, issued by Chatwins
Group, Inc. to Congress Financial
Corporation, in the principal amount
of $1,000,000. 4.14
4.15(a) Loan Agreement, dated as of May 1,
1981, by and between Orem City, Utah
and Klemp Corporation relating to
$680,000 Orem City, Utah Industrial
Development Revenue Bonds, Series A
(Klemp Corporation Project). 4.15
4.16(a) Promissory Note, dated May 5, 1981,
from Klemp Corporation to Orem City,
Utah in the principal amount of
$680,000 due May 1, 2001. 4.16
4.17(a) Promissory Note, dated June 30, 1989,
issued by Alli Acquisition Corp. to
the Pension Benefit Guaranty
Corporation, with guarantee of Chatwins
Group, Inc. annexed thereto. 4.17
<PAGE>
<PAGE> 93
4.18(a) Note Payment Agreement, dated as of
June 26, 1989, between Alli Acquisition
Corp. and the Pension Benefit Guaranty
Corporation. 4.18
4.19(c) Availability B Component Note, dated
April 1, 1994, issued by Chatwins
Group, Inc. to Congress Financial
Corporation, in the principal amount
of $800,000. 4.19
4.20(a) Non-Negotiable Promissory Note, dated
January 9, 1989, issued by Chatwins
Group, Inc. to John P. Nasci in the
principal amount of $600,000. 4.20
4.21(a) Form of Promissory Note, dated May 3,
1993, issued by Chatwins Group, Inc.
to certain management employees in
connection with termination of Chatwins
Group, Inc.'s performance unit plans. 4.21
4.22(a) Form of Senior Exchange Note to be
issued pursuant the Indenture, dated
May 1, 1993, by and between Chatwins
Group, Inc. and The First National
Bank of Boston, as trustee. 4.22
4.23(l) Amendment No. 5 to Loan and Security
Agreement dated May 1, 1996, between
Chatwins Group, Inc. and Congress
Financial Corporation. 4.23
4.24(l) Third Amended and Restated
Availability A Promissory Note
by Chatwins Group, Inc. payable
to Congress Financial Corporation
in the principal amount of $27,500,000. 4.24
4.25(o) Amendment No. 6 to Loan and Security
Agreement dated November 1, 1996,
between Chatwins Group, Inc. and
Congress Financial Corporation. 4.25
4.26(p) Fourth Amended and Restated Availability A
Promissory Note dated May 1, 1997 between
Chatwins Group, Inc. and Congress
Financial Corporation. 4.26
4.27(i) Promissory Note of Chatwins Group,
Inc. in the principal amount of
$5,800,000 issued to Parkdale
Holdings Corporation, N.V. 4.27
4.28(i) Guaranty, dated June 20, 1995, from
Charles E. Bradley, Sr. to and in favor
of Parkdale Holdings Corporation, N.V. 4.28
<PAGE>
<PAGE> 94
4.29(i) Promissory Note of Chatwins Group, Inc.
in the principal amount of $200,000
issued to P. Dean Gesterkamp. 4.29
4.30(i) Amendment No. 1 to Loan and Security
Agreement and Consent, dated June 20,
1995, between Congress Financial
Corporation and Chatwins Group, Inc. 4.30
4.31(i) Amended and Restated Availability A
Promissory Note by Chatwins Group,
Inc., payable to Congress Financial
Corporation in the principal amount
of $26,000,000. 4.31
4.32(i) First Supplemental Indenture and Waiver
of Covenants of Indenture between The
First National Bank of Boston as
trustee and Chatwins Group, Inc. 4.32
4.33(i) Second Supplemental Indenture between
Chatwins Group, Inc. and the Trustee. 4.33
4.34(i) Allonge to Senior Note. 4.34
4.35(j) Amendment No. 2 to Loan and Security
Agreement dated September 14, 1995
between Chatwins Group, Inc. and
Congress Financial Corporation. 4.35
4.36(j) Allonge to Promissory Note of Chatwins
Group, Inc. in the principal amount of
$5,800,000 issued to Parkdale Holdings
Corporation, N.V. 4.36
4.37(k) Amendment No. 3 to Loan and Security
Agreement, dated October 18, 1995,
between Chatwins Group, Inc. and
Congress Financial Corporation. 4.37
4.38(k) Second Amended and Restated
Availability A Promissory Note,
dated October 18, 1995, between
Chatwins Group, Inc. and Congress
Financial Corporation. 4.38
4.39(m) Amendment No. 4 to Loan and Security
Agreement dated December 29, 1995
between Chatwins Group, Inc. and
Congress Financial Corporation. 4.39
4.40(m) Second Allonge dated January 31, 1996
to Promissory Note of Chatwins Group,
Inc. in the amount of $5,800,000 issued
to Parkdale Holdings Corporation, N.V.,
purchased by Charles E. Bradley, Sr. 4.40
<PAGE>
<PAGE> 95
4.41(m) Subordination Agreement dated February
2, 1996 between Chatwins Group, Inc.
and Congress Financial Corporation. 4.41
4.42(m) Notification Letter dated October 26,
1995 regarding purchase of Gesterkamp
Note by Franklin Myers. 4.42
4.43(p) Amendment No. 7 to Loan and Security
Agreement dated May 1, 1997 between
Chatwins Group, Inc. and Congress
Financial Corporation. 4.43
10.1(a) Securities Pledge Agreement, dated May
1, 1993, among Chatwins Group, Inc.,
Charles E. Bradley, John G. Poole and
The First National Bank of Boston. 10.1
10.2(e) Guarantee, dated March 4, 1994, from
Charles E. Bradley to Congress
Financial Corporation. 10.2
10.3 Intentionally left blank.
10.4(e) Agreement, dated as of September 2,
1993, among Chatwins Group, Inc.,
Lawrence A. Siebert, Charles E. Bradley
and John G. Poole. 10.4
10.5(e) Agreement, dated as of September 2,
1993, among Chatwins Group, Inc.,
John S. Hall, Charles E. Bradley
and John G. Poole. 10.5
10.6(h) Collective Bargaining Agreement,
dated March 6, 1995, by and between
Arrowhead Grating & Metalworks, Inc.
and Operating Engineers Local
No. 6-6A-6B. 10.6
10.7(n) Agreement, dated June 1, 1996, between
CP Industries, Inc. and United
Steelworkers of America on behalf of
Local #1514-01. 10.7
10.8(n) Agreement, dated June 1, 1996, between
CP Industries, Inc. and United
Steelworkers of America on behalf of
Local #1514. 10.8
10.9(a) Agreement, effective May 1, 1992,
between Shopmen's Local Union No. 473
of the International Association of
Bridge, Structural and Ornamental
Iron Workers (Affiliated AFL-CIO)
and Klemp Corporation. 10.9
<PAGE>
<PAGE> 96
10.10(a) Consulting Agreement, dated and
effective as of March 31, 1993, between
Chatwins Group, Inc. and Stanwich
Partners, Inc. 10.10
10.11(a) Amendment No. 1 to Consulting
Agreement, dated as of April 16, 1993,
between Chatwins Group, Inc. and
Stanwich Partners, Inc. 10.11
10.12 -
10.15 Intentionally left blank.
10.16(a) Asset Purchase Agreement, dated as of
June 26, 1989, among The Alliance
Machine Company, Alli Acquisition
Corp., George S. Hofmeister and
Christopher Sause. 10.16
10.17(a) Amendment to Asset Purchase Agreement,
dated June 30, 1989, among The Alliance
Machine Company, George S. Hofmeister,
Christopher Sause and Alli Acquisition
Corp. 10.17
10.18(a) Letter Agreement, dated June 30, 1989,
among Alli Acquisition, George S.
Hofmeister and Christopher Sause. 10.18
10.19(a) Reimbursement and Loan Agreement, dated
April 19, 1990 between Robinson
Incorporated and Chatwins Group, Inc. 10.19
10.20(a) Amended and Restated Promissory Note,
dated April 19, 1990, issued by
Robinson Incorporated to Chatwins
Group, Inc., in the original principal
amount of $500,000. 10.20
10.21(a) Amended and Restated Promissory Note,
dated August 15, 1990, issued by
Robinson Incorporated to Chatwins
Group, Inc., in the original principal
amount of $300,000. 10.21
10.22(a) Option Agreement, dated December 12,
1990, between Stanwich Partners, Inc.
and Chatwins Group, Inc. 10.22
10.23(a) Promissory Note, dated December 12,
1990, issued by CGI Investment Corp. to
Chatwins Group, Inc., in the original
principal amount of $1,500,000. 10.23
<PAGE>
<PAGE> 97
10.24(a) Letter regarding Release of Security
Interest, Subordination and Payment
Instructions, dated May 3, 1993, from
TCW Capital and TCW Special Placement
Fund III. 10.24
10.25(a) Letter Agreement, dated December 12,
1990, among Chatwins Group, Inc., CGI
Investment Corp., Stanwich Partners,
Inc., Lawrence A. Siebert, John G.
Poole, Charles E. Bradley, TCW Special
Placements Fund II, TCW Capital,
TCW Special Placements Fund III
and TCW Capital. 10.25
10.26(a) Letter Agreement dated April 16, 1990,
among Chatwins Group, Inc., CGI
Investment Corp., Lawrence A. Siebert,
John G. Poole, Charles E. Bradley,
Stanwich Partners, Inc. and TCW Special
Placements Fund III. 10.26
10.27(a) Promissory Note, dated January 15, 1988,
issued by John G. Poole to Chatwins
Group, Inc. in the original principal
amount of $227,349.25. 10.27
10.28(a) Promissory Note, dated January 15, 1988,
issued by Lawrence A. Siebert to Chatwins
Group, Inc. in the original principal
amount of $75,819.50. 10.28
10.29(a) Promissory Note, dated January 15, 1988,
issued by John S. Hall to Chatwins Group,
Inc. in the original principal amount
of $81,937.50. 10.29
10.30(a) Promissory Note, dated January 15, 1988,
issued by Charles E. Bradley to Chatwins
Group, Inc. in the original principal
amount of $707,394. 10.30
10.31(a) Noncompetition Agreement, dated December
27, 1991, by and between Chatwins Group,
Inc. and Lewis, Goetz and Company, Inc. 10.31
10.32 Intentionally left blank.
10.33(c) Lease Agreement, dated May 31, 1994, by
and between RTF Properties, L.P. and
Chatwins Group, Inc. 10.33
10.34(m) Joint Venture Agreement dated November
27, 1995 between Chatwins Group, Inc.
and Charles E. Bradley, Sr. regarding
Purchase and Lease of certain
Manufacturing Equipment. 10.34
<PAGE>
<PAGE> 98
10.35(c) Letter Agreement, dated June 8, 1994,
between Klemp Corporation Division of
Chatwins Group, Inc. and Ferretera
Sabe, S.A. terminating the Joint
Venture Agreement, dated August 25,
1993, by and between Klemp Corporation
Division of Chatwins Group, Inc. and
Ferretera Sabe, S.A. 10.35
10.36(m) Equipment Lease Agreement dated July
1, 1995 between Chatwins Group, Inc.
and Rostone Corporation. 10.36
10.37(o) Employment Agreement, dated as of
August 1, 1996 between Chatwins
Group, Inc. and Joseph C. Lawyer. 10.37
10.38(m) Joint Venture Contract dated December
6, 1995 by and among China
Metallurgical Import & Export Shanghai
Company, Wang Gang Township Economic
Development Corporation and
Chatwins Group, Inc. 10.38
10.39(a) Export Related Services Agreement,
dated March 20, 1991, by and between
CGI Sales Corporation and Chatwins
Group, Inc. 10.39
10.40(a) Foreign Trade Commission, Sale Lease
and Services Agreement, dated March 20,
1991 by and between CGI Sales
Corporation and Chatwins Group, Inc. 10.40
10.41(e) Employment Agreement, dated as of
December 1, 1993, by and between
Chatwins Group, Inc. and William J. Kral. 10.41
10.42 Intentionally left blank.
10.43(m) Subordinated Promissory Note dated
September 1, 1995 issued by Oneida
Molded Plastics Corp. to Chatwins
Group, Inc. 10.43
10.44(n) Agreement, dated June 14, 1996, between
The Alliance Machine Company and Local
Union No. 2361 United Steelworkers of
America AFL-CIO. 10.44
10.45 -
10.49 Intentionally left blank.
<PAGE>
<PAGE> 99
10.50(m) Letter Agreement dated January 31, 1996
between Chatwins Group, Inc. and
Charles E. Bradley, Sr. extending the
maturity date of the Parkdale Note
to June 30, 1996. 10.50
10.51(n) Letter Agreement dated June 18, 1996,
between Chatwins Group, Inc. and
Charles E. Bradley, Sr., extending
the maturity date of the Parkdale
Note to December 31, 1996. 10.51
10.52(n) Joint Venture Agreement by and among
Klemp de Mexico, S.A. de C.V. and
Consolidated Fabricators, Inc. 10.52
10.53(n) Second Amendment dated March 25, 1996,
to Lease Agreement dated May 31, 1994,
between RTF Properties, L.P. and
Chatwins Group, Inc. 10.53
10.54(n) Third Amendment dated June 10, 1996,
to Lease Agreement dated May 31, 1994,
between RTF Properties, L.P. and
Chatwins Group, Inc. 10.54
10.55 -
10.61 Intentionally Left Blank.
10.62(c) Chatwins Group, Inc. Long Term
Incentive Plan, effective January 1,
1994. 10.62
10.63(g) Indemnity Agreement, dated as of June
29, 1994, between Chatwins Group, Inc.
and Charles E. Bradley. 10.63
10.64(g) Form of Indemnity Agreement, between
Chatwins Group, Inc. and each of
Charles E. Bradley, Jr., Thomas L.
Cassidy, Joseph C. Lawyer, James A.
O'Donnell and John G. Poole. 10.64
10.65(g) Form of Indemnity Agreement, between
Chatwins Group, Inc. and each of
Russell S. Carolus and John M. Froehlich. 10.65
10.66(A)(f) Employment Agreement, dated August 29,
1994, by and between T.J. Brooks
Company, a Wisconsin corporation and
Jonathan C. Dill. 10.66
10.66*(B)(i) Stock Pledge Agreement, dated June 20,
1995, between Chatwins Group, Inc.
and Parkdale Holdings Corporation, N.V. 10.66
<PAGE>
<PAGE> 100
10.67(i) Escrow Agreement, dated June 20, 1995,
among Chatwins Group, Inc., Parkdale
Holdings Corporation, N.V., Franklin
Myers and IBJ Schroder. 10.67
10.68*(i) Irrevocable Proxy, dated June 20, 1995,
between Chatwins Group, Inc. and
Parkdale Holdings Corporation, N.V. 10.68
10.69*(i) Irrevocable Proxy, dated June 20, 1995,
between Chatwins Group, Inc. and
Franklin Myers. 10.69
10.70(i) Letter Agreement, dated June 20, 1995,
between Chatwins Group, Inc. and
P. Dean Gesterkamp. 10.70
10.71*(i) Security Agreement, dated June 20,
1995, between Chatwins Group, Inc. and
P. Dean Gesterkamp. 10.71
10.72(i) Letter from Chatwins Group, Inc. to
Wertheim Schroder Investment Services. 10.72
10.73(i) Letter Agreement, dated June 20, 1995,
between Chatwins Group, Inc. and
Franklin Myers. 10.73
10.74(i) Pledge and Security Agreement, dated
June 20, 1995, between Congress
Financial Corporation and Chatwins
Group, Inc. 10.74
10.75(i) Collateral Assignment in favor of
Congress Financial Corporation
executed by Chatwins Group, Inc. 10.75
10.76(i) Amendment No. 1 of the Securities
Pledge Agreement among Chatwins
Group, Inc., Charles E. Bradley, Sr.,
John G. Poole and The First National
Bank of Boston as collateral agent. 10.76
10.77(j) Letter Agreement, dated September 4,
1995, between Chatwins Group, Inc.
and Parkdale Holdings Corporation, N.V. 10.77
10.78(j) Side Indemnity Letter Agreement,
dated September 14, 1995, between
Chatwins Group, Inc. and Reunion
Resources Company. 10.78
11.1 Statement of Computation of
per Share Earnings. 102
12.1 Statement of Computation of Ratios. 103
<PAGE>
<PAGE> 101
21.1 Subsidiaries of Chatwins Group, Inc. 104
27 Financial Data Schedule 105
_________________________
* Document dated June 20, 1995 pursuant to a letter agreement.
(a) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1 (No. 33-63274) filed on July 30, 1993.
(b) This Exhibit was not included in the Company's Annual Report on Form 10-K
dated March 29, 1994 (Form 10-K) since it did not contain information which
was material. The Company agrees to furnish supplementally this Exhibit to the
Securities and Exchange Commission (Commission) upon request.
(c) Previously filed as an Exhibit to Post-effective Amendment No. 1 to this
Registration Statement.
(d) Incorporated by reference from the Company's Current Report on Form 8-K
dated April 13, 1994 and filed with the Commission on April 14, 1994.
(e) Incorporated by reference from the Company's Annual Report on Form 10-K
dated March 29, 1994 for the year ended December 31, 1993.
(f) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated November 11, 1994 for the quarterly period ended September 30,
1994.
(g) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated August 12, 1994 for the quarterly period ended June 30, 1994.
(h) Incorporated by reference from the Company's Annual Report on Form 10-K
dated March 29, 1995 for the year ended December 31, 1994.
(i) Incorporated by reference from the Company's Current Report on Form 8-K
dated June 30, 1995 and filed with the Commission on July 3, 1995.
(j) Incorporated by reference from the Company's Current Report on Form 8-K
dated September 28, 1995 and filed with the Commission on September 29, 1995.
(k) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated November 14, 1995 for the quarterly period ended September 30, 1995.
(l) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated May 2, 1996 for the quarterly period ended March 31, 1996.
(m) Incorporated by reference from the Company's Annual Report on Form 10-K
dated March 26, 1996 for the year ended December 31, 1995.
(n) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated August 12, 1996 for the quarterly period ended June 30, 1996.
(o) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated November 13, 1996 for the quarterly period ended September 30, 1996.
(p) Incorporated by reference from the Company's Quarterly Report on Form 10-
Q dated May 15, 1997 for the quarterly period ended March 31, 1997.
<PAGE>
<PAGE>
<PAGE> 102
CHATWINS GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except share and per share information)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
EARNINGS:
Income before equity loss from
affiliate, extraordinary items
and cumulative effect of change
in accounting principle $ 662 $ 1,255 $ 4,425 $ 17 $ 2,321
Dividends paid or accreted to
preferred stock (575) (450) (456) (456) (456)
------- ------- ------- ------- -------
Earnings applicable to
common stock 87 805 3,969 (439) 1,865
Equity loss from continuing
operations of affiliate (1,589) (90) (132) (549) (224)
Equity income from discontinued
operations of affiliate - - - 93 162
Extraordinary items (1,171) (201) - - -
Cumulative effect of change in
accounting principle (200) - - - -
------- ------- ------- ------- -------
Net earnings applicable
to common stock $(2,873) $ 514 $ 3,837 $ (895) $ 1,803
======= ======= ======= ======= =======
COMMON SHARES OUTSTANDING:
Average equivalent outstanding 304,655 293,242 292,887 292,887 292,887
======= ======= ======= ======= =======
EARNINGS PER COMMON SHARE:
Income before equity loss from
affiliate, extraordinary items
and cumulative effect of change
in accounting principle $ 0.29 $ 2.74 $ 13.55 $ (1.49) $ 6.37
Continuing operations of
affiliate (5.21) (0.31) (0.45) (1.87) (1.77)
Discontinued operations of
affiliate - - - 0.31 1.56
Extraordinary items (3.84) (0.68) - -
Cumulative effect (0.66) - - -
------- ------- ------- ------- -------
EARNINGS PER COMMON SHARE $ (9.42) $ 1.75 $ 13.10 $ (3.05) $ 6.16
======= ======= ======= ======= =======
<PAGE>
<PAGE> 103
CHATWINS GROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios and interest factor)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
EARNINGS:
Income before income taxes,
equity loss, extraordinary
item and cumulative effect of
change in accounting principle $ 1,132 $ 1,531 $ 5,334 $ 25 $ 3,172
Interest expense 5,784 8,123 9,236 8,927 9,226
Equity in loss of affiliate (3) (1,589) (90) - - -
Amortization of debt issuance
expense 395 444 564 632 550
Interest portion of rent
expense (1) 317 378 418 469 763
------- ------- ------- ------- -------
Earnings $ 6,039 $10,386 $15,552 $10,053 $13,711
======= ======= ======= ======= =======
FIXED CHARGES:
Interest expense $ 5,784 $ 8,123 $ 9,236 $ 8,927 $ 9,226
Amortization of debt issuance
expense 395 444 564 632 550
Interest portion of rent
expense (1) 317 378 418 469 763
------- ------- ------- ------- -------
Fixed charges $ 6,496 $ 8,945 $10,218 $10,028 $10,539
======= ======= ======= ======= =======
RATIO (2) - 1.16 1.52 1.00 1.30
======= ======= ======= ======= =======
(1) - Interest portion of rent expense is calculated as follows:
Rent expense $ 953 $ 1,135 $ 1,254 $ 1,407 $ 2,290
Portion deemed representative
of interest 33.3% 33.3% 33.3% 33.3% 33.3%
------- ------- ------- ------- -------
Interest portion of rent expense $ 317 $ 378 $ 418 $ 469 $ 763
======= ======= ======= ======= =======
(2) - Additional income from continuing operations of $206 would be necessary
to attain a ratio of earnings to fixed charges of 1.00 for the year ended
December 31, 1993.
(3) - Equity in loss of affiliate relates to the Company's 49% investment in
CGII. The Company indirectly services CGII's debt as its debt is owed to the
Company. Accordingly, the Company's share of CGII's results are deducted from
earnings for the purpose of determining the ratio of earnings to fixed
charges.
<PAGE>
<PAGE> 104
SUBSIDIARIES
1. CGI Sales Corporation (a wholly-owned subsidiary of Chatwins Group, Inc.
and a Barbados corporation).
2. Klemp de Mexico S.A. de C.V. (a majority-owned subsidiary of Chatwins
Group, Inc. and a Mexican corporation).
3. Shanghai Klemp Metal Products Co., Ltd. (a majority-owned joint venture of
(i) Chatwins Group, Inc., (ii) a Chinese state-owned trade enterprise and
(iii) an independently owned Chinese corporation).
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>This schedule contains summary financial information extracted from
the registrant's financial statements included in the Form 10-K for the year-
end indicated below and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 734
<SECURITIES> 0
<RECEIVABLES> 34,980
<ALLOWANCES> 734
<INVENTORY> 16,964
<CURRENT-ASSETS> 56,631
<PP&E> 54,426
<DEPRECIATION> 23,046
<TOTAL-ASSETS> 111,269
<CURRENT-LIABILITIES> 28,351<F1>
<BONDS> 49,900
0
8,026
<COMMON> 3
<OTHER-SE> (7,554)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 111,269
<SALES> 188,920
<TOTAL-REVENUES> 188,920
<CGS> 153,394
<TOTAL-COSTS> 153,394
<OTHER-EXPENSES> 22,719
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,776
<INCOME-PRETAX> 3,172
<INCOME-TAX> 851
<INCOME-CONTINUING> 2,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,259
<EPS-PRIMARY> 7.42
<EPS-DILUTED> 6.16
<FN>
<F1>Excludes revolving credit facility borrowings of $26,061 at 12/31/97.
<F2>Includes charges to retained earnings of $14.0 million for redemption
value of and dividend accretions on preferred stock.
</FN>
</TABLE>
