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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-63274
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CHATWINS GROUP, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 74-2156829
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
300 WEYMAN PLAZA, SUITE 340
PITTSBURGH, PENNSYLVANIA 15236
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(Address of principal executive offices, including zip code)
(412) 885-5501
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
At April 30, 1998, 242,887 shares of common stock, par value $.01 per share,
were outstanding.
Exhibit index is on page 18.
Page 1 of 38 pages.
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CHATWINS GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statement of Income and
Comprehensive Income for the three months ended
March 31, 1998 and 1997 4
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 17
(b) Reports on Form 8-K 17
SIGNATURES 17
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHATWINS GROUP, INC.
CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1998 AND DECEMBER 31, 1997
(in thousands)
At March 31, At December 31,
1998 1997
----------- --------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 379 $ 734
Receivables, net 32,145 34,246
Inventories, net (note 2) 20,444 16,964
Other current assets 5,394 4,687
-------- --------
Total current assets 58,362 56,631
Property, plant and equipment, net 31,858 31,380
Investments, net 12,117 12,013
Goodwill, net 4,695 4,764
Other assets, net 6,506 6,481
-------- --------
Total assets $113,538 $111,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving Credit Facility $ 24,290 $ 26,061
Current maturities of debt 775 700
Trade payables 18,360 16,239
Other current liabilities 12,298 11,412
-------- --------
Total current liabilities 55,723 54,412
Senior notes due 2003, net 49,906 49,900
Other long-term debt 775 823
Other liabilities 4,904 4,416
-------- --------
Total liabilities 111,308 109,551
Commitments and contingent liabilities (note 5) - -
Minority interests 1,034 1,033
Redeemable preferred stock 8,140 8,026
Warrant value 423 210
Stockholders' equity (note 3) (7,367) (7,551)
-------- --------
Total liabilities and stockholders' equity $113,538 $111,269
======== ========
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands, except share and per share information)
(unaudited)
Three Months Ended
March 31,
1998 1997
------- -------
Net sales $43,747 $42,642
Cost of sales 34,652 34,365
------- -------
Gross profit 9,095 8,277
Selling, general & administrative 5,811 5,241
Other expense, net 93 222
------- -------
Operating profit 3,191 2,814
Interest expense, net 2,437 2,406
Minority interests (2) (54)
------- -------
Income before income taxes and equity income
from continuing operations of affiliate 756 462
Provision for income taxes 307 95
------- -------
Income before equity income from
continuing operations of affiliate 449 367
Equity income from continuing operations of affiliate 62 67
------- -------
Net income and comprehensive income $ 511 $ 434
======= =======
Earnings applicable to common stock $ 397 $ 320
======= =======
Earnings per common share (basic) $ 1.63 $ 1.32
======= =======
Average equivalent common shares outstanding (basic) 242,887 242,887
======= =======
Earnings per common share (diluted) $ 1.36 $ 1.09
======= =======
Average equivalent common shares outstanding (diluted) 292,887 292,887
======= =======
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(in thousands)
(unaudited)
Three Months Ended
March 31,
1998 1997
------- -------
Cash flow from operating activities:
Net income $ 511 $ 434
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 988 845
Amortization 225 227
Provision for losses on inventories - 40
Minority share of losses (2) (54)
Equity in net income of affiliate (62) (67)
Changes in assets and liabilities, net of
the purchase of a business:
Decrease (increase) in receivables 2,101 (3,969)
Increase in inventories (3,480) (1,386)
Increase in trade payables 2,121 3,482
Net change in other assets and liabilities 445 1,917
------- -------
Cash provided by operating activities 2,847 1,469
------- -------
Cash flow from investing activities:
Capital expenditures (1,458) (1,388)
------- -------
Cash used in investing activities (1,458) (1,388)
------- -------
Cash flow from financing activities:
Repayments of debt (48) (48)
Repayments to related parties - (577)
Net change in Revolving Credit Facility (1,771) 270
Increase in consolidated subsidiary indebtedness 75 142
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Cash used in financing activities (1,744) (213)
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Net decrease in cash and cash equivalents (355) (132)
Cash and cash equivalents, beginning of year 734 357
------- -------
Cash and cash equivalents, end of period $ 379 $ 225
======= =======
See accompanying notes to condensed consolidated financial statements.
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CHATWINS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal recurring
adjustments considered necessary for a fair statement of the results of
operations have been included. The results of operations for the three month
period ended March 31, 1998 are not necessarily indicative of the results of
operations for the full year. The results of operations for the three months
ended March 31, 1997 are restated as the result of an adjustment as discussed
in note 2 to the consolidated financial statements for the year ended December
31, 1997. When reading the financial information contained in this Quarterly
Report, reference should be made to the financial statements, schedules and
notes contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
NOTE 2: INVENTORIES
Inventories are comprised of the following (in thousands):
At March 31, At December 31,
1998 1997
----------- --------------
(unaudited)
Raw materials $ 7,031 $ 7,679
Work-in-process 7,954 5,678
Finished goods 6,362 4,501
------- -------
Total inventories 21,347 17,858
Less: LIFO reserves (903) (894)
------- -------
Inventories, net $20,444 $16,964
======= =======
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NOTE 3: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
The following represents a reconciliation of the change in stockholders'
equity for the three month period ended March 31, 1998 (in thousands):
Par Capital Accum-
Value in ulated
of Trea- Excess Notes Accum- Trans-
Common sury of Par Receiv- ulated lation
Stock Stock Value able Deficit Adjmt. Total
------ ----- ------- ------- -------- ------ --------
At January 1,
1998 $ 3 $(500) $1,664 $(1,001) $ (7,029) $(688) $ (7,551)
Activity
(unaudited):
Net income - - - - 511 - 511
Preferred stock
accretions - - - - (114) - (114)
Warrant value
accretion - - - - (213) - (213)
--- ----- ------ ------- -------- ----- --------
At March 31,
1998 $ 3 $(500) $1,664 $(1,001) $ (6,845) $(688) $ (7,367)
=== ===== ====== ======= ======== ===== ========
The computations of basic and diluted earnings per common share (EPS) for
the three month periods ended March 31, 1998 and 1997 are as follows (in
thousands, except share and per share amounts)(unaudited):
Income Shares EPS
-------- -------- -------
Three months ended March 31, 1998:
Net income $ 511
Less: Preferred stock dividend accretions (114)
--------
Income available to common stockholders,
shares outstanding and basic EPS 397 242,887 $ 1.63
=======
Dilutive effect of Warrants 50,000
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ 397 292,887 $ 1.36
======== ======== =======
Three months ended March 31, 1997:
Net income as restated (note 1) $ 434
Less: Preferred stock dividend accretions (114)
--------
Income available to common stockholders,
shares outstanding and basic EPS 320 242,887 $ 1.32
=======
Dilutive effect of Warrants 50,000
-------- --------
Income available to common stockholders,
shares outstanding and diluted EPS $ 320 292,887 $ 1.09
======== ======== =======
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NOTE 4: RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with Stanwich Partners, Inc. under
which $75,000 was expensed in each quarter ended March 31, 1998 and 1997.
During 1997 and the first quarter of 1998, the Company entered into
various operating lease agreements with CPS Leasing, Inc. (CPSL), a company
owned 80% by Consumer Portfolio Services and 20% by Charles E. Bradley Jr.,
President of Consumer Portfolio Services and son of Charles E. Bradley Sr.,
Chairman of the Board, Director and shareholder of the Company. During the
first quarter of 1998, the Company made lease payments totaling $18,869 to
CPSL.
NOTE 5: COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in various litigation matters in the ordinary
course of business. In the opinion of management, settlement of these various
litigation matters and other contingent matters will not have any material
effect on the Company's financial position. The Company does not have any
adverse commitments at March 31, 1998.
NOTE 6: OPERATING SEGMENT DISCLOSURES
The Company considers its separately identifiable divisions to be its
operating segments pursuant to the management approach. The following
represents a description of each division and a disaggregation of certain
financial information by operating segment.
Alliance - Alliance designs, engineers and manufactures cranes used in a
wide range of steel and aluminum mill applications and large special purpose
cranes used in marine and aerospace applications and heavy industrial plants.
Alliance also manufactures lighter duty cranes for various industrial
applications, coke oven machinery and other large steel-related fabrications.
In recent years, Alliance has expanded and diversified its engineering and
manufacturing capabilities to offer a variety of equipment and related
engineering, fabrication, maintenance and repair services.
Auto-Lok - Auto-Lok manufactures high quality roll formed and structural
steel fabricated storage racks for industrial and commercial handling systems
and general storage applications. In addition, Auto-Lok participates on
larger contracts in the sale of total material handling systems through
purchasing and reselling related components such as decking and carton flow
devices, and subcontracting of rack erection.
CPI - CPI specializes in manufacturing large, seamless pressure vessels
for the above ground storage and transportation of highly pressurized gases
such as natural gas, hydrogen, nitrogen, oxygen and helium. These pressure
vessels are provided to customers such as industrial gas producers and
suppliers, the alternative fueled vehicle compressed natural gas fuel
industry, chemical and petrochemical processing facilities, shipbuilders,
NASA, public utilities and gas transportation companies.
Hanna - Hanna designs and manufactures a broad line of hydraulic and
pneumatic cylinders, actuators, accumulators and manifolds. These products
are used in a wide variety of industrial and mobile machinery and equipment
requiring the application of force in a controlled and repetitive process.
Hanna's specialty is custom cylinders in both small quantities packaged by its
distributors with valves, pumps and controls as complete fluid power systems
and large quantities sold directly to equipment manufacturers.
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Klemp - Klemp is a highly diversified manufacturer of metal grating
products. Klemp manufactures quality steel and aluminum bar grating products
in a variety of sizes, configurations and finishes, and also custom fabricates
bar grating products for specialized applications. Klemp products are sold
for use in many industrial applications where a combination of strength, light
weight, access and a free flow of air, heat, water or light is desired. Its
products are used in water and wastewater treatment plants, railroad tank
cars, petroleum storage facilities, aircraft, mines, roads, bridge decks and
general manufacturing facilities.
Steelcraft - Steelcraft manufactures and sells cold-rolled steel leaf
springs. Its principal customers are manufacturers of trailers for boats,
small utility vehicles and golf carts and makers of recreational vehicles and
agricultural trailers.
The following represents the disaggregation of financial data (in
thousands)(unaudited):
Total
Net Sales EBITDA(1) Assets(2)
--------- --------- ---------
Three months ended
March 31, 1998:
Alliance $ 9,042 $ 751 $ 13,464
Auto-Lok 5,470 203 11,591
CPI 5,764 1,162 17,147
Hanna 8,383 1,369 16,301
Klemp(3) 13,946 1,219 31,714
Steelcraft 1,142 194 1,808
Headquarters/Other - (612) 22,513
-------- -------- --------
Totals $ 43,747 4,286 $113,538
======== ========
Depreciation and amortization (1,213)
Interest expense(4) (2,317)
--------
Income before income taxes $ 756
========
Three months ended
March 31, 1997:
Alliance $ 9,041 $ 693 $ 12,918
Auto-Lok 5,604 128 9,247
CPI 6,022 1,434 16,747
Hanna 8,840 1,159 17,930
Klemp(3) 12,031 830 27,425
Steelcraft 1,060 169 1,766
Headquarters/Other 44 (605) 21,494
-------- -------- --------
Totals $ 42,642 3,808 $107,527
======== ========
Depreciation and amortization (1,072)
Interest expense(4) (2,274)
--------
Income before income taxes $ 462
========
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(1) EBITDA is presented due to its relationship to the Company's financial
covenants benefitting the Senior Notes (as defined).
(2) Headquarters total assets at March 31, 1998 and 1997 is primarily
comprised of deferred tax assets and the Company's investment in Reunion
common stock.
(3) Financial data of Klemp de Mexico and Shanghai Klemp are reported as part
of the Klemp division.
(4) Excludes amortization of debt issuance expenses of $120,000 and $132,000
for the three month periods ended March 31, 1998 and 1997, respectively.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
During 1997 and the first quarter of 1998, the Company's organizational
structure included six divisions that design, manufacture and market metal
products, two majority-owned foreign joint ventures which manufacture and
fabricate metal grating, an oil and gas division and an equity investment in
Reunion Industries, Inc. (Reunion). During 1997 and the first quarter of
1998, substantially all of the Company's operations related to metal products.
On June 20, 1995, the Company acquired 1,450,000 shares of Reunion common
stock constituting approximately 38% of the then outstanding common stock of
Reunion. Reunion acquired Oneida Molded Plastics Corp. (Oneida), the
Company's former plastics subsidiary, from the Company in September 1995.
Reunion also merged Oneida with Rostone, Inc. (Rostone) in February 1996,
resulting in Oneida Rostone Corporation (ORC). As a result, Reunion is
primarily engaged in the manufacture of high volume, precision plastics
products, providing engineered plastics services and compounding and molding
thermoset polyester resins. Reunion also has wine grape agricultural
operations in Napa County, California. The Company's investment in Reunion is
being accounted for under the equity method of accounting. The Company's
proportional share of Reunion's operating results is included in the
accompanying condensed consolidated statement of income for the three month
periods ended March 31, 1998 and 1997 as equity income from operations of
affiliate. See "Possible Merger with Reunion" below.
Recent Developments
Pursuant to a Warrant Agreement dated as of May 1, 1993 (Warrant
Agreement), the Company issued 50,000 warrants (Warrants), each of which
entitles the holder thereof to purchase one share of the common stock of the
Company at an exercise price of $.01 per share. The Warrants were issued in a
transaction pursuant to which the Company issued $50 million of 13% senior
notes (Senior Notes). The Warrants were not exercisable except upon the
occurrence of certain Trigger Events as defined in the Warrant Agreement or,
if no Trigger Event had occurred prior to May 3, 1998, upon the Company's
failure to consummate a Repurchase Offer due to a Payment Blockage, both as
defined in the Warrant Agreement. No Trigger Event had occurred through May
3, 1998 and a Payment Blockage existed on such date, resulting in the Warrants
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becoming exercisable as of May 3, 1998. Consistent with the Warrant
Agreement, the Company intends to notify holders of the Warrants of the
existence of a Payment Blockage within 30 days of such date. As of the date
of this quarterly report on Form 10-Q, no Warrants have been exercised.
On May 1, 1998, approximately 75 employees of the Company's Klemp
division in Chicago, IL that are represented by the International Association
of Bridge, Structural and Ornamental Iron Workers (Union) went on strike
citing differences over wage increases and other benefits. Such employees had
been working under a collective bargaining agreement which expired on April
30, 1998. As of the date of this quarterly report on Form 10-Q, the Company
and the Union have a tentative contract subject to ratification by a vote of
the Union's membership scheduled for May 19, 1998. The strike is continuing
pending ratification. This strike could adversely affect the results of
operations of the Company's Klemp division. Management has taken actions to
mitigate the effects of this strike, including manufacturing and shipping from
several of the five other locations of the Klemp division to the customers of
the Chicago, IL location.
On April 27, 1998, Reunion announced that on April 24, 1998, a jury in
state district court of Harris County, Texas returned a verdict against
Reunion related to a November 1995 contract for the sale of all outstanding
shares of capital stock of Reunion's wholly owned oil and gas subsidiary to a
third-party oil and gas partnership. The jury found that the partnership had
a right to terminate the November 1995 contract with Reunion and that Reunion
committed fraud against the partnership. The jury recommended an award of
$5.0 million in punitive damages be assessed against Reunion. The court has
not entered judgment on the jury findings and has set the matter for further
hearings, including consideration of attorneys' fees which may be awarded in
addition to the punitive damages. Reunion's management has informed the
Company that it intends to oppose entry of a judgment based on the jury
verdict and, if necessary, to appeal any such judgment. Reunion's management
has informed the Company that it believes, based on consultation with counsel,
that it is more likely than not that any judgment based on a finding of fraud,
any award of attorneys' fees based on a finding of fraud and punitive damages
would be overturned on appeal. Reunion has made no accrual or provision for
the punitive damages or attorneys' fees. The Company's results of operations
and the carrying value of the Company's investment in Reunion common stock on
the equity method of accounting could be adversely affected if Reunion accrues
for this uncertainty.
Possible Merger with Reunion
The Company and Reunion have entered into negotiations regarding the
terms of a possible stock-for-stock merger of the Company with and into
Reunion. Reunion is in the process of negotiating the terms of a commitment
letter from potential lenders to finance the merger, possibly including a
redemption of the Senior Notes, and the ongoing operations of the combined
corporation. Such transaction 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 if the Senior Notes are not concurrently redeemed,
with the covenants in the Company's Indenture, as amended, between the Company
and State Street Bank and Trust Company (Indenture) pursuant to which the
Company's Senior Notes are issued and, if not concurrently refinanced, the
Company's $28.0 million revolving credit facility, as amended (Revolving
Credit Facility), with Congress Financial Corporation (Congress). On May 19,
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1998, Reunion's Board of Directors is scheduled to consider the merger, the
possible financing alternatives and the report of Reunion's investment banker.
On May 20, 1998, the Company's Board of Directors is scheduled to consider the
merger. If such a merger is approved by the Boards of Directors of Reunion
and the Company, requisite approvals are obtained, including approvals of the
stockholders of Reunion and the Company, and other conditions are satisfied,
consummation of the merger and, perhaps, redemption of the Senior Notes, could
occur during the third quarter of 1998. If such a merger is consummated, the
consideration paid to the Company's preferred stockholders of record on the
effective date of the transaction could include notes in lieu of or in
addition to stock. There can be no assurance that this transaction will be
approved or, if approved, consummated.
Prior Period Adjustment
The Company restated its consolidated financial statements at and for the
years ended December 31, 1996 and 1995 in the Company's annual report on Form
10-K for the year ended December 31, 1997 as filed with the Securities and
Exchange Commission on April 15, 1998 to correct errors in the recorded book
value of inventory at one of the Company's significant divisions. In early
1998, the Company's corporate management became aware of an overstatement in
the December 31, 1997 recorded book value of inventory at its Klemp division
in the aggregate amount of $2,239,000. The overstatement came to the
attention of the Company's corporate management as a result of physical counts
made at year end 1997. A review of this difference by corporate management
led to the discovery that quantities and costing standards used to value
inventory at the Klemp division had been overstated in prior periods and that
such overstatements had intentionally not been disclosed to the Company's
corporate management by Klemp division management. Of the $2,239,000,
$158,000 relates to 1997, $338,000 relates to 1996 and $312,000 relates to
1995. The remainder relates to periods prior to 1995. Of the $158,000 which
relates to 1997, $40,000 relates to the first quarter of 1997. The condensed
consolidated statement of income for the three months ended March 31, 1997
presented herein has been restated accordingly.
The Year 2000 (Y2K)
The Company, like most companies, utilizes electronic technology which
includes computer hardware and software systems that process information and
perform calculations that are date- and time-dependent. The Company is aware
that the coming of Y2K poses pervasive and complex problems in that virtually
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
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it transacts business in an effort to identify Y2K non-compliance by such
parties. Initial results indicate that those important parties with which the
Company does business are Y2K conscious and will be substantially compliant by
the end of 1998.
The Company has incurred and expects to continue to incur internal staff
and other costs as a result of modifying existing systems to be Y2K compliant.
Such costs will continue to be expensed as incurred and funded through
internally generated cash while costs to acquire new equipment and software
will be capitalized and depreciated over their useful lives. Management does
not expect the incremental cost to the Company of enterprise-wide Y2K
compliance to be material to its operations but recognizes that the failure of
the Company or any party with which the Company conducts business to be Y2K
compliant in a timely manner could have a material adverse impact on the
operations of the Company.
New Accounting Pronouncement
In February 1998, The FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pensions and other postretirement benefit plans
but does not change the measurement or recognition of those plans. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997. The
Company expects to adopt SFAS No. 132 in 1998. Although this statement will
require the Company to evaluate its current reporting and disclosure
requirements, its adoption is not expected to affect amounts recorded in the
primary consolidated financial statements.
Forward-Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding, among other things, growth strategies and
penetrations of new markets, mergers and joint ventures, financings and/or
refinancings, transactions with affiliates and the effects of Y2K on
electronic technology on which the Company is directly or indirectly
dependent. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks, uncertainties and
restrictions, certain of which are beyond the Company's control. Actual
outcomes could differ from these forward-looking statements as a result of,
among other things, adverse economic conditions, competition, demand for the
Company's and competitors' products, financing and/or refinancing difficulties
and unanticipated Y2K noncompliance effects. In light of these risks,
uncertainties and restrictions, there can be no assurance that actual outcomes
will equal or approximate the forward-looking statements. Furthermore, the
Company undertakes no obligation to publicly update or revise any forward-
looking statement whether as a result of new information, future events or
otherwise.
Results of Operations
Three Months Ended March 31, 1998 Compared to
Three Months Ended March 31, 1997
Net sales for the first quarter of 1998 totalled $43.7 million, compared
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to $42.6 million for the first quarter of 1997. Sales for the first quarter
of 1998 increased $1.1 million, or almost 3%, over the first quarter of 1997.
The increase in sales was primarily at Klemp which, including the
international entities, increased $1.9 million. Sales decreased slightly at
all other significant divisions of the Company except for Alliance, which
remained even with last year's first quarter, and Hanna, which decreased
approximately $0.4 million. The increase in sales at Klemp is reflective of
an improving market trend over the softening in its markets which began in
1996 and continued through much of 1997. The decrease in sales at Hanna was
primarily in its mobile cylinder line, which decreased $0.7 million, while its
industrial cylinder line was up $0.3 million. The decrease in its mobile
cylinder volume was due to a decrease in order levels from one of its
customers, a trend that is expected to continue during 1998. Decreases at the
remaining divisions of the Company were general in nature and not indicative
of adverse trends.
Gross profit for the first quarter of 1998 was $9.1 million, compared to
$8.3 million for the first quarter of 1997. First quarter 1998 gross profit
increased $0.8 million, or 10%. Gross profit margin was 20.8% in the first
quarter of 1998, compared to 19.4% in the comparable 1997 period. Gross
profit during the first quarter of 1998 compared to 1997 improved $0.6 million
at Klemp and $0.3 million at Hanna. Gross profit margin was also up at Klemp
and up substantially at Hanna. Gross profits and gross profit margins at the
other divisions of the Company either increased or decreased slightly,
primarily as the result of increases or decreases in their respective volumes.
The increase in gross profit and margin at Klemp was primarily due to the
efficiency of its higher volume in the first quarter of 1998 compared to 1997.
Although Hanna's overall volume decreased in the first quarter of 1998
compared to 1997, the increase in gross profit and margin at Hanna was
primarily due to the efficiencies of the increased volume in its industrial
cylinder line, which has higher margin products than its mobile cylinder line.
Selling, general and administrative (SGA) expenses for the first quarter
of 1998 were just over $5.8 million, compared to $5.2 million for the first
quarter of 1997. SGA expenses as a percentage of sales increased to 13.3% for
the first quarter of 1998 compared to 12.3% in the first quarter of 1997. The
increase in SGA as a percentage of sales was due to an overall increase in
administrative spending at most divisions due to several management hirings
and increased domestic and international marketing efforts.
Other expense for the first quarter of 1998 was $0.1 million, compared to
$0.2 million for the first quarter of 1997, a net decrease of $0.1 million.
There were no individually significant or offsetting items in either of the
first quarters of 1998 or 1997.
Interest expense, net, for the first quarter of 1998 was $2.4 million,
which was equal to interest expense, net, for the first quarter of 1997. In
general, average borrowing levels and the effective rates on the Company's
debt did not increase in the first quarter of 1998 when compared to the first
quarter of 1997.
Minority interests represent losses during the first quarters of 1998 and
1997 allocated to the minority ownerships of the Company's CFI-Klemp and
Shanghai Klemp joint ventures. Minority interests are calculated based on the
percentage of minority ownership.
There was a tax provision of $0.3 million in the first quarter of 1998,
<PAGE>
<PAGE> 15
compared to $0.1 million in the first quarter of 1997. The increase in the
tax provision for the 1998 first quarter compared to the 1997 first quarter
was primarily due to the increase in pre-tax income and a $0.1 million
reduction in the valuation allowance for deferred tax assets during the first
quarter of 1997.
The equity income of $0.1 million in each of the first quarters of 1998
and 1997 represent the Company's proportionate share of Reunion's results for
each quarter.
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 under the
Revolving Credit Facility or other financing or refinancing arrangements, if
necessary.
Each of the Warrants entitles the holder thereof to purchase one share of
the common stock of the Company at an exercise price of $.01 per share. The
Warrants were issued in a transaction pursuant to which the Company issued $50
million of 13% senior notes (Senior Notes). The Warrants were not exercisable
except upon the occurrence of certain Trigger Events as defined in the Warrant
Agreement or, if no Trigger Event had occurred prior to May 3, 1998, upon the
Company's failure to consummate a Repurchase Offer due to a Payment Blockage,
both as defined in the Warrant Agreement. No Trigger Event had occurred
through May 3, 1998 and a Payment Blockage existed on such date, resulting in
the Warrants becoming exercisable on May 3, 1998. Pursuant to the Warrant
Agreement, the Company intends to notify holders of the Warrants of the
existence of a Payment Blockage within 30 days of such date. As of the date
of this quarterly report on Form 10-Q, no Warrants have been exercised.
Under the Revolving Credit Facility with Congress, the Company is subject
to compliance with various covenants, representations and warranties, all as
defined in the Loan and Security Agreement (Loan Agreement) between Congress
and the Company. The Maximum Credit (as defined in the Loan Agreement) under
the Revolving Credit Facility was temporarily increased to $30.0 million
pursuant to an April 28, 1998 amendment as discussed below. At March 31,
1998, the Company was in compliance with all covenants and there were no
events of default under the Revolving Credit Facility. Borrowings outstanding
under the Revolving Credit Facility at March 31, 1998 totalled $24.3 million.
Borrowings under the Revolving Credit Facility bear interest at an annual
rate of the Philadelphia National Bank Prime Rate plus 1.5%. The facility
also contains an unused line fee of 0.5% and a $5,000 monthly servicing fee. <PAGE>
<PAGE> 16
The Loan Agreement was scheduled to expire on June 30, 1998 but was extended
to August 31, 1998, pursuant to an amendment as discussed below, and is
renewable annually thereafter.
On April 28, 1998, the Revolving Credit Facility was amended to provide a
temporary increase in the Maximum Credit to $30.0 million from $28.0 million
and a temporary $3.0 million overadvance availability. The proceeds from this
$3.0 million overadvance were used for various purposes, including the
Company's May 1, 1998 $3.25 million interest payment on its Senior Notes.
During the temporary increase period, which ends on August 5, 1998, the $3.0
million overadvance is required to be reduced in increments of $1.0 million on
each of June 5, July 6 and August 5, 1998. Additionally, as part of this
amendment, the expiration date of the Loan Agreement was extended to August
31, 1998 and is renewable annually thereafter.
At December 31, 1997, the Company had net operating loss carryforwards
for tax return reporting purposes of approximately $2.2 million, of which $1.0
million expires in 2008 with the remainder of $1.2 million expiring in 2011.
The availability of these carryforwards may be subject to limitations imposed
by the Internal Revenue Code. A U.S. federal corporate income tax return
examination has been completed for the Company's 1995 tax year. The Company
believes adequate provisions for income taxes have been recorded for all
years.
SFAS 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The Company periodically reviews
the adequacy of the valuation allowance as a result of changes in its
profitability and other factors. Based on reviews during 1997, the Company
reduced the valuation allowance by $90,000 in the first quarter of 1997.
Operating Activities
Operating activities provided almost $2.9 million of cash during the
first quarter of 1998, compared to cash provided of $1.5 million in the first
quarter of 1997, an increase of $1.4 million. An increase in income before
depreciation, amortization, minority interests and equity income (loss) of
$0.2 million in the first quarter of 1998 compared to 1997 and an increase of
$2.6 million in cash provided during the first quarter of 1998 compared to
1997 as the result of changes in net working capital (defined as receivables,
inventories and trade payables for cash flow purposes) were partially offset
by a $1.4 million decrease in cash provided by changes in other assets and
liabilities. The decrease of $1.4 million in cash provided by changes in
other assets and liabilities was primarily the result of decrease in current
liabilities at the Company's headquarters.
Investing Activities
Investing activities used $1.5 million of cash during the first quarter
of 1998, compared to cash used of $1.4 million during the first quarter of
1997, an increase in cash used of $0.1 million, all related to an increase in
capital expenditures during the first quarter of 1998 compared to the first
quarter of 1997.
Financing Activities
Financing activities during the first quarter of 1998 used $1.7 million
<PAGE>
<PAGE> 17
in cash, compared to $0.2 million of cash used during the first quarter of
1997, an increase in cash used of $1.5 million. This increase in cash used is
the result of a decrease of $1.8 million in the level of net borrowings under
the Revolving Credit Facility during the first quarter of 1998 compared to an
increase of $0.3 million in the first quarter of 1997, partially offset by a
$0.6 million decrease in repayments of related party indebtedness.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith in accordance
with Item 601 of Regulation S-K:
Exhibit No. Exhibit Description
----------- -------------------
10.6 Collective Bargaining Agreement, dated
December 8, 1997, by and between the
Arrowhead Grating & Metalworks division
of Klemp and Operating Engineers Local
No. 101.
10.12 Long Term Agreement effective August 1,
1997, by and between T. J. Brooks Company
and John Deere Horicon.
27 Financial Data Schedule (electronically
filed report only).
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Date: May 15, 1998 CHATWINS GROUP, INC.
------------ (Registrant)
By: /s/ Joseph C. Lawyer
-------------------------------
Joseph C. Lawyer
President and Chief
Executive Officer
By: /s/ John M. Froehlich
-------------------------------
John M. Froehlich
Vice President, Chief Financial
Officer and Treasurer
(chief financial and accounting officer)
<PAGE>
<PAGE> 18
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
----------- ------------------- --------
10.6 Collective Bargaining Agreement, dated 19
December 8, 1997, by and between the
Arrowhead Grating & Metalworks division
of Klemp and Operating Engineers Local
No. 101.
10.12 Long Term Agreement effective August 1, 37
1997, by and between T. J. Brooks Company
and John Deere Horicon.
27 Financial Data Schedule 38
<PAGE>
<PAGE> 19
COLLECTIVE BARGAINING AGREEMENT
BETWEEN
ARROWHEAD GRATING & METALWORKS
DIV OF KLEMP CORPORATION
AND
OPERATING ENGINEERS LOCAL NO. 101
EFFECTIVE FROM
DECEMBER 8, 1997
THRU
DECEMBER 7, 2001
<PAGE>
<PAGE> 20
TABLE OF CONTENTS
ARTICLE I - RECOGNITION 1
ARTICLE II - MANAGEMENT 3
ARTICLE III - UNION SECURITY 4
ARTICLE IV - WAGES 5
ARTICLE V - SENIORITY 8
ARTICLE VI - HOURS OF WORK 11
ARTICLE VII - HOLIDAYS 13
ARTICLE VIII - VACATIONS 14
ARTICLE IX - JURY DUTY 15
ARTICLE X - SICKNESS ABSENCE ALLOWANCE 16
ARTICLE XI - HEALTH INSURANCE 17
ARTICLE XII - NON DISCRIMINATION 17
ARTICLE XIII - BULLETIN BOARD 18
ARTICLE XIV - PENSION 18
ARTICLE XV - NO STRIKE - NO LOCKOUT 19
ARTICLE XVI - NOTIFICATION 19
ARTICLE XVII - LEAVE OF ABSENCE 19
ARTICLE XVIII - FUNERAL LEAVE 20
ARTICLE XIX - ATTENDANCE & TARDINESS 20
ARTICLE XX - GRIEVANCE AND ARBITRATION PROCEDURE 22
ARTICLE XXI - ON THE JOB INJURY 24
ARTICLE XXII - CREDIT UNION 24
ARTICLE XXIII - SAFETY AND HEALTH 24
ARTICLE XXIV - FEDERAL AND STATE LAW 26
ARTICLE XXV - DISCIPLINARY ACTION 26
ARTICLE XXVI - TERMS OF AGREEMENT 27
<PAGE>
<PAGE> 21
AGREEMENT
This agreement is made and entered into this ____ day of ______________, by
and between ARROWHEAD GRATING & METALWORKS, DIV. OF KLEMP CORP. hereinafter
called the "Company" and INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL NO.
101, hereinafter called the "Union".
ARTICLE I - RECOGNITION
Section 1. The Company recognizes the Union as the sole, exclusive
representative of all full-time and regular part-time production and
maintenance employees including welder/fabricators, welder operators, machine
operators and material handlers employed by the Employer at its 1100 Brown
Street, Liberty, Missouri facility EXCLUDING office clerical employees,
professional employees and guards and supervisors as defined by the Labor-
Management Relations Act of 1947, as amended.
Section 2. The Company agrees to notify the Union of its need for new
employees within the bargaining unit at the time these needs develop. The
Employer agrees to notify the Union on a monthly basis of all new hires and
terminations as they apply to the bargaining unit if any.
Section 3. THE COMPANY AGREES NOT TO HIRE ANY TEMPORARY EMPLOYEES TO DO
BARGAINING UNIT WORK, WHEN ANY REGULAR UNIT MEMBERS ARE ON LAYOFF.
Section 4. The purpose of this agreement is to provide orderly
collective bargaining relations between the Company and the Union, to provide
for peaceful adjustment of any differences which may arise between the
parties, to eliminate interruptions of work and interference with efficient
operation of the Company's business.
Section 5. The Company is obligated to negotiate with the Union on any
substantive change of any present terms or conditions of employment. The
Company agrees not to change any conditions of employment without first
bargaining with the Union.
Section 6. The Company agrees that Business Representatives of the Union
may visit the plant to check on complaints of the employees, with as little
interference to the work as possible, provided that visits are prearranged and
agreed to by the Company. Union meetings shall not be held on the Company's
premises.
Section 7. Shop stewards will have the right to discuss Union-Management
problems with union members during normal business hours so long as such
activities do not interfere with the normal operation and efficiency of the
Company and so long as each discussion is limited to one (1) union steward and
one (1) employee with a duration of no more than five (5) minutes and no more
than two (2) meetings per day per steward. The Company agrees to pay the shop
steward his regular rate of pay for all meetings and discussions with
management, when such discussions occur during the steward's regular working
hours.
Section 8. An employee shall have a union representative present during
any meeting with management in which disciplinary action(s) of the following
nature are going to be implemented.
<PAGE>
<PAGE> 22
A. Tardy and/or attendance related discipline involving either
suspension or termination as outlined in this agreement.
B. Discipline at level four (4) or level five (5) involving
suspension or termination as outlined in the Policy For Administration of
Discipline In The General Company Rules.
ARTICLE II - MANAGEMENT
Section 1. The management of the plant and the direction of the work
force including the planning, direction and control of plant operations; the
scheduling of work and the assignment of employees to such work; the right to
promote; the control and regulation of all equipment and other property of the
Company; to determine the means, methods, processes and schedules of
production; the determination of the products to be handled or manufactured;
to determine the location of the plants; the determination of ability on a
fair and equitable basis; to establish production standards and to maintain
operating efficiencies; the extent to which work required in the Company's
business shall be performed by employees covered by this Agreement; the
establishment and enforcement of reasonable rules of conduct and the right to
maintain discipline and efficiency of all employees on a fair and equitable
basis, are all rights vested with the Company. In addition, the determination
and establishment of any new or improved methods or facilities, the extension,
limitation, curtailment or cessation of operations, are rights vested with the
Company but the Company acknowledges its obligation to notify the Union
regarding any extension, limitation, curtailment or cessation of operations.
It is further agreed that the listing of management prerogatives shall not be
interpreted as excluding other prerogatives not listed, and the Company
retains the right to exercise these and other prerogatives or functions of
management, which is not abridged by specific provision of this Agreement and
subject to the grievance and arbitration provision provided herein.
Section 2. The Company retains the right to hire, suspend, discharge,
discipline for proper cause, transfer and the right to relieve employees from
duty because of lack of work or other legitimate reasons, provided that in the
exercise of these rights the Company will not violate any of the terms of this
Agreement and subject to the grievance and arbitration provision provided
herein.
ARTICLE III - UNION SECURITY
Section 1. All present employees who are members of the Union on the
effective date of this Agreement shall remain members of the Union in good
standing as a condition of employment. All present employees who are not
members of the Union, and all employees who are hired thereafter, shall become
and remain members in good standing of the Union as a condition of employment
on or after the 91st day following the effective date of this Agreement,
whichever is later.
Section 2. The Union agrees that any request for the discharge of an
employee, for failure to comply with this Article, shall be in writing and
shall specify the reason for such request and also the fact that Union
membership was available to such employee on the same terms and conditions
generally available to other members.
Section 3. The Employer agrees, upon receipt of proper written
authorization from the individual employee, to deduct from the pay of the
<PAGE>
<PAGE> 23
employee, on the last payday of each month, the monthly Union dues for the
following month, and to deduct initiation fees of a new employee upon receipt
of written authorization from that employee to do so. These deductions shall
be remitted to the Union on or before the 10th of each month. The Union
agrees to indemnify and hold harmless the Employer, and its successors, from
any and all loss, cost, and liability, damage or expense arising out of the
Employer's compliance with this check-off provision.
ARTICLE IV - WAGES
Section 1. All current employees, effective with this Agreement shall
earn hourly wages, plus applicable premiums, in accordance with the attached
wage table based on classification and tenure.
Section 2. The following adjustments and/or premium apply to the rates
in Section 1.
A. A premium of forty-five cents (.45) per hour for the second
shift and sixty cents (.60) per hour for the third shift shall be paid for
work performed on these respective shifts.
B. A premium of thirty-five cents (.35) per hour shall be paid to
any company designated employee or employees within the bargaining unit who
maintains a chauffeur's license at the Company's request for the purpose of
driving Company vehicles at the Company's discretion.
C. A premium of twenty-five cents (.25) an hour shall be paid to
employees who are qualified by the Company to serve as welder operators at the
Company's discretion. Such employees will be paid full welder operator pay
when they are, in fact, serving in said capacity.
Section 3. The above rates of pay are minimum. The Company, employee
and the Union may negotiate higher wage rates for an individual because of the
employee's skill, attitude, or ability to perform their duties. Any wage
raise negotiated will be replied on within ten (10) calendar days.
Section 4. If, during the term of this agreement new job classifications
are created, the Company may determine the rate of pay for the new
classification for the purpose of implementing the classification but must
notify and negotiate with the Union the rate of pay.
If a higher rate of pay is negotiated then the differential will be
retroactively due to subject employees to the date the new classification and
rate of pay was implemented.
Section 5. In the event an employee is transferred, or assumes the
duties of a higher paid classification for two (2) or more hours in any work
day, he shall receive the rate of the higher classified job for the remainder
of that day.
Section 6. The Company, at its sole discretion, can designate any
employee to serve as a leadman at the Company's convenience. The Company will
pay a premium of seventy-five cents (.75) an hour for the hours worked as a
leadman.
Section 7. The Company will make good faith effort to have paychecks
ready by 1:30 p.m. on the day following the end of the pay period. Second and
third shifts will be allowed to pick up their checks at this time or any time
<PAGE>
<PAGE> 24
thereafter.
Section 8. All pay increases in this Article shall be in effect the day
on which the increase falls.
Section 9. Any employee covered by this Agreement and now receiving more
than the above scale of wages shall not suffer any reduction in said scale of
wages.
Section 10. If any employee changes classifications to a higher rated
job on a permanent basis, he or she shall be positioned on the wage schedule
in the new classification at the first point he or she would receive a wage
increase from the previous classification.
Effective 12/8/97
thru 12/7/98 Start 90 Day 1 Year 2 Year 3 Year
- ----------------- ----- ------ ------ ------ ------
FORGEWELD 8.21 9.94 10.71 11.63 13.32
WELDER/FABRICATOR 7.65 9.34 10.14 11.01 12.74
MACHINE/OPERATOR 6.87 8.08 9.11 10.01 11.75
MATERIAL HANDLER 6.42 7.73 8.66 9.40 11.10
Effective 12/8/98
thru 12/7/99 Start 90 Day 1 Year 2 Year 3 Year
- ----------------- ----- ------ ------ ------ ------
FORGEWELD 8.45 10.23 11.03 11.97 13.71
WELDER/FABRICATOR 7.87 9.62 10.44 11.34 13.12
MACHINE/OPERATOR 7.07 8.32 9.38 10.31 12.10
MATERIAL HANDLER 6.61 7.96 8.91 9.68 11.43
Effective 12/8/99
thru 12/7/2000 Start 90 Day 1 Year 2 Year 3 Year
- ----------------- ----- ------ ------ ------ ------
FORGEWELD 8.70 10.53 11.36 12.32 14.12
WELDER/FABRICATOR 8.10 9.90 10.75 11.68 13.51
MACHINE/OPERATOR 7.28 8.56 9.66 10.61 12.46
MATERIAL HANDLER 6.80 8.19 9.17 9.97 11.77
Effective 12/8/2000
thru 12/7/2001 Start 90 Day 1 Year 2 Year 3 Year
- ------------------- ----- ------ ------ ------ ------
FORGEWELD 8.87 10.74 11.58 12.56 14.40
WELDER/FABRICATOR 8.26 10.09 10.96 11.91 13.78
MACHINE/OPERATOR 7.42 8.73 9.85 10.84 12.70
MATERIAL HANDLER 6.93 8.35 9.35 10.16 12.00
ARTICLE V - SENIORITY
Section 1. For purposes of this Agreement, seniority shall be determined
by the length of continuous time in the bargaining unit.
Section 2. In all matters of employee's selections, seniority shall
prevail at all times. This provision shall not be inconsistent with any of
the express terms of this agreement.
Section 3. Employees shall be in a probationary period for their first
<PAGE>
<PAGE> 25
ninety (90) days of employment, provided that the Company may extend the
probationary period to one hundred twenty (120 days by written notice sent to
the Union between an employee's sixtieth (60th) and ninetieth (90th) day of
employment. Probationary employees may be discharged or disciplined without
recourse to the grievance and arbitration provisions of this Agreement. All
other provisions of the Agreement shall apply during their probationary
period. Once a probationary employee successfully completes the probationary
period, he shall be a regular employee for purposes of Article I, Section 3.
Section 4. When an opening occurs within the bargaining unit of the
employees coming under the jurisdiction of the Union, the Employer will post
the opening for a period of three (3) working days. Any employees within the
bargaining unit desiring to bid on such opening shall write the employee's
name and seniority status on the notice. The union shop steward may sign a
job bid posting for an employee in the bargaining unit while such employee is
on vacation. Within one (1) week thereafter, the opening will be awarded to
the senior employee bidding. When the position opening is one for which there
are not any prerequisite qualifications, the senior employee awarded the bid
will have ten (10) days to establish that he can satisfactorily perform the
available work as determined by the Company. When the position opening is one
for which prerequisite qualifications are mandatory then the employees who bid
will be tested in sequence of seniority and the bid awarded to the senior
employee who qualifies. After the bid is awarded, the qualifying employee
will have thirty (30) days to establish that he can satisfactorily perform the
available work as determined by the Company. Once a bid has been awarded to
the senior (qualifying) employee that employee shall be paid that
classification of pay no later than one week, five (5) working days, from the
date the bid was awarded.
Section 5. During the thirty (30) day period immediately following the
awarding of the bid, both the Employer and the employee have the option of
voiding the bid, at which time the job will be re-posted as provided for in
this Article. During the training period (30 calendar days) no discipline
shall be assessed for performance or production standards.
Section 6. Any reduction in the work force or recall from lay-off shall
be in accordance with seniority, subject to the senior employee being able to
perform the available work satisfactorily as determined by the Company.
Section 7. Any regular employee covered by this Agreement who has been
laid off shall maintain recall rights by seniority for a period of twelve (12)
months.
Section 8. Continuous service and seniority shall be broken and
employment relationship terminated when an employee:
1. Quits.
2. Is discharged for just cause.
3. Fails to report for work without good and sufficient cause after
a lay-off within seven (7) days after being notified to return by certified
letter to his last known address.
4. Is off work due to a lay-off because of lack of work in excess
of twelve (12) months.
5. Fails to return to work on schedule following a vacation or
authorized leave of absence without good and sufficient cause.
6. If, for any reason, is absent from work for a period of two (2)
consecutive working days without notifying the Employer where it would have
<PAGE>
<PAGE> 26
been possible to give such notice.
7. Retirement.
Section 9. An up-to-date seniority list will be kept posted in the
plant. Any employee appearing on revised lists, who did not appear on the
previous list, must file objections within two (2) weeks after the lists have
been posted.
Section 10. Employees must keep the Company advised of their current
mailing addresses and phone numbers, and changes thereof must be given to the
Company, in writing, and the Company shall be entitled to rely upon the
addresses and phone numbers shown on its records.
Section 11. Inability to work because of proven illness or injury shall
not result in the loss of seniority rights for a period of one (1) year for
off-the-job injury or sickness (after expiration of vacation time), and two
(2) years in event of compensable injury (after expiration of vacation time).
The employee shall be required at not more than 3-month intervals to provide
proof of his inability to work as a result of the injury or illness.
Section 12. Supervisory employees shall have no seniority in the
bargaining unit unless they are promoted from the bargaining unit; in this
event, their seniority shall expire after sixty (60) days in a supervisory
capacity.
ARTICLE VI - HOURS OF WORK
Section 1. Eight (8) hours shall constitute a work day. Forty (40)
hours shall constitute one week's work. Five (5) consecutive days of Monday
through Friday shall constitute a normal work week.
Section 2. Only hours worked, or paid, count toward the forty hour
total. Any time worked in excess of forty (40) hours in any work week shall
be paid at the rate of time and one-half (1-1/2), with the exception of paid
sick leave days themselves or time worked in excess of forty (40) hours when
the forty (40) hours includes paid sick leave time. In these instances, the
time in excess of forty (40) hours will be paid at straight time rates.
Section 3. Any employee who is scheduled to work and reports for work
will receive a minimum of four (4) hours reporting pay at the applicable rate
of pay except in cases of emergency, such as major breakdown, power failures,
acts of God.
Section 4. Any work performed in excess of fifty-two (52) hours in any
work week shall be paid at the rate of double time (2). Only hours actually
worked or paid as defined in Section Two (2) of this article count toward the
fifty-two (52) hour total.
Section 5. Any work performed on Sunday will be paid at the rate of
double time (2).
Section 6. Regular shifts shall be established and it shall be a
violation of this Agreement to change shifts in order to avoid payment of
overtime. Third shift will start prior to Monday A.M. first shift.
Section 7. In the event that it becomes necessary to implement new
shifts, the Company must post the new shift requirements for three (3) days,
<PAGE>
<PAGE> 27
and men may protect themselves with their seniority and qualifications.
Section 8. Notice for any complete shift mandatory overtime will be
given by the end of shifts on Thursday or by the end of the third (3rd) shift
on Wednesday if such shift exists. Overtime and/or premium pay will not be
pyramided. Where work performed is within two (2) or more overtime and/or
premium pay classifications, only the highest single overtime or premium rate
will be paid for such work.
Section 9. In the event any employee(s) are directed with less than
seventy-two (72) hours notice to return to work a third (3rd) shift after
having worked the preceding first (1st) shift they will be paid at the rate of
double (2) time for the third (3rd) shift. This double (2) time pay allowance
is not applicable to employee(s) working a second (2nd) shift and being
required to return to work the first (1st) shift of the next work day.
ARTICLE VII - HOLIDAYS
Section 1. The following holidays shall be allowed with eight (8) hours
pay for all employees: New Year's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, the Day after Thanksgiving Day,
Christmas Eve Day, Christmas Day, and New Year's Eve Day. All holiday pay
shall include shift differential.
Section 2. Any employee who works on any of the above-mentioned holidays
shall receive time and one-half (1-1/2) his regular hourly rate plus any
applicable shift differential for all hours worked on that holiday, in
addition to his eight (8) hours holiday pay.
Section 3. To be eligible for the Holiday pay, an employee must work
their scheduled day before and after the holiday unless either or both are
vacation days. Probationary employees are eligible for holiday pay after
thirty (30) calendar days of employment.
Section 4. Employees who are less than ten (10) minutes tardy at the
commencement of either the preceding or succeeding shift but who otherwise
work all of both shifts will retain their entitlement to full holiday pay.
Employees who miss more than ten (10) minutes but less than two (2) hours of
either the preceding of succeeding shift will retain entitlement to Holiday
pay but such pay will be reduced by the equivalent amount of work missed.
Employees who are more than two (2) hours late will be considered absent and
not eligible for Holiday pay.
Section 5. If a holiday falls on an employee's first day off, the day
preceding the holiday will be observed as the holiday; in the case of the
second day off, the day following the holiday will be observed as the holiday.
ARTICLE VIII - VACATIONS
Section 1. Employees shall receive vacation in accordance with the
following schedule subject to the total number of hours actually worked
during the year:
After one (1) years' employment - five (5) days paid vacation each year.
After two (2) years' employment - ten (10) days paid vacation each year.
After eight (8) years' employment - fifteen (15) days paid vacation.
<PAGE>
<PAGE> 28
Section 2. For employees working less than a full year due to leave of
absence, layoff or other legitimate circumstances vacation shall be awarded as
follows:
Hours Worked Five Day Category Ten Day Category Fifteen Day Category
- ------------ ----------------- ---------------- --------------------
350 1 2 3
700 2 4 6
1050 3 6 9
1400 4 8 12
1750 5 10 15
Section 3. All vacation pay shall be based on a forty (40) hour week at
the regularly scheduled rate of pay plus any applicable premiums. Vacation
pay will be paid by separate check per pay period when a completed work week
is involved. Vacation pay will be paid prior to vacation, at employee's
option, where a full week is involved. When an employee takes a partial week
as vacation, if it is requested before the end of the preceding week, his
check will be available at the end of his last day worked.
Section 4. Upon separation, employees with more than one year of
employment will receive pro-rated vacation for any earned vacation due unless
the separation is discharge for just cause, or the employee failed to give two
weeks' notice for voluntary termination.
Section 5. The number of employees to be allowed off on vacation at any
one time shall be determined by the Company. Selection of individual
vacations periods shall be based upon seniority and convenience of plant
operations and shift bidding. All shift bidding will be completed by February
15 and approved by March 15 and will not be subject to cancellation.
Section 6. Employees who have earned vacation time can take one week's
vacation: i.e., five (5) work days, in one or more full day increments. An
employee who is entitled to one (1), two (2), or three (3) weeks' vacation
shall be permitted to take the same in one period if he so desires.
Section 7. Employees eligible for two (2) or three (3) weeks vacation
may, at their discretion, choose to be paid for up to one (1) weeks worth of
said vacation at the end of their vacation year. Unused or unpaid vacation
time cannot be carried forward into the next vacation year.
ARTICLE IX - JURY DUTY
Section 1. Any employee who loses time from work because of service on a
jury shall, upon presentation of a statement signed by an officer of the court
involved, signifying the time he so served on a jury, be paid his regular
straight-time rate of pay plus shift differential for the regular hours served
on jury duty, less the amount of jury pay received, it being understood the
employee will report to work immediately after being relieved from jury
service, if at least three (3) hours remain on the shift, so as to complete
the hours of work remaining within this working schedule. An employee who
works on the second shift and who, immediately prior to the start of his
shift, serves more than five (5) hours on jury duty shall not be required to
report for work that day. An employee working the third shift shall not be
required to work the shift immediately preceding jury duty, (eight (8) hours).
<PAGE>
<PAGE> 29
ARTICLE X - SICKNESS ABSENCE ALLOWANCE
Section 1. Employees will be paid during absence on account of sickness
or injury on the following basis: After the 90 day probationary period and
through one (1) year of employment the employee is entitled to one (1) day of
sick leave. The second and third year of employment the employee is entitled
to two (2) days of sick leave per year. The fourth and fifth year of
employment the employee is entitled to three (3) days sick leave per year.
After the fifth year of employment the employee is entitled to five (5) days
sick leave per year. Sick leave will accumulate up to a maximum of fifteen
(15) days.
Section 2. The sixth (6th) through fifteenth (15th) days of accumulated
paid sick days cannot be used in one day increments but are to be used in the
event of catastrophic illness or injury. Illness or injury absence for days
six (6) through fifteen (15) must be excused for five (5) days or more.
Section 3. Paid sick leave shall commence on the first (1st) day of
illness or injury. Proper notification must be given as described in Article
XIX of this agreement. A proper doctor's certificate will be required as
defined in Section 4 of this Article for the 2nd day of paid sick leave and
all remaining eligible sick days. The doctor's certificate must be presented
on the first (1st) day of the employee's return to work for sick days two (2)
through fifteen (15), otherwise the absence will not be considered an excused
(paid) sick leave day and the provisions of Article XIX will apply.
Section 4. Proper doctor's certificate shall mean a certificate signed
by a Physician or an authorized representative that specifically states that
subject employee was unable to work because of medical reasons on the specific
date(s) that the subject employee was absent. A doctor is defined as being
any professional who is licensed for the purpose of servicing the physical and
mental health of human beings.
Section 5. This article does not apply to work related injuries covered
by Workmen's Compensation laws.
Section 6. Individually accumulated paid sick days under the preceding
agreement will be transferred on a one to one basis using the individual
account balances on the date that this agreement becomes effective.
Additional days of paid sick leave earned on employee anniversary dates
following the effective date of this agreement will be per this agreement.
Section 7. If an employee accumulates all fifteen (15) paid sick days he
may choose to sell five (5) of those sick days back to the company at one
third (1/3) of the employee's sick pay wages.
ARTICLE XI - HEALTH INSURANCE
Section 1. Employee contributions will be required for health, vision
and dental insurance. The following rates are effective through December 7,
1999.
Single $ 7.30 per week
Family $20.80 per week
In the 3rd and 4th years of this agreement, the Company may increase the above
rates a maximum of five percent (5%) each year.
<PAGE>
<PAGE> 30
Section 2. Effective December 8, 1997, the Company vision plan shall be
in effect. Employee contributions are required in the amount of $1.11 per
month for each person the employee designates will be covered by the plan.
Section 3. The Company shall provide a $20,000 life insurance policy for
each employee. All premium costs shall be paid by the Company.
ARTICLE XII - NON DISCRIMINATION
Section 1. It is agreed that no employee or applicant for employment
shall be discriminated against by the Company or the Union because of race,
color, religion, sex, age or national origin, or by the Company because of
Union activities, provided this provision shall not preclude the Company from
taking disciplinary action against an employee engaged in Union activity where
such Union activity is in violation of this agreement.
Section 2. Where a noun or pronoun in this Agreement refers to gender,
it will be construed to mean either gender.
ARTICLE XIII - BULLETIN BOARD
Section 1. The Company agrees to provide an adequate bulletin board for
the use of the Union and shall permit the posting thereon of official Union
bulletins pertaining to the regular business of the Union, after prior
approval by the Company.
Section 2. The Union shall notify the Company of its employee
representative who will be authorized to post Union bulletins. Other
employees will not be authorized to post bulletins. Expired or outdated
bulletins are to be removed in a timely manner.
Section 3. The Company agrees to the posting of a copy of this Agreement
on the bulletin board space provided.
ARTICLE XIV - PENSION
Section 1. The Company agrees to implement payments to its selected
pension plan beginning with the first workday of this agreement, at the rate
of forty one cents (.41) per hour for each hour paid for or worked by all
eligible employees. Eligible employees to include those employees under
twenty-one years (21) of age. Payments will be made for each calendar quarter
for the term of this Agreement. The Company and Union agree that the Company
will develop and implement a new 401(k) plan as soon as practical. When the
401(k) plan is effective, the current plan will be discontinued, employee
accounts shall be rolled-over into the 401(k) plan and the Company shall
thereafter make the forty-one cent ($0.41) per hour contribution to the 401(k)
plan in accordance with its terms.
ARTICLE XV - NO STRIKE - NO LOCKOUT
Section 1. During the life of this Agreement there shall be no strikes
on the part of the Union or any lockouts on the part of the Company.
ARTICLE XVI - NOTIFICATION
Section 1. In the event of the lay-off of a regular employee covered by
this Agreement the Company shall give such employee as much notice as
<PAGE>
<PAGE> 31
practical up to a minimum of two (2) full workdays.
ARTICLE XVII - LEAVE OF ABSENCE
Section 1. With the mutual agreement of the Union and the Employer, for
sound and valid reasons, including but not limited to illness or military
service, a leave of absence may be granted to any employee with ninety (90)
days or more of service. Extensions, if requested may be granted with the
mutual agreement of the Union and the Employer.
Section 2. Any employee returned from a leave of absence shall be
reinstated in his job classification with no loss in seniority rights except
that vacation and pay category benefits will not accrue during the leave of
absence period except that employees on leave of absence due to work related
medical reasons will maintain all seniority rights including accrual of
vacation and pay category benefits.
Section 3. Leaves of absence will be canceled if such employees take
another job except with mutual agreement of the partes.
Section 4. All employees requests for leaves of absence must be
submitted in writing. These requests must reflect the purpose of the
requested leave and the expected time frame of the requested leave. Request
for medical leaves of absence must be accompanied by a proper doctor's
certificate as defined in Article X, Section 4.
ARTICLE XVIII - FUNERAL LEAVE
Section 1. Should a death occur in the immediate family a regular, full
time employee, upon request, shall be granted a paid leave of absence of two
consecutive days to attend the funeral. Immediate family members which would
entitle employees to paid leave are defined as follows: current employee's
spouse, employee's full blood relative; mother, father, sisters, brothers,
sons, daughters, and grandparents. Further the employee shall be granted an
unpaid leave of absence of two consecutive days to attend the funeral of the
following family members: employee's current spouses mother, father, sisters,
brothers, sons and daughters.
Section 2. Employees are required to give the employer advance
notification to be eligible for funeral leave. Additional unpaid excused days
off may be granted at the sole discretion of the Company, upon request.
Section 3. Probationary employees are eligible for Funeral leave as
outlined in Section 1 of this article after 30 calendar days of employment.
ARTICLE XIX - ATTENDANCE & TARDINESS
The following program will apply to each employee from the effective date
of this agreement.
Section 1. For the purpose of this article an absence is failure to
report to work for a scheduled work shift later than two (2) hours after the
scheduled start of the shift or the leaving from a scheduled work shift except
in the following instances:
* Jury Duty
* Company Approved Education/Training
<PAGE>
<PAGE> 32
* Military Leave
* Leave of Absence
* Work related illness/injury
* Vacation
* Holiday
* When agreed to by the Company & Employee
Sickness when a proper Doctor's certificate is presented to the Company,
and the employee has available paid sick days as outlined in Article X of this
agreement.
All other absences will be classified as unexcused and administered as
outlined in Item B of Section 1.
A. Notification: Employees must notify their supervisor as soon as
they know they will be absent from work, but not later than the start of the
shift. Notification of absence after the start of the shift is improper
notification and is counted as two (2) incidents of absence. If the absence
will be for more than one (1) work shift, then daily notification is required
unless it is physically impossible for the employee to give such notice or he
is admitted to a hospital. Proper notification does not excuse the absence.
B. The following disciplinary procedure will be applied to measure
each employee from the effective date of this agreement on a twelve (12) month
basis.
No. of Incidents Action
- ---------------- --------------------------------------
3 Written Warning
4 Three (3) Day Suspension (Without pay)
5 Five (5) Day Suspension (Without pay)
6 Termination
Section 2. For the purpose of this article tardiness is timing in one or
more minutes late up to a maximum of two (2) hours late. Lateness of over two
(2) hours will be counted as absence.
A. Notification: Employees must notify their supervisor as soon as
they know they will be tardy but no later than 30 minutes after the start of
their shift. Failure to properly notify an employee's supervisor will be
counted as two (2) incidents of tardiness. Proper notification does not
excuse the tardiness.
B. Tardiness procedure for disciplinary action follows:
No. of Incidents Action
- ---------------- --------------------------------------
3 Written Warning
4 Three (3) Day Suspension (Without pay)
5 Five (5) Day Suspension (Without pay)
6 Termination
Section 3. Effective with this agreement, each employee's disciplinary
status level will continue per contract.
Section 4. Employees are eligible to earn an additional paid vacation
day at any time they have had perfect attendance for a continuous four (4)
<PAGE>
<PAGE> 33
month period. Perfect attendance is defined as no absences or tardies during
the period except for authorized holiday and vacation days. Four (4) months
is defined as 122 continuous calendar days. This additional vacation day will
be administered the same as regular vacation days as defined in Article VIII.
There is no limit to the number of extra vacation days that an employee may
earn.
ARTICLE XX - GRIEVANCE AND ARBITRATION PROCEDURE
Section 1. Only grievances or disputes relating to the interpretation of
provisions of this contract are subject to the following grievance procedure:
A. The employee or the steward shall present the grievance to the
employee's immediate supervisor within five (5) working days after the
grievance has first arisen.
B. If the grievance is not thus adjusted, then the grievance shall
be reduced to writing and presented to the Employer or its representatives for
adjustment through the steward or through any authorized Union representative
within ten (10) working days after the grievance has first arisen.
C. If the matter is not settled within fifteen (15) working days
after the grievance is presented in writing as provided in (B) above, the
dispute or grievance shall be referred to arbitration. The arbitrator shall
be selected by agreement of the parties. In the event of inability to agree,
the selection of an arbitrator shall be made from a list of names furnished at
the request of either party to the Federal Mediation and Conciliation Service.
The arbitrator shall have no power to add to, or subtract from or modify any
of the terms of this Agreement. Expenses of the arbitrator shall be borne
equally by both parties. A valid decision of the arbitrator shall be borne
equally by both parties.
D. The time specified in this section shall be of the essence and
failure to take action as required within the time specified herein shall
result in the grievance being dropped and not subject to arbitration, unless
the time periods are waived by mutual agreement.
E. In case of question on the part of the Union Representative as
to the advisability whether to press for arbitration, the grievance shall be
taken before the Executive Board of the Local Union and they shall have final
authority in respect to any aggrieved employee covered by this Agreement, to
decline to process a grievance, complaint, difficulty or dispute further if,
in the judgment of the Executive Board such grievance or dispute lacks merit
or justified under the terms of this Agreement, to the satisfaction of the
Union Executive Board.
ARTICLE XXI - ON THE JOB INJURY
Section 1. When an employee is injured on the job and is required to
leave the plant to receive medical attention from a doctor or a nurse, the
employee will be paid a minimum of four (4) hours pay for that day. The
employee will be paid eight (8) hours pay for that day if his total time,
including the time to receive medical attention, exceeds four (4) hours.
Section 2. Section 1 is in effect provided the employee is directed not
to return to work that day by a qualified doctor or nurse. The employee is
required to secure a written report from the doctor or nurse concerning his
<PAGE>
<PAGE> 34
status. This report shall also record the time that medical treatment was
completed.
ARTICLE XXII - CREDIT UNION
Section 1. The Company agrees to make payroll deductions for the IUOE
Credit Union, upon proper authorization by the employee. Deductions must be
on a standard weekly amount basis. The Company will forward withheld funds to
the Credit Union on a weekly basis.
ARTICLE XXIII - SAFETY AND HEALTH
Section 1. Both the Company and the Union subscribe to and fully support
the purposes and principles of the William-Steiger Occupational Safety and
Health Act of 1970. The Union agrees to support the Employer in the
enforcement of health and safety rules.
Section 2. The joint Company-Union Safety Committee will be co-chaired
by the plant manager and a member of the bargaining unit, chosen by the
membership. This committee will meet on the last Wednesday of each month for
the purpose of reviewing accidents and arriving at suggestions for accident
prevention. The committee shall then submit to the Company a written report
showing the recommendations of the Committee, together with a place to
designate acceptance, rejection or an alternative proposal. The committee can
also develop suggestions for additions and/or modifications to existing
Company Plant Safety Rules.
Section 3. The joint safety committee provided herein is empowered only
to recommend minimum safety rules and standards. In accordance with the
requirements of OSHA, the Company has exclusive responsibility to insure the
safety of its employees and their compliance with such safety rules and
standards.
Section 4. The Company will schedule up to twelve (12) meetings per
calendar year with a minimum of six (6) meetings. These meetings will be held
at the Company's convenience.
Section 5. Employees are responsible for compliance with Company safety
rules to include rules regarding the use of protective clothing and equipment.
Cost responsibility for protective clothing and equipment will be as follows:
ITEM INITIAL RESPONSIBILITY REPLACEMENT RESPONSIBILITY
- ------------------ ---------------------------- ----------------------------
Welding Hoods Employee Employee
Cutting Goggles Company Company (FWT)
Welding Lenses Company Company (FWT)
Safety Shoes/Boots Employee, with Company Employee with same allowance
allowance for metatarsal (FWT) but no sooner than
boots of 50% of cost when six (6) months
purchased from Company
supplier with a limit of
$45.00 if purchased elsewhere.
<PAGE>
<PAGE> 35
Safety Glasses Company, including Company (FWT) but no sooner
prescription type. Employee than three (3) mo on welder
responsible for prescription or six (6) on non-welders.
Hearing Protection Company Company (FWT)
Work Gloves* Employee Employee
Protective Masks Company Company
General Clothing Employee Employee
* Under any circumstance, when employees are working with a band saw,
pickled or oiled metal, the Company shall provide work gloves.
Section 6. FWT (Fair Wear and Tear) requires the employee to turn in the
"old" item in order to receive a replacement. Further, items that are still
usable will not be replaced. The Company will not replace items whenever the
employee has been found to be negligent. In cases of negligence replacements
will be at the employee's expense.
ARTICLE XXIV - FEDERAL AND STATE LAW
Section 1. Any provision of this Agreement which is or which should
become illegal or invalid by virtue of a final judgment of any court of
competent jurisdiction, or by enactment of state or federal stature, shall
thereupon become inoperative, and the remaining provisions of this Agreement
shall continue in full force and effect, and the parties shall thereupon
negotiate substitute provisions which are in conformity with applicable laws.
ARTICLE XXV - DISCIPLINARY ACTION
Section 1. All disciplinary action, excluding tardiness and attendance,
to be issued within ten (10) working days of this offense.
Section 2. The Company agrees to treat time clock violations, as defined
in the Company rules, separately from other rules violations for disciplinary
purposes. The following procedures will be applied to measure each employee's
discipline on the basis of each employee's own employment year.
Level Discipline
----- ----------------------
1 Verbal Warning
2 First Written Warning
3 Second Written Warning
4 Five Day Suspension
5 Termination
ARTICLE XXVI - TERMS OF AGREEMENT
Section 1. This Agreement shall remain in force and effect from December
8, 1997 through December 7, 2001, and shall continue in full force and effect
from year to year thereafter unless written notice of desire to change is
given by either the Union or Company within sixty (60) days prior to December
7, 2001 of any calendar year.
<PAGE>
<PAGE> 36
Entered into this _______ day of __________________, 1998.
Liberty, Missouri
ARROWHEAD GRATING & METALWORKS INTERNATIONAL UNION OF OPERATING
DIV OF KLEMP CORPORATION ENGINEERS, LOCAL NO. 101
By: ______________________________ By: ______________________________
By: ______________________________ By: ______________________________
<PAGE>
<PAGE> 37
LONG TERM AGREEMENT
T.J. Brooks Company &
John Deere Horicon
The intent of this AGREEMENT is to provide long-term price and sourcing
stability between the T.J. Brooks Company (Brooks) & John Deere Horicon
(Deere). This agreement will provide Brooks with guaranteed requirements and
at the same time provide Deere with price stability. THE TERM OF THIS
AGREEMENT is a (3) three year period commencing 1 August 1997. The following
terms and conditions are agreed upon by both parties:
Deere pricing to remain frozen during the term of this agreement, with the
exception of the following conditions:
Deere specified changes to product design requiring re-pricing. Prices may
decrease or increase depending on the specific changes required.
Changes in the scope of supply. Value added or reductions in the scope of
supply will require a re-pricing. Prices may increase for value added and
decrease for value reduction.
Deere will continue to sole source all hydraulic cylinders ( and some related
components) as shown in the Deere build schedule, from Brooks. This volume
may fluctuate over the term of this agreement, but will always represent all
of the Deere requirements.
Brooks to implement process improvements (see attached project schedule).
On or about 8/1/99 capital improvements implemented since the beginning of
this agreement (8/1/97) will be evaluated for financial impact. The
evaluation date is intended to occur approximately (1) one year after the
project implementation conclusion as outlines in the attached project
schedule. Evaluation includes determination of Net Project Savings resulting
from project implementation. Net Project Savings = Gross Project Savings -
(All Project Costs + Increased Cost Inputs). Project Costs include equipment,
implementation costs, and Brook's required return on investment. Increased
Cost Inputs include increases in labor costs, material costs and other inputs
since 8/1/97. If Net Project Savings is positive, 50% of Net Project Savings
will be shared with Deere solely in the form of a piece part price reduction
commencing 8/1/00, with product volumes based on the then current Deere build
schedule.
Signed:
T.J. Brooks Company_______________________________
John Deere Horicon_______________________________
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's financial statements included in the Form 10-Q for the period-end
indicated below and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 379
<SECURITIES> 0
<RECEIVABLES> 32,784
<ALLOWANCES> 639
<INVENTORY> 20,444
<CURRENT-ASSETS> 58,256
<PP&E> 55,998
<DEPRECIATION> 24,034
<TOTAL-ASSETS> 113,538
<CURRENT-LIABILITIES> 31,433<F1>
<BONDS> 49,906
0
8,140
<COMMON> 3
<OTHER-SE> (7,370)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 113,538
<SALES> 43,747
<TOTAL-REVENUES> 43,747
<CGS> 34,652
<TOTAL-COSTS> 34,652
<OTHER-EXPENSES> 5,904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,437
<INCOME-PRETAX> 756
<INCOME-TAX> 307
<INCOME-CONTINUING> 449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 511
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.36
<FN>
<F1>Excludes revolving credit facility borrowings of $24,290 at 3/31/98.
<F2>Includes charges to retained earnings of $14.1 million for redemption
value of and dividend accretions on preferred stock.
</FN>
</TABLE>
