<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q/A
(AMENDMENT NO. 1)
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
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
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(412) 885-5501
----------------------------------------------------
(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 June 30, 1999, 289,787 shares of common stock, par value $.01 per share,
were outstanding.
Exhibit index is on page 27.
Page 1 of 35 pages.
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<PAGE> 2
CHATWINS GROUP, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at
June 30, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Income and
Comprehensive Income for the three and six
months ended June 30, 1999 and 1998 5
Condensed Consolidated Statement of Cash Flows for
the six months ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 25
(b) Reports on Form 8-K 25
SIGNATURES 26
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This report contains or incorporates by reference certain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act which are intended to be covered by the safe harbors
created thereby. Those statements include, but may not be limited to, the
discussions of the Company's expectations concerning growth strategies and
penetrations of new markets, mergers and joint ventures, financings and/or
refinancings, asset sales, transactions with affiliates, the effects of the
year 2000 (Y2K) on electronic technology on which the Company is directly or
indirectly dependent and assumptions regarding certain matters. Also, when
the words "believes," "expects," "anticipates," "intends," "estimates,"
"plans," or similar terms or expressions are used in this report, forward-
looking statements are being made. Note that all forward-looking statements
involve risks and uncertainties, including, without limitation, factors which
could cause the future results and shareholder values to differ materially
from those expressed in the forward-looking statements. Although the Company
believes that the assumptions underlying the forward-looking statements
contained in this report are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurances that the forward-looking
statements included or incorporated by reference in this report will prove to
be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included or incorporated by reference herein, the
inclusion of such information should not be regarded as a representation by
the Company or any other person that the Company's objectives and plans will
be achieved. In addition, the Company does not intend to, and is not
obligated to, update these forward-looking statements after filing and
distribution of this report, even if new information, future events or other
circumstances have made them incorrect or misleading as of any future date.
<PAGE> 3
The Registrant hereby amends the following items of its Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 to reclassify the $1.7 million
gain on sale of the property of the former Chicago manufacturing location of
its Klemp division to discontinued operations and to reclassify its equity
results from continuing operations of affiliate from below continuing
operations, net of tax effect, to a component of results from continuing
operations.
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27
<PAGE> 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHATWINS GROUP, INC.
CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1999 AND DECEMBER 31, 1998
(in thousands)
At June 30, At December 31,
1999 1998
----------- --------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 81 $ 213
Receivables, net 24,951 29,696
Inventories, net 13,300 14,506
Other current assets 3,540 3,816
Net assets of discontinued operations 22,699 23,560
-------- --------
Total current assets 64,571 71,791
Property, plant and equipment, net 17,744 18,590
Investments, net 6,500 6,707
Due from related parties 2,303 1,403
Goodwill, net 3,473 3,575
Other assets, net 5,595 6,430
-------- --------
Total assets $100,186 $108,496
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving Credit Facility $ 31,213 $ 34,005
Current maturities of debt 25,016 25,010
Trade payables 9,685 14,151
Other current liabilities 7,583 8,838
-------- --------
Total current liabilities 73,497 82,004
Senior notes due 2003, net 24,943 24,962
Other long-term debt 48 95
Other liabilities 1,415 1,533
-------- --------
Total liabilities 99,903 108,594
Commitments and contingent liabilities - -
Redeemable preferred stock 8,710 8,482
Warrant value 14 14
Stockholders' equity (8,441) (8,594)
-------- --------
Total liabilities and stockholders' equity $100,186 $108,496
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands, except share and per share information)(unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
Net sales $27,997 $33,203 $61,667 $63,004
Cost of sales 23,546 26,327 50,866 50,018
------- ------- ------- -------
Gross profit 4,451 6,876 10,801 12,986
Selling, general & administrative 3,494 3,737 6,763 7,378
Other (income) expense, net 157 (53) 310 126
------- ------- ------- -------
Operating profit 2,481 3,192 3,728 5,482
Interest expense, net 1,771 1,803 3,588 3,604
Equity loss from continuing
operations of affiliate 575 3,545 67 3,441
------- ------- ------- -------
Income (loss) from continuing
operations before income taxes (396) (2,156) 73 (1,563)
Provision for (benefit from)
income taxes (192) (879) 32 (641)
------- ------- ------- -------
Income (loss) from continuing
operations (204) (1,279) 41 (922)
------- ------- ------- -------
Equity income (loss) from discontinued
operations of affiliate, net of tax (93) (274) (93) (274)
Income (loss) from discontinued
operations, net of tax 930 (329) 609 (173)
------- ------- ------- -------
Income (loss) from discontinued
operations 837 (603) 516 (447)
------- ------- ------- -------
Cumulative effect from change in
accounting principle, net of tax - - (176) -
------- ------- ------- -------
Net and comprehensive
income (loss) $ 633 $(1,880) $ 381 $(1,369)
======= ======= ======= =======
Earnings applicable to common stock $ 519 $(1,994) $ 153 $(1,597)
======= ======= ======= =======
Earnings per share - basic and diluted:
Continuing operations $ (1.10) $ (5.72) $ (0.65) $ 4.73
Discontinued operations 2.98 (2.48) 1.78 (1.85)
Change in accounting principle - - (0.60) -
------- ------- ------- -------
Basic earnings (loss) per share $ 1.79 $ (8.20) $ 0.53 $ (6.58)
======= ======= ======= =======
Average shares outstanding 289,774 242,887 289,726 242,887
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
CHATWINS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands)
(unaudited)
Six Months Ended
June 30,
1999 1998
------- -------
Cash provided by (used in) operating activities $ (38) $ 277
------- -------
Cash flow from investing activities:
Proceeds from sale of property 4,563 -
Capital expenditures (1,771) (2,468)
Investment in joint venture - (100)
------- -------
Cash provided by (used) in investing activities 2,792 (2,568)
------- -------
Cash flow from financing activities:
Repayments of debt (48) (48)
Net change in revolving credit facilities (2,792) 1,714
Increase in consolidated subsidiary indebtedness (94) 101
------- -------
Cash provided by (used in) financing activities (2,844) 1,767
------- -------
Net decrease in cash and cash equivalents (90) (524)
Change in cash of discontinued operations (42) 34
Cash and cash equivalents, beginning of year 213 630
------- -------
Cash and cash equivalents, end of period $ 81 $ 140
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
CHATWINS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal recurring
adjustments considered necessary for a fair statement of the results of
operations have been included. The results of operations for the three and
six month periods ended June 30, 1999 are not necessarily indicative of the
results of operations for the full year. 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, 1998.
Effective January 1, 1999, the Company adopted the AICPA's Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities." Such adoption
is reported as the cumulative effect of a change in accounting principle and
resulted in the write-off of $176,000 of start-up costs, net of taxes of
$91,000. Such start-up costs primarily related to the Company's international
subsidiaries.
NOTE 2: DISCONTINUED OPERATIONS
During the second quarter of 1999, the Company's management adopted a
plan to exit the grating manufacturing business through the disposition of
substantially all the business and assets of the Company's Klemp division
(Discontinued Klemp). Upon adoption of the plan, the Company classified and
began accounting for Discontinued Klemp, including its international grating
subsidiaries, as discontinued operations in accordance with Accounting
Principles Board Opinion No. 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"
(APB 30), which requires discontinued operations to be reported separately
from continuing operations.
On May 28, 1999, the Company entered into a non-binding letter of intent
(LOI) with Alabama Metal Industries Corporation (AMICO), which was
subsequently amended on July 12, 1999, for the sale of substantially all of
the business and assets of Discontinued Klemp, excluding the Company's
investment in the Chinese grating joint venture, for $32.6 million in cash and
the assumption by AMICO of certain operating liabilities.
<PAGE> 8
The assets, liabilities and equity accounts of Discontinued Klemp have
been separately classified on the balance sheet as net assets of discontinued
operations. A summary of these assets, liabilities and equity accounts
follows (in thousands):
At June 30, At December 31,
1999 1998
----------- --------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 170 $ 128
Receivables, net 8,390 8,644
Inventories, net 5,654 6,240
Other current assets 1,480 918
Property, plant and equipment, net 13,419 13,781
Other assets, net 1,857 2,719
-------- --------
Total assets 30,970 32,430
-------- --------
LIABILITIES AND EQUITY:
Current maturities of debt 662 756
Trade payables 5,872 6,293
Other current liabilities 1,598 1,448
Other long-term debt 680 680
Other liabilities 82 79
Minority interest 951 968
Cumulative translation adjustment (1,574) (1,354)
-------- --------
Total liabilities and equity 8,271 8,870
-------- --------
Net assets of discontinued operations $ 22,699 $ 23,560
======== ========
Pursuant to APB 30, the consolidated financial statements reflect the
operating results of Discontinued Klemp separately from continuing operations.
Summarized results of Discontinued Klemp operations follow (in thousands)
(unaudited):
Three Months Ended June 30, 1999 1998
--------------------------- -------- --------
Net sales $ 13,368 $ 13,379
Income (loss) before taxes 1,550 (555)
Six Months Ended June 30,
-------------------------
Net sales $ 26,062 $ 27,325
Income (loss) before taxes 1,016 (288)
The above results of Discontinued Klemp operations include allocated
interest expense of $644,000 and $660,000 for the three month periods ended
June 30, 1999 and 1998, respectively, and $1,302,000 and $1,296,000 for the
six month periods ended June 30, 1999 and 1998, respectively. The above
results of Discontinued Klemp operations includes a $1,681,000 gain on sale of
property for the three and six months ended June 30, 1999.
<PAGE> 9
NOTE 3: INVENTORIES
Inventories are comprised of the following (in thousands):
At June 30, At December 31,
1999 1998
----------- --------------
(unaudited)
Raw materials $ 4,947 $ 6,144
Work-in-process 4,433 4,797
Finished goods 4,126 3,632
------- -------
Total inventories 13,506 14,573
Less: LIFO reserves (206) (67)
------- -------
Inventories, net $13,300 $14,506
======= =======
NOTE 4: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
The following represents a reconciliation of the change in stockholders'
equity for the six month period ended June 30, 1999 (in thousands):
Par Capital
Value in
of Trea- Excess Notes Accum-
Common sury of Par Receiv- ulated
Stock Stock Value able Deficit Total
------ ----- ------- ------- -------- --------
At January 1, 1999 $ 3 $(500) $1,860 $(1,001) $ (8,956) $ (8,594)
Activity
(unaudited):
Net income - - - - 381 381
Preferred stock
accretions - - - - (228) (228)
--- ----- ------ ------- -------- --------
At June 30, 1999 $ 3 $(500) $1,860 $(1,001) $ (8,803) $ (8,441)
=== ===== ====== ======= ======== ========
<PAGE> 10
The computations of basic and diluted earnings per common share (EPS) for
the six month periods ended June 30, 1999 and 1998 are as follows (in
thousands, except share and per share amounts)(unaudited):
Average
Income Shares EPS
-------- -------- -------
Six months ended June 30, 1999:
Net income $ 381
Less: Preferred stock dividend accretions (228)
--------
Income available to common stockholders,
shares outstanding and basic
and diluted EPS $ 153 289,726 $ 0.53
======== ======== =======
Six months ended June 30, 1998:
Net loss $ (1,369)
Less: Preferred stock dividend accretions (228)
--------
Income available to common stockholders,
shares outstanding and basic
and diluted EPS $ (1,597) 242,887 $ (6.58)
======== ======== =======
For the six month periods ended June 30, 1999 and 1998, assumed exercise of
warrants has an anti-dilutive effect on per-share earnings from continuing
operations. Therefore, basic and diluted EPS are the same for both periods.
<PAGE> 11
NOTE 5: RELATED PARTY TRANSACTIONS
SPI Consulting Agreement
The Company has a consulting agreement with Stanwich Partners, Inc. under
which $150,000 was expensed in each six month period ended June 30, 1999 and
1998.
CPS Leasing
The Company has entered into various operating lease agreements with CPS
Leasing, Inc. (CPSL), a company owned 80% by Consumer Portfolio Services and
20% by Charles E. Bradley Jr., President of Consumer Portfolio Services, a
director of the Company and son of Charles E. Bradley Sr., Chairman of the
Board, Director and shareholder of the Company (Mr. Bradley). During the
first half of 1999, the Company made lease payments totaling $211,688 to CPSL.
Kingway
Pursuant to a services agreement entered into between Stanwich
Acquisition Corp., which is doing business as Kingway Material Handling
Company (Kingway), and the Company, the Company provides Kingway with
manufacturing facilities and overhead support with its surplus floor space at
its Auto-Lok division in Acworth, GA. Kingway's common stock is wholly owned
by directors, shareholders and/or members of the executive managements of the
Company and Reunion Industries, Inc. (Reunion). During the first half of
1999, costs totaling $1,597,202 were charged to Kingway under this services
agreement. At June 30, 1999, the Company had receivables totaling $1,293,430
from Kingway.
NAPTech
Pursuant to a services agreement entered into between NPS Acquisition
Corp., which is doing business as NAPTech Pressure Systems (NAPTech), and the
Company's CPI division, the Company provides certain administrative services
to NAPTech. NAPtech's common stock is wholly owned by Mr. Bradley. During
the first half of 1999, costs totaling $387,018 were charged to NAPTech under
this services agreement. At June 30, 1999, the Company had receivables
totaling $534,920 from NAPTech.
Oneida Rostone Corp.
Oneida Rostone Corp., Reunion's plastic products segment, obtains its
property, casualty, and product and general liability insurance coverage
through the Company. During the first half of 1999, the rate for such
insurance was $23,500 per month, which represented the approximate cost of
such insurance to the Company.
At June 30, 1999, the Company had notes receivable totalling $475,000
from Oneida Rostone Corp.
NOTE 6: COMMITMENTS AND CONTINGENT LIABILITIES
In June 1993, the U.S. Customs Service (Customs) made a demand on the
Company's former industrial rubber distribution division for $612,948 in
marking duties pursuant to 19 U.S.C. Sec. 1592. The duties are claimed on
<PAGE> 12
importations of "unmarked" hose products from 1982 to 1986. Following the
Company's initial response raising various arguments in defense,including
expired statute of limitations, Customs responded in January 1997 by reducing
its demand to $370,968 and reiterating that demand in October 1997. The
Company restated its position and continues to decline payment of the claim.
Should the claim not be resolved, Customs threatens suit in the International
Court of Claims. The Company continues to believe, based on consultation with
counsel, that 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.
The Company is involved in various other litigation matters in the
ordinary course of business. In the opinion of management, settlement of
these various litigation matters and other contingent matters will not have
any material effect on the Company's financial position. The Company does not
have any adverse commitments at June 30, 1999.
NOTE 7: 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.
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.
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.
<PAGE> 13
The following represents the disaggregation of financial data by
operating segment for the six months ended June 30, 1999 and 1998 and at June
30, 1999 and December 31, 1998 (in thousands)(unaudited):
Capital Total
Net Sales EBITDA(1) Spending Assets(2)
--------- --------- --------- ---------
Six months ended and at
June 30, 1999:
-----------------------
Alliance $ 12,966 $ (115) $ 46 $ 13,722
Auto-Lok 16,501 1,644 167 10,122
CPI 12,641 2,168 576 18,245
Hanna 17,614 2,642 288 16,691
Steelcraft 1,891 218 73 1,600
Headquarters/Other 54 (1,152) 13 17,107
Discontinued Klemp - - 608 22,699
-------- -------- -------- --------
Totals $ 61,667 5,405 $ 1,771 $100,186
======== ======== ========
Depreciation and amortization (2,037)
Interest expense(3) (3,228)
Equity loss from continuing
operations of affiliate (67)
--------
Income before income taxes $ 73
========
Six months ended June 30, 1998
and at December 31, 1998:
---------------------------------
Alliance $ 19,419 $ 1,571 $ 130 $ 18,111
Auto-Lok 12,010 859 243 10,645
CPI 12,662 2,496 520 20,117
Hanna 16,698 2,784 146 17,544
Steelcraft 2,215 460 5 1,651
Headquarters/Other - (1,134) 34 16,868
Discontinued Klemp - - 1,390 23,560
-------- -------- -------- --------
Totals $ 63,004 7,036 $ 2,468 $108,496
======== ======== ========
Depreciation and amortization (1,794)
Interest expense(3) (3,364)
Equity loss from continuing
operations of affiliate (3,441)
--------
Loss before income taxes $ (1,563)
========
(1) EBITDA is presented due to its relationship to the Company's financial
covenants benefitting the Senior Notes (as defined).
(2) Headquarters total assets at June 30, 1999 and December 31, 1998 are
primarily comprised of deferred tax assets and the Company's investment in
Reunion common stock.
(3) Excludes amortization of debt issuance expenses of $360,000 and $240,000
for the six month periods ended June 30, 1999 and 1998, respectively.
<PAGE> 14
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
The Company's organizational structure includes 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).
Substantially all of the Company's operations relate to metal products.
During the second quarter of 1999, the Company adopted a plan to exit the
grating manufacturing business through the sale of substantially all of the
business and asset of its Klemp division. See "Recent Developments -
Discontinued Operations."
The Company's equity investment in Reunion is comprised of 1,450,000
shares of Reunion common stock constituting approximately 37% of the
outstanding common stock 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 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 share of Reunion's operating
results is included in the accompanying condensed consolidated statement of
income for the three and six month periods ended June 30, 1999 and 1998 as
equity income (loss) from operations of affiliate. See "Possible Merger with
Reunion" below.
RECENT DEVELOPMENTS
Senior Note Purchase Offer
The Company has $50 million of 13% Senior Notes due May 1, 2003 (Senior
Notes) outstanding for which State Street Bank and Trust Company is trustee
(Trustee). When the Company acquired the Reunion common stock on June 20,
1995, it executed with the Trustee a first supplemental indenture of the
Indenture pursuant to which the Company issued the Senior Notes (Indenture).
Pursuant to this supplemental indenture, the Company agreed to offer to
purchase up to $25 million, or half, of the outstanding Senior Notes from note
holders on each of June 1, 1999 (Purchase Offer) and 2000 at par value plus
unpaid interest to the purchase date.
Pursuant to its obligations under the Indenture, on May 12, 1999, the
Company issued a notice offering to purchase up to $25.0 million of Senior
Notes on June 1, 1999. The Company further notified Senior Note holders and
the Trustee that the Company did not expect to have sufficient liquidity on
June 1, 1999 to consummate the Purchase Offer if more than $2 million worth of
Senior Notes were tendered.
As of 5:00 p.m. Eastern Daylight time on June 1, 1999, the expiration of
the Purchase Offer, holders of $24,121,000 principal amount of Senior Notes
had accepted the Purchase Offer. On June 2, 1999, the Company sent a notice
to holders of the $24,121,000 principal amount of tendered Senior Notes
requesting that their tender be withdrawn in exchange for a withdrawal fee of
<PAGE> 15
2% of principal amount of Senior Notes tendered (Withdrawal Notice). The
Withdrawal Notice also informed the tendering Senior Note holders of a:
* Third Party Purchase Offer - pursuant to an agreement dated May 28, 1999,
between the Company and Contrarian Capital, LLC (Contrarian), Contrarian
agreed to purchase Senior Notes from all tendering holders for the same price
payable by the Company in the Purchase Offer and Contrarian had already
elected to withdraw the tender of all Senior Notes it acquired, if any, in
exchange for the same 2% fee withdrawal,
and
* Possible Asset Sale - the Company had executed a non-binding letter of
intent (LOI) to sell substantially all of the assets of its Klemp division.
See "Discontinued Operations."
The Withdrawal Notice further informed tendering Senior Note holders that
if the Company did not receive withdrawal elections for the full $24,121,000
of principal amount of tendered Senior Note, either from tendering Senior
Notes holders or Contrarian, the Company did not expect to consummate any of
the purchases contemplated by the Purchase Offer, whereupon an Event of
Default would arise under the Indenture.
The Withdrawal Notice was to expire at 9:30 a.m. Eastern Daylight time on
June 7, 1999. However, on June 8, 1999, the Company sent notice to tendering
Senior Note holders that the request to withdraw tendered Senior Notes was
being extended indefinitely but could be terminated by the Company without
prior notice (Withdrawal Extension). The Withdrawal Extension also informed
the tendering Senior Note holders that:
* holders of $7,100,000 principal amount of tendered Senior Notes had
withdrawn their tenders in exchange for the 2% withdrawal fee,
* Contrarian had purchased or agreed to purchase from tendering Senior Note
holders and withdraw the tender for $16,186,000 principal amount of Senior
Notes,
and
* $835,000 principal amount of tendered Senior Notes remained outstanding
under the Purchase Offer.
Because the Company was not able to deposit with the Trustee or the
Paying Agent for the tendered Senior Notes an amount equal to 100% of the
aggregate principal amount, plus any accrued and unpaid interest, of tendered
Senior Notes by 12:30 p.m. Eastern Daylight time on June 7, 1999 as required
by the Indenture, on June 8, 1999, the Company delivered notice to the Trustee
of an Event of Default.
Ultimately, $7,125,000 principal amount of tendered Senior Notes withdrew
their tenders directly, $16,971,000 principal amount of tendered Senior Notes
were purchased and tenders withdrawn by Contrarian and $25,000 principal
amount of tendered Senior Notes were purchased and retired by the Company. In
exchange for its purchases of tendered Senior Notes on behalf of the Company,
the Company paid Contrarian a $375,000 stand-by fee in addition to the 2%
withdrawal fee which totalled $339,420. Holders of the $7,125,000 principal
amount of Senior Notes that withdrew their tenders received withdrawal fees
<PAGE> 16
totalling $142,500.
As the result of the tender withdrawals totalling $24,096,000 principal
amount of Senior Notes, either by tendering Senior Note holders or Contrarian,
the repayment by the Company of $25,000 principal amount of tendered Senior
Notes not withdrawn or sold to Contrarian and the payment by the Company of
all withdrawal and stand-by fees, the Event of Default was cured. On June 23,
1999, the Company sent notice to all tendering Senior Note holders of the
termination of the Withdrawal Extension and notice to the Trustee of the cure
of the Event of Default.
The full principal amount of the $25,000,000 of Senior Notes the Company
is required to offer to purchase on June 1, 2000 is classified as current
maturities of long-term debt in the Company's consolidated balance sheet at
June 30, 1999. See "Possible Merger with Reunion."
Discontinued Operations
On May 28, 1999, the Company entered into a non-binding LOI with AMICO,
which was subsequently amended on July 12, 1999, for the sale of Discontinued
Klemp excluding the Company's investment in the Chinese grating joint venture
for $32.6 million in cash and the assumption by AMICO of certain liabilities.
Accordingly, the net assets of Discontinued Klemp have been classified in the
accompanying consolidated balance sheets at June 30, 1999 and December 31,
1998 as net assets of discontinued operations. Discontinued Klemp's results
of operations for the three and six month periods ended June 30, 1999 and 1998
are classified in the accompanying consolidated statements of income and
comprehensive income as income (loss) from discontinued operations, net of tax
effects.
There can be no assurances that Discontinued Klemp will be sold or, if
sold, that it will be sold for $32.6 million in cash and the assumption of
certain operating liabilities. See "Results of Discontinued Operations."
Possible Merger with Reunion
On February 26, 1999, the Company announced that it had reinstituted
merger discussions with Reunion and that the managements of both companies
believed that additional identified financing sources would provide adequate
funds for operations of the combined companies, including redemption of the
Senior Notes (Refinancing). On April 1, 1999, the Company further announced
that it had entered into a Merger Agreement, dated as of March 30, 1999, with
Reunion pursuant to which the Company would merge with and into Reunion, with
Reunion being the surviving corporation (Merger). The Merger was to have been
consummated on the earliest practicable date after all of the conditions
thereto had been waived or satisfied, including, among others, the Refinancing
and approval of the Merger by Reunion's stockholders. Subsequent to executing
the Merger Agreement, the Company and Reunion were informed by Reunion's
investment banker that market conditions for high yield debt offerings for
companies like Reunion (after giving effect to the Merger) were not favorable
at that time, thereby delaying consummation of the Refinancing and the Merger.
On August 6, 1999, the Company announced that Reunion and the Company are
pursuing a revised strategy for the Refinancing and that it had entered into
an amended merger agreement with Reunion. The Company further announced that
the possible sale of Discontinued Klemp for $32.6 million in cash and the
assumption of certain operating liabilities will strengthen the Company's
financial condition and should enable the Company and Reunion to consummate
<PAGE> 17
the Refinancing through private senior and subordinated debt. The Merger is
scheduled to close on September 30, 1999.
The Merger is also conditioned upon no more than 5% of the Company's
common stockholders exercising their appraisal rights under Delaware law.
There can be no assurances as to whether or when all conditions to the Merger
will be satisfied or when the Merger will be consummated, if at all.
Sale of Property
During April 1999, the Company sold the land and building which comprised
the former Chicago, Illinois location of its Klemp division, which was
relocated to Libertyville, Illinois in early 1999. The property was sold to a
privately held Illinois limited liability corporation. Net cash proceeds
received by the Company as a result of the sale totalled $4.56 million. Of
the $4.56 million of net proceeds, $2.28 million was used to repay a portion
of borrowings under a special availability amount under the NationsBank
Facility and $2.28 million was used to repay a portion of other borrowings
under the NationsBank Facility. Once reduced, this special availability
amount may not be reborrowed. See "Liquidity and Capital Resources."
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 (including manufacturing equipment and other non-
information systems equipment), unless it is Y2K ready, 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
affected by the failure of its own systems to be Y2K compliant, but may also
be negatively affected if its vendors, customers, lenders and any other party
with which the Company transacts business are not Y2K ready.
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 to save costs and improve information flow
by substantially improving all operational processes. Y2K-ready technology is
part of this system and the Company anticipates no material adverse effects to
its new operating systems from Y2K.
In addition to this new system, the Company has completed its assessment
of all other systems and software in place at all locations and has identified
hardware replacements and software upgrades necessary to achieve Y2K
readiness. The identified hardware replacements and software upgrades are
scheduled to be completed and tested by the end of 1999 and will be provided
by vendors whose hardware and software have achieved Y2K readiness. The cost
of the identified hardware replacements and software upgrades are not expected
to be material and, absent the need to achieve Y2K readiness, would be a
normal part of the Company's ongoing program for maintaining up-to-date
information technology. The incremental cost of hardware replacements and
software upgrades required to achieve Y2K readiness is estimated to be less
than $0.1 million. 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 ready. Such costs will continue to be expensed as incurred and funded
through internally generated cash while costs to acquire new equipment
<PAGE> 18
and software will be capitalized and depreciated over their useful lives.
In addition to internal Y2K readiness, the Company has surveyed all
significant vendors, customers, lenders and other outside parties with which
it transacts business in an effort to identify potential Y2K issues with such
parties. Results indicate that those important parties with which the Company
does business either have already achieved Y2K readiness or will be Y2K ready
during 1999. The most significant third parties with which the Company
contracts for services are its payroll services provider, its local bank of
record and its revolving credit lender, NationsBank. The Company has received
certification that its provider of payroll services is Y2K ready. Regarding
its bank and revolving credit facility lender, the Company funds its day-to-
day operations through a series of wire transfers between its revolving credit
facility lender and its local bank of record. The wire transfers are
initiated at the Company's headquarters via dial-up phone line connections.
Both the Company's local bank of record and NationsBank have indicated
publicly that they will achieve Y2K readiness during 1999. However, any
disruption in phone service as a result of Y2K could result in the Company's
inability to fund its operations and have a significant adverse impact on the
financial position and results of operations of the Company.
Management recognizes that the failure of the Company or any party with
which the Company conducts business to be Y2K ready in a timely manner could
have a material adverse impact on the operations of the Company. If the
Company's systems or the systems of its significant vendors, customers,
lenders and other outside parties with which it transacts business were to
fail because they were not Y2K ready, the Company would incur significant
costs and inefficiencies. Manual systems for manufacturing and financial
controls would have to be implemented and staffed. Significant customers
might decide to cease doing business with the Company. Disruptions in
electrical power, phone service and/or delivery of materials could cause
significant business interruptions. Similarly, business interruptions at
significant customers could result in deferred or canceled orders.
The dates on which the Company believes Y2K readiness will be completed
are based on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantees that these estimates will be achieved, or that
there will not be delays in, or increased costs associated with, achieving
enterprise-wide Y2K readiness. Specific factors that might cause differences
between the estimates and actual results include, but are not limited to, the
availability and cost of personnel trained in these areas, timely responses to
and corrections by third-parties and suppliers, the ability to implement
interfaces between the new systems and the systems not being replaced, and
similar uncertainties. Due to general uncertainty inherent in the Y2K
problem, resulting in part from the uncertainty of the Y2K readiness of third-
parties, the Company cannot ensure its ability to resolve problems associated
with the Y2K issue that may affect its operations and business, or expose it
to third-party liability in a timely and cost-effective manner.
<PAGE> 19
RESULTS OF CONTINUING OPERATIONS
Three Months Ended June 30, 1999 Compared to
Three Months Ended June 30, 1998
Net sales for the second quarter of 1999 totaled $28.0 million, compared
to $33.2 million for the second quarter of 1998. Sales for the second quarter
of 1999 decreased $5.2 million, or almost 16%, compared to the second quarter
of 1998. The decrease in sales was primarily at Alliance and CPI, partially
offset by increases at Auto-Lok and Hanna. Sales decreased $5.1 million at
Alliance due primarily to a decrease in order levels which have been
negatively impacted by a downturn in large capital projects in the steel
industry due to strong foreign competition. Sales decreased $1.6 million at
CPI due primarily to a decrease in order levels in the first third of 1999 and
a change in the mix of CPI's backlog to a higher percentage of items with
longer delivery schedules. Sales increased $1.0 million at Auto-Lok due to
increased product demand as well as the completion of a large contract for one
customer. Hanna's sales increase of $0.6 million was primarily due to
increased demand in their mobile cylinder product lines manufactured in
Milwaukee, WI. Steelcraft's second quarter 1999 volume was down $0.2 million
compared to 1998 primarily due to softening demand.
Gross profit for the second quarter of 1999 was almost $4.5 million,
compared to $6.9 million of gross profit for the second quarter of 1998, a
decrease of $2.4 million. Second quarter 1999 gross profit margin was 15.9%,
compared to 20.7% in the second quarter of 1998. Gross profit during the
second quarter of 1999 compared to the second quarter of 1998 decreased $1.4
million at Alliance, $0.6 million at CPI, $0.3 million at Hanna and $0.2
million at Steelcraft, all primarily due to the inefficiencies of lower volume
levels compared to the second quarter of 1998 except for Hanna, which was due
to a change in product mix to the lower margin mobile cylinder product lines.
Auto-Lok's gross profit was up $0.1 million compared to last year's second
quarter due to its higher volume level. Second quarter gross profit margins
for 1999 compared to second quarter margins for 1998 decreased at all
divisions except for Auto-Lok, which remained flat, the decreases reflecting
lower volume levels and a change in product mix at Hanna.
Selling, general and administrative (SGA) expenses for the second quarter
of 1999 were $3.5 million, compared to $3.7 million for the second quarter of
1998, a decrease of $0.2 million. SGA expenses as a percentage of sales
increased to 12.5% for 1999 compared to 11.3% in 1998. The decrease in SGA
was due to an overall effort to contain and reduce such costs. The increase
in SGA as a percent of sales was due primarily to the lower volume levels in
1999.
Other expense for the second quarter of 1999 was $0.1 million, compared
to other income of $0.1 million for the second quarter of 1998, a net increase
in expense of $0.2 million. There were no individually significant or
offsetting items in either 1999 or 1998.
Interest expense, net, for the second quarters of 1999 and 1998 was $1.8
million. A decrease in the effective borrowing rate on the Company's debt for
the second quarter of 1999, due to the revolving credit facility entered into
with NationsBank in October 1998, was offset by higher average borrowing
<PAGE> 20
levels in 1999 and an increase in the amortization of deferred financing
costs.
The equity income from continuing operations of affiliate in the second
quarter of 1999 of and 1998, represents the Company's share of Reunion's
results from continuing operations for each quarter. Reunion's second quarter
1998 results from continuing operations were negatively affected by the Bargo
litigation provision it recorded in its 1998 second quarter.
There was a tax benefit of $0.2 million for the second quarter of 1999
and $0.9 million for the second quarter of 1998. The tax provision for both
years is directly related to pre-tax income.
The equity loss from discontinued operations of affiliate in the second
quarters of 1999 and 1998, represents the Company's share of Reunion's results
from discontinued operations for each quarter.
Six Months Ended June 30, 1999 Compared to
Six Months Ended June 30, 1998
Net sales for the first half of 1999 totaled $61.7 million, compared to
$63.0 million for the first half of 1998. Sales for the first half of 1999
decreased $1.3 million, or 2%, from the first half of 1998. The decrease in
sales was primarily at Alliance, partially offset by increases at Auto-Lok and
Hanna. Sales decreased $6.5 million at Alliance due primarily to a decrease
in order levels which have been negatively impacted by a downturn in large
capital projects in the steel industry due to strong foreign competition.
Auto-Lok's sales increase of $4.5 million was due to increased product demand
as well as the completion of a large contract for one customer. Sales
increased $0.9 million at Hanna primarily due to increase demand in their
mobile cylinder product lines manufactured in Milwaukee, WI. Steelcraft's
sales were down $0.3 million compared to last year's first half.
Gross profit for the first half of 1999 was $10.8 million, compared to
$13.0 million of gross profit for the first half of 1998, a decrease of $2.2
million. First half 1999 gross profit margin was 17.5%, compared to 20.6% in
the first half of 1998. Gross profit during the first half of 1999 compared
to the first half of 1998 decreased $2.0 million at Alliance, $0.4 million at
Hanna and $0.3 million at both CPI and Steelcraft, partially offset by a $0.7
million increase at Auto-Lok. First half gross profit margins for 1999
compared to first half margins for 1998 increased only at Auto-Lok and
decreased at all other divisions. The increase in gross profit and margin at
Auto-Lok is due primarily to the division's increased volume. The decreases
in gross profits and margins at the remaining divisions are due to decreases
in volume noted above and a change in product mix at Hanna.
Selling, general and administrative (SGA) expenses for the first half of
1999 were $6.8 million, compared to $7.4 million for the first half of 1998, a
decrease of $0.6 million. SGA expenses as a percentage of sales decreased to
11.0% for the first half of 1999 compared to 11.7% in 1998's first half. The
decreases in SGA and SGA as a percentage of sales were due to an overall
effort to contain and reduce such costs.
Other expense for the first half of 1999 was $0.3 million, compared to
other expense of $0.1 million for the first half of 1998, a net increase in of
$0.2 million. There were no individually significant or offsetting items in
either of the first halves of 1999 or 1998.
<PAGE> 21
Interest expense, net, in each of the first halves of 1999 and 1998 was
$3.6 million. A decrease in the effective borrowing rate on the Company's
debt for the first half of 1999, due to the revolving credit facility entered
into with NationsBank in October 1998, was offset by higher average borrowing
levels in 1999 and an increase in the level of amortization of deferred
financing costs.
The equity loss from continuing operations of affiliate in both of the
first halves of 1999 and 1998 represents the Company's share of Reunion's
results from continuing operations for each period. Reunion's first half of
1998 results from continuing operations were negatively affected by the Bargo
litigation provision it recorded in its 1998 second quarter.
There was a tax provision of less than $0.1 million for the first half of
1999 compared to a benefit of $0.6 million for the first half of 1998. The
tax provision for both periods is directly related to the level of pre-tax
income.
The equity loss from discontinued operations of affiliate in the first
halves of 1999 and 1998, represents the Company's share of Reunion's results
from discontinued operations for each quarter.
Effective January 1, 1999, the Company adopted the AICPA's Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities." Such adoption
is reported as the cumulative effect of a change in accounting principle and
resulted in the write-off of $176,000 of start-up costs, net of taxes of
$91,000. Such start-up costs primarily related to the Company's international
subsidiaries.
RESULTS OF DISCONTINUED OPERATIONS
Three Months Ended June 30, 1999 Compared to
Three Months Ended June 30, 1998
Discontinued Klemp operations generated net sales during the three month
periods ended June 30, 1999 and 1998 of $13.4 million in each period. Income
before tax was $1.0 million in 1999 and loss before tax was $0.3 million in
1998. The results before taxes include allocated interest expense of $644,000
for the three months ended June 30, 1999 and $660,000 for the three months
ended June 30, 1998. The above results of Discontinued Klemp operations
includes a $1,681,000 gain on sale of property for the three and six months
ended June 30, 1999.
Six Months Ended June 30, 1999 Compared to
Six Months Ended June 30, 1998
Discontinued Klemp operations generated net sales during the six month
periods ended June 30, 1999 and 1998 of $26.1 million and $27.3 million,
respectively. Income before taxes was $1.0 million in 1999 and loss before
taxes was $0.3 million in 1998. The losses before taxes include allocated
interest expense of $1,302,000 for the six months ended June 30, 1999 and
$1,296,000 for the six months ended June 30, 1998. The above results of
Discontinued Klemp operations includes a $1,681,000 gain on sale of property
for the three and six months ended June 30, 1999.
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
General
Except for its foreign subsidiaries, which are classified as part of
Discontinued Klemp, 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 borrowings under revolving credit arrangements, 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 same revolving
credit arrangements. The Company's foreign subsidiaries are self-sustaining
and operate almost exclusively within the countries they are located. Their
cash flows are devoted to and obligations paid by their own operations. The
Company does not provide day-to-day operating funds to the foreign operations
nor does the Company guarantee any foreign indebtedness. 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. See "Recent Developements - Discontinued Operations."
On October 30, 1998, the Company and NationsBank executed the Financing
Agreement wherein NationsBank has provided the Company with the NationsBank
Facility of up to a maximum principal amount of $40.0 million, including a
letter of credit facility of up to $5.0 million.
The NationsBank Facility includes a special availability amount, as
defined in the Financing Agreement, of $6.0 million. The special availability
amount is being reduced in $250,000 monthly increments which began in February
1999. The special availability amount was further reduced by $2.28 million in
April 1999. See "Recent Developments - Sale of Property." Once reduced, the
special availability amount may not be reborrowed without NationsBank's
consent. Availability under the NationsBank Facility is subject to a
borrowing base limitation calculated as the aggregate of 85% of eligible
accounts receivable plus the lesser of $15.0 million or the sum of 60% of
finished goods and raw materials, 50% of supplies and stores, a percentage,
determined from time to time by NationsBank, of work-in-process and the
special availability amount in effect at the time of the calculation, all of
the above as defined in the Financing Agreement. Interest under the
NationsBank Facility is determined by reference to various rates including the
NationsBank prime rate, the Federal Funds rate or LIBOR, each plus an
applicable margin. The Company may elect the rates upon notification to
NationsBank with applicable margins ranging from zero to 0.5% when using
either the NationsBank prime rate or the Federal Funds rate and from 2.0% to
2.75% when using LIBOR. The NationsBank Facility also includes an unused line
fee and a monthly service charge.
The NationsBank Facility is secured by a lien in favor of NationsBank on
the Company's accounts receivable, inventory and certain other property and
accounts to the extent necessary to permit foreclosure on the accounts
receivable and inventory. The Financing Agreement expires on October 31, 2001
and is renewable annually thereafter, subject to the approval of NationsBank,
but not beyond October 31, 2005.
The NationsBank Facility includes various representations, warranties and
affirmative and negative covenants by the Company and provides NationsBank
with certain rights and remedies including, but not limited to, acceleration,
<PAGE> 23
both in the event of default or subjectively, of all amounts borrowed under
the NationsBank Facility. Financial covenants in the NationsBank Facility
include an adjusted earnings before interest, taxes, depreciation and
amortization (NationsBank EBITDA) to fixed charge coverage ratio and an
indebtedness to cash flow ratio, calculations of which are defined in the
Financing Agreement. Generally all amounts for calculation of the ratios are
derived from domestic operations and NationsBank EBITDA is adjusted for
domestic capital expenditures. These covenants require the Company to
maintain a rolling twelve-month minimum adjusted NationsBank EBITDA to fixed
charge coverage ratio of 1.2:1 and a maximum indebtedness to cash flow ratio
of 5.0:1. At June 30, 1999 such ratios were 1.4:1 and 4.8:1, respectively,
and complied with the Financing Agreement. Borrowings outstanding under the
NationsBank Facility at June 30, 1999 totaled $31.2 million and the weighted
average rate for borrowing was 7.5%.
On July 23, 1999, the Company and NationsBank executed an amendment and
waiver to the NationsBank Facility. In general, the amendment and waiver
fixed the special availability amount at $3.47 million, an increase of $1
million in the then existing special availability amount. Additionally, the
amendment provides that the special availability amount would start to be
reduced in weekly amounts of at least $270,000 beginning August 16, 1999 only
if the Company failed to deliver certain documents related to the potential
sale of a division or failed to deliver additional collateral for the special
availability amount. The amendment and waiver also waived two instances of
noncompliance by the Company in June and July 1999 of the covenant that
requires the Company to maintain a minimum average daily availability of no
less than $1.0 million. In exchange for providing the Company with the
amendment and waiver, NationsBank received $100,000 in fees, additional
collateral for the special availability amount and potential fees of $50,000
on September 1, 1999 and October 1, 1999 dependent on certain circumstances
related to the potential sale of a division or other additional collateral.
Except for the instances of noncompliance waived above, the Company was in
compliance with all representations, warranties and covenants at June 30,
1999.
During April 1999, the Company sold the land and building which comprised
the former Chicago, Illinois location of its Klemp division, which was
relocated to Libertyville, Illinois in early 1999. Net cash proceeds received
by the Company as a result of the sale totalled $4.56 million and were used to
repay borrowings under the NationsBank Facility. On May 3, 1999, the Company
paid its semi-annual interest payment on the Senior Notes of $3.25 million
from funds available under the NationsBank Facility, such availability being
partially the result of the application of the property sale proceeds to the
Nationsbank Facility. See "Recent Developments - Sale of Property."
Based on its own liquidity, the Company was unable to consummate the
Purchase Offer on June 1, 1999, resulting in an Event of Default under the
Indenture. Such Event of Default was subsequently cured by the Company. See
"Recent Developments - Senior Note Purchase Offer." The Company is required
to offer to purchase up to $25,000,000 principal amount of Senior Notes, plus
accrued and unpaid interest through the purchase date, on June 1, 2000. The
full principal amount of this $25,000,000 of Senior Notes is classified as
current maturities of long-term debt in the Company's consolidated balance
sheet at June 30, 1999. See "Possible Merger with Reunion."
At December 31, 1998, the Company had net operating loss carryforwards
for tax return reporting purposes of approximately $5.8 million, of which $1.4
<PAGE> 24
million expires in 2008, $1.2 million expires in 2011 and $3.2 million expires
in 2018. 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. The valuation allowance was not changed
during 1998.
Operating Activities
Operating activities used less than $0.1 million of cash during the first
half of 1999, compared to cash provided of $0.3 million in the first half of
1998, a decrease of $0.4 million. This decrease in cash provided from
operating activities was due primarily to changes in the levels of working
capital in each period.
Investing Activities
Investing activities provided $2.8 million of cash during the first half
of 1999, compared to cash used of $2.6 million during the first half of 1998,
an increase in cash provided of $5.4 million. The increase in cash provided
from investing activities was due to the $4.6 million of cash received from
the sale of property in the second quarter of 1999 (see "Recent Developments -
Sale of Property) and a $0.7 million decrease in the level of capital
expenditures in the first half of 1999 compared to 1998.
Financing Activities
Financing activities during the first half of 1999 used almost $2.9
million in cash, compared to $1.8 million of cash provided during the first
half of 1998, an increase in cash used of $4.6 million. This increase in cash
used is the result of a decrease of $2.8 million in the level of net
borrowings under revolving credit facilities during the first half of 1999
compared to an increase of $1.7 million in the first half of 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in the market risk factors which
affect the Company since the end of the preceding fiscal year.
<PAGE> 25
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
----------- -------------------
4.46 Amendment No. 1 to Financing and Security
Agreement and Waiver between Chatwins
Group, Inc. and Bank of America (formerly
NationsBank) dated July 23, 1999.
27 Financial Data Schedule (electronically
filed report only).
(b) Reports on Form 8-K
On June 3, 1999, the Company filed a Current Report on
Form 8-K dated June 2, 1999, to report under Item 5
that it had given notice to tendering Senior Note holders
of its request to withdraw tendered Senior Notes,
of a third-party Senior Note purchase offer and of the
possible sale of Klemp, and to file such notice as
an exhibit under Item 7.
On June 9, 1999, the Company filed a Current Report on
Form 8-K dated June 7, 1999, to report under Item 5
that it had given notice to tendering Senior Note holders
of its extension of request to withdraw tendered Senior
Notes and had given notice to the Trustee of an Event
of Default under the Indenture, and to file such
notices as exhibits under Item 7.
On June 25, 1999, the Company filed a Current Report on
Form 8-K dated June 23, 1999, to report under Item 5
that it had given notice to tendering Senior Note holders
of its termination of extension of request to withdraw
tendered Senior Notes and had given notice to the Trustee
of the cure of the Event of Default, and to file such
notices as exhibits under Item 7.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Date: August 16, 1999 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> 27
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
----------- ------------------- --------
4.46 Amendment No. 1 to Financing and Security
Agreement and Waiver between Chatwins
Group, Inc. and Bank of America (formerly
NationsBank) dated July 23, 1999. 27
27 Financial Data Schedule 34
<PAGE> 28 EXECUTION COPY
AMENDMENT NO. 1
TO
FINANCING AND SECURITY AGREEMENT
AND
WAIVER
This AMENDMENT NO. 1 TO FINANCING AND SECURITY AGREEMENT AND WAIVER (this
"Amendment"), made as of this 23rd day of July, 1999, between CHATWINS GROUP,
INC. ("Borrower") and BANK OF AMERICA, NATIONAL ASSOCIATION, formerly
NationsBank, N.A. ("Lender"),
W I T N E S S E T H :
WHEREAS, the Borrower and the Lender entered into a certain Financing and
Security Agreement, dated as of October 30, 1998 (the "Financing Agreement"),
pursuant to which certain loans and other financial accommodations have been
made available to Borrower;
WHEREAS, effective February 22, 1999, the Lender notified the Borrower
that, pursuant to clause (b)(ii)(z) of the first paragraph of Section 2.1.3 of
the Financing Agreement, the Borrowing Base (as defined in the Financing
Agreement) would include, until further notice from the Lender and subject to
the limitations set forth in Section 2.1.3 of the Financing Agreement
(including the overall limit on availability against Eligible Inventory set
forth in clause (b)(i) of the first paragraph of Section 2.1.3), up to the
lesser of (a) 40% of the amount of Eligible Inventory consisting work in
process of the Borrower's Hanna and CPI divisions, and (b) $1,500,000;
WHEREAS, effective April 22, 1999, the Lender and the Borrower agreed
that the amortization of the Special Availability Amount (as defined in the
Financing Agreement), as set forth in the definition of "Special Availability
Amount," would be accelerated from a quarterly to a monthly basis;
WHEREAS, the Borrower has failed to comply with certain provisions of the
Financing Agreement and desires that the Lender waive such noncompliance; and
WHEREAS, the Borrower and the Lender desire to amend the Financing
Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Borrower and the Lender do
hereby agree as follows:
1. DEFINED TERMS.
Each defined term used herein and not otherwise defined herein shall have the
meaning ascribed to such term in the Financing Agreement.
2. AMENDMENTS TO THE FINANCING AGREEMENT.
2.1 Amendment to Section 1.1. Section 1.1 is amended by deleting
therefrom the definition of "Guarantor Pledge Amount."
2.2 Amendment to Section 1.1. Section 1.1 is amended by deleting
the definitions of "Adjusted Special Availability Amount," "Applicable Base
<PAGE> 29
Rate Margin," "Applicable LIBOR Margin," "Fees," "Guarantor Policy" and
"Special Availability Amount" and replacing them with the following:
"Adjusted Special Availability Amount" means, as at any time, an amount
equal to (x) the Special Availability Amount then in effect minus (y) the
aggregate amount of Special Availability Loan Mandatory Prepayments made or
required to be made through such time minus (z) the proceeds of the asset
sales contemplated by clauses (a) and (b) of the definition of Special
Availability Loan Reduction Event.
"Applicable Base Rate Margin" means (i) with respect to Base Rate Loans
consisting of Special Availability Loans, 1.00% per annum, and (ii) with
respect to all other Base Rate Loans, 0.00% per annum, provided, however, that
if the Bank has not received, by the close of business on August 16, 1999, a
Collateral Assignment of Life Insurance Policy with respect to one or more
Guarantor Policies issued in amounts equal to, together with all other
Guarantor Policies pledged to the Lender, the Special Availability Amount then
in effect, then Applicable Base Rate Margin shall mean, effective as of
August 1, 1999, and until either such Collateral Assignment of Life Insurance
Policy is received or the Special Availability Amount is reduced to zero,
(x) with respect to Base Rate Loans consisting of Special Availability Loans,
3.00% per annum, and (y) with respect to all other Base Rate Loans, 2.00% per
annum.
"Applicable LIBOR Margin" means (i) with respect to LIBOR Loans
consisting of Special Availability Loans, 3.25% per annum, and (ii) with
respect to all other LIBOR Loans, 2.00% per annum, provided, however, that if
the Bank has not received, by the close of business on August 16, 1999, a
Collateral Assignment of Life Insurance Policy with respect to one or more
Guarantor Policies issued in amounts equal to, together with all other
Guarantor Policies pledged to the Lender, the Special Availability Amount then
in effect, then Applicable LIBOR Margin shall mean, effective as of August 1,
1999, and until either such Collateral Assignment of Life Insurance Policy is
received or the Special Availability Amount is reduced to zero, (x) with
respect to LIBOR Loans consisting of Special Availability Loans, 5.25% per
annum, and (y) with respect to all other Base Rate Loans, 4.00% per annum..
"Fees" means the collective reference to each fee payable to the Lender,
under the terms of this Agreement or under the terms of any of the other
Financing Documents, including, without limitation, the Revolving Credit
Unused Line Fees, the Letter of Credit Fees, the Early Termination Fee, the
Closing Fee, the Special Availability Loan Fees and the Field Examination
Fees.
"Guarantor Policy" shall mean one or more policies of insurance on the
life of the Charles E. Bradley, Sr., each issued in an amount and form and by
an insurer acceptable to the Lender, in its reasonable discretion.
"Special Availability Amount" means an amount equal to (i) from the
Amendment No. 1 Effective Date through October 31, 1999, $2,470,000, plus
(a) upon receipt by the Lender of each of (I) the Guaranty Agreement, (II) a
Collateral Assignment of Life Insurance Policy with respect to one or more
Guarantor Policies in amounts totaling no less than $878,000, and (III) the
Missouri Deed of Trust, and so long as no Event of Default has occurred or is
then continuing, $500,000, plus (b) upon receipt by the Lender of any of:
(I) a lender's title insurance policy on the Missouri Real Property, issued by
a title company and in form and substance reasonably satisfactory to the
<PAGE> 30
Lender, (II) a pledge of additional assets as collateral for the Obligations
of quality and in an amount acceptable to the Lender, in its sole discretion,
and pursuant to documentation acceptable to the Lender, in its sole
discretion, together with evidence satisfactory to the Lender, in its sole
discretion, and the Lender's counsel, that the pledge of such additional
assets will not violate or result in a default under the provisions of the
Indenture, or (III) a copy of one or more executed asset purchase agreements
with respect to assets of the Borrower, each in form and substance
satisfactory to the Lender, in its sole discretion, and the Lender's counsel,
which contemplate, in the aggregate, a purchase price sufficient to pay the
Special Availability Loans in full (including those made pursuant to
availability provided under this clause (i)(b)), together with evidence
satisfactory to the Lender, in its sole discretion, and the Lender's counsel,
that the proceeds of such sale may be applied to the Special Availability
Loans without violating or resulting in a default under the provisions of the
Indenture, and, in each event, so long as no Event of Default has occurred or
is then continuing, $500,000 (ii) at all times after October 31, 1999, zero;
provided that it is understood that such amount may be greater than zero, in
the Lender's sole and absolute discretion.
2.3 Amendment to Section 1.1. Section 1.1 is amended by adding the
following new definitions thereto, each in appropriate alphabetical order:
"Amendment No. 1 Effective Date" means July 23, 1999.
"Missouri Deed of Trust" means a Deed of Trust (With Power of Sale,
Assignment of Rents and Security Agreement) executed by the Borrower in favor
of the Lender with respect to the Missouri Real Property, as the same may from
time to time be amended, restated or otherwise modified or supplemented.
"Missouri Real Property" means the real property of the Borrower located
at 1100 Brown Street, Liberty, Clay County, Missouri.
"Special Availability Amortization Period" means a period which shall
arise on August 16, 1999, only if no Special Availability Loan Reduction Event
has occurred by such date, and which, to the extent it arises, shall terminate
on the date on which all Special Availability Loans have been paid in full and
the Special Availability Amount has been reduced to zero.
"Special Availability Loan Mandatory Prepayment" has the meaning
described in Section 2.1.6 (Mandatory Prepayments of Revolving Loan).
"Special Availability Loan Fees" has the meaning described in
Section 2.4.10 (Special Availability Loan Fees).
"Special Availability Loan Reduction Event" means the occurrence of any
of the following events:
(a) receipt by the Lender of an executed copy of an asset purchase
agreement, in form and substance satisfactory to the Lender, in its sole
discretion, and the Lender's counsel, with respect to the sale of all or
substantially all of the assets of the Borrower's Klemp division;
(b) receipt by the Lender of an executed copy of a letter of intent
for the purchase of all or substantially all of the assets of one or more
divisions of the Borrower, each in form and substance satisfactory to the
Lender, in its sole discretion, and the Lender's counsel, which contemplate,
<PAGE> 31
in the aggregate, a purchase price in an amount at least equal to the sum of
(i) the Adjusted Special Availability Amount then in effect (without, however,
taking into account Special Availability Loan Mandatory Prepayments required
to have been paid but not yet actually paid under clause (y) of the definition
of Adjusted Special Availability Amount) plus (ii) an amount equal to
Borrower's aggregate debt service requirements from the date of such letter of
intent through December 31, 1999; or
(c) a pledge of additional assets as collateral for the Obligations
of quality and in an amount acceptable to the Lender, in its sole discretion,
and pursuant to documentation acceptable to the Lender, in its sole
discretion, together with evidence satisfactory to the Lender, in its sole
discretion, and the Lender's counsel, that the pledge of such additional
assets will not violate or result in a default under the provisions of the
Indenture.
2.4 Amendment to Section 2.1.6. Section 2.1.6 is amended in its
entirety to read as follows:
2.1.6 Mandatory Prepayments of Revolving Loan.
The Borrower shall make the mandatory prepayments (each a
"Revolving Loan Mandatory Prepayment" and collectively, the "Revolving Loan
Mandatory Prepayments") of the Revolving Loan as follows: (a) the Borrower
shall make Revolving Loan Mandatory Prepayments at any time and from time to
time in such amounts requested by the Lender pursuant to Section 2.1.3
(Borrowing Base) of this Agreement in order to cover any Borrowing Base
Deficiency and in order to cover any deficiency under Section 2.1.12 (Required
Availability under the Revolving Credit Facility), and (b) during the Special
Availability Amortization Period, the Borrower shall make weekly Revolving
Loan Mandatory Prepayments (each a "Special Availability Loan Mandatory
Prepayment"), at such times and in such manner as the Lender, in its sole
discretion, shall determine, each of which Special Availability Loan Mandatory
Prepayments shall be applied to the payment of Special Availability Loans and
each of which Special Availability Loan Mandatory Prepayments shall be in an
amount equal to the greater of (i) ten percent (10%) of the amount of the
Borrower's Eligible Receivables as at the end of any week that have arisen
during the Special Availability Amortization Period, and (ii) Two Hundred
Seventy Thousand Dollars ($270,000).
2.5 Amendment to Section 2.4. Section 2.4 is amended by adding the
following Section 2.4.10 at the end thereof:
2.4.10 Special Availability Loan Fees. The Borrower shall
pay, in addition to all other Fees, the following fees (collectively, the
"Special Availability Loan Fees"):
(a) The Borrower shall pay on or before the Amendment
No. 1 Effective Date to the Lender a fee in the amount of Fifty Thousand
Dollars ($50,000).
(b) If no Special Availability Loan Reduction Event has
occurred by August 1, 1999, the Borrower shall pay on such date to the Lender
an additional fee in the amount of Fifty Thousand Dollars ($50,000).
(c) If on September 1, 1999, the Adjusted Special
Availability Amount is greater than $1,720,000, the Borrower shall pay on such
<PAGE> 32
date to the Lender an additional fee in the amount of Fifty Thousand Dollars
($50,000).
(d) If on October 1, 1999, the Adjusted Special
Availability Amount is greater than $1,470,000, the Borrower shall pay on such
date to the Lender an additional fee in the amount of Fifty Thousand Dollars
($50,000).
2.6 Amendment to Section 6.2.8. Section 6.2.8 is amended in its
entirety to read as follows:
6.2.8 Disposition of Assets.
The Borrower will not sell, discount, allow credits or
allowances, transfer, assign, extend the time for payment on, convey, lease,
assign, transfer or otherwise dispose of its Assets (including without
limitation the Collateral) other than in accordance with its credit collection
policies, except, (a) prior to an Event of Default which is continuing and,
thereafter until the Lender has notified (which notice may be limited to
certain assets or categories of assets) the Borrower not to sell or make
dispositions of Inventory or other assets, dispositions that are not Asset
Dispositions, (b) the sale of unnecessary or obsolete Equipment, (c) the sale
of the real property owned by the Klemp Division of the Borrower and located
in Chicago, Illinois and Liberty, Missouri, (d) the Services Agreement between
the Auto-Lok division of the Borrower and Stanwich Acquisition Corp., and
(e) such asset sales, including without limitation the sale of all or
substantially all of the assets of the Klemp Division of the Borrower, as are
necessary for the Borrower to pay in full the Special Availability Loans as
required by the terms hereof, each such sale to be on terms satisfactory to
the Lender, in its sole discretion, and the Lender's counsel, and provided
that (i) the proceeds of each such sale shall be applied first to repay the
Special Availability Loans and reduce the Adjusted Special Availability
Amount, until the Adjusted Special Availability Amount is zero, and then to
the remaining Obligations, in the order required under the terms of this
Agreement, and (ii) prior to making any Asset Sale Offer (as defined in the
Indenture) with the proceeds of any such sales, the Revolving Credit Committed
Amount shall be reduced, and the Borrower shall make such payments as are
necessary to reduce the Revolving Credit Committed Amount, by an amount at
least equal to $10,000,000.
3. WAIVER OF NON-COMPLIANCE.
3.1 Waiver. Subject to and conditioned on the effectiveness of
this Amendment, the Lender hereby waives, as of and through the date of this
Amendment and solely to the extent disclosed to the Lender in writing prior to
the Amendment No. 1 Effective Date, the Borrower's failure, for the months of
June 1999 and July 1999, to comply with the requirement set forth in
Section 7.1.18 (Required Availability) of the Financing Agreement that the
Borrower not permit the average daily Revolving Credit Availability for any
calendar month to be less than $1,000,000.
3.2 Limitation on Waivers. The waiver granted herein is limited
strictly to its terms, applies only to the specific waiver described herein,
does not extend to or affect any of the Borrower's other obligations contained
in the Financing Agreement or any other related documents and does not impair
any rights consequent thereon. Except as expressly set forth herein, nothing
contained herein will be deemed to be a waiver of, or will in any way impair
<PAGE> 33
or prejudice, any rights of the Lender under the Financing Agreement. The
Lender has no obligation to issue any other or further waiver with respect to
the subject matter hereof or of any other matter, and, except as expressly
provided herein, the Financing Agreement and all documents, instruments and
agreements related thereto are ratified and confirmed in all respects and will
continue in full force and effect.
4. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents and warrants as follows:
4.1 The Amendment. This Amendment has been duly and validly
executed by an authorized representative of Borrower and constitutes the
legal, valid and binding obligation of Borrower enforceable against Borrower
in accordance with its terms.
4.2 Claims and Defenses. As of the date of this Amendment, neither
the Borrower nor any of its Affiliates has any defenses, claims, counterclaims
or setoffs with respect to the Financing Agreement, the Financing Documents or
any Obligations thereunder or with respect to any actions of the Lender, any
participant in the Loans or any of their respective officers, directors,
shareholders, employees, agents or attorneys, and the Borrower irrevocably and
absolutely waives any such defenses, claims, counterclaims and setoffs and
releases the Lender, each participant in the Loans and each of their
respective officers, directors, shareholders, employees, agents and attorneys,
from the same.
4.3 Financing Agreement. The Financing Agreement, as previously
amended and as further amended by this Amendment, remains in full force and
effect and remains the valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms.
4.4 Nonwaiver. Except as set forth in Section 3 of this Amendment,
the execution, delivery, performance and effectiveness of this Amendment shall
not operate nor be deemed to be nor construed as a waiver (i) of any right,
power or remedy of the Lender under the Financing Agreement, nor (ii) of any
term, provision, representation, warranty or covenant contained in the
Financing Agreement or any other documentation executed in connection
therewith. Further, except as set forth in Section 3 of this Amendment, none
of the provisions of this Amendment shall constitute, be deemed to be or
construed as, a waiver of any Default or Event of Default under the Financing
Agreement, as previously amended and as further amended by this Amendment.
4.5 Reference to and Effect on the Financing Agreement. Upon the
effectiveness of this Amendment, each reference in the Financing Agreement to
"this Agreement", "hereunder", "hereof", "herein", or words of like import
shall mean and be a reference to the Financing Agreement, as previously
amended and as further amended hereby, and each reference to the Financing
Agreement in any other document, instrument or agreement executed and/or
delivered in connection with the Financing Agreement shall mean and be a
reference to the Financing Agreement, as previously amended and as further
amended hereby.
5. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 1.
In addition to all of the other conditions and agreements set forth herein,
the effectiveness of this Amendment is subject to the fulfillment of each of
<PAGE> 34
the following conditions precedent:
5.1 Amendment No. 1 to Financing and Security Agreement and Waiver.
The Lender shall have received an original counterpart of this Amendment No. 1
to Financing and Security Agreement and Waiver, executed and delivered by a
duly authorized officer of Borrower and the Lender.
5.2 Payment of Fees. The Lender shall have received payment of any
Fees due on or before the Amendment No. 1 Effective Date, including without
limitation the Special Availability Loan Fee due under Section 2.4.10(a) of
the Financing Agreement (as amended hereby).
6. MISCELLANEOUS.
6.1 Governing Law. This Amendment has been delivered and accepted
at and shall be deemed to have been made at Cleveland, Ohio. This Amendment
shall be interpreted and the rights and liabilities of the parties hereto
determined in accordance with the laws of the State of Ohio, without regard to
principles of conflict of law, and all other laws of mandatory application.
6.2 Severability. Each provision of this Amendment shall be
interpreted in such manner as to be valid under applicable law, but if any
provision hereof shall be invalid under applicable law, such provision shall
be ineffective to the extent of such invalidity, without invalidating the
remainder of such provision or the remaining provisions hereof.
6.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which, when taken together, shall constitute but one and
the same agreement.
IN WITNESS WHEREOF, Borrower has caused this Amendment No. 1 to Financing and
Security Agreement and Waiver to be duly executed and delivered by its duly
authorized officer as of the date first above written.
BANK OF AMERICA, NATIONAL ASSOCIATION,
formerly NationsBank, N.A.
_____________________________________
By:__________________________________
Its:_________________________________
CHATWINS GROUP, INC.
_____________________________________
By:__________________________________
Its:_________________________________
<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/A 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 81
<SECURITIES> 0
<RECEIVABLES> 25,195
<ALLOWANCES> 244
<INVENTORY> 13,300
<CURRENT-ASSETS> 64,571
<PP&E> 37,090
<DEPRECIATION> 19,346
<TOTAL-ASSETS> 100,186
<CURRENT-LIABILITIES> 17,316<F1>
<BONDS> 49,911
0
8,710
<COMMON> 3
<OTHER-SE> (8,444)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 100,186
<SALES> 61,667
<TOTAL-REVENUES> 61,667
<CGS> 50,866
<TOTAL-COSTS> 50,866
<OTHER-EXPENSES> 5,392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,588
<INCOME-PRETAX> 73
<INCOME-TAX> 32
<INCOME-CONTINUING> 41
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.53
<FN>
<F1>Excludes revolving credit facility borrowings of $31,213 and current
maturities of Senior Notes of $24,968 at 6/30/99.
</FN>
</TABLE>
