UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
Commission File No. 1-13394
CHASE BRASS INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 51-0328047
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
State Route 15, Montpelier, Ohio 43543
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code:
(419) 485-3193
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 [ ]
Number of shares of Common Stock outstanding
as of November 13, 1996 -- 5,963,471
Number of shares of Nonvoting Common Stock outstanding
as of November 13, 1996 -- 4,100,079*
*The Registrant's Nonvoting Common Stock is convertible, on a share-for-share
basis, into Common Stock.
CHASE BRASS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; in thousands, except share information)
September 30, December 31,
1996 1995
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $1,516 $16,973
Receivables, net of allowance for
doubtful accounts and claims
of $1,276 and $1,036 in
1996 and 1995, respectively 44,571 28,071
Inventories 44,119 15,975
Prepaid expenses 690 733
Deferred income taxes 2,423 850
-------- --------
Total current assets 93,319 62,602
Property, plant and equipment, net 103,257 38,445
Other assets 5,096 1,956
-------- --------
Total assets $201,672 $103,003
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $23,028 $18,900
Accrued liabilities 11,523 3,594
Accrued income taxes 3,277 3,310
Current portion of long-term debt 3,279 --
------- -------
Total current liabilities 41,107 25,804
Long-term debt 82,871 18,784
Deferred income taxes 8,699 4,770
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Total liabilities 132,677 49,358
------- -------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.01 par value,
25,000,000 shares authorized;
5,964,271 and 5,960,721 shares
issued and outstanding
in 1996 and 1995, respectively 60 60
Nonvoting common stock, $.01 par value,
5,000,000 shares authorized;
4,100,079 shares issued and outstanding
in 1996 and 1995 41 41
Additional paid-in capital 30,026 29,990
Retained earnings 38,868 23,554
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Total stockholders' equity 68,995 53,645
------- -------
Total liabilities
and stockholders' equity $201,672 $103,003
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
CHASE BRASS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited; in thousands, except share information)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- --------- ---------
Net sales $88,253 $68,672 $260,265 $237,803
Cost of goods sold exclusive
of depreciation and
amortization shown
separately below) 73,904 59,366 221,485 204,973
------- ------- ------- -------
Gross profit 14,349 9,306 38,780 32,830
Selling, general
and administrative expenses 3,639 1,869 8,012 6,238
Depreciation and amortization 1,758 1,384 4,216 4,388
------- ------- ------- -------
Operating income 8,952 6,053 26,552 22,204
Net interest expense 618 352 1,228 1,219
------- ------- ------- -------
Income before income taxes 8,334 5,701 25,324 20,985
Provision for income taxes 3,300 2,279 10,010 8,393
------- ------- ------- -------
Net income $5,034 $3,422 $15,314 $12,592
======= ======= ======= =======
Average shares outstanding 10,063,783 10,060,800 10,062,501 10,060,800
========== ========== ========== ==========
Earnings per share $0.50 $0.34 $1.52 $1.25
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
CHASE BRASS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; in thousands)
Nine Months Ended September 30,
1996 1995
------- -------
Operating activities:
Net income $15,314 $12,592
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,216 4,388
Accretion of discount on subordinated
promissory note due Seller 1,216 1,292
Deferred income tax expense (benefit) (44) 73
Changes in assets and liabilities:
(Increase) in receivables (3,022) (4,586)
Decrease in inventories 1,056 4,078
(Decrease) in accounts payable (5,414) (5,661)
(Decrease) increase in accrued income taxes (33) 1,229
Increase in accrued liabilities 1,469 401
Decrease in deferred income taxes, net -- 1,484
Other, net (120) (15)
------- ------
Net cash provided by operating activities 14,638 15,275
------- ------
Investing activities:
Purchase of Leavitt Tube Company, Inc. (92,719) --
Deferred acquisition costs (1,005) --
Additions to property, plant and equipment (1,766) (3,063)
-------- -------
Net cash (used in) investing activities (95,490) (3,063)
-------- -------
Financing activities:
Revolving credit facility borrowings, net 5,359 --
Proceeds from issuance of long-term debt 60,000 --
Issuance of common stock - options exercised 36 --
------- --------
Net cash provided by financing activities 65,395 --
------- --------
Net increase (decrease) in cash
and cash equivalents (15,457) 12,212
Cash and cash equivalents, beginning of period 16,973 173
------- -------
Cash and cash equivalents, end of period $1,516 $12,385
======= =======
Supplemental disclosures:
Interest and bank fees paid $124 $139
======= =======
Income taxes paid $10,251 $5,980
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
CHASE BRASS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies:
Principles of Consolidation and Interim Financial Information
The consolidated balance sheet as of September 30, 1996, and December 31, 1995,
the consolidated statement of operations for the three and nine months ended
September 30, 1996 and 1995, and the consolidated statement of cash flows for
the nine months ended September 30, 1996 and 1995, include the accounts of Chase
Brass Industries, Inc. (the "Company"), a Delaware corporation, and its wholly-
owned subsidiaries, Chase Brass & Copper Company, Inc. ("CBCC"), a Delaware
corporation, Leavitt Tube Company, Inc. ("Leavitt"), a Delaware corporation, and
Holco Corporation ("Holco"), an Illinois corporation and wholly-owned subsidiary
of Leavitt.
The accompanying financial statements have been prepared in accordance with
instructions to Form 10-Q and do not include all the information and footnote
disclosures required by generally accepted accounting principles. The financial
information for September 30, 1996 and 1995, included herein is unaudited, and,
in the opinion of management, reflects all adjustments necessary, consisting
only of normal recurring adjustments, for a fair presentation of such financial
information.
The results of operations for the three and nine months ended September 30,
1996, are not necessarily indicative of the results of operations that may be
expected for the year ended December 31, 1996. This quarterly report on Form
10-Q should be read in conjunction with the annual financial statements included
in the Company's Form 10-K dated March 27, 1996.
On August 24, 1990, the Company acquired, through CBCC, the assets and
operations of a Delaware corporation formerly named Chase Brass & Copper
Company, Incorporated ("Old Chase"), pursuant to the Asset Purchase Agreement
("CBCC Purchase Agreement") dated May 10, 1990, by and between the Company,
CBCC, Old Chase, BP Exploration (Alaska) Inc. ("BPE") and The Standard Oil
Company (the "CBCC Acquisition"). BPE and The Standard Oil Company
(collectively referred to as "BP") own all of the stock of Old Chase. The CBCC
Acquisition was accounted for as a purchase.
Earnings Per Share
Earnings per share is computed based upon the average number of common shares
and common share equivalents outstanding during the periods presented.
2. Leavitt Acquisition:
On August 30, 1996, the Company acquired, through Leavitt, the assets and
operations of the steel tube division of UNR Industries, Inc., including all of
the outstanding stock of Holco (the "Leavitt Acquisition"). Upon consummation
of the Leavitt Acquisition, Leavitt commenced operations in the manufacture and
sale of structural and mechanical steel tubing. The purchase price of $95
million was reduced at closing by estimated post-closing adjustments of $2.5
million. The Leavitt Acquisition was accounted for as a purchase.
In connection with the Leavitt Acquisition, the Company entered into a Bank
Credit Facility (as hereinafter defined) of $100 million agented by PNC Bank,
National Association, of which $62 million was used to finance the Leavitt
Acquisition. The balance of the purchase price was paid with cash on hand. Of
the $62 million used under the Bank Credit Facility, $60 million was obtained
pursuant to a Term Loan (as hereinafter defined) and $2 million was obtained
under a $40 million Revolving Credit Facility (as hereinafter defined). The
balance of the Bank Credit Facility is available for working capital and to fund
future acquisitions. The Bank Credit Facility replaced the Company's existing
$33 million bank credit facility, which was terminated August 30, 1996.
The pro forma data outlined below reflects pro forma adjustments to the
statement of operations for the nine months ended September 30, 1996 and 1995,
as if the Leavitt Acquisition occurred as of the beginning of each respective
period presented. As of the Leavitt Acquisition date, the value of Leavitt's
property, plant and equipment was increased $31.3 million over its then-current
book value to reflect the estimated fair value of the assets purchased. Assets
totaling $4.4 million were recorded as of the Leavitt Acquisition date to
reflect a non-compete agreement, a supply agreement with an affiliate of UNR
Industries, Inc. and to reflect the actual purchase price in excess of the fair
value of the assets acquired. The pro forma adjustments reflect the impact of
additional depreciation and amortization expenses. The pro forma adjustments
also reflect the impact of additional interest expense resulting from the
Leavitt Acquisition debt and the elimination of CBCC interest income partially
offset by the elimination of interest expense on the portion of Leavitt debt not
assumed by the Company. The income tax effect of the pro forma adjustments is
based on an effective income tax rate of 40%. Pro forma results for the nine
months ended September 30 follows (amounts in thousands):
1996 1995
-------- --------
Net sales $362,155 $358,789
Net income $17,695 $17,859
Earnings per share $1.76 $1.78
3. Inventories:
Inventories are stated at the lower of cost-or-market, with cost determined on
the last-in, first-out (LIFO) basis. Inventories have been written down to
lower of cost-or-market and such amounts are considered cost for subsequent
periods. If the first-in, first-out (FIFO) method for determining cost had been
used, inventories would have been approximately $3.2 million and $4.3 million
higher at September 30, 1996, and December 31, 1995, respectively. Inventories
consisted of the following (in thousands):
September 30, December 31,
1996 1995
------- -------
Raw materials $11,029 $6,641
Work in process 15,875 4,903
Finished goods 20,048 7,952
------- -------
46,952 19,496
Tolling metal due customers (2,833) (3,521)
------- -------
$44,119 $15,975
======= =======
4. Commitments and Contingencies:
In connection with the CBCC Acquisition, the Company and BP entered into a
Remediation Agreement (the "Remediation Agreement"). Under the terms of the
Remediation Agreement, BP is responsible for certain remediation activities
attributable to environmental releases which occurred prior to the CBCC
Acquisition at CBCC's manufacturing facility and the construction of a new waste
water treatment plant to enable CBCC to comply with its waste water discharge
permit (the "Permit"). BP also is obligated under the CBCC Purchase Agreement
to indemnify the Company for liabilities arising out of certain environmental
conditions that existed as of the CBCC Acquisition date. BP has performed
certain activities in this regard and has acknowledged liability for certain
releases of regulated substances into the environment which occurred prior to
the CBCC Acquisition.
While CBCC's new waste water treatment plant has been in operation since
May 1993, CBCC is still experiencing exceedances to certain limitations
contained in the Permit, resulting in violations of the Clean Water Act. BP and
CBCC have identified several conditions contributing to the exceedances and are
actively working to correct the problems that have precluded CBCC's routine
compliance with the Permit. The Ohio Environmental Protection Agency (the "Ohio
EPA") is kept apprised as to the status of the parties' activities concerning
the elimination of exceedances, concurs with the proposals for corrective
measures. The Ohio EPA has not initiated any enforcement action against CBCC
for prior exceedances, but has indicated that it may do so if violations of the
Permit limits continue after January 31, 1997. CBCC has filed an application
with the Ohio EPA to initiate a control project designed to eliminate
exceedances to the Permit limits. Pending approval by the Ohio EPA, CBCC
anticipates the control project will be completed by January 31, 1997, avoiding
Ohio EPA enforcement action relating to future exceedances.
CBCC and/or other entities named "Chase Brass & Copper Co." (which may include
Old Chase or divisions of Old Chase) have been named by governmental agencies
and/or private parties as a potentially responsible party ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and/or analogous state laws with respect to two sites, and may have
been identified as a PRP at one additional site.
In connection with one of the two sites, located in Cleveland, Ohio, CBCC has
been named as one of over 130 defendants in a CERCLA Section 107 action which
seeks recovery of response costs previously spent and proposed to be spent by
the plaintiff. The plaintiff has alleged that between 1990 and 1993 it and the
other ordered parties have incurred response costs in excess of $10 million. The
Company believes that CBCC has had no contact with the site and has no knowledge
as to what, if any, share of response costs has been allocated to CBCC. BP has
been notified of this suit and has assumed the defense thereof because alleged
events giving rise to the CERCLA liability occurred prior to the CBCC
Acquisition.
With respect to the second site, located in Tifton, Georgia, CBCC has been
notified by a group of private parties of its potential identification as a PRP.
The notice alleges that CBCC may be liable for contribution with respect to
prior cleanup costs incurred by third parties at this site and may be required
to participate in funding future cleanup costs at this site. The Company
believes that CBCC has had no contact with the site and has no knowledge as to
what, if any, share of response costs would be allocated to CBCC if it is
determined that CBCC or Old Chase had any contact with this site. BP has been
notified and has assumed defense of this matter.
The additional site, located in Mifflin County, Pennsylvania, was placed on the
United States Environmental Protection Agency's (the "EPA") National Priorities
List in 1989. While CBCC has not received any formal notification from the EPA
or any third party, the Company believes that Old Chase has been identified by
the EPA as a PRP. To the Company's knowledge, however, neither CBCC nor the
brass rod division of Old Chase directly disposed of hazardous wastes at this
site. Nevertheless, BP has been notified by the Company of CBCC's (or Old
Chase's) apparent identification as a PRP and BP's responsibility for any
liability associated with this site as it relates to periods prior to the date
of the CBCC Acquisition. Based on information available to the Company, it
appears that if CBCC or Old Chase were determined to be liable, liability would
be allocated on the basis of 0.5828% of total cleanup costs of approximately
$64.5 million (or approximately $376,000) at September 30, 1996.
The Company believes that CBCC has no liability for the cleanup costs related to
these sites because (a) such liability is attributable to an entity that had the
same or similar name to that of CBCC, such as a division or subsidiary of BP
(other than the brass rod division of Old Chase), or (b) such liability arose
from acts that occurred prior to the CBCC Acquisition and, therefore, BP
retained such liability under the CBCC Purchase Agreement and is contractually
obligated to indemnify the Company for such liabilities. To the extent CBCC
incurs any cleanup costs with respect to these sites, it intends to enforce its
rights under the CBCC Purchase Agreement to recover such amounts from BP.
Preliminary studies conducted immediately prior to the CBCC Acquisition
indicated that the site upon which CBCC's manufacturing facility is located has
been contaminated with certain volatile organic compounds, including
trichlorethylene, as well as total petroleum hydrocarbons and certain metals
from historical operating practices. While the Company is aware that the site is
contaminated, the full extent and magnitude of contamination has not yet been
determined. Pursuant to the Remediation Agreement, BP is required to fund a
comprehensive site investigation to determine the extent of contamination and
appropriate cleanup methods. The results of the initial site investigation
activities were provided to CBCC in second quarter 1996, which results have
identified the presence and location of certain contaminants. BP also provided
to CBCC a draft remediation plan with respect to certain areas of the facility
based on the results of the initial sampling. CBCC currently is reviewing the
initial sampling results and draft remediation plan provided to it to determine
appropriate cleanup standards. After CBCC completes its review of the material
provided by BP, CBCC intends to meet with BP and the Ohio EPA to determine the
extent of additional investigation activities that may be required and to
develop a comprehensive remediation plan for the site. Thereafter, the Company
anticipates that actual cleanup of the site will be conducted by or on behalf of
BP in accordance with regulatory approval.
Because the site investigatory activities are not yet complete, the Company
presently is unable to estimate with any degree of certainty the extent of
contamination or the amount of site cleanup costs associated therewith, although
such costs may be material. However, because BP has acknowledged its
obligations with respect to site contamination attributable to Old Chase's
operations, the probability that CBCC would be required to make material
expenditures related to site cleanup appears to be remote. Accordingly, no
reserves have been established regarding the aforementioned matters.
Additionally, the Company expects no material impact on its financial position,
results of operations or liquidity as a result of the existence of any other
environmental conditions.
To the extent CBCC incurs cleanup costs with respect to this site, it intends to
enforce its rights under the CBCC Purchase Agreement to recover such amounts
from BP. However, to the extent CBCC is required to fund cleanup costs related
to the remediation of contamination at its manufacturing facility as a result of
BP's refusal to implement remediation activities acceptable to CBCC, such costs
could have a material adverse effect on the Company's financial condition and
results of operations pending the recovery of such amounts from BP. In the event
the Company is entitled to recovery from BP pursuant to the CBCC Purchase
Agreement, or otherwise, but is unable to collect such amounts from BP, the
Company may elect to offset the amounts of such recoveries against amounts
payable under the $20 million Seller Note (as hereinafter defined) to the extent
it legally is entitled to do so.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company, through its wholly owned subsidiaries CBCC and Leavitt, is a
leading manufacturer of free-machining and forging brass rod and structural and
mechanical steel tubing.
CBCC
CBCC is an ISO 9002 certified manufacturer and supplier of free-machining and
forging brass rod in the United States and Canada and, from its Montpelier,
Ohio, plant supplied approximately 32% of copper alloy rod shipped by U.S. mills
in 1995. Free machining and forging brass rod are the two primary types of
copper alloy rod used in the United States and Canada, which CBCC estimates
represent approximately 80% and 12%, respectively, of total annual copper alloy
rod shipments by U.S. mills. The main attributes of copper alloy rod are its
excellent corrosion resistance, moderate strength and the ease with which it can
be machined or forged into a variety of shapes. CBCC is one of the largest
manufacturers and suppliers in the United States and Canada of free-machining
brass rod, which accounts for approximately 95% of CBCC's total shipments.
Free-machining brass rod is used to produce brass products, such as valves and
fittings, by a machining process during which the brass rod is formed, drilled
and cut. Forging brass is used to produce brass products by a process during
which a heated slug cut from a rod is pressed into an impression die and then
machined.
The primary distinction between products manufactured from free-machining and
forging brass rod is that free-machining brass products generally are used in
air and water applications (such as faucet, industrial valve and automotive
components), hardware products and similar applications, whereas forging brass
products are more dense and, therefore, generally are used in industrial fluid
(such as refrigerant) and other low pressure applications.
CBCC supplies a diverse customer base of over 300 companies in the United States
and Canada, including original equipment manufacturers, independent fabricators
and distributors. CBCC's 25 largest customers have been doing business with
CBCC for an average of nearly 18 years. CBCC markets its products under its
"Blue Dot" trademark, which the Company believes is recognized throughout the
industry for its high quality, low lead content and uniform lead distribution
which enhances the machinability of its brass rod. CBCC maintains the quality
and consistency of its products through an extensive quality control program,
including the inspection of incoming raw materials, utilization of statistical
process control procedures and quality testing throughout the manufacturing
process.
The principal raw material used in CBCC's manufacturing process is brass scrap,
approximately 80% of which is obtained from customers and 20% of which is
purchased from scrap dealers at prevailing free-market prices. Free-market
prices of brass scrap fluctuate based on the supply of and demand for brass
scrap and the price for copper and zinc (the major components of brass), and
generally are less than the price at which brass scrap is purchased from
customers ("Metal Buying Price").
CBCC's pricing structure consists of a metal selling price and a fabrication
price as separate components. The metal price charged to customers ("Metal
Selling Price") is determined at the time of shipment based on the then-current
Metal Buying Price and is not directly affected by fluctuations in free-market
brass scrap prices. As a result of this pricing structure, increases and
decreases in the Metal Selling Price will affect net sales levels and gross
profit as a percentage of sales, even in the absence of an increase or decrease
in shipments or the fabrication prices charged to customers, but will have
little impact on the Company's gross profit levels. However, the quantity of
free-market brass scrap purchased by CBCC and changes in the difference between
the free-market prices paid for brass scrap and the Metal Buying Price will
affect the Company's gross profit, even in the absence of an increase or a
decrease in shipments or net sales levels.
In addition to sales made under the pricing structure described above, some
sales are made on a tolling basis. In a tolling arrangement, the customer
consigns brass scrap to CBCC and is charged a fabrication price for processing
the brass scrap into finished rod. Tolling transactions reduce the Company's
net sales by the Metal Selling Price that otherwise would be charged to the
customer in a sale of finished brass rod and cost of goods sold by the Metal
Buying Price that otherwise would be paid to the customer. To a lesser extent,
tolling transactions also affect the Company's gross profit to the extent CBCC
is unable to take advantage of the pricing differential on brass scrap purchased
and sold. To partially offset the effect of tolling transactions on the
Company's gross profit, in March 1994 CBCC began requiring tolling customers to
deliver 1.03 pounds of brass scrap in exchange for each pound of finished rod
shipped and, in October 1994, increased this tolling premium to 1.04 pounds of
brass scrap in exchange for each pound of finished rod shipped.
Leavitt
Leavitt is a leading producer of structural and mechanical electric resistance
welded steel tubing in a variety of shapes ranging in size from 3/8" to 12 3/4".
Leavitt has plants in Chicago, IL, Hammond, IN, and Jackson, MS, with
substantially all tubing products sold to steel service centers and industrial
users throughout the continental United States. Leavitt's structural steel
tubing is used in farm equipment, non-residential construction and other
structural applications. The mechanical steel tubing is used in a broad range
of consumer and commercial products, including furniture and fixtures, lawn-care
products, storage racks, exercise equipment, bicycles and machine tools.
Leavitt is known throughout the steel tubing industry as "The Tube People."
In contrast to CBCC's metal pricing and cost structure, Leavitt's financial
performance may be impacted by changes in the price it pays for flat-rolled
steel, the primary cost component of Leavitt's finished product, based on the
market conditions in the flat-rolled steel industry. Based on the then-current
market conditions in the steel tubing industry, Leavitt may or may not pass the
economic impact of steel price changes onto its customers through changes in the
selling price.
Results of Operations
Three Months Ended September 30, 1996, Compared with Three Months Ended
September 30, 1995
Results for the three months ended September 30, 1996, include one month of
results for Leavitt, which is a predominant factor contributing to the increases
discussed below.
Net sales increased $19.6 million, or 29%, to $88.3 million in 1996 due to the
addition of Leavitt and increased brass rod shipments. The shipment increase
was influenced by continued demand from CBCC customers as well as declining net
import levels. Net imports for the eight months ended August 1996 (the most
recent data available) totaled 54.3 million pounds compared with 111.6 million
pounds for the same period in 1995.
As a result of the above factors, the Company's gross profit increased $5.0
million, or 54%, to $14.3 million in third quarter 1996.
Selling, general and administrative expenses increased $1.8 million to $3.6
million in third quarter 1996 compared with 1995. The increase was attributed
primarily to the Leavitt Acquisition.
Depreciation and amortization increased $374,000, or 27%, to $1.8 million in
third quarter 1996, principally due to increased depreciation on capital assets
acquired in the Leavitt Acquisition.
As a result of the above factors, operating income increased $2.9 million, or
48%, to $8.9 million in third quarter 1996.
Net interest expense increased $266,000, or 76%, to $618,000 in third quarter
1996, primarily as a result of interest expenses associated with Leavitt
Acquisition debt and reduced interest income due to the use of cash on hand in
the Leavitt Acquisition.
Income tax expense increased $1.0 million, or 45%, to $3.3 million in third
quarter 1996 as a result of an increase of $2.6 million, or 46%, in income
before income taxes.
Based on the above factors, net income increased $1.6 million, or 47%, to $5.0
million. Earnings per share increased to $.50 in third quarter 1996 compared
with $.34 in third quarter 1995. Leavitt contributed earnings of three cents
per share after interest expense associated with the acquisition debt in third
quarter 1996.
Nine Months Ended September 30, 1996, Compared with Nine Months Ended September
30, 1995
Net sales increased $22.5 million, or 9%, to $260.3 million for the nine months
ended September 30, 1996, due primarily to increased brass rod shipments and the
addition of Leavitt partially offset by lower Metal Selling Prices and an
increase in toll shipments. Demand from CBCC customers remained strong in 1996
and net imports declined as compared with 1995. Although brass rod industry
shipments excluding CBCC through September 1996 declined a total of 14.9 million
pounds, or 3%, compared with the prior year, CBCC increased brass rod shipments.
Management believes that the Company's ability to increase shipments results
from the Company's quality product and emphasis on customer service. The
average Metal Selling Price for the nine months ended September 30, 1996,
declined nearly 5% compared with the same period in 1995 due to a downward trend
in copper prices.
As a result of the above factors, the Company's gross profit increased $6
million, or 18%, to $38.8 million for the nine months ended September 30, 1996.
Selling, general and administrative expenses increased $1.8 million, or 28%, to
$8.0 million for the nine months ended September 30, 1996, compared with 1995.
The increase was attributed primarily to the Leavitt Acquisition.
Depreciation and amortization decreased $172,000, or 4%, to $4.2 million for the
nine months ended September 30, 1996, principally due to certain CBCC intangible
assets becoming fully amortized in third quarter 1995, partially offset by
increased depreciation on capital additions and on capital assets acquired as
part of the Leavitt Acquisition.
Operating income increased $4.3 million, or 20%, to $26.6 million for the nine
months ended September 30, 1996, as a result of the above factors.
Net interest expense increased less than 1%, due to increased interest expense
on Leavitt Acquisition debt partially offset by interest income earned on higher
short-term investment levels prior to the Leavitt Acquisition.
Income tax expense increased $1.6 million, or 19%, to $10.0 million for the nine
months ended September 30, 1996, as a result of an increase of $4.3 million, or
21%, in income before income taxes.
Based on the above factors, net income increased $2.7 million, or 22%, to $15.3
million for the nine months ended September 30, 1996. Earnings per share
increased to $1.52 for the nine months ended September 30, 1996, compared with
$1.25 for the nine months ended September 30, 1995.
Liquidity and Capital Resources
General
At September 30, 1996, increases in assets and liabilities compared with year
end 1995 were predominately due to the Leavitt Acquisition. The most
significant impact was on long-term debt, which increased to $86.2 million from
$18 million at year end 1995. Cash and cash equivalents, which totaled $17.0
million at year end 1995, declined to $1.5 million as a result of funding a
portion of the Leavitt purchase price.
Cash flow from operations (net income plus depreciation and amortization less
capital expenditures) increased 28% to $17.8 million for the nine months ended
September 30, 1996, compared with $13.9 million for the same period in 1995.
Cash flow from operations will be applied to reduce bank debt. The Company is
currently meeting its operational and liquidity needs with cash on hand,
internally generated funds and amounts available under the New Bank Credit
Facility (as hereinafter defined).
Working Capital
At September 30, 1996, working capital was $52.2 million, a $15.4 million, or
42%, increase from $36.8 million at December 31, 1995.
At September 30, 1996, increases in assets and liabilities compared with year
end 1995 were predominately due to the Leavitt Acquisition. The increase in
working capital resulted from a $16.5 million, or 59%, increase in accounts
receivable, a $28.1 million, or 176%, increase in inventories, and a $1.6
million increase in deferred taxes, partially offset by a $15.5 million, or 91%,
decrease in cash and cash equivalents, a $4.1 million increase in accounts
payable, a $7.9 million increase in accrued liabilities, and a $3.3 million
increase in the current portion of long-term debt. The decrease in cash and
cash equivalents was the result of funding a portion of the Leavitt purchase
price.
The Company's current ratio follows:
September 30, 1996 December 31, 1995
------------------ -----------------
Current ratio 2.27 2.43
Current ratio excluding cash 2.23 1.77
Cash Flow Provided by Operating Activities
In the nine months ended September 30, 1996, net cash provided by operating
activities was $14.6 million, which included net income of $15.3 million,
depreciation and amortization of $4.2 million and accretion of discount on the
Seller Note of $1.2 million, partially offset by an increase in working capital,
excluding cash and debt, of $5.8 million.
In the nine months ended September 30, 1995, net cash provided by operating
activities was $15.3 million. Net income of $12.6 million, depreciation and
amortization of $4.4 million and accretion of discount on the Seller Note of
$1.3 million were the primary sources of cash from operating activities,
partially offset by an increase in working capital, excluding cash, of $3.0
million.
Cash Flow Used in Investing Activities
Investing activities for the nine months ended September 30, 1996, included the
purchase of Leavitt, at cost, of $92.7 million. Deferred financing and
acquisition costs associated with the Leavitt Acquisition totaled $1.0 million.
Capital additions were $1.8 million for the nine months ended September 30,
1996, and $3.1 million for the nine months ended September 30, 1995. The
Company has allocated more than $5 million for capital improvements in 1996.
The Company plans to focus on expansion of CBCC's extrusion press system in
1997, with the first phase of the project to begin in fourth quarter 1996.
Cash Flow Provided by Financing Activities
Cash provided by financing activities of $65.4 million for the nine months ended
September 30, 1996, consisted of proceeds from the issuance of term loans and
net borrowings on the revolving credit facility totaling $65.4 million in
conjunction with the Leavitt Acquisition. The Company did not have any
financing activities during the nine months ended September 30, 1995.
Bank Credit Facility
In connection with the Leavitt Acquisition, the Company entered into a new
credit facility (the "Bank Credit Facility") of $100 million agented by PNC
Bank, National Association. The Bank Credit Facility replaced the Company's
existing $33 million bank credit facility, which was terminated August 30, 1996.
The Bank Credit Facility includes a $60 million term loan ("Term Loan") and a
$40 million revolving credit facility ("Revolving Credit Facility"). The Term
Loan is payable in quarterly installments in amounts ranging from $1,050,000 in
January 1997 to $3,750,000 due as the final payment October 2003. The total
borrowing capacity under the Revolving Credit Facility is determined monthly by
a formula based on levels of inventory and accounts receivable, up to a maximum
of $40 million. The Revolving Credit Facility commitment expires August 30,
2001, and the Company can request a one-year extension of the expiration date at
any time after December 31, 1997.
Advances under the Bank Credit Facility will bear interest, at the Company's
option, at a rate per annum equal to (i) the higher of (a) PNC Bank's prime rate
or (b) the Federal funds rate plus 1/2%, or (ii) LIBOR for the applicable
borrowing period plus 1/2%, 5/8%, 3/4%, 7/8%, 1 1/8%, or 1 3/8% depending on the
Company's ratio of total debt to earnings before interest, taxes, depreciation
and amortization, with interest payable quarterly or as of the end of each LIBOR
borrowing period, if shorter.
The Bank Credit Facility contains certain covenants that, among other things,
limit the Company's ability to incur additional debt, make capital expenditures
or pay dividends. The covenants also require the Company to maintain a minimum
interest coverage ratio and level of net worth and restrict the Company from
exceeding a maximum ratio of debt to cash flow from operations. The Bank Credit
Facility also requires the Company to maintain CBCC and Leavitt as wholly-owned
subsidiaries.
As of September 30, 1996, the amount outstanding under the Revolving Credit
Facility was $5.4 million and the amount of total availability under the
Revolving Credit Facility was $34.6 million.
Contingencies
In connection with the CBCC Acquisition, the Company issued the seller note (the
"Seller Note") in the original principal amount of $20.0 million. The Seller
Note has an initial maturity in August 1996, is subordinated to all other
indebtedness of the Company and at the CBCC Acquisition date was recorded at a
discount using a 10.4% effective interest rate. The Company has exercised its
option to extend the maturity date of the Seller Note for three additional years
to August 1999. The Seller Note required a contingent interest payment of
$254,000 due in August 1996 based upon average Company earnings (defined in the
Seller Note) for the years ended December 31, 1990 through 1995. The Company
offset the full amount of the contingent interest payment against amounts owed
to the Company by BP pursuant to certain claims under the CBCC Purchase
Agreement and reimbursements due under the Remediation Agreement. Interest is
payable annually on the Seller Note August 1997 through August 1999 at a rate of
9.28% per annum, which is based on the average three-year U.S. Treasury Note
rate plus 3%.
Environmental Matters
Capitalized terms used but not defined herein shall have the meaning ascribed to
them under Note 4 of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements" in Part I. hereof.
The Company's operations are subject to federal, state and local pollution
control laws and regulations relating to the discharge of hazardous or regulated
materials into the environment, the transport and sale of hazardous or regulated
materials and the disposal of certain materials and wastes. These laws and
related regulations are changing constantly and, as a consequence, are subject
to differing interpretations by the agencies that administer them. Moreover,
increasingly stringent regulations often result in the mandatory implementation
of additional and/or modified pollution control procedures and processes which
may result in material increases in compliance costs. Management currently is
not aware of any pending changes to existing environmental laws that would
require the Company to incur significant capital expenditures for pollution
control.
For the above reasons, the Company cannot predict with certainty its aggregate
future capital expenditures for pollution control. However, the Company
estimates that it will incur capital expenditures for pollution control of
approximately $500,000 in 1996, a portion of which may be subject to
reimbursement by BP under the Remediation Agreement and the CBCC Purchase
Agreement discussed below. Estimates of capital expenditures for pollution
control purposes beyond 1996 are even more uncertain. However, assuming no
significant manufacturing process changes and no significant changes in
applicable laws or regulations, the Company currently anticipates that its
capital expenditures for pollution control purposes for 1997 will be
approximately $500,000, and during the period 1998-1999 will aggregate
approximately $500,000. These estimates of future capital expenditures are
exclusive of capital expenditures associated with on-site remediation activities
at CBCC, which the Company anticipates will be paid for by BP, as more fully
discussed below. The Company believes that expenditures for pollution control
equipment will continue to be required in the future for continued compliance
with applicable environmental laws and regulations.
The Remediation Agreement entered into between the Company and BP in connection
with the CBCC Acquisition provides for, among other things, BP to fund certain
post-closing activities, including the investigation and remediation of on-site
contamination that existed as of the CBCC Acquisition date at the location on
which CBCC's manufacturing facility is located and the construction of a new
waste water treatment plant to enable CBCC to comply with the Permit. In
addition, under the CBCC Purchase Agreement, BP is obligated to indemnify the
Company for liabilities arising out of certain environmental conditions that
existed as of the CBCC Acquisition date.
Although CBCC's new waste water treatment plant (funded, designed and installed
by BP) has been in operation since May 1993, CBCC is still experiencing
exceedances to certain limitations contained in the Permit, resulting in
violations of the Clean Water Act. BP and CBCC have identified several
conditions contributing to the exceedances and are actively working to correct
the problems that have precluded CBCC's routine compliance with the Permit. The
Ohio EPA is kept apprised as to the status of the parties' activities concerning
the elimination of exceedances, concurs with the proposals for corrective
measures. The Ohio EPA has not initiated any enforcement action against CBCC
for prior exceedances, but has indicated that it may do so if violations of the
Permit limits continue after January 31, 1997. CBCC has filed an application
with the Ohio EPA to initiate a control project designed to eliminate
exceedances to the Permit limits. Pending approval by the Ohio EPA, CBCC
anticipates the control project will be completed by January 31, 1997, avoiding
Ohio EPA enforcement action relating to future exceedances.
Preliminary studies conducted immediately prior to the CBCC Acquisition
indicated that the site upon which CBCC's manufacturing facility is located has
been contaminated by certain volatile organic compounds, including
trichloroethylene, as well as total petroleum hydrocarbons and certain metals
from historical operating practices. BP and CBCC jointly approached the Ohio
EPA and proposed a voluntary cleanup approach for remediation at the site and
have conducted site investigation activities to determine the extent of
contamination and appropriate cleanup methods. The results of the initial site
investigation activities were provided to CBCC in second quarter 1996, which
results have identified the presence and location of certain contaminants. BP
also provided to CBCC a draft remediation plan with respect to certain areas of
the facility based on the results of the initial sampling. CBCC currently is
reviewing the initial sampling results and draft remediation plan provided to it
to determine appropriate cleanup standards. After CBCC completes its review of
the material provided by BP, CBCC intends to meet with BP and the Ohio EPA to
determine the extent of additional investigation activities that may be required
and to develop a comprehensive remediation plan for the site. The investigation
is being conducted on a voluntary basis with the concurrence of the Ohio EPA.
Until CBCC's review of initial site investigatory studies and any additional
investigatory activities that are necessary are completed, the Company will be
unable to estimate with any degree of certainty the extent of contamination or
the amount of cleanup costs associated therewith.
The cleanup costs associated with the environmental conditions described above
may be material and, in the event CBCC were determined to be solely responsible
or liable for site cleanup activities (due to the inability or unwillingness of
other responsible parties to perform or pay for such activities), such
expenditures could have a material adverse effect on the Company's earnings and
financial condition. However, as noted above, BP is contractually obligated
under the Remediation Agreement to fund the investigation and remediation of on-
site contamination that existed at the CBCC Acquisition date. Therefore, based
on BP's contractual obligation under the Remediation Agreement, as well as BP's
contractual obligation under the CBCC Purchase Agreement to indemnify the
Company as described above, the Company does not believe that the cleanup costs
or other liabilities associated with such conditions will have a material
adverse effect on the Company's financial position, results of operations or
liquidity and the Company has not made any related accruals of all or any part
of such costs.
CBCC and/or other entities named "Chase Brass & Copper Co." (which may include
Old Chase or divisions of Old Chase) have been named by governmental agencies
and/or private parties as a PRP under CERCLA and/or state laws with respect to
two sites, and may have been identified as a PRP at one additional site. See
Note 4 of Notes to Consolidated Financial Statements. The Company believes that
it has no liability for the cleanup costs related to these sites because
(a) such liability is attributable to an entity that had the same or similar
name to that of CBCC, such as a division or subsidiary of BP (other than the
brass rod division of Old Chase), or (b) such liability arose from acts that
occurred prior to the CBCC Acquisition and, therefore, BP retained such
liability under the CBCC Purchase Agreement and is contractually obligated to
indemnify the Company for such liabilities.
Notwithstanding these factors, because the Company is subject to environmental
laws such as CERCLA that impose liability retroactively and without regard to
fault, the Company could be deemed primarily liable for cleanup costs associated
with these sites.
To the extent the Company incurs any costs and expenses with respect to the
environmental matters discussed above, it intends to enforce its rights under
the CBCC Purchase Agreement and/or the Remediation Agreement to recover such
amounts from BP. However, to the extent CBCC is required to fund cleanup costs
related to the remediation of contamination at its manufacturing facility, such
costs could be material and could have a material adverse effect on the
Company's financial condition and results of operations pending recovery of such
amounts from BP. In the event the Company is entitled to recovery from BP
pursuant to the CBCC Purchase Agreement, or otherwise, but is unable to collect
such amounts from BP, the Company may elect to offset the amounts of such
recoveries against amounts payable under the $20 million Seller Note to the
extent it legally is entitled to do so.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Capitalized terms used but not defined herein shall have the meaning ascribed to
them under Note 4 of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements" in Part I. hereof.
The Company is involved from time to time in certain claims and litigation
arising in the ordinary course of business. Management believes that the
ultimate disposition of these matters will not have a material effect on the
Company's financial position, results of operations or liquidity.
CBCC and/or other entities named "Chase Brass & Copper Co." (which may include
Old Chase or divisions of Old Chase) have been named by governmental agencies
and/or private parties as a PRP under CERCLA and/or analogous state laws with
respect to two sites, and may have been identified as a PRP at one additional
site, as discussed in the following paragraphs.
CBCC has been named one of over 130 defendants in a CERCLA Section 107 action
styled Ashland Oil, Inc. v. Acme Scrap Iron & Metal Corp., et. al. (Case
No. I:94 CV 1592), which seeks recovery of response costs previously spent and
proposed to be spent by the plaintiff Ashland Oil at the Huth Oil Services
Company site located in Cleveland, Ohio. A waste oil reclamation facility was
operated at the site from 1938 until 1990. Beginning in 1983, and at various
other times until 1990, both the U.S. EPA and the Ohio EPA conducted inspections
and sampling at this site. In October 1990, the U.S. EPA ordered the plaintiffs,
Ashland Chemical Company (a division of Ashland Oil, Inc.), The Cleveland
Electric Illuminating Company and Huth Oil Services Company, to remediate the
site. As a result thereof, the plaintiff has alleged that between 1990 and 1993
it and the other ordered parties have incurred response costs in excess of $10
million. The complaint alleges that the defendants are each strictly, as well as
jointly and severally, liable. The Company believes, however, that CBCC has had
no contact with the site and has no knowledge as to what, if any, share of
response costs has been allocated to it. BP has been notified of the institution
of this suit and has assumed the defense thereof because alleged events giving
rise to CERCLA liability occurred prior to the CBCC Acquisition.
CBCC has been notified by a group of private parties of its potential
identification as a PRP at a site in Tifton, Georgia, commonly known as the
"SoGreen" site. According to the notice, a flue dust and flyash recycling
facility was operated at the site from approximately 1976 until 1993. Pursuant
to a consent order entered into between Atlantic Steel Industries, Inc., Florida
Steel Corporation, Georgetown Steel Corporation, Owen Electric Steel Company of
South Carolina and U.S. Foundry & Manufacturing Corporation (collectively, the
"Steel Companies") and the Georgia Department of Natural Resources
, Environmental Protection Division, the Steel Companies have been engaged in
removing a flue dust pile, and also have undertaken an assessment of
groundwater, at this site. In addition, pursuant to a U.S. EPA unilateral order,
the Steel Companies apparently are engaged in a removal action to remediate
contaminated soils, and are undertaking the cleanup of non-metal contaminants,
at the site. The notice also indicates that the Steel Companies settled, for
approximately $3 million, a class action brought by residents of the area near
the site alleging property damage due to the proximity of the residents'
neighborhood to the site. The notice alleges that CBCC may be liable for
contribution with respect to prior cleanup costs incurred by the Steel Companies
and may be required to participate in funding future cleanup costs at the site.
According to the notice, the Steel Companies currently have expended or are
committed to expend approximately $17 million (including settlement of the class
action) on matters related to the site. The Company believes that CBCC has had
no contact with this site and that this site received waste materials from an
entity named "Chase Brass & Copper Co.," which may have been a division of Old
Chase (not related to the brass rod division acquired by the Company), located
in North Carolina. BP has been notified and has assumed defense of this matter.
The Jack's Creek, or Sitkin Smelting & Refining, site located in Mifflin County,
Pennsylvania, was placed on the U.S. EPA's National Priorities List in 1989.
While CBCC has not received any formal notification from the U.S. EPA or any
third party, the Company believes that Old Chase has been identified by the U.S.
EPA as a PRP. To the Company's knowledge, however, neither CBCC nor the brass
rod division of Old Chase directly disposed of hazardous wastes at this site.
Nevertheless, BP has been notified by CBCC of its (or Old Chase's) apparent
identification as a PRP and BP's responsibility for any liability associated
with this site as it relates to periods prior to the date of the CBCC
Acquisition. Based on information available to the Company, it appears that if
CBCC or Old Chase were determined to be liable, liability would be allocated on
the basis of 0.5828% of total cleanup costs of approximately $64.5 million (or
approximately $376,000) at September 30, 1996.
The Company believes that CBCC has no liability for the cleanup costs related to
the sites described above because (a) such liability is attributable to an
entity other than CBCC that had the same or similar name to that of CBCC, such
as a division or subsidiary of BP (other than the brass rod division of Old
Chase), or (b) such liability arose from acts that occurred prior to the CBCC
Acquisition and, therefore, BP retained such liability under the CBCC Purchase
Agreement and is contractually obligated to indemnify the Company for such
liabilities.
To the extent the Company incurs any cleanup costs with respect to these sites,
it intends to enforce its rights under the CBCC Purchase Agreement to recover
such amounts from BP. In the event the Company is entitled to recovery from BP
pursuant to the CBCC Purchase Agreement, or otherwise, but is unable to collect
such amounts from BP, the Company may elect to offset the amounts of such
recoveries against amounts payable under the $20 million Seller Note to the
extent it legally is entitled to do so.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
2.1 Sale and Purchase Agreement dated May 15, 1996, among Chase Brass
Industries, Inc. (the "Company"), Leavitt Structural Tubing Co. and UNR
Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
2.2 Amendment No. 1 to Sale and Purchase Agreement dated July 1, 1996, by and
among the Company, Leavitt Tube Company, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company, Leavitt Structural Tubing Co., and UNR
Industries, Inc. (incorporated by reference to Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
2.3 Amendment No. 2 to Sale and Purchase Agreement dated as of August 29, 1996,
among Chase Brass Industries, Inc., Leavitt Tube Company, Inc., Leavitt
Structural Tubing Co. and UNR Industries, Inc. (incorporated by reference to
Exhibit 2.4 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 13, 1996).
2.4 Assignment and Assumption Agreement dated June 27, 1996, by and between the
Company and Leavitt Tube Company, Inc. (incorporated by reference to Exhibit 2.3
to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996).
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8
dated December 9, 1994, Registration No. 33-87278).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration No. 33-83178).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1
of the Company's Registration Statement on Form S-1 as filed with the Securities
and Exchange Commission on November 3, 1994, Registration No. 33-83178).
4.2 Exchange Agreement dated November 4, 1994, between the Company and Citicorp
Venture Capital Ltd. ("CVC") (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-8 dated December 9, 1994, Registra
tion No. 33-87278).
4.3 Voting Agreement dated November 10, 1994, between the Company, CVC and
Martin V. Alonzo (incorporated by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-8 dated December 9, 1994, Registration No.
33-87278).
10.1 Credit Agreement by and among Chase Brass Industries, Inc., the banks
referred to therein and PNC Bank, National Association, as Agent, dated as of
August 30, 1996 (incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
September 13, 1996).
10.2 Employment Agreement dated November 10, 1994, between the Company and Mr.
Alonzo (incorporated by reference to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10.3 Chase Brass Industries, Inc., 1994 Long-Term Incentive Plan (incorporated
by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-8
dated December 9, 1994, Registration No. 33-87278).
10.4 Indemnification Agreement dated November 10, 1994, between the Company and
Mr. Alonzo (incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.5 Schedule identifying additional documents substantially identical to the
Indemnification Agreement included as Exhibit 10.6 and setting forth the
material details in which those documents differ from that document.
10.6 Registration Rights Agreement dated November 10, 1994, by and among the
Company, CVC and Mr. Alonzo (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10.7 Asset Purchase Agreement dated May 10, 1990, as amended, by and among the
Company, CBC Acquisition Corporation (a wholly-owned subsidiary of the Company
now named Chase Brass & Copper Company, Incorporated ("CBCC"), Chase Brass &
Copper Company, Incorporated, a Delaware corporation now named Ken-Chas Reserve
Co. ("Old Chase"), BP Exploration (Alaska), Inc. ("BP") and The Standard Oil
Company ("Standard") (incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No. 33-83178).
10.8 Lease Agreement dated January 9, 1987, between Old Chase and Washington
Boulevard Industrial Development Company ("Landlord"), together with all
amendments thereto (the "Los Angeles Lease") (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1 as filed with
the Securities and Exchange Commission on November 3, 1994, Registration No. 33-
83178).
10.9 Assumption Agreement dated August 24, 1990, entered into by CBCC
(incorporated by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on
November 3, 1994, Registration No. 33-83178).
10.10 Subordinated Promissory Note dated August 24, 1990, between the Company
and CBCC (incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No. 33-83178).
10.11 Assignment of the Los Angeles Lease dated August 24, 1990, from Old
Chase to CBCC (incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No. 33-83178).
10.12 Remediation Agreement dated August 24, 1990, by and among the Company,
CBCC, BP and Standard (incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration No. 33-83178).
10.13 Tolling Agreement dated May 4, 1994, by and among the Company, CBCC, Old
Chase, BP and Standard (incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration No. 33-83178).
10.14 CBCC Savings and Profit Sharing Plan for Salaried Employees
(incorporated by reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on
November 3, 1994, Registration No. 33-83178).
(b) Reports on Form 8-K
On September 13, 1996, the Company filed a Current Report on Form 8-K, dated
September 13, 1996, regarding the consummation of the Acquisition of the UNR-
Leavitt Division of UNR Industries, Inc. for $95 million in cash, subject to
post-closing adjustments. The items reported on such Current Report were Item 2
(Acquisition or Disposition of Assets) and Item 7 (Exhibits).
S I G N A T U R E
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.
CHASE BRASS INDUSTRIES INC.
Date: November 14, 1996 By: /s/ Martin V. Alonzo
Martin V. Alonzo
Chairman of the Board,
President and Chief Executive Officer
(Principal Financial Officer)
INDEX TO EXHIBITS
2.1 Sale and Purchase Agreement dated May 15, 1996, among Chase Brass
Industries, Inc. (the "Company"), Leavitt Structural Tubing Co. and UNR
Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
2.2 Amendment No. 1 to Sale and Purchase Agreement dated July 1, 1996, by and
among the Company, Leavitt Tube Company, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company, Leavitt Structural Tubing Co., and UNR
Industries, Inc. (incorporated by reference to Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
2.3 Amendment No. 2 to Sale and Purchase Agreement dated as of August 29,
1996, among Chase Brass Industries, Inc., Leavitt Tube Company, Inc., Leavitt
Structural Tubing Co. and UNR Industries, Inc. (incorporated by reference to
Exhibit 2.4 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 13, 1996).
2.4 Assignment and Assumption Agreement dated June 27, 1996, by and between
the Company and Leavitt Tube Company, Inc. (incorporated by reference to Exhibit
2.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
3.1 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8
dated December 9, 1994, Registration No. 33-87278).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration No. 33-83178).
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission on November 3, 1994, Registration No.
33-83178).
4.2 Exchange Agreement dated November 4, 1994, between the Company and
Citicorp Venture Capital Ltd. ("CVC") (incorporated by reference to Exhibit 4.4
to the Company's Registration Statement on Form S-8 dated December 9, 1994,
Registration No. 33-87278).
4.3 Voting Agreement dated November 10, 1994, between the Company, CVC and
Martin V. Alonzo (incorporated by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-8 dated December 9, 1994, Registration No.
33-87278).
10.1 Credit Agreement by and among Chase Brass Industries, Inc., the banks
referred to therein and PNC Bank, National Association, as Agent, dated as of
August 30, 1996 (incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
September 13, 1996).
10.2 Employment Agreement dated November 10, 1994, between the Company and Mr.
Alonzo (incorporated by reference to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10.3 Chase Brass Industries, Inc., 1994 Long-Term Incentive Plan (incorporated
by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-8
dated December 9, 1994, Registration No. 33-87278).
10.4 Indemnification Agreement dated November 10, 1994, between the Company
and Mr. Alonzo (incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.5 Schedule identifying additional documents substantially identical to the
Indemnification Agreement included as Exhibit 10.6 and setting forth the
material details in which those documents differ from that document.
10.6 Registration Rights Agreement dated November 10, 1994, by and among the
Company, CVC and Mr. Alonzo (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10.7 Asset Purchase Agreement dated May 10, 1990, as amended, by and among the
Company, CBC Acquisition Corporation (a wholly-owned subsidiary of the Company
now named Chase Brass & Copper Company, Incorporated ("CBCC"), Chase Brass &
Copper Company, Incorporated, a Delaware corporation now named Ken-Chas Reserve
Co. ("Old Chase"), BP Exploration (Alaska), Inc. ("BP") and The Standard Oil
Company ("Standard") (incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No. 33-83178).
10.8 Lease Agreement dated January 9, 1987, between Old Chase and Washington
Boulevard Industrial Development Company ("Landlord"), together with all
amendments thereto (the "Los Angeles Lease") (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1 as filed with
the Securities and Exchange Commission on November 3, 1994, Registration No. 33-
83178).
10.9 Assumption Agreement dated August 24, 1990, entered into by CBCC
(incorporated by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on
November 3, 1994, Registration No. 33-83178).
10.10 Subordinated Promissory Note dated August 24, 1990, between the Company
and CBCC (incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No. 33-83178).
10.11 Assignment of the Los Angeles Lease dated August 24, 1990, from Old Chase
to CBCC (incorporated by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on
November 3, 1994, Registration No. 33-83178).
10.12 Remediation Agreement dated August 24, 1990, by and among the Company,
CBCC, BP and Standard (incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration No. 33-83178).
10.13 Tolling Agreement dated May 4, 1994, by and among the Company, CBCC, Old
Chase, BP and Standard (incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration No. 33-83178).
10.14 CBCC Savings and Profit Sharing Plan for Salaried Employees (incorporated
by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-
1 as filed with the Securities and Exchange Commission on November 3, 1994,
Registration No. 33-83178).
Exhibit 10.5
SCHEDULE OF SUBSTANTIALLY IDENTICAL DOCUMENTS
The following eight persons have entered into substantially identical agreements
with the Company that differ only in the name of the person.
Donald J. Donahue
Duane R. Grossett
John R. Kennedy
Thomas F. McWilliams
Raymond E. Cartledge
Charles E. Corpening
George R. Miller
Michael T. Segraves
The following four persons have entered into substantially identical agreements
with the Company that differ only in the name of the person and that Leavitt
Tube Company, Inc. has joined in such agreements (in lieu of Chase Brass &
Copper Company, Inc., which joined in the above referenced agreements) as a
result of such persons being employees of Leavitt Tube Company, Inc.
David J. Klima
William A. Spanos
Parry Katsafanas
David A. Lichtfuss
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,516
<SECURITIES> 0
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<ALLOWANCES> 1,276
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0
0
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<SALES> 260,265
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