SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report ("Report") pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997
Commission file number 1-10659
ROBERTSON-CECO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3479146
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.
5000 Executive Parkway, Ste. 425, San Ramon, California 94583
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 510-358-0330
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, par value, New York Stock Exchange
$0.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $54,526,540 based upon the closing sales price of
Registrant's common stock on the New York Stock Exchange on March 20, 1998.
(The value of shares of common stock held by executive officers and directors of
the Registrant and their affiliates has been excluded.)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of March 20, 1998, 16,111,550 shares of common stock of the Registrant
were outstanding.
Portions of the Registrant's definitive proxy statement for Registrant's
1998 annual meeting of stockholders to be filed with the Commission not later
than 120 days after the end of Registrant's fiscal year covered by this report
("Report") are incorporated by reference into Part III.
ROBERTSON-CECO CORPORATION
Table of Contents
PART I
Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of Security Holders 6
Item 4.1 Executive Officers of the Registrant . . . . . . . 6
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . 8
Item 6. Selected Financial Data . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . 11
Item 8. Financial Statements and Supplementary Data . . . . 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 35
PART III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation . . . . . . . . . . . . . . 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 36
Item 13. Certain Relationships and Related Transactions . . 36
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . 37
Signatures . . . . . . . . . . . . . . . . . . . . 38
ITEM 1. BUSINESS
THE COMPANY
Robertson-Ceco Corporation (the "Company") was formed on November 8, 1990
by the merger (the "Combination") of H. H. Robertson, Inc. ("Robertson") and
Ceco Industries, Inc. ("Ceco Industries") with and into The Ceco Corporation
("Ceco"), a wholly-owned subsidiary of Ceco Industries, with Ceco continuing as
the surviving corporation under the name Robertson-Ceco Corporation. The
Combination was accounted for using the purchase method, with Robertson deemed
the acquirer.
After the Combination, the Company and its subsidiaries operated in four
business segments: (1) the Metal Buildings Group, which operated primarily in
North America and is engaged in the manufacture, sale and installation of pre-
engineered metal buildings for commercial and industrial users; (2) the Building
Products Group, which operated on a worldwide basis and was engaged in the
manufacture, sale and installation of non-residential building components,
including wall, roof and floor systems; (3) the Door Products Group which
operated primarily throughout the United States and was engaged in the
manufacture and distribution of metal, wood and fiberglass doors and frames for
commercial and residential markets; and (4) the Concrete Construction Group,
which operated throughout the United States and was engaged in the provision of
subcontracting services for forming poured-in-place, reinforced concrete
structures.
DIVESTITURES
During 1991, management began to develop and implement a series of
restructuring actions designed to improve the Company's operational performance
and liquidity. In connection with these restructuring initiatives, during the
first quarter of 1992, the Company sold its Door Products Group, certain
domestic Building Products businesses, and its Building Products subsidiary
located in South Africa.
In November 1993, the Company sold its Building Products subsidiary located
in the United Kingdom (the "U.K. Subsidiary"). During the fourth quarter of
1994, the Company sold its remaining U.S. Building Products operation, the
Cupples Products Division ("Cupples Division"), which manufactured curtainwall
systems, and commenced a plan to sell or dispose of its remaining European
Building Products operations. In 1995, the Company sold its subsidiaries
located in Holland and Spain. In 1996, the Company sold its subsidiary located
in Norway, and its Building Products operations located in Australia, Northeast
Asia and Southeast Asia (together the "Asia/Pacific Building Products
Operations"). The Canadian Building Products business is expected to be
divested in 1998. On March 3, 1995, the Company sold the Concrete Construction
Group to a company which is controlled by the Company's Chief Executive Officer.
For accounting purposes, the Door Products Group, Concrete Construction
Group and the Building Products Group were each considered separate business
segments. Accordingly, the Company's Consolidated Statements of Income were
reclassified to reflect these businesses as discontinued operations.
In addition to the sale of and exit from the businesses discussed above, a
series of other operational restructuring actions were taken during the past
several years, including downsizing the corporate office, closing excess metal
building plants and redistributing manufacturing operations and equipment from
closed operations, consolidating and improving capacity and cost effectiveness
at the remaining plants, reducing work force levels, and redefining management
and operating policies. Furthermore, significant financial restructuring
actions have been completed by the Company. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and notes thereto for the year ended December
31, 1997.)
METAL BUILDINGS GROUP
The ongoing operations of the Company consists of the Metal Buildings
Group. The Metal Buildings Group consists of three pre-engineered metal
building companies: Ceco Building Systems, Star Building Systems, and H. H.
Robertson Building Systems (Canada). Pre-engineered metal buildings have
traditionally accounted for a significant portion of the market for
nonresidential low-rise buildings under 150,000 sq. ft. in size that are built
in North America. Historically aimed at the one-story small to medium building
market, the use of the product is expanding to large (up to 1 million sq. ft.),
more complex, and multi-story (up to 4 floors) buildings. The product provides
the customer with a custom designed building which generally is lower cost than
conventional construction and faster from concept to job completion.
The Company's metal building systems are manufactured at five U.S. plants
with one located in each of California, Mississippi and North Carolina and two
in Iowa. The Company has one plant outside of the U.S. located in Ontario,
Canada. The buildings are primarily sold through builder/dealer networks located
throughout the United States and Canada. In addition to sales in North America,
in recent years the Company has been selling its buildings to the Asian market.
Sales to the Asian market are made both through local unaffiliated dealers and
by Company salespersons.
The principal materials used in the manufacture of pre-engineered metal
buildings are hot and cold rolled steel products that are readily available from
many sources. The buildings consist of three components: primary structural
steel, secondary structural steel and cladding. The buildings are erected by
the dealer network supplemented by subcontractors and, in certain cases, by
Company erection crews.
The Company considers all aspects of its business to be highly competitive
and faces competition from many other manufacturers. Price, delivery and
service are the primary competitive features in this market. The Company's
business is both seasonal and cyclical in nature and, as a consequence, has
certain working capital needs which are characteristic of the metal buildings
industry. At a time of increased construction activity, the Company has a need
for increased working capital which historically has been funded by available
cash and short-term bank borrowings. Since the Company operates in the
industrial and commercial building sectors, primarily in North America, its
results are heavily influenced by the growth in such economies, interest rates
and credit available to builders, developers and the ultimate owners of the
Company's buildings.
SEASONALITY
The Company operates in the industrial and commercial building sectors with
substantially all of the Company's revenues concentrated in North America. The
Company's business is seasonal in nature and operating results are affected, in
part, by the severity of weather conditions.
CUSTOMERS
The Company serves a wide variety of customers, virtually all of which are
in the construction industry. There is no dependence upon a single customer,
group of related customers or a few large customers.
INVENTORY AND BACKLOG
Virtually all sales of pre-engineered metal buildings are for specific
projects, and the Company maintains a minimum inventory of finished products.
Shipments of pre-engineered metal buildings are generally made directly from the
manufacturing plant to the building sites. Most raw materials are steel-related
materials which are susceptible to price increases, especially during periods of
strong economic growth. Historically, the Company and the companies with which
it competes have been successful in passing on such price increases to
customers.
Due to the wide availability of the necessary raw materials and the
relatively short delivery lead times, the Company generally has been able to
minimize its risk with respect to price increases in the raw materials used to
manufacture its products. To the extent that the Company quotes a fixed-price
sales contract and has not locked in the related cost of the raw materials, the
Company is at risk for price increases in such raw materials. Additionally,
during times of declining demand, selling prices tend to be adversely affected,
and the Company may not experience similar declines in material costs.
Backlog is determined based upon receipt of a contract or purchase order
from the customer. The Company reduces its backlog upon recognition of
revenue. At December 31, 1997, the backlog of unfilled orders believed to be
firm was approximately $72.7 million compared with $72.1 million at
December 31, 1996. Substantially all of the December 31, 1997 backlog is
expected to be executed in 1998.
PATENTS
The Company owns a number of patents with varying expiration dates
extending beyond the year 2000. None of these patents are believed to be a major
factor in the competitive position of the Company.
EMPLOYEES
At December 31, 1997, the Company employed approximately 1,500 persons
(excluding 57 employees at the Company's discontinued Canadian building products
operation) and was a party to collective bargaining agreements with labor unions
covering approximately 157 employees. Work stoppages are a possibility in
connection with the negotiation of collective bargaining agreements, although
the Company believes that its employee relations are generally satisfactory.
FOREIGN OPERATIONS
For the year ended December 31, 1997, the foreign operations accounted for
7.2% of the Company's revenues before inter-area eliminations, and at December
31, 1997, foreign operations accounted for approximately 7% of the Company's
total assets (before adjustments and eliminations). The Company's foreign
business results in several risks to the Company's financial condition and
results of operations, but these are not considered significant.
ITEM 2. PROPERTIES
The Company owns and operates six manufacturing plants. The listing below
identifies the locations of those facilities. The productive capacities of
these plants are considered adequate to serve the Company's business needs at a
volume at least equal to that achieved in 1997.
Monticello, Iowa Manufacturing Plant
Lockeford, California Manufacturing Plant
Mt. Pleasant, Iowa Manufacturing Plant
Rocky Mount, North Carolina Manufacturing Plant
Columbus, Mississippi Manufacturing Plant
Hamilton, Ontario, Canada Manufacturing Plant
ITEM 3. LEGAL PROCEEDINGS
LAWSUITS
There are various proceedings pending against or involving the Company
which are ordinary or routine given the nature of the Company's existing and
prior businesses. While the outcome of the Company's legal proceedings cannot
be predicted with certainty, management does not expect that these matters will
have a material adverse effect upon the consolidated financial condition or
results of operations of the Company.
ENVIRONMENTAL MATTERS
The Company's current and prior manufacturing activities have generated and
continue to generate materials classified as hazardous wastes. The Company
devotes considerable resources to compliance with legal and regulatory
requirements relating to (a) the use of these materials, (b) the proper disposal
of such materials classified as hazardous wastes and (c) the protection of the
environment. These requirements include clean-ups at various sites. The
Company's policy is to accrue environmental and clean-up related costs of a
non-capital nature when it is probable that a liability has been incurred and
such liability can be reasonably estimated. However, no assurance can be given
that discovery of new facts and the application of the legal and regulatory
requirements to those facts would not be material and would not change the
Company's estimate of costs it could be required to pay in any particular
situation.
The Company has completed its investigation of two owned disposal sites in
Beaver County, Pennsylvania formerly used by Robertson to dispose of plant
wastes from the Company's former Ambridge, Pennsylvania Building Products
manufacturing facility. The Company has submitted its reports of findings to
the Pennsylvania Department of Environmental Protection ("PDEP") and has
submitted work plans for remedial activities for both sites to the PDEP for its
consideration and approval. The Company also is in the process of finalizing a
Consent Order and Agreement to memorialize an agreed upon approach to remediate
these sites.
The Company has recorded reserves in amounts which it considers to be
adequate to cover the costs which may be incurred in relation to these and other
environmental matters. However, no guarantee can be made that the relevant
governmental authorities will accept the remediation plans or actions proposed
by the Company or the position taken by the Company as to its legal
responsibilities and therefore that more costly remediation efforts will not be
required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report no
matter was submitted to a vote of security holders.
ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company as of March 26, 1998.
Name Age Position
Andrew G. C. Sage, II 72 Chairman
Michael E. Heisley 61 Chief Executive Officer
E.A. Roskovensky 52 President and Chief Operating Officer
Ronald D. Stevens 54 Executive Vice President and Chief
Financial Officer
Mr. Andrew G. C. Sage, II is Chairman (since July 1993) of the Company.
Mr. Sage also served as President (from November 1992 until July 1993) and Chief
Executive Officer (from November 1992 until December 1993) of the Company. Mr.
Sage is also President of Sage Capital Corporation ("Sage Capital"), a general
business and financial management corporation specializing in business
restructuring and problem solving. Mr. Sage is a director of American
Superconductor Corporation and Tom's Foods, Inc.
Mr. Heisley is Chief Executive Officer (since December 1993) of the
Company. Mr. Heisley is Chairman of the following companies: Davis Wire
Corporation (since 1991), a manufacturer of steel wire and Tom's Foods, Inc.
(since 1993), a manufacturer and distributor of snack food. Mr. Heisley is
Chief Executive Officer of The Heico Companies, L.L.C. (since 1979). He is also
Chief Executive Officer of Heico Holding Inc., formerly Pettibone Corporation,
(since 1988), a diversified manufacturing company, and director of Tom's Foods,
Inc. and Envirodyne, Inc. (since 1994).
Mr. Roskovensky is President and Chief Operating Officer (since November
1994) of the Company. Prior to being elected President, Mr. Roskovensky served
the Company as President of the Company's Metal Buildings Group (from February
1994). He is also the President and Chief Executive Officer of Davis Wire
Corporation (from 1991), a manufacturer of steel wire. Prior to 1991, Mr.
Roskovensky was the President of USS - POSCO Industries (from 1986 to 1990), a
steel mill joint venture company between USX Corporation and Pohang Iron & Steel
of the Republic of Korea.
Mr. Stevens is Executive Vice President and Chief Financial Officer (since
October 1996) of the Company. Prior to being elected Chief Financial Officer,
Mr. Stevens was a Principal/Owner of Productivity Consulting Group, Inc. (from
January 1991 to October 1996).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK
The Company's Common Stock is listed for trading on the New York Stock
Exchange ("NYSE") under the symbol "RHH". The following table sets forth the
high and low sale prices per share of the Common Stock as reported on the NYSE
Composite Transaction Reporting System during the calendar periods indicated.
Under the terms of the Company's current credit facility, the Company's ability
to pay cash dividends is restricted. The Company did not pay cash dividends on
its Common Stock during the periods set forth below.
High Low
Calendar 1997
First Quarter . . . . . . . . . $ 8 1/8 $ 7 1/8
Second Quarter . . . . . . . . 8 1/2 7 1/4
Third Quarter . . . . . . . . . 12 - 8 -
Fourth Quarter . . . . . . . . 11 7/8 8 3/4
Calendar 1996
First Quarter . . . . . . . . . $ 6 5/8 $ 5 1/8
Second Quarter . . . . . . . . 6 1/8 4 3/4
Third Quarter . . . . . . . . . 7 7/8 4 1/2
Fourth Quarter . . . . . . . . 8 7/8 7 3/4
There were approximately 2,283 holders of record of the Company's Common
Stock as of March 20, 1998. Included in the number of stockholders of record
are stockholders who held shares in "nominee" or "street" name. The closing
price per share of the Company's Common Stock on March 20, 1998, as reported
under the NYSE Composite Transaction Reporting System, was $10-9/16.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is historical financial data for each of the five years in
the period ended December 31, 1997. This data has been derived from the audited
consolidated financial statements of the Company for such periods, some of which
are presented elsewhere herein. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and the notes thereto appearing elsewhere in this Report.
Operations Data (a) (b):
(In thousands, except share data)
Year Ended December 31
1993 1994 1995 1996 1997
Net revenues . . . . . . . . . . . $218,338 $251,584 $264,983 $255,893 $ 288,151
Cost of sales . . . . . . . . . . . . 188,892 213,948 218,285 201,478 233,284
Gross Profit . . . . . . . . . . . $ 29,446 $ 37,636 $ 46,698 $ 54,415 $ 54,867
Selling, general and
administrative . . . . . . . . . 32,982 31,910 30,844 27,549 24,126
Restructuring . . . . . . . . . . . - 2,075 - - -
Operating income (loss) . . . . . . . $ (3,536) $ 3,651 $ 15,854 $ 26,866 $ 30,741
Interest expense . . . . . . . . . . (9,545) (4,164) (4,335) (4,166) (1,659)
Other income, net . . . . . . . . . . 498 346 828 841 904
Income (loss) from continuing
operations before income
taxes . . . . . . . . . . . $(12,583) $ (167) $ 12,347 $ 23,541 $ 29,986
Provision (credit) for taxes
on income . . . . . . . . . . . - - - (29,067) 11,200
Income (loss) from
continuing operations . . . . . . . $(12,583) $ (167) $ 12,347 $ 52,608 $ 18,786
Discontinued operations (c) . . . . . (12,520) (21,593) (15,888) - -
Extraordinary gain (loss) on
debt . . . . . . . . . . . 5,367 - - (1,315) 4,568
Cumulative effect of
accounting change (d) . . . . . . . (1,200) - - - -
Net income (loss) . . . . . . . . . . $(20,936) $(21,760) $ (3,541) $ 51,293 $ 23,354
Basic/Diluted earnings (loss) per
common share (e):
Continuing operations . . . . . . . $ (2.04) $ (.01) $ .77 $ 3.28 $ 1.17
Discontinued operations (c) . . . . (2.01) (1.37) (.99) - -
Extraordinary item . . . . . . . . .86 - - (.08) .28
Cumulative effect of
accounting change (d) . . . . . . (.20) - - - -
Net income (loss) per
common share . . . . . . . . . . $ (3.39) $ (1.38) $ (.22) $ 3.20 $ 1.45
Weighted average number of
common shares outstanding (e) . . 6,217 15,808 15,932 16,017 16,056
Cash dividends declared per
common share . . . . . . . . . . . . - - - - -
Balance Sheet Data (a)(b):
(Thousands)
December 31
1993 1994(b) 1995 1996 1997
Working capital . . . . . . . . . . $ 4,708 $ 9,826 $ 88 $ 2,603 $ 35,127
Total assets . . . . . . . . . . . 181,823 137,400 108,479 143,914 143,544
Long-term debt (current
portion) . . . . . . . . . . . 390 134 - 7,455 5,000
Long-term debt (excluding
current portion) . . . . . . . . . 45,084 43,421 40,530 20,000 10,000
Stockholders' equity
(deficiency) . . . . . . . . . . . (16,663) (35,693) (29,994) 26,244 49,746
(a) The consolidated statements of income are reclassified to reflect the operating results of the Concrete Construction
Group (measurement date was December 1994; sale was consummated in March 1995) and the Building Products Group
(measurement date was December 1995; execution of plans to exit the remaining businesses are substantially complete), as
discontinued operations. Accordingly, the income and expense amounts of such business segments prior to the respective
measurement dates are classified as a single line item within discontinued operations. For purposes of the consolidated
balance sheets, the net assets and liabilities of such business segments, including any loss provisions, were recorded
net as of the measurement dates.
(b) The consolidated financial information as of and for the year ended December 31, 1993, and for periods subsequent
thereto, include the effects of a debt/equity offer ("Exchange Offer") consummated on July 14, 1993. In connection with
the Exchange Offer, all future interest costs for the Company's 12% Senior Subordinated Notes were capitalized and, as a
result, the Company did not record any interest expense related to the 12% Senior Subordinated Notes. The Company's
15.5% Debentures and 12% Notes were redeemed in January 1997 in connection with a refinancing of the Company's long-term
debt. (see Note 8 of the Notes to Consolidated Financial Statements).
(c) Income (losses) from discontinued operations are reported net of income tax expense (benefit) of $9,000, $256,000 and
$(400,000), during each of the years ended December 31, 1993, 1994 and 1995 respectively.
(d) In the fourth quarter of 1993, the Company adopted Statement of Accounting Standards No. 112 "Employers' Accounting for
Post Employment Benefits". (See Note 15 of the Notes to Consolidated Financial Statements.)
(e) On July 23, 1993, a 1 for 16.5 reverse split of the Company's common stock became effective. All common stock share
amounts and per share data are restated to reflect the reverse split. Certain share and per share data have been
restated to give effect to the adoption of Statement of Financial Accounting Standard No. 128 (SFAS 128) "Earnings Per
Share".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Revenues for 1997 were $288.2 million compared to $255.9 million a year
ago, a 12.6% increase. The increase in revenues was essentially equal to the
growth rate experienced by the metal buildings' industry overall. The Company
entered 1997 with a strong backlog, and order inflow continued at an excellent
level throughout the year. Additionally, the Company benefited from the first
full year of utilization of plant capacity additions made over the last two
years. Revenue gains were experienced in each geographic area of the business
except the West Coast operation. New tariffs in the Far East reduced the amount
of export business for that operation, and the California economy is still
catching up with growth rates in the rest of the Company's regions. Competitive
pricing experienced in all regions partially reduced the revenue benefits from
increased volumes. Several competitors have added capacity over the last two
years, and their efforts to fill their plants resulted in a difficult pricing
environment. This affected the Company's margins as discussed below.
The price pressures experienced in the first three quarters and an
unfavorable product mix caused gross margins to decline from 21.3% last year to
19.0% in 1997. Margins began to improve toward the end of 1997 as companies in
the industry were operating at or near capacity, but this improvement was not
enough to make up for the margin points lost in the early part of the year. In
1997, the Company also had higher pass-through revenue from products that are
supplied to customers but manufactured by others, which are generally at a lower
margin to the Company and are necessary to meet competitive demands. There were
also higher revenues from erection and subcontract activities where the margins
are not as high.
Despite the gross margin decline, operating margins improved from 10.5% in
1996 to 10.7% in 1997. Selling, general, and administrative ("S,G & A") costs
declined to 8.4% of revenues in 1997 from 10.8% in 1996. In 1997, the Company
realized a full year's benefit from the relocation of the corporate office in
1996 and reduced relocation and other transitional costs. In 1997, there were
additional savings in salary and benefit costs due to reduced corporate staff.
The costs of post retirement plans, which continue despite the plans being
frozen or scaled back, declined by $.6 million. In addition, several major
systems efforts of the past few years concluded, and, correspondingly,
development costs were reduced. Most of the reductions in S, G & A costs are
expected to be permanent. Thus, these costs can be expected to be relatively
constant as a percentage of revenues in future periods.
A major factor in the improved pretax results in 1997 was the substantial
reduction in interest and other financing costs achieved during the year. These
costs are down $2.5 million from 1996. This is a result of the debt refinancing
completed in January 1997, with a new revolving credit and term loan agreement
significantly lowering borrowing and letter of credit costs. The Company also
changed its surety bonding source, reducing bonding costs. Total borrowings were
reduced by approximately $12 million during the year.
For the year, pretax income was $30.0 million compared to $23.5 million in
1996. This represents a 27.4% increase between years resulting from increased
revenues, reduced S, G & A costs and reduced borrowing expenses. Pretax income
increased to 10.4% of revenues compared to 9.2% last year.
In the third quarter of 1996, the Company recorded tax assets reflecting
the future tax benefits of the company's net operating loss carryforwards and
tax timing differences. Thus, 1996 had a net tax credit of $29.1 million
representing this tax benefit partially offset by a provision for taxes in the
last quarter of 1996. Throughout 1997 the results have reflected a full tax
charge at the Company's effective tax rate on income. This results in income
before extraordinary items declining from $52.6 million in 1996 to $18.8 million
in 1997. However, had 1996 been reported with a full tax charge as in 1997,
income before extraordinary items for that year would have been approximately
$14.4 million.
Net income for each year reflects an extraordinary item related to the
debt refinancing. In 1996, a $1.3 million net charge was recorded to write-off
the remaining deferred debt issuance costs and prepayment penalties on a portion
of the debt. In 1997, the Company recorded a $4.6 million credit reflecting the
elimination of the previously recorded accrued interest on the 12% debentures
that were redeemed in January 1997.
At December 31, 1997 the backlog of unfilled orders believed to be firm
was approximately $72.7 million compared to $72.1 million at December 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Revenue for the year ended December 31, 1996 was $255.9 million, a
decrease of $9.1 million, or 3.4%, compared to 1995. The decrease in revenue
was primarily the result of severe weather conditions in early 1996, and a lower
order backlog entering the year. Management also consciously reduced some
volume in order to maintain the price structure.
The Company's gross margin percentage was 21.3% in 1996 compared to 17.6%
in 1995. This increase is a result of several factors. In 1996 the Company
held prices early in the year, as discussed above, which improved margins.
Material costs were lower, and the Company experienced reduced costs associated
with various employee benefit and insurance programs. Productivity improvement
programs instituted in the plants also benefited our cost structure in 1996.
Selling, general and administrative expenses decreased by $3.3 million in 1996,
or 10.7%, compared to 1995. This decrease was primarily the result of savings
realized by the Company from continuing efforts to reduce general and
administrative costs, such as the relocation of the Corporate office, and from
modifications made in 1995 and 1996 to certain defined benefit pension and
retiree medical plans. These were somewhat offset by expenses associated with
implementation of new information systems.
Operating income during the year ended December 31, 1996, was $26.9
million compared to $15.9 million in 1995. This increase in operating income
resulted from the increase in gross margin and decreases in selling, general and
administrative expenses discussed above.
During the third quarter of 1996, the Company reduced its deferred tax
valuation allowance resulting in a $31 million credit to taxes on income.
That decision resulted from continued profitable operating results,
substantial completion of the Company's divestiture plan, realization of the
benefits of certain restructuring initiatives, successful implementation of
cost containment measures associated with trailing liabilities and other
factors.
For the year ended December 31, 1996, income from continuing operations
was $52.6 million compared to $12.3 million in 1995. This dramatic increase was
the result of the significant improvement in operating income and the tax credit
recorded in the third quarter.
On December 31, 1996, the Company prepaid its existing term loan with
Foothill Capital Corporation ("Foothill"), and the credit agreement with
Foothill was terminated. In connection with the prepayment, the Company
incurred a $300,000 prepayment penalty. This amount, plus $1.8 million of
deferred fees and expenses, net of taxes of $.8 million, has been included in
the Consolidated Statements of Income as an extraordinary loss on debt
redemption.
LITIGATION AND ENVIRONMENTAL
There are various proceedings pending against or involving the Company
which are ordinary or routine given the nature of the Company's existing or
prior businesses. The Company has recorded liabilities for litigation where it
is both probable that a loss has been incurred and the amount of the loss can be
reasonably estimated. While the outcome of the Company's legal proceedings
cannot be predicted with certainty, management does not expect these matters
will have a material adverse effect on the Company's consolidated financial
statements.
The Company has been identified as a potentially responsible party by
Federal and state authorities for clean-up at various waste disposal sites. The
Company has engaged appropriate third parties to perform feasibility studies and
assist in estimating the cost of investigation and remediation. Although it is
difficult to reasonably quantify future environmental expenditures, the Company
has accrued environmental and clean-up costs of a non-capital nature when it is
both probable that a loss has been incurred and the amounts can be reasonably
estimated. As of December 31, 1997, the Company has recorded reserves for
environmental matters of approximately $6.5 million. Based upon currently
available information, including the reports from third parties, management does
not believe any loss in excess of the amounts accrued would be material to the
consolidated financial statements.
With respect to the environmental clean-up matters, the Company has
claimed coverage under its insurance policies for past and future clean-up costs
related to certain sites for which the Company believes it is indemnified under
its insurance policies. The insurer has refused to admit or deny coverage under
the Company's policies. As a result, the Company has filed a complaint against
the insurer seeking to recover the past and future clean-up costs. It is not
currently possible to predict the amount or timing of proceeds, if any, from the
ultimate disposition of this matter.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company generated approximately $30.5 million of cash
from its operating activities, compared to $21.8 million in 1996. A major
source of this increase was the increase in pretax income of $6.4 million.
Although the Company pursued available discounts on payables in 1997, the
discounts had less impact on net cash than in 1996. The Company also
experienced lower settlement amounts for worker's compensation and general
liability claims. This does not reflect any change in management's desire to
close these claims when favorable terms can be reached, but rather reflects the
reduction in the number of claims. Offsetting these items was the increase in
receivables experienced toward the end of the year as revenues in the fourth
quarter far surpassed any previous fourth quarter in the Company's history.
Cash expended on discontinued operations was significantly reduced. In
1997, net cash outflows for discontinued operations were $2.9 million compared
to $8.2 million in the previous year. In 1996, the Company was able to
aggressively settle and close claims for worker's compensation and general
liability issues, paid $1.8 million into the defined benefit plan trust, and
spent $1.9 million in connection with a drawn letter of credit associated with
the Company's former U.K. subsidiary. These items did not recur. Although
management continues to aggressively pursue resolution of liabilities related to
sold and discontinued operations, resolution of many of these matters is not
completely within management's control. Consequently, cash expended for these
matters can be expected to fluctuate from year to year.
Cash payments for capital expenditures increased substantially to $7.3
million compared to $3.4 million last year. The Company is continuing a program
of replacement and improvement of manufacturing equipment started several years
ago and completed several capacity additions to its existing facilities in
1997. The Company expended $12.7 million, net, in 1997 for debt reduction.
This consists of payments of about $27 million on debentures which were
redeemed in January 1997 and $5 million on term loans during 1997, net of the
$20 million borrowed in January 1997 on the new term loan.
The Company's primary source of liquidity is available cash generated from
operations and the Company's credit agreement with a group of banks. Under the
terms of this agreement, the lenders are providing a term loan which had an
initial amount of $20 million and which matures June 30, 2001. In addition, the
Company has a revolving credit facility of $25 million which matures December
31, 2001. Availability under the facility is based on a percentage of eligible
accounts receivable and inventory. As of December 31, 1997, this borrowing base
was approximately $29.9 million. Up to $20 million of the revolving facility
can be used to support letters of credit. At December 31, 1997 the Company had
outstanding $10.2 million in letters of credit, which are used to support the
Company's insurance and bonding programs, which reduced availability under the
agreement. Other than the letters of credit, there have been no amounts
outstanding during the year under the revolving credit agreement.
OUTLOOK. During 1995, the management of the Company and the Board of
Directors determined that the best strategy for the Company was to operate
solely as a metal building business. This strategy was based in part on the
success which the metal building operation had achieved with the long-term view
of the value of the metal building business and the cash and liquidity demands
which would be required to fund the non-metal building businesses. Exit from
non-metal building businesses is essentially complete. Demands on the Company's
cash and financing resources could continue to be significant in 1998 and beyond
as a result of funding requirements associated with retained liabilities of sold
or discontinued businesses. The Company expects to meet these requirements
through a number of sources including operating cash generated by the metal
building business, available cash, which was $19.5 million at the end of 1997,
and the Company's credit facility. In the event the Company experiences
significant differences between anticipated and actual amounts and timing of: 1)
payments on the retained liabilities, or 2) the Company's operating results, the
Company may be required to seek additional capital through new credit
facilities, modification of existing credit facilities or a debt or equity
offering. There can be no assurance, however, that such additional capital
would be available.
The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and its reports to stockholders. This annual
report contains forward-looking statements made in good faith by the Company
pursuant to these "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. In connection with these "safe harbor" provisions, the
Company identifies important factors that could cause actual results to differ
materially from those contained in any forward-looking statements made by or on
behalf of the Company. Any such statement is qualified by reference to the
following cautionary statements. The Company's business operates in highly
competitive markets and is subject to changes in general economic conditions,
intense competition, changes in consumer preferences, foreign exchange rate
fluctuations, the degree of acceptance of new product introductions, the
uncertainties of litigation, as well as other risks and uncertainties detailed
from time to time in the Company's Securities and Exchange Commission filings.
Developments in any of these areas, which are more fully described elsewhere in
part I, item 1 - Business, and item 3 - Legal Proceedings, and in part II, item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 10-13 of this Annual Report on Form 10-K, could cause the
Company's results to differ materially from results that have been or may be
projected by or on behalf of the Company. The Company cautions that the
foregoing list of important factors is not exclusive. The Company does not
undertake to update any forward-looking statement that may be made from time to
time by or on behalf of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ROBERTSON-CECO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the Years Ended December 31
1995 1996 1997
NET REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . $264,983 $255,893 $288,151
COST OF SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,285 201,478 233,284
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,698 54,415 54,867
SELLING, GENERAL AND ADMINISTRATIVE . . . . . . . . . . . . . . . . 30,844 27,549 24,126
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 15,854 26,866 30,741
OTHER INCOME (EXPENSE)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (4,335) (4,166) (1,659)
Other income - net . . . . . . . . . . . . . . . . . . . . . . 828 841 904
(3,507) (3,325) (755)
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION (CREDIT) FOR TAXES ON INCOME . . . . . . . . . . 12,347 23,541 29,986
PROVISION (CREDIT) FOR TAXES ON INCOME . . . . . . . . . . . . . . - (29,067) 11,200
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . 12,347 52,608 18,786
DISCONTINUED OPERATIONS
Income from discontinued operations . . . . . . . . . . . . . . 117 - -
Loss on sale/disposal of business segments . . . . . . . . . . (16,005) - -
Loss from discontinued operations . . . . . . . . . . . . . . (15,888) - -
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . . . . . . . . . . . (3,541) 52,608 18,786
EXTRAORDINARY GAIN (LOSS) ON DEBT REDEMPTION . . . . . . . . . . . . - (1,315) 4,568
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . $( 3,541) $ 51,293 $ 23,354
BASIC/DILUTED EARNINGS (LOSS) PER COMMON SHARE
Continuing operations . . . . . . . . . . . . . . . . . . . . $ .77 $ 3.28 $ 1.17
Discontinued operations . . . . . . . . . . . . . . . . . . . (.99) - -
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . - (.08) .28
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . $ (.22) $ 3.20 $ 1.45
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . 15,932 16,017 16,056
See Notes to Consolidated Financial Statements.
ROBERTSON-CECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31
1996 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 12,225 $ 19,461
Accounts and notes receivable, less allowance
for doubtful accounts: 1996, $1,881; 1997, $1,690 . . . . . . . . . . . 22,385 28,249
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,817 13,702
Deferred taxes, current . . . . . . . . . . . . . . . . . . . . . . . . . 6,067 15,688
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 810 557
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,304 $ 77,657
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,654 $ 1,654
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . 9,934 11,136
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 29,027 33,037
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . 2,486 3,581
$ 43,101 $ 49,408
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . (20,147) (22,902)
Property, Plant and Equipment - net . . . . . . . . . . . . . . . . . . $ 22,954 $ 26,506
EXCESS OF COST OVER NET ASSETS OF ACQUIRED
BUSINESSES, LESS ACCUMULATED AMORTIZATION:
1996, $5,913; 1997, $6,741 . . . . . . . . . . . . . . . . . . . . . . . . $ 26,611 $ 25,783
DEFERRED TAXES, NON-CURRENT . . . . . . . . . . . . . . . . . . . . . . . . . . 35,531 12,329
OTHER NON-CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,514 1,269
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 143,914 $143,544
See Notes to Consolidated Financial Statements.
ROBERTSON-CECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
December 31
1996 1997
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . $ 7,455 $ 5,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,578 13,209
Accrued payroll and benefits . . . . . . . . . . . . . . . . . . . . . . 8,084 7,525
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 26,584 16,796
Total current liabilities . . . . . . . . . . . . . . . . . . . . . $ 54,701 $ 42,530
LONG-TERM DEBT, LESS CURRENT PORTION . . . . . . . . . . . . . . . . . . . . 20,000 10,000
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,782 5,891
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 37,187 35,377
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK
Par value per share $.01
Authorized shares: 30,000,000
Issued and outstanding shares: 1996 - 16,111,550; 1997 - 16,111,550 . . $ 161 $ 161
CAPITAL SURPLUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,256 178,256
ACCUMULATED DEFICIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (151,527) (128,173)
DEFERRED COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . (195) (160)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS . . . . . . . . . . . . . . . . . . (451) (338)
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,244 $ 49,746
Total liabilities and stockholders' equity . . . . . . . . . . . . . $ 143,914 $ 143,544
See Notes to Consolidated Financial Statements.
ROBERTSON-CECO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended December 31
1995 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations . . . . . . . . . . . . . . . . . . . . $ 12,347 $ 52,608 $ 18,786
Adjustments to reconcile income from continuing operations to net
cash provided by (used for) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,863 3,272 3,660
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,102 2,140 933
Changes in assets and liabilities :
(Increase) decrease in accounts and notes receivable . . . . . . . 480 2,876 (5,864)
(Increase) decrease in inventories . . . . . . . . . . . . . . . . (2,152) (2,329) 2,115
(Increase) decrease in deferred tax assets . . . . . . . . . . . - (29,067) 11,200
Increase (decrease) in accounts payable . . . . . . . . . . . . . (2,247) (5,507) 631
Net changes in other assets and liabilities . . . . . . . . . . . 4,204 (2,206) (974)
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . $ 18,597 $ 21,787 $ 30,487
NET CASH USED FOR DISCONTINUED OPERATIONS . . . . . . . . . . . . . $(12,048) $ (8,160) $ (2,915)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,468) $ (3,366) $ (7,267)
Proceeds from sales of property, plant and equipment . . . . . . . . . . 348 - -
Proceeds from sales of assets held for sale . . . . . . . . . . . . . . . 515 - -
NET CASH USED FOR INVESTING ACTIVITIES . . . . . . . . . . . . . . . $ (4,605) $ (3,366) $ (7,267)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings . . . . . . . . . . . . . . . . . . . $ 1,186 $ - $ -
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . - - 20,000
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . - (5,000) (32,731)
Payments of capitalized interest on 12% Notes . . . . . . . . . . . . . . (1,352) (2,704) (338)
NET CASH USED FOR FINANCING ACTIVITIES . . . . . . . . . . . . . . . $ (166) $ (7,704) $ (13,069)
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . $ 1,778 $ 2,557 $ 7,236
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD . . . . . . . . . . 7,890 9,668 12,225
CASH AND CASH EQUIVALENTS - END OF PERIOD . . . . . . . . . . . . . $ 9,668 $ 12,225 $ 19,461
SUPPLEMENTAL CASH FLOW DATA
Cash payments made for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,550 $ 4,767 $ 1,936
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16 $ - $ -
See Notes to Consolidated Financial Statements.
ROBERTSON-CECO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(In thousands)
Excess of
Additional
Pension Liability
Over Unrecognized Foreign
Retained Prior Currency
Common Capital Earnings Service Deferred Translation
Stock Surplus Warrants (Deficit) Cost Compensation Adjustments
BALANCE DECEMBER 31, 1994 $ 161 $172,089 $ 6,042 $(199,279) $(7,991) $ (508) $ (6,207)
Net loss for the year . . . . . . . . . . . (3,541)
Change in excess of additional
pension liability over
unrecognized prior service
cost . . . . . . . . . . . . . . . . . 2,990
Issuances under employee
plans, net . . . . . . . . . . . . . . . 1 261 (254)
Amortization of deferred
compensation . . . . . . . . . . . . . 364
Foreign currency translation
adjustments for the year . . . . . . . . (47)
Writedown from disposition of Building
Products Operations . . . . . . . . . . 5,925
BALANCE DECEMBER 31, 1995 162 172,350 6,042 (202,820) (5,001) (398) (329)
Net income for the year . . . . . . . . . 51,293
Change in excess of additional
pension liability over
unrecognized prior service
cost . . . . . . . . . . . . . . . . . 5,001
Expiration of warrants . . . . . . . . . 6,042 (6,042)
Issuances (forfeitures) under
employee plans, net . . . . . . . . . . (1) (136) 65
Amortization of deferred
compensation . . . . . . . . . . . . . 138
Foreign currency translation
adjustments for the year . . . . . . . . (122)
BALANCE DECEMBER 31, 1996 161 178,256 - (151,527) - (195) (451)
Net income for the year . . . . . . . . . 23,354
Amortization of deferred
compensation . . . . . . . . . . . . . 35
Foreign currency translation
adjustments for the year . . . . . . . . . 113
BALANCE DECEMBER 31, 1997 $ 161 $178,256 $ - $(128,173) $ - $ (160) $ (338)
See Notes to Consolidated Financial Statements.
ROBERTSON-CECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. NATURE OF BUSINESS
Robertson-Ceco Corporation (the "Company"), owns and operates three pre-
engineered metal building operations: Ceco Building Systems, Star Building
Systems, and H. H. Robertson Building Systems (Canada). The Company's pre-
engineered metal buildings are manufactured at plants in California, Iowa (two
separate plant locations), Mississippi, North Carolina, and Ontario, Canada.
The buildings are sold primarily through builder/dealer networks located
throughout the United States and Canada in the industrial and commercial
building market. The buildings are erected by the dealer network supplemented
by subcontractors and, in certain cases, by Company erection crews.
2. SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and all subsidiaries. All significant intercompany balances and transactions
have been eliminated. Certain previously reported amounts have been
reclassified to conform to the 1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from these estimates.
Foreign Currency Translation
Asset and liability accounts of foreign subsidiaries are translated into
U.S. dollars at current exchange rates. Income and expense accounts are
translated at average rates. Any unrealized gains or losses arising from the
translation are charged or credited to the foreign currency translation
adjustments account included in stockholders' equity. Foreign currency gains
and losses resulting from transactions are not material.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
Property
Property is stated at cost. Depreciation is computed for financial
statement purposes by applying the straight-line method over the estimated lives
of the property. For income tax purposes, assets are generally depreciated
using accelerated methods.
Estimated useful lives used in computing depreciation for financial
statement purposes are as follows:
Land improvements . . . . . . . . . 10-25 years
Buildings and building equipment . 25-33 years
Machinery and equipment . . . . . . 3-16 years
Income Taxes
The provision for income taxes is based on earnings reported in the
financial statements. Deferred tax assets, when considered realizable, and
deferred tax liabilities are recorded to reflect temporary differences between
the tax bases of assets and liabilities for financial reporting and tax
purposes.
Revenue
Revenue from product sales is recognized generally upon passage of title or
acceptance at a job site. Revenue from construction services is recognized
generally using the percentage-of-completion method which recognizes income
ratably over the period during which contract costs are incurred. A provision
for loss on construction services in progress is made at the time a loss is
determinable. Warranty costs are accrued at the time of revenue recognition.
Insurance Liabilities
The Company is self-insured in the U.S. for certain coverages subject to
specific retention levels. Insurance liabilities consist of estimated
liabilities incurred but not yet paid.
Deferred Revenues
Billings in excess of revenues earned on construction contracts are
reflected in other accrued liabilities as deferred revenues.
Excess of Cost Over Net Assets of Acquired Businesses
The excess of cost over the net assets of acquired businesses relates to the
Company's acquisitions of its Ceco and Star metal buildings businesses. Such
costs are being amortized on a straight-line basis over a period of 40 years.
Management periodically reviews the carrying value to determine whether facts
and circumstances exist which would indicate that the assets are impaired.
Cash and Cash Equivalents
As used in the consolidated statements of cash flows, cash equivalents
represent those short-term investments that can be easily converted into cash
and that have original maturities of three months or less.
Earnings (Loss) per Common Share
In the fourth quarter of 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128") which, among
other things, required the presentation of Basic and Diluted earnings per share
in lieu of Primary and Fully Diluted earnings per share. Basic differs from
Primary earnings per share in that it only includes the weighted average
outstanding shares of the Company's Common Stock. Diluted earnings per share is
essentially similar to fully diluted earnings per share as previously reported.
Warrants to purchase common stock and restricted stock are included in the
computations of diluted earnings per share if the effect is not antidilutive.
In accordance with the provision of SFAS No. 128, all earnings per share for
prior periods have been restated to conform to the new computation and
presentation guidelines of SFAS No. 128.
3. DIVESTITURES
On March 3, 1995, the Company sold the business and assets of its Concrete
Construction business (the "Concrete Construction Group") to Ceco Concrete
Construction Corp., ("Ceco Concrete"), a newly formed company owned by an entity
controlled by the Company's Chief Executive Officer. The consideration
consisted of $11,500,000 of cash, adjusted to reflect an as of sale date of
October 1, 1994, a $3,000,000 interest bearing promissory note payable in three
equal annual installments, with interest at 7% (the "Concrete Note"), and the
assumption of certain liabilities by the purchaser. Upon the closing of the
sale, the Company received $8,000,000 of cash, after adjustments.
During the fourth quarter of 1995, the Company decided to divest its
remaining Building Products operations located in Australia, Northeast Asia and
Southeast Asia (the "Asia/Pacific Operations") and in Canada. In connection
therewith, the Company recorded a charge of $19,455,000, which included the
write-off of $5,925,000 of foreign currency translation adjustment, to reduce
the carrying value of the operations to their estimated net realizable value.
On September 30, 1996, the Asia/Pacific Operations were sold for $1,600,000.
Under the terms of sale, the Company was required to maintain a $2,000,000
letter of credit for one year from the date of sale to support the operation's
credit facility. The buyer is obligated to reimburse the Company for any
amounts drawn on this letter of credit. Additionally, the Company has agreed to
indemnify the buyer for certain liabilities of the sold business and to supply
products at a fixed margin for a period of two years.
For accounting purposes, the Concrete Construction Group and the Building
Products Group were each considered a separate business segment. Accordingly,
the Company's Consolidated Statements of Operations reflect these businesses as
discontinued operations. Assets held for sale were immaterial at December 31,
1996 and 1997.
The following table summarizes the revenues and results of the Company's
businesses which have been accounted for as discontinued operations. Income
(loss) from discontinued operations are net of a tax benefit of $400,000 during
1995. Income generated by discontinued Building Products operations during
1996 and 1997 was approximately $924,000 and $125,000, on revenues of
$50,539,000 and $10,517,000, respectively, and was considered in the original
provisions recorded for their disposal.
December 31
1995
(Thousands)
Revenues
Building Products Group . . . . . . . . . . . . . . . . . . . $ 48,431
Concrete Construction Group . . . . . . . . . . . . . . . . . 11,088
$ 59,519
Discontinued operations
Income (loss) from discontinued operations
Building Products Group . . . . . . . . . . . . . . . . $ (388)
Concrete Construction Group . . . . . . . . . . . . . . 505
$ 117
Gain (loss) on sale/disposal of business segment
Building Products Group . . . . . . . . . . . . . . . . . . . $ (19,455)
Concrete Construction Group . . . . . . . . . . . . . . . . . 3,450
$ (16,005)
4. CASH AND RELATED MATTERS
Cash and cash equivalents consisted of the following:
December 31
1996 1997
(Thousands)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 4,188
Time deposits . . . . . . . . . . . . . . . . . . . . . 12,225 15,273
$ 12,225 $ 19,461
5. ACCOUNTS RECEIVABLE
The Company grants credit to its customers, substantially all of which are
involved in the construction industry. Accounts receivable included unbilled
retainages of $658,000 and $1,000,000, respectively, at December 31, 1996 and
1997. There were no retainages due beyond one year at December 31, 1997.
6. INVENTORIES
Inventories consisted of the following:
December 31
1996 1997
(Thousands)
Work in process . . . . . . . . . . . . . . . . . . . . $ 6,750 $ 5,327
Materials and supplies . . . . . . . . . . . . . . . . . 9,067 8,375
$15,817 $13,702
At December 31, 1996 and 1997, all inventories were valued on the LIFO
method. The FIFO value of these inventories was approximately $600,000 greater
than their LIFO value at December 31, 1997. These values were approximately
equal at December 31, 1996.
7. OTHER LIABILITIES
December 31
1996 1997
(Thousands)
Other accrued liabilities consisted of the following:
Insurance liabilities . . . . . . . . . . . . . . . . . . $ 4,173 3,560
Warranty and backcharge reserves . . . . . . . . . . . . 3,704 3,738
Deferred revenues . . . . . . . . . . . . . . . . . . . . 1,271 524
Accrued interest . . . . . . . . . . . . . . . . . . . . 67 60
Capitalized future interest payments . . . . . . . . . . . 8,113 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . 9,256 8,914
$26,584 $16,796
Other long-term liabilities consisted of the following:
Reserves Related to Sold or Discontinued Businesses -
Insurance liabilities . . . . . . . . . . . . . . . . . $ 4,114 $ 3,453
Environmental . . . . . . . . . . . . . . . . . . . . 5,515 4,792
Federal Agreement settlement . . . . . . . . . . . . . . 4,000 3,000
Dispositions . . . . . . . . . . . . . . . . . . . . . . 5,119 5,315
Other . . . . . . . . . . . . . . . . . . . . . . . . . 12,828 11,904
$ 31,576 $ 28,464
Warranty and backcharges . . . . . . . . . . . . . . . . 1,527 1,745
All Other . . . . . . . . . . . . . . . . . . . . . . . . 4,084 5,168
$ 37,187 $ 35,377
See Note 12 regarding contingencies.
8. DEBT
Long-term debt consisted of the following:
December 31
1996 1997
(Thousands)
Term Loan Note . . . . . . . . . . . . . . . . . . . . . $ - $15,000
12% Senior Subordinated Notes due November 1999:
Face amount . . . . . . . . . . . . . . . . . . . 22,535 -
Capitalized future interest payments . . . . . . . 8,113 -
15.5% Discount Subordinated Debentures due
November 2000 . . . . . . . . . . . . . . . . . . . . 4,920 -
35,568 15,000
Less current portion . . . . . . . . . . . . . . . 7,455 5,000
Less current portion of capitalized interest payable 8,113 -
$20,000 $10,000
Interest on the 12% Senior Subordinated Notes ("12% Notes") was payable
semi-annually on May 31 and November 30 of each year. Interest accruing on the
12% Notes through and including May 31, 1995 was payable, at the Company's
option, in cash or additional 12% Notes and after May 31, 1995 was payable in
cash. The Company elected to pay all interest which was due on the 12% Notes
through the May 31, 1995 payment in additional notes. The 12% Notes were to
mature on November 30, 1999. Interest on the 15.5% Subordinated Debentures
("15.5% Debentures") was payable quarterly. Indebtedness under the 12% Notes
was senior to the 15.5% Debentures.
All future interest payments due on the 12% Notes were recorded as part of
long-term debt in connection with an exchange offer in 1993. As a result, the
Company deferred the related economic gain and has not recorded any interest
expense related to the 12% Notes in its Consolidated Statements of Income. Cash
paid for interest on the 12% Notes was $2,704,000 and $338,000 in 1996 and 1997,
respectively.
On December 31, 1996, the Company prepaid its existing term loan with
Foothill Capital Corporation ("Foothill"), and the credit agreement with
Foothill was terminated. In connection with the prepayment, the Company
incurred a $300,000 prepayment penalty. This amount, plus $1,853,000 of
deferred fees and expenses, net of taxes of $838,000, has been included in the
1996 Consolidated Statements of Income as extraordinary loss on debt redemption.
In December 1996, the Company called for redemption on January 15, 1997, the
amounts outstanding on the 12% Notes and 15.5% Debentures. The 12% Notes and
15.5% Debentures were redeemed on that date utilizing proceeds from borrowing
under the new term loan in the Credit Agreement plus available cash.
Accordingly, $20,000,000 of the Company's long-term debt at December 31, 1996
was classified as long-term with the remainder reflected in current
liabilities. The total amount of future interest payments on the 12% Notes
was also reflected as a current liability. The remaining amount of the
future interest payments as of January 15, 1997, net of income taxes, is
reflected as an extraordinary credit in the Company's 1997 financial
statements.
Also on December 31, 1996, the Company entered into a new credit agreement
("Credit Agreement") with a group of banks. Under the terms of the Credit
Agreement, the lenders agreed to provide a term loan of up to $20,000,000, due
June 30, 2001. The lenders also agreed to provide a revolving credit and letter
of credit facility of $25,000,000 maturing December 31, 2001. Up to $20,000,000
of the revolving credit facility can be used to support outstanding letters of
credit. Interest on the loans under the Credit Agreement is based on the prime
or the Eurodollar rate plus a factor which depends on the Company's ratio of
debt to the sum of its earnings before taxes, interest, depreciation and
amortization. In addition, the Company pays a commitment fee on the unused
amounts of the credit facility. Availability under the revolving credit
facility is based on eligible accounts receivable and inventory. As of December
31, 1997, the borrowing base was approximately $29.9 million. As collateral
under the Credit Agreement, the Company has granted the lenders a security
interest in all of the assets of the Company and its Restricted Subsidiaries, as
defined. The Credit Agreement contains certain financial covenants restricting
dividend payments, repurchase of stock and issuance of additional debt, amongst
other matters. The Company is in compliance with the provisions of the Credit
Agreement. Under the terms of the Company's debt agreement, $14,932,000 was
available for dividends or repurchase of stock at December 31, 1997.
At December 31, 1997, the Company had outstanding performance and financial
bonds of $4,986,000, which generally provide a guarantee as to the Company's
performance under contracts and other commitments and are collateralized in part
by letters of credit. As of December 31, 1997, the Company had outstanding
letters of credit of approximately $10.2 million used principally to support
insurance and bonding programs.
9. RENTAL AND LEASE INFORMATION
The Company leases certain facilities and equipment under operating leases.
Total rental expense was $1,708,000, $942,000 and $721,000 for 1995, 1996 and
1997, respectively.
Future minimum rental commitments under operating leases at December 31,
1997 are as follows:
(Thousands)
1998 . . . . . . . . . . . . . . . . . . . . . . . . . $ 527
1999 . . . . . . . . . . . . . . . . . . . . . . . . . 209
2000 . . . . . . . . . . . . . . . . . . . . . . . . . 194
2001 . . . . . . . . . . . . . . . . . . . . . . . . . 150
2002 . . . . . . . . . . . . . . . . . . . . . . . . . 126
$ 1,206
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company enters into various types of financial instruments in the normal
course of business. The estimated fair value of amounts are determined based on
available market information and, in certain cases, on assumptions concerning
the amount and timing of estimated future cash flows and discount rates
reflecting varying degrees of perceived risk. Accordingly, the fair values may
not represent actual values of the financial instruments that could have been
realized as of year end or that will be realized in the future. Fair value for
cash and cash equivalents approximates carrying value at December 31, 1997 due
to the relatively short maturity of these financial instruments.
11. TAXES ON INCOME
Year Ended December 31
1995 1996 1997
(Thousands)
Income from continuing operations before
provision (credit) for taxes on income:
Domestic . . . . . . . . . . . . . $ 11,184 $ 22,436 $ 27,733
Foreign . . . . . . . . . . . . . 1,163 1,105 2,253
$ 12,347 $ 23,541 $ 29,986
Provision (credit) for taxes on income from
continuing operations:
Current taxes:
Federal . . . . . . . . . . . . . . - - -
State . . . . . . . . . . . . . . . . - - -
Foreign . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . - - -
Deferred Taxes:
Federal . . . . . . . . . . . . . . - (25,408) 9,472
State . . . . . . . . . . . . . . . . - (3,659) 1,728
Foreign . . . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . - (29,067) 11,200
Total Provision for taxes: . . . . . . . - (29,067) 11,200
A reconciliation between taxes computed at the U.S. statutory Federal income
tax rate and the provision (credit) for taxes on income from continuing
operations reported in the Consolidated Statements of Income follows:
Year Ended December 31
1995 1996 1997
(Thousands)
Tax provision at U.S. statutory rate . . . . . . $ 4,321 $ 8,239 $ 10,495
Differences between foreign and
domestic tax rates . . . . . . . . . . . . . . 35 - -
Net operating loss benefit . . . . . . . . . . . (442) (387) (788)
Benefit attributable to utilizing
temporary differences . . . . . . . . . . . . (4,272) (7,198) -
State taxes . . . . . . . . . . . . . . . . . . - 915 1,123
Revision of prior year's estimate and
other changes in valuation allowance . . . . . - (31,000) -
Other non-deductible expenses . . . . . . . . . 358 364 370
Provision (credit) for taxes on income . . . . . $ - $ (29,067) $ 11,200
The following is a summary of the significant components of the Company's
net deferred tax asset at December 31, 1996 and 1997:
1996 1997
(Thousands)
Deferred tax assets:
Insurance liabilities . . . . . . . . . . . . . . . . . . . . $ 5,614 $ 5,082
Interest on 12% Senior Subordinated Notes . . . . . . . . . 3,156 -
Pension liabilities . . . . . . . . . . . . . . . . . . . . . 850 688
Warranties, backcharges and job loss provisions . . . . . . . 3,172 2,849
Other expenses not currently deductible . . . . . . . . . . . 12,692 8,936
Operating loss carryforwards . . . . . . . . . . . . . . . . . 18,328 12,276
Limited operating loss carryforwards . . . . . . . . . . . . . 1,352 963
Unrealized loss on sale/disposal of businesses . . . . . . . . 4,247 4,247
Total tax assets . . . . . . . . . . . . . . . . . . . . . . . . 49,411 35,041
Deferred tax liabilities:
Accelerated depreciation . . . . . . . . . . . . . . . . . . . (3,950) (4,059)
Lifo Inventory . . . . . . . . . . . . . . . . . . . . . . . . (1,832) (1,832)
Total tax liabilities . . . . . . . . . . . . . . . . . . . (5,782) (5,891)
Deferred tax asset valuation allowance . . . . . . . . . . (7,813) (7,024)
Net deferred tax asset . . . . . . . . . . . . . . . . . . $ 35,816 $ 22,126
During the third quarter 1996, the Company reduced its deferred tax asset
valuation allowance by $31,000,000 resulting in a credit to taxes on income.
That decision resulted from continued profitable quarterly results, substantial
completion of the Company's divestiture plan, realization of the benefits of
certain restructuring initiatives, successful implementation of cost containment
measures associated with retained liabilities and other factors. Management
believes that the Company will be able to realize the remaining unreserved
portion of its deferred tax asset through future earnings. Management will
continue to evaluate the level of its deferred tax valuation allowance at each
balance sheet date and adjust the valuation reserve as warranted by changes in
the Company's expected future profitability, amounts and timing of payments
related to its retained liabilities or other events which might affect the
realization of the Company's deferred tax asset.
At December 31, 1997, the Company had U.S. net operating loss carryforwards
of $26,930,000 for tax reporting purposes which are available to offset future
income without limitation. The U.S. net operating loss carryforwards expire in
the years 2008 through 2011. In addition, the Company has U.S. tax net
operating loss carryforwards of $135,965,000, which use is limited due to a
"Change in Ownership," as defined in Section 382 of the Internal Revenue Code.
The Company's ability to utilize such carryforward is restricted to an aggregate
potential availability of $2,750,000, with an annual limitation of approximately
$250,000 through the year 2008. Additionally, these carryforwards could be used
to offset income generated by the sale of certain assets.
Additionally, at December 31, 1997, the Company had net operating loss
carryforwards at its Canadian subsidiary of approximately $7,933,000 which
expire in the years 1998 through 2000. A valuation allowance has been recorded
for the entire amount of the deferred tax assets attributable to the Canadian
net operating loss, and other Canadian temporary differences. The reduction in
the valuation allowance is related to the portion of the Canadian net operating
loss utilized in 1997.
12. COMMITMENTS AND CONTINGENCIES
On March 3, 1995, the Company and its surety, Federal Insurance Company
("Federal"), entered into an agreement (the "Federal Agreement") under which
Federal agreed to hold the Company harmless from certain claims pending in
connection with one of the Company's former Fixed Price Custom Curtainwall
projects. Under the terms of the Federal Agreement, Federal assumed control of
the litigation and will also be the beneficiary of any affirmative claim which
the Company may receive. As consideration for Federal's obligations, the
Company assigned to Federal the $3,000,000 interest bearing promissory note
received from the Company's sale of the Construction Group, and agreed to pay
Federal $1,000,000 per year, in equal quarterly installments, for seven years
without interest commencing March 24, 1995. As security for the payment
obligations to Federal, the Company granted to Federal a security interest in
all of the Company's assets and the purchaser delivered a financial guarantee
insurance policy securing payment of the Concrete Note. The Federal Agreement
provides that (i) at least 30% of the ownership of the common stock of the
Company must be held jointly by the current Chairman of the Company, who
currently controls approximately 1.6% of the outstanding common stock and the
current Chief Executive Officer of the Company, who currently controls
approximately 65.4% of the outstanding common stock and (ii) either or both must
continue as Chief Executive Officer and/or Chairman of the Company. In the
event such common stock ownership and executive officers are not maintained, the
Company will be required to make immediate payment of the remaining unpaid
settlement amount which was $4,000,000 at December 31, 1997.
There are various other proceedings pending against or involving the
Company which are ordinary or routine given the nature of the Company's
business. The Company has recorded a liability related to litigation where it is
both probable that a loss will be incurred and the amount of the loss can be
reasonably estimated.
The Company continues to be liable for liabilities associated with sold or
discontinued businesses (see Note 3) prior to the sale or disposition including,
in certain instances, liabilities arising from Company self-insurance programs,
unfunded pension liabilities, warranty and rectification claims, severance
obligations, environmental clean-up matters, and unresolved litigation arising
in the normal course of the former business activities. Management has made
estimates as to the amount and timing of the payment of such liabilities which
are reflected in the accompanying consolidated financial statements. Given the
subjective nature of many of these liabilities, their ultimate outcome cannot be
predicted with certainty. However, based upon currently available information,
management does not expect the ultimate outcome of such matters will have a
material effect on the consolidated financial statements.
The Company has been identified as a potentially responsible party by
various state and Federal authorities for clean-up and monitoring costs at waste
disposal sites related to discontinued operations. Due to various factors, it
is difficult to estimate future environmental related expenditures. The Company
has engaged third parties to perform feasibility studies and assist in
estimating the cost of investigation and remediation. At December 31, 1997, the
Company has recorded reserves of approximately $6.5 million, representing the
best estimate of management and the third parties of future costs to be
incurred. The majority of these expenditures are expected to be incurred in the
next five years. Although unexpected events could have an impact on these
estimates, management does not believe that additional costs that could be
incurred would have a material effect on the consolidated financial statements.
With respect to the environmental clean-up matters, the Company has claimed
coverage under its insurance policies for past and future clean-up costs related
to certain sites for which the Company believes it is indemnified under its
insurance policies. The insurer has refused to admit or deny coverage under the
Company's policies. As a result, the Company has filed a complaint against the
insurer seeking to recover the past and future clean-up costs. It is not
currently possible to predict the amount or timing of proceeds, if any, from the
ultimate resolution of this matter.
13. INCENTIVE PLANS, WARRANTS
Long-Term Incentive Plan
The Company's Long-Term Incentive Plan, (the "Incentive Plan"), as amended
and restated, provides for the grant of both cash-based and stock-based awards
to eligible employees of, and persons or entities providing services to, the
Company and its subsidiaries and provides for one-time, automatic stock awards
to non-employee members of the Board of Directors. Under the Incentive Plan,
the Company may provide awards in the form of stock options, stock appreciation
rights, restricted shares, performance awards, and other stock based awards.
Currently up to 1,400,000 shares of common stock are issuable under the
Incentive Plan, subject to appropriate adjustment in certain events. Shares
issued pursuant to the Incentive Plan may be authorized and unissued shares or
shares held in treasury. Awards may be granted under the Incentive Plan
through March 19, 2001, unless the plan is terminated earlier by action of the
Board of Directors. At December 31, 1997, there were 1,056,000 shares under the
Long-Term Incentive Plan available for grant.
During 1995, 140,000 restricted shares were issued of which one-third of
the shares vested on the date of the grant, the second one-third vested on
November 1, 1995, and the remaining one-third vested on November 1, 1996. Also
during 1995, 2,052 shares were issued to a director and 88,000 restricted shares
were forfeited as a result of employee terminations.
During 1996, 93,000 restricted shares were forfeited as a result of
employee terminations and 15,000 restricted shares were issued with a vesting
period of 5 years. At December 31, 1997, 52,000 unvested restricted shares were
outstanding.
The fair market value of the restricted shares, based on the market price
at the date of the grant, is recorded as deferred compensation, a component of
stockholders' equity, and deferred compensation expense is amortized over the
period benefited.
Warrants
During 1996, all warrants to purchase common stock of the Company expired.
14. RETIREMENT BENEFITS
In connection with its restructuring initiatives, the Company amended its
U.S. defined benefit pension plan, effective January 1, 1995, so that active
salaried employees ceased to accrue future benefits after that date.
Additionally, effective April 1, 1996, the plan was further amended so that
certain U.S. active hourly employees who are not part of a collective bargaining
agreement will cease to accrue future plan benefits. As a result of the plan
amendments pertaining to the salary and hourly employees discussed above, the
Company recorded curtailment losses of $300,000 in 1995.
Benefits which are provided under the Company's defined benefit pension
plans are primarily based on years of service and the employee's compensation.
Plan assets of the Company's defined benefit plans are invested in broadly
diversified portfolios of government obligations, mutual funds, stocks, bonds
and fixed income and equity securities.
Currently, the Company's funding policy is to make payments to its defined
benefit plans as required by minimum funding standards of the Internal Revenue
Code.
Net pension cost of defined benefit pension plans was:
Year Ended December 31
1995 1996 1997
(Thousands)
Service cost-benefits earned during the year . . . . $ 241 $ 63 $ 26
Curtailment loss and special termination benefits . 300 - -
Interest cost on projected benefit obligation . . . . 4,195 3,766 3,724
Actual return on assets . . . . . . . . . . . . . . . (8,622) (6,854) (5,821)
Net amortization and deferral . . . . . . . . . . . . 5,700 2,651 1,439
Net pension cost (income) . . . . . . . . . . . . . . $ 1,814 $ (374) $ (632)
The following table sets forth the aggregate funded status of the Company's
defined benefit pension plans:
1996 1997
(Thousands)
Actuarial present value of benefit obligation:
Vested benefit obligation . . . . . . . . . . . . . . . . . . . $ 51,494 $ 50,473
Non-vested benefit obligation . . . . . . . . . . . . . . . . . 851 855
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . 52,345 $ 51,328
Excess of projected benefit obligation over
accumulated benefit obligation . . . . . . . . . . . . . . . . - -
Projected benefit obligation . . . . . . . . . . . . . . . . . . . 52,345 51,328
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . 51,756 51,274
Projected benefit obligation in excess of plan assets . . . . . . . (589) (54)
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . (368) (476)
Remaining unrecognized net transition obligation . . . . . . . . . 103 85
Net accrued pension cost recognized in the
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . $ (854) $ (445)
Actuarial assumptions used for the Company's defined benefit plans were as
follows:
Year Ended December 31
1995 1996 1997
(Thousands)
Assumed discount rate . . . . . . . . . . . . . . 7.25% 7.25% 7.25%
Assumed rate of compensation increase . . . . . . - - -
Expected rate of return on plan assets . . . . . . 9.0 9.0 9.0
Certain U.S. salaried and hourly employees, who are not part of a collective
bargaining agreement, are covered by a defined contribution plan which provides
for contributions based primarily on compensation levels. The Company funds its
contributions to the defined contribution plan currently. Plan assets of
defined contribution plans are invested in bank funds. Expense related to the
Company's defined contribution plan was:
Year Ended December 31
1995 1996 1997
(Thousands)
$ 655 $ 881 $ 1,067
15. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors postretirement medical and life insurance plans that
cover a closed group of eligible retirees and their dependents. None of the
plans are funded, nor do they have any plan assets.
The following table sets forth the funded status reconciled with the amount
recognized in the Company's Consolidated Balance Sheets.
December 31
1996 1997
(Thousands)
Accumulated Postretirement Benefit Obligation ("APBO"):
Retired employees . . . . . . . . . . . . . . . . . . . . . . . $ (2,236) $ (1,704)
Unfunded accumulated benefit obligation in
excess of plan assets . . . . . . . . . . . . . . . . . . . . $ (2,236) $ (1,704)
Unrecognized net (gain)/loss . . . . . . . . . . . . . . . . . . (4,243) (4,163)
Unrecognized transition obligation . . . . . . . . . . . . . . . 5,978 5,202
Accrued postretirement benefit cost recognized in
the Consolidated Balance Sheets . . . . . . . . . . . . . . . $ (501) $ (665)
Weighted average discount rate used in determination of APBO . . 7.25% 7.25%
Net periodic postretirement benefit cost for 1995, 1996 and 1997 included
the following components:
Year Ended December 31
1995 1996 1997
(Thousands)
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . $ 320 $ 195 $ 133
Net amortization and deferral . . . . . . . . . . . . . . . . 1,541 933 446
Net periodic postretirement benefit cost . . . . . . . . . . . $1,861 $1,128 $ 579
Weighted average discount rate used in
determination of APBO . . . . . . . . . . . . . . . . . . . 8.25% 7.25% 7.25%
For measurement of the net periodic postretirement benefit cost and the
APBO, a 9.75% annual rate of increase in the per capita cost of covered health
care benefits was assumed for the year 1996-1997; the rate was assumed to
decline to 7.5% for the year 1997-1998, and then to decline uniformly to 5.75%
by the year 2002-2003 and to remain at that level thereafter. During 1995, the
Company amended its plans to eliminate health care coverage for participants
age 65 and over and redesigned existing plans to include, beginning during 1996,
various managed care health care programs and increased participant premiums
resulting in decreased costs. Due to the elimination of post-65 health coverage
in 1995, the medical trend rate assumption has an immaterial impact on results.
16. RELATED PARTY TRANSACTIONS
The Company paid to an affiliated company of the Company's Chief Executive
Officer $274,000, $240,000 and $240,000 during 1995, 1996 and 1997,
respectively, for manufacturing and certain other consulting services.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial data is summarized as follows:
First Second Third Fourth
1997 (a)
Revenue . . . . . . . . . . . . . . . . . . $ 59,998 $ 69,716 $ 79,170 $ 79,267
Cost of sales . . . . . . . . . . . . . . . 49,059 56,255 64,496 63,474
Income from continuing
operations . . . . . . . . . . . . . . . . 3,160 4,335 5,579 5,712
Extraordinary gain on debt redemption . . . 4,568 - - -
Net income . . . . . . . . . . . . . . . . . 7,728 4,335 5,579 5,712
Income per share from
continuing operations . . . . . . . . . . $ .20 $ .27 $ .35 $ .35
Net income per common share . . . . . . . . $ .48 $ .27 $ .35 $ .35
1996 (b)
Revenue . . . . . . . . . . . . . . . . . . $ 56,972 $ 63,876 $ 70,433 $ 64,612
Cost of sales . . . . . . . . . . . . . . . 46,081 49,899 54,387 51,111
Income from continuing
operations . . . . . . . . . . . . . . . . 3,262 6,545 39,624 3,177
Extraordinary loss on debt
restructuring . . . . . . . . . . . . . . - - - (1,315)
Net income . . . . . . . . . . . . . . . . . 3,262 6,545 39,624 1,862
Income per share from
continuing operations . . . . . . . . . . $ .20 $ .41 $ 2.46 $ .20
Net income per common share . . . . . . . . $ .20 $ .41 $ 2.46 $ .12
(a) During the first quarter of 1997, the Company recorded a $4.6 million credit, net of taxes of $2.9 million, reflecting the
elimination of the previously recorded accrued interest on the 12% debentures that were redeemed in January 1997.
(b) During the third quarter of 1996, the Company reduced its deferred tax asset valuation allowance from $42,769,000 to
$11,769,000 resulting in a $31,000,000 credit to taxes on income. That decision resulted from continued profitable quarterly
results, substantial completion of the Company's divestiture plan, realization of the benefits of certain restructuring
initiatives, successful implementation of cost containment measures associated with retained liabilities and other factors.
During the fourth quarter of 1996, the Company prepaid its term loan with Foothill Capital Corporation terminating its credit
agreement. In connection with this prepayment, deferred fees and expenses totaling $1,315,000, net of taxes of $838,000, were
recorded as extraordinary loss on debt redemption.
Report of Independent Public Accountants
To the Board of Directors and
Stockholders of Robertson-Ceco Corporation:
We have audited the accompanying consolidated balance sheets of Robertson-Ceco
Corporation as of December 31, 1997 and 1996 and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robertson-Ceco Corporation and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
San Francisco, California
February 13, 1998
Report of Independent Public Accountants
To the Board of Directors and
Stockholders of Robertson-Ceco Corporation:
In our opinion, the accompanying consolidated statement of operations, of
stockholders' equity and of cash flows present fairly, in all material respects,
the result of operations and of cash flows of Robertson-Ceco Corporation for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
San Francisco, California
February 13, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information concerning the Registrant's directors is incorporated by
reference to the section entitled "Election of Directors" in the registrant's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 19, 1998, to be filed pursuant to Regulation 14A.
(b) Information concerning executive officers of the Registrant is set forth in
Item 4.1 of Part I page 7 of this Report under the heading "EXECUTIVE OFFICERS
OF THE REGISTRANT".
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference to
the section entitled "Executive Compensation" in the registrant's definitive
proxy statement for the Annual Meeting of Stockholders to be held on May 19,
1998, to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated by reference to the section entitled "Security
Ownership" in the registrant's definitive proxy statement for the Annual Meeting
of Stockholders to be held on May 19, 1998, to be filed pursuant to Regulation
14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated by reference to the section entitled "Certain Relationships and
Related Transactions" in the registrant's definitive proxy statement for the
Annual Meeting of Stockholders to be held on May 19, 1998, to be filed pursuant
to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE NO.
The following documents are filed as part of this Report:
(a)1. Consolidated Financial Statements of Robertson-Ceco
Corporation.
Consolidated Statements of Income for the three
years ended December 31, 1997. 15
Consolidated Balance Sheets at December 31, 1996 and
1997. 16
Consolidated Statements of Cash Flows for the three
years ended December 31, 1997. 18
Consolidated Statements of Stockholders' Equity
for the three years ended December 31, 1997. 19
Notes to Consolidated Financial Statements, including
Selected Quarterly Financial Data as required by Item
302 of Regulation S-K. 20
Independent Auditors' Reports.
Arthur Andersen LLP 33
Price Waterhouse LLP 34
(a)2. Financial Statement Schedules for the Three Years
Ended December 31, 1997.
SCHEDULE II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or not required. 39
Report of Independent Public Accountants on Financial Statement
Schedules: Arthur Andersen LLP - as of and for the years ended
December 31, 1996 and 1997, and Price Waterhouse LLP - as of and
for the year ended December 31, 1995. 41
(a)3. List of Exhibits.
Exhibits filed or incorporated by reference in
connection with this Report are listed in the
Exhibit Index starting on page 43.
(b) Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of San
Ramon, California, on this 26th day of March 1998.
ROBERTSON-CECO CORPORATION
By /s/ Patrick G. McNulty
Patrick G. McNulty
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and as of the
26th day of March, 1998. Each person whose signature appears below hereby
authorizes each of Andrew G. C. Sage, II, Elmer A. Roskovensky and Ronald D.
Stevens and appoints each of them singly his or her attorney-in-fact, each with
full power of substitution, to execute in his name, place and stead, in any and
all capacities, any or all further amendments to this Report and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, making such further changes in this
Report as the Company deems appropriate.
SIGNATURE
/s/ Michael E. Heisley /s/ Andrew G. C. Sage, II
Michael E. Heisley Andrew G. C. Sage, II
Chief Executive Officer and Director Chairman and Director
(Principal Executive Officer)
/s/ Elmer A. Roskovensky /s/ Ronald D. Stevens
Elmer A. Roskovensky Ronald D. Stevens
President and Chief Operating Officer Executive Vice President and Chief
and Director Financial Officer
/s/ Frank A. Benevento /s/ Stanley G. Berman
Frank A. Benevento Stanley G. Berman
Director Director
/s/ Gregg C. Sage /s/ Stanley H. Meadows
Gregg C. Sage Stanley H. Meadows
Director Director
/s/ Patrick G. McNulty
Patrick G. McNulty
Corporate Controller
ROBERTSON-CECO CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE BALANCE
AT CHARGED TO CHARGED TO AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
YEAR ENDED DECEMBER 31, 1997:
Deducted from Asset Accounts:
Allowance for
Doubtful Accounts . . . . . $ 1,881 $ 450 $ - $ 641 (b) $ 1,690
Reserves for Discontinued
Operations (g) . . . . . . $ 6,273 $ - $ - $ 1,001 (c) $ 5,272
Not Deducted from Asset Accounts:
Insurance liabilities - current $ (1,225)(d)
. . . . . . . . . . $ 6,094 $ 6,525 $ - $ 8,090 (c) $ 5,754
Insurance liabilities - long-term 1,225 (d)
. . . . . . . . . . $ 8,349 $ - $ - $ (207) (c) $ 7,331
Other-current (f) . . . . . (1,328) (d)
. . . . . . . . . . $ 5,473 $ 1,881 $ - $ 3,080 (c) $ 5,602
Other-noncurrent (g) . . . $ 10,573 $ - $ - $ 1,328 (d) $ 9,245
YEAR ENDED DECEMBER 31, 1996:
Deducted from Asset Accounts:
Allowance for
Doubtful Accounts . . . . $ 1,302 $ 945 $ 241 (a) $ 607 (b) $ 1,881
Reserves for Discon-
tinued Operations (g) . . . . $ 7,613 $ - $ - $ 1,340 (c) $ 6,273
Not Deducted from Asset Accounts:
Insurance liabilities - current $ 8,243 $ 6,385 $ - $ 8,534 (c) $ 6,094
Insurance liabilities - long-term $ 10,744 $ - $ - $ 2,395 (d) $ 8,349
Other-current (f) . . . . . . $ 6,445 $ 2,147 $ - $ 3,119 (c) $ 5,473
Other-noncurrent (g) . . . . . $ 11,383 $ - $ - $ 810 (c) $ 10,573
ROBERTSON-CECO CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE BALANCE
AT CHARGED TO CHARGED TO AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
YEAR ENDED DECEMBER 31, 1995:
Deducted from Asset
Accounts:
Allowance for
Doubtful Accounts . . . . . . . $ 1,143 $ 732 $ 87 (a) $ 500 (b)
160 (e) 1,302
Reserves for Discontinued
Operations (g) . . . . . . . . . $ 12,309 $ - $ - $ 4,696 (c) $7,613
Not Deducted from Asset
Accounts:
Insurance liabilities - current $ 8,365 $ 9,561 $ 5,975 $15,191 (c)
- - - 467 (d) $8,243
Insurance liabilities - long-term $ 15,084 $ - $ - $ 4,340 (d) $ 10,744
Other-current (f) . . . . . . . $ 6,827 $ 3,281 $ 2,373 $ 5,454 (c)
166 (d)
- $ - $ - 416 (e) $ 6,445 (h)
Other-noncurrent (g) . . . . . $ 11,028 $ - $ 1,800 $ 1,304 (d)
- $ - $ - 141 (e) $ 11,383
NOTES:
(a) Represents recovery of accounts receivable previously written off as uncollectable.
(b) Accounts receivable written off as uncollectable.
(c) Represents charges to the accounts for their intended purposes.
(d) Represents transfer of reserves.
(e) Represents reserves of sold/held for sale businesses.
(f) The reserves are included in the caption "Other Accrued Liabilities" in the Consolidated Balance Sheets.
(g) Current reserves are included in the caption "Other Accrued Liabilities" and non-current reserves are included in
the Caption "Reserves and Other Long-Term Liabilities" in the Consolidated Balance Sheets.
(h) The reserves include warranty and backcharge reserves, reserves for restructuring, environmental and job loss reserves
included in the caption "Other Accrued Liabilities" in the Consolidated Balance Sheets. See Notes to Consolidated Financial
Statements.
Report of Independent Public Accountants on
Financial Statement Schedules
To the Board of Directors
of Robertson-Ceco Corporation:
We have audited in accordance with generally accepted auditing standards, the
1997 and 1996 consolidated financial statements of Robertson-Ceco Corporation
included in this registration statement and have issued our report thereon
dated March 26, 1998. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in the
index above are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commissions rules and are not part of the basic financial statements. The
1996 and 1997 financial data included in these schedules has been subjected
to the auditing procedures applied in the audit of the basic financial
statements referred to above and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
San Francisco, California
February 13, 1998
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Robertson-Ceco Corporation:
Our audit of the consolidated financial statements referred to in our report
dated February 13, 1997 appearing on page 34 of the 1997 Annual Report on
Form 10-K of Robertson-Ceco Corporation also included an audit of the
Financial Statement Schedule which is as of and for the year ended
December 31, 1995 listed in Item 14(a1) of this Form 10-K. In our opinion,
this Financial Statement Schedule presents fairly, in all material respects,
the information set forth therein, when read in conjunction with the related
consolidated financial statements.
Price Waterhouse LLP
San Francisco, California
February 13, 1997
Exhibit Index
Exhibit Sequential
No. Description Page No.
3.1 Registrant's Second Restated Certificate of Incorporation, effective
July 23, 1993, filed as Exhibit 3 to Registrant's report on
Form 8-K dated July 14, 1993 (File No. 1-10659), and
incorporated herein by reference thereto . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Bylaws of Registrant, effective November 8, 1990, and as Amended
on November 12, 1991, August 27, 1992 and December 16, 1993,
filed as Exhibit 3.2 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (File No. 1-10659),
and incorporated herein by reference thereto . . . . . . . . . . . . . . . . . . . . . . .
4.1 Registration Rights Agreement dated May 17, 1993 by and among the
Registrant and Sage RHH filed as Exhibit 10.27 to the Registrant's
Registration Statement on Form S-4, Registration Statement No. 33-58818,
and incorporated herein by reference thereto . . . . . . . . . . . . . . . . . . . . . . .
4.2 Registration Rights Agreement dated December 14, 1993 by and among
the Registrant and Heico Acquisitions, Inc. filed as Exhibit 4.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (File No. 1-10659), and incorporated herein by reference thereto . . . .
10.1 Amended and Restated 1991 Long Term Incentive Plan, filed as Exhibit 4.1 to
Registrant's Form S-8 Registration Statement No. 33-51665 dated December 22, 1993,
and incorporated herein by reference thereto . . . . . . . . . . . . . . . . . . . . . . .
10.2 Agreement by and among Registrant, Capella Investments Limited and H. H. Robertson
(U.K.) Limited dated November 9, 1993, filed as Exhibit 2.1 to the Registrant's report on
Form 8-K dated November 22, 1993, and incorporated herein by reference thereto . . . . . .
10.3 Registration Rights Agreement dated May 17, 1993 by and among the Registrant
and Sage RHH referred to in Exhibit 4.2 above . . . . . . . . . . . . . . . . . . . . . .
10.4 Registration Rights Agreement dated December 14, 1993 by and among the
Registrant and Heico Acquisitions, Inc. referred to in Exhibit 4.3 above . . . . . . . . .
10.5 Asset Purchase Agreement, dated December 27, 1994 by and between
Cupples Products, Inc. and the Registrant filed as Exhibit 2.1 to
Registrant's Report on Form 8-K dated December 27, 1994 (File No. 1-10659),
and incorporated herein by reference thereto . . . . . . . . . . . . . . . . . . . . . . .
10.6 Agreement for Purchase and Sale of Assets dated March 3, 1995 by and between
the Registrant and Ceco Concrete Construction Corp. filed as Exhibit 2.1 to
Registrant's Report on Form 8-K dated March 3, 1995 (File No. 1-10659), and
incorporated herein by reference thereto . . . . . . . . . . . . . . . . . . . . . . . . .
10.7 Settlement Agreement dated March 3, 1995 by and between the Registrant
and Federal Insurance Company filed as Exhibit 10.43 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 1-10659) and incorporated herein by reference thereto . . . . . . . . . . . . .
10.8 Agreement for Purchase and Sale of Shares by and among the Registrant
Bruco International, Inc. and H.H. Robertson Asia/Pacific Pte Ltd dated
September 27, 1996 filed as Exhibit 2 to Registrants Report on FORM 10-K
dated September 30, 1996 (File NO. 1-10659) and incorporated herein by reference thereto .
10.9 Credit agreement dated December 31, 1996 by and between the Registrant and the various
financial institutions and Bank of America as agent for the lenders filed herewith . . . . .
10.10 Employment Agreement between Registrant and Ronald D. Stevens dated
October 7, 1996 filed herewith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 Statement re: Computation of Earnings (Loss) Per Common Share . . . . . . . . . . . . . . 42
21 List of subsidiaries of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
23.1 Consent of Arthur Andersen LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
23.2 Consent of Price Waterhouse LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
27 Financial Data Schedule