THE FOLLOWING ITEMS WERE THE SUBJECT OF A FORM 12B-25 AND ARE INCLUDED HEREIN:
ITEM 8 AND ITEM 14
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
COMMISSION FILE NUMBER 333-34061.
---------
CAMBRIDGE INDUSTRIES, INC.
CE AUTOMOTIVE TRIM SYSTEMS, INC.
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
CAMBRIDGE--DELAWARE CAMBRIDGE-38-3188000
CE-MICHIGAN CE-38-3173408
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
555 HORACE BROWN DRIVE 48071
MADISON HEIGHTS, MICHIGAN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(248) 616-0500 NONE
(REGISTRANT'S TELEPHONE NUMBER, (NAME OF EXCHANGE ON WHICH
INCLUDING AREA CODE) REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
As of March 31, 1998, the aggregate market value of the registrants' Common
Stock held by non-affiliates of the Company was $0.00.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes [_] No [_]
APPLICABLE ONLY TO CORPORATE REGISTRANTS. As of March 31, 1998, the numbers
of shares outstanding of each of the classes of common stock of Cambridge
Industries Holdings, Inc., of which the Company is a wholly-owned subsidiary,
was 57,666.68 of Class A Common, 25,666.69 of Class L Common and 45,000.00 of
Class P Common.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants' knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
--------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report constitute "forward-looking
statements" within the meaning of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, and the Company intends that
such forward-looking statements be subject to the safe harbors created thereby.
The words "anticipate", "will", "expect", and "believe" identify forward-
looking statements. These forward-looking statements reflect the Company's
current views with respect to future events and financial performance, but are
subject to many uncertainties and factors relating to the Company's operations
and business environment which may cause the actual results of the Company to
be materially different from any future results expressed or implied by such
forward-looking statements. Please see the section entitled "Certain Important
Factors" in this Annual Report for a list of such uncertainties and factors.
The Company undertakes no obligation to publicly update or revise any forward-
looking statements whether as a result of new information, future events, or
otherwise.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
PAGE NUMBER
OR
REFERENCE
-----------
PART I
ITEM 1. Business............................................... 1
ITEM 2. Properties............................................. 17
ITEM 3. Legal proceedings...................................... 17
ITEM 4. Submission of matters to a vote of security holders.... 18
PART II
ITEM 5. Market for the Company's common stock and related
stockholder matters................................... 18
ITEM 6. Selected financial data................................ 19
ITEM 7. Management's discussion and analysis of financial
condition and results of operations................... 20
ITEM 8. Consolidated financial statements and supplementary
data.................................................. 26*
ITEM 9. Changes in and disagreements with accountants on
accounting and financial disclosure................... 26
PART III
ITEM 10. Directors and executive officers of the Company........ 27
ITEM 11. Executive compensation................................. 29
ITEM 12. Security ownership of certain beneficial owners and
management............................................ 33
ITEM 13. Certain relationships and related transactions......... 34
PART IV
ITEM 14. Exhibits, financial statement schedules, and reports on
Form 8-K.............................................. 36*
* These Items were the subject of a Form 12b-25 and are included herein.
PART I
ITEM 1 -- BUSINESS
As used in this Annual Report, unless the context otherwise requires, the
"Company" or "Cambridge" refers to Cambridge Industries, Inc. and its wholly-
owned subsidiaries, including the co-registrant, CE Automotive Trim Systems,
Inc. ("CE"). The Company is a wholly-owned subsidiary of Cambridge Industries
Holdings, Inc. ("Holdings").
GENERAL
The Company is a leading Tier 1 supplier of plastic components and systems
for GM, Ford, Chrysler, Toyota, Honda, Mazda, Nissan, Volkswagen,
Freightliner, Kenworth, Mack Truck and Volvo Heavy Truck. As a Tier 1
supplier, the Company is increasingly responsible for the design, engineering,
manufacturing and quality control testing of parts and pre-assembled
components for original equipment manufacturers ("OEMs"). Within the
automotive OEM market for plastic products there are three distinct types of
applications, all of which the Company can provide: exterior,
structural/functional/powertrain and interior. The Company manufactures
components, modules and systems for exterior and
structural/functional/powertrain applications and components and modules for
interior applications. In addition to products supplied to its automotive OEM
customers, the Company also manufactures a number of products for non-
automotive customers. The Company's production utilizes a wide range of
processes, including compression, injection, extrusion and blow molding, and
top coat painting capabilities at OEM Class A standards.
The Company has experienced rapid growth since 1991 due to increased plastic
usage by OEMs, five major acquisitions and significant new product
introductions. Additionally, the Company's average content per vehicle
(automobile, light truck and heavy truck) produced in North America has
increased from approximately $0.86 in 1991 to approximately $39.70, on a pro
forma basis in 1997 (including the Eagle Picher Acquisition (as defined) and
the Goodyear-Jackson Acquisition (as defined).
AUTOMOBILE AND LIGHT TRUCK COMPONENTS INDUSTRY
As automobile and light truck manufacturers have faced increased competitive
pressures, they have sought to significantly reduce costs, improve quality and
shorten the development time required for new vehicle platforms. These changes
have altered the OEM/supplier relationship and benefited larger suppliers such
as the Company that have low costs, strong product engineering and development
capabilities, superior quality and the ability to deliver products on a timely
basis. The Company believes the following are the primary trends in the
automotive components industry:
Increased Use of Plastics
The combined pressures of cost reduction, increased durability requirements
and rising fuel economy standards have caused OEMs to concentrate on
developing and employing lower cost, more durable and lighter weight
materials. As a result, the average plastic content per passenger vehicle has
increased by 17%, from approximately 209 pounds in 1991 to approximately 244
pounds in 1997, and is projected by industry observers to grow another 19% to
approximately 291 pounds per vehicle by 2006. While plastics historically have
been used for many interior trim components, they are now being used more
extensively in such structural components as grille opening retainers, floor
panels, bumpers and support beams, as well as in such nonstructural components
as exterior trim panels, grilles, duct systems, tail lights, fluid reservoirs,
intake manifolds, valve covers and drive train components. These trends toward
the increased use of plastics in exterior and structural/functional/
powertrain components have been driven by innovations in material, molding and
painting technologies, which have improved the performance and appearance of
molded plastic components as well as lowering their costs. Plastic's design
freedom is also key to its increased use. Not only does plastic allow for the
manufacture of products that cannot be manufactured with other materials,
plastic makes it possible to combine several parts, saving weight and cost.
Additionally, recently introduced plastics that can withstand the hot,
corrosive
1
environment of the engine compartment are becoming more prevalent. For
example, the Company has developed plastic rocker arm covers for use on the
high production volume Ford 3.0L and 4.6L engines. Furthermore, according to
industry sources, plastics usage in engine and mechanical components are
expected to increase by more than 50% from 1995 to 2005.
Historically, due to lower upfront tooling costs, plastic generally has had
an advantage over steel in low volume production runs. With its lower tooling
costs, the Company benefits from the increase in niche vehicles (such as the
Chrysler Viper and Prowler and the GM Corvette), customization of high volume
vehicles (such as the addition of flare fenders to the Ford Ranger and Ford F-
150 pick-ups) and the use of optional accessories (such as step-assists on
sport utility vehicles, GM's GMT800, and Chrysler's Jeep Wrangler hard-top).
For higher volume production runs where tooling costs may be amortized over a
larger number of units, steel generally has an advantage, because it is
generally a less expensive raw material with lower finishing costs.
Increased Outsourcing by Domestic OEMs
In an effort to reduce costs, speed product design and simplify
manufacturing, domestic OEMs have outsourced the manufacture of many
components, systems and modules which were previously manufactured internally.
Independent suppliers generally are able to design, manufacture and deliver
components at a lower cost than the OEMs due to: (i) their significantly lower
direct labor, fringe benefit and overhead costs; (ii) the ability to spread
R&D and engineering costs over products provided to multiple OEMs; and (iii)
the economies of scale inherent in product specialization. The domestic OEMs
have benefited because outsourcing has allowed them to reduce costs and to
focus on overall vehicle design and consumer marketing.
Suppliers such as the Company have benefited from outsourcing because the
aggregate number and value of components which they manufacture have increased
dramatically. In addition, the outsourcing trend has increased the complexity
of components which are manufactured by independent suppliers and this has
favored low cost, full service, high quality suppliers such as the Company
which can develop modules and systems that OEMs can easily install.
Consolidation of Supplier Base by OEMs
The OEMs have significantly consolidated their supplier bases in an effort
to reduce their procurement related costs and accelerate new platform
development. Many suppliers have either been eliminated or tiered (i.e., they
supply other suppliers) in order to minimize the number of direct supplier
contacts the OEM must maintain. From 1987 to 1997, Ford and Chrysler reduced
their supplier bases by an average of 79% and have announced plans to further
reduce their supplier base by an average of 60% between 1997 and 2002.
This consolidation has altered the typical structure of supplier contracts.
In the past, OEMs generally outsourced relatively simple parts under annual
contracts primarily on the basis of cost, and suppliers generally functioned
as contract manufacturers, with the OEM performing all development, design and
engineering related tasks. With the trend towards the outsourcing of
increasingly complex multicomponent systems, the basis of competition among
suppliers has shifted to one encompassing a broad range of additional criteria
including design capabilities, speed of development, manufacturing and process
expertise, consistency of quality and reliability of delivery. In many cases,
sole-source supply contracts cover the life of a vehicle or platform.
Suppliers benefit because this enables them to devote the resources necessary
for proprietary product development with the knowledge that they will have the
opportunity to earn an adequate return on such investment over the multiyear
life of a contract. In turn, the OEMs benefit because they share in the
manufacturing cost savings attributable to long, multiyear production runs at
high capacity utilization levels. As a result, smaller, poorly capitalized
suppliers with limited product lines and engineering and design capabilities
have been eliminated or have lost market share. Larger suppliers, such as the
Company, with broad product lines, in-house design and engineering
capabilities and the ability to effectively manage their own supplier bases,
have increased market share.
2
Increased Levels of Manufacturing in North America by Transplants
Japanese automotive manufacturers have gained a significant share of the
United States market, initially by exporting their vehicles but more recently
by acquiring and developing manufacturing facilities located in North America.
Due to the relative cost advantage of producing vehicles in North America and
to political pressures, sales of vehicles imported from Japan declined from
1983 to 1997, while Transplant manufacturing has offset this decline by
shifting more production to North America. Transplants have increased their
share of North American vehicle production from approximately 3% in 1985 to
approximately 21% in 1997. Industry sources forecast that this trend will
continue. For example, both Mercedes Benz and BMW commenced manufacturing in
the U.S. in 1996. Further, Toyota has announced plans to build its T-100
pickup truck in Indiana by 1998, Honda has announced plans to build its
Odyssey minivan in North America by 1999 and Volkswagen has announced that it
is considering re-entering North America as a manufacturer.
The Company anticipates that increased levels of manufacturing by
Transplants, as well as higher levels of local content, will continue to
benefit the Company by allowing it to participate in new platforms that
previously had been imported or supplied by manufacturers located in Japan or
Europe. In 1997, the Company, on a pro forma basis after giving effect to the
Eagle-Picher Acquisition and the Goodyear-Jackson Acquisition, as if each had
occurred on January 1, 1997, had sales to Transplants of $40.0 million or 9.4%
of total Company sales.
HEAVY TRUCK COMPONENTS INDUSTRY
The heavy truck components industry has also experienced increased use of
plastics, increased outsourcing by domestic OEMs, consolidation of supplier
base by OEMs and increased levels of manufacturing in North America by
Transplants. The increased use of plastics is particularly pronounced in the
heavy truck industry. Plastics allow for significant weight savings and
improved fuel economy relative to steel. For example, the Company believes
that a composite truck hood assembly made by the Company weighs approximately
30% less than a comparable steel assembly. In addition, because of low annual
volumes of heavy truck production, lower up front tooling costs give plastic
an advantage over steel. Finally, in contrast to the automotive component
industry, the heavy truck industry historically has not manufactured its own
components, but rather has relied heavily on suppliers for their design,
engineering and manufacturing of components. These industry characteristics
favor suppliers like the Company, which have broad design and engineering
capabilities and extensive heavy truck component manufacturing experience. The
Company is a key supplier to Kenworth, Freightliner, GM, Volvo, Sterling, Ford
and Mack Truck.
NON-AUTOMOTIVE COMPONENTS INDUSTRY
The non-automotive markets for the Company's manufacturing processes include
recreation, agriculture, transportation, construction, marine, military,
health and medical, and business equipment industries. A substantial portion
of the reinforced plastic products supplied in these markets comes from sheet
molded compound ("SMC"), much of which is captively molded by companies such
as General Electric, White Westinghouse, Therma-Tru, Kohler, Rubbermaid, RCA,
Kawasaki and Polaris. The development of business in this market typically
comes from two areas of opportunity: conversion from alternate materials and
conversion from alternate composite processes due to increased volume
requirements. Sales to these markets in 1997 were less than 5% of overall
sales.
BACKGROUND AND ACQUISITION HISTORY
The Company has grown rapidly since its inception by capitalizing on both
the consolidation of the industry and the increase in plastic content per
vehicle. It has responded to the consolidation by building or acquiring full-
service design, engineering and manufacturing capabilities. The Company's
ability to offer a comprehensive range of processes and materials has given it
a strong competitive position among full-service OEM suppliers.
The Company has acquired businesses that have attractive products or new
technologies, but have been undermanaged. Typically, the Company has targeted
either privately owned manufacturers that lack the
3
management depth and other resources necessary to compete as major suppliers
or divisions of large companies that considered such operations to be
peripheral to their core businesses.
Since its initial formative acquisitions in 1988 and 1990, the Company's
management has consummated five major and four minor acquisitions over the
past nine years, implementing a focused strategy to enhance profitability and
reposition the acquired entities for growth. This strategy has included one or
more of the following steps designed to reduce costs, simplify manufacturing
and increase profitability: (i) placing strong managers in key positions in
the newly acquired company to implement changes; (ii) rationalizing raw
materials and components purchasing (the Company's largest single cost
component) to reduce costs of goods sold; (iii) redesigning manufacturing and
material flow to eliminate indirect costs, reduce inventories and shorten
production cycle times; (iv) reducing headcount; and (v) reducing overall
administrative costs, including insurance, benefit plans, and professional
fees.
The following summarizes the Company's acquisition history:
1988 Nortec Precision Plastics
Precision functional parts manufacturer. Principal customer was
Chrysler.
1990 Wolf Engineering Corporation ("Wolf")
Enhanced functional parts capabilities and added tool building
capability. Added GM as customer. Management improved manufacturing
material flow, improved labor productivity and reduced SG&A.
1993 Voplex Corporation (including Voplex Canada) (collectively, "Voplex")
Entered interior plastic trim market. Added blow-molding,
compression-molded fiber processing, extrusion, co-extrusion, paint
and large press capabilities. Added Canadian manufacturing
facilities. Management reduced manufacturing and supervisory
headcount, improved labor productivity, closed two facilities,
increased raw material yields and substantially increased sales to
GM.
1993 Troy Products
Added larger tonnage press capacity and structural foam technology.
1994 Rockwell Plastics
Added thermoset and compression molding technology. Enhanced
functional parts market position and added structural parts
capabilities. Added Honda, Mazda, Nissan and Suzuki to customer base
as well as significant Ford business. Added heavy truck OEMs as
customers. Management consolidated sales forces, renegotiated
insurance and benefit policies and reduced plant level
administration head-count.
1996 GenCorp RPD
Substantially increased SMC capabilities, making the Company the
leading manufacturer of SMC. Added Volvo Heavy Truck and Kenworth to
customer base as well as significantly increased business with GM.
To date, management has re-negotiated insurance and benefit policies
and significantly reduced intercompany charges related to corporate
level administration.
1997 APX--PMC Division
Additional RTM technology and paint priming. In house RTM tooling
and prototype capabilities. Strengthened supplier relationship with
Chrysler.
1997 Eagle-Picher--Plastics Division
Improved painting capabilities by adding top coat painting which
meets OEM Class A standards. Added non-automotive product lines and
expected to strengthen Transplant relationships. Added
4
additional large tonnage presses and open plant capacity and ability
to consolidate SMC production with other Company plants.
1997 Goodyear-Jackson--Engineered Composites Business
Strengthened the Company's position as the leading SMC supplier to
medium and heavy truck OEMs and expected to enhance its relationship
with Ford and Freightliner. Added products (grill opening panels &
retainers, air brake pistons) and new manufacturing processes (SMC
injection molding). Increased SMC production capacity with the
addition of compression and injection molding presses.
1997 Owens-Corning Brazil--Brazilian Molded Plastic and Pultrusion
Operations
Added ability to manufacture components for Brazil-based customers
and Brazilian subsidiaries of North American OEMs.
1998 Livingston, Inc.
Enhanced the Company's relationship with PACCAR (Kenworth) and
provided the Company with a Class 8 heavy truck assembly facility on
the west coast of the United States.
THE LIVINGSTON ACQUISITION
As of January 1, 1998, the Company acquired substantially all of the
operating assets of Livingston, Inc. ("Livingston"), located in Auburn,
Washington, for a total purchase price of $2.15 million, subject to post-
closing adjustments (the "Livingston Acquisition"). Livingston's primary
customer is PACCAR (Kenworth). The Livingston Acquisition has provided the
Company with a Class 8 heavy truck assembly facility on the west coast of the
United States and has added ability for spray-up molding, and the Company
believes the acquisition will enhance its relationship and business with
PACCAR (Kenworth).
THE OWENS-CORNING BRAZIL ACQUISITION
As of August 31, 1997, Cambridge Industrial do Brasil, LTDA, a newly formed
Brazilian subsidiary of the Company, purchased certain assets of the molded
plastic and pultrusion operations ("Owens-Corning--Brazil") located in Rio
Clara, Brazil of Owens-Corning Fiberglas A.S. LTDA., a Brazilian subsidiary of
Owens-Corning, for $5.5 million (the "Owens-Corning Acquisition"). The Company
believes this acquisition will allow the Company to manufacture plastic
components for automotive customers and other industries in the Brazilian
market. The Company believes Cambridge Industrial do Brasil, LTDA is not
material, individually or when aggregated with Voplex of Canada, Inc., the
Company's other non-guarantor subsidiary, to the consolidated financial
statements.
THE EAGLE-PICHER ACQUISITION
Effective July 1, 1997, the Company acquired the plastics division of Eagle-
Picher Industries, Inc. ("Eagle-Picher") for a total purchase price of
approximately $32.0 million (the "Eagle-Picher Acquisition"). The Eagle-Picher
assets acquired by the Company include three manufacturing facilities which
produce automotive (body panels, hoods, spoilers) and non-automotive (jet ski
components, tractor panels) parts using SMC.
Eagle-Picher's SMC production facilities and process capabilities enhance
the Company's existing leadership position in the manufacture of SMC parts for
automotive and non-automotive applications. Additionally, significant overlap
in sales to GM, Ford and Chrysler will allow the Company to offer more
products to these OEM customers. Because the overall volume of business, and
the range of products provided to an OEM customer, are factors in achieving
and retaining Tier 1 status, the overlap resulting from the Eagle-Picher
Acquisition further enhances the Company's Tier 1 position. Through plant
consolidations, raw material purchasing and production rationalization,
manufacturing material flow redesign, headcount reduction and selling, general
and administrative reductions, the Company is beginning to realize cost
savings in these operations.
5
Specifically, the Company is realizing several strategic and financial
benefits, including:
Top coat painting capability: The top coat painting capability and state-of-
the-art paint systems acquired from Eagle-Picher allow the Company to deliver
painted assembly-ready parts meeting OEM Class A standards.
Non-automotive market presence: Through the Eagle-Picher Acquisition, the
Company now manufactures non-automotive products, including jet-ski components
for Polaris and Kawasaki, tractor panels for John Deere, residential door
systems for Pease and Caradon Peachtree and outboard motor housings for
Mercury Marine. This business is supported by a dedicated sales force, product
design staff and manufacturing facility.
Transplant relationships: The addition of Eagle-Picher's customer base
allows the Company to strengthen its relationships with certain Transplants,
further solidifying the Company's position as a leading Tier 1 supplier.
Compression molding presses: The Company has positioned itself for future
growth opportunities by acquiring Eagle-Picher's 48 compression molding
presses, 21 of which are in the 1,000-4,400 ton range. These large presses are
comparatively scarce, expensive and time-consuming to install and enhance the
Company's ability to bid for and produce large, complex automotive and non-
automotive parts.
SMC production capability: Through the Eagle-Picher Acquisition, the Company
acquired advanced SMC production capability at its Grabill, Indiana facility.
This will allow the Company to consolidate its manufacturing of SMC, which
will result in significant raw material production cost savings. In connection
with the Eagle-Picher Acquisition, the Company reduced costs by closing the
Huntington, Indiana facility and transferring production and assembly to other
Company facilities.
THE GOODYEAR-JACKSON ACQUISITION.
As of July 1, 1997, the Company acquired the engineered composites business
of The Goodyear Tire & Rubber Company ("Goodyear") located in Jackson, Ohio
for a total purchase price of approximately $38.0 million, subject to post-
closing adjustments (the "Goodyear-Jackson Acquisition"). The Goodyear-Jackson
assets acquired by the Company include one manufacturing facility which
produces automotive and heavy truck components, including body panels, grill
opening panels and retainers, primarily using SMC in compression and injection
manufacturing processes.
The Company has not substantially altered the Goodyear-Jackson manufacturing
facilities. The Company, however, has identified cost savings opportunities in
the areas of purchased materials price, plant overhead costs and selling,
general and administrative costs.
The Company anticipates a temporary reduction in sales from the acquired
Goodyear-Jackson operations during 1998 due to one-time events. As a result of
the announced sale and resulting transfer of manufacturing from Ford to
Freightliner, production of Ford's HN80 heavy truck platform is expected to be
interrupted for approximately three months during 1998. In addition, Ford has
announced its intention to replace the HN78 medium truck platform with its new
HN215 platform. These changeovers are expected to temporarily interrupt
production at Goodyear-Jackson for approximately eight months in 1998, thereby
reducing sales for 1998. The reductions in sales are expected to reduce
earnings disproportionately because the Company does not expect to achieve
proportional reductions in expenses during the period of temporary sales
decline.
Management believes the Goodyear-Jackson Acquisition expands the Company's
breadth of capabilities and assets, enhancing its status as a leading Tier 1
supplier. Specifically, management believes the most significant acquired
capabilities and assets include:
Medium and Heavy Truck Sales: In 1996, the two platforms that contributed
most to Goodyear-Jackson's sales were Ford's current medium (HN78) (to be
replaced by HN215) and Sterling's (Freightliner) recently launched heavy
(HN80) truck platforms. The Goodyear-Jackson Acquisition strengthens the
Company's position as the leading SMC parts supplier to the medium and heavy
truck OEMs. It also enhances the Company's relationships with Ford and
Freightliner.
6
New Products and Processes: The Goodyear-Jackson Acquisition adds SMC
injection molding to the array of process capabilities currently offered by
the Company to its customers. The Goodyear-Jackson Acquisition also adds a
number of new products, including air spring pistons for heavy trucks and
grill opening panels and grill opening retainers for all types of vehicles.
These additions further enhance the Company's position as the leading Tier 1
SMC supplier, offering the broadest range of products, processes and
materials.
Compression and Injection Molding Presses: Through the Goodyear-Jackson
Acquisition, the Company acquired 16 compression molding presses (including 9
in the 1,000 ton to 3,000 ton range) and 10 injection molding presses,
(including 9 in the 1,000 ton to 2,200 ton range.) One of the 3,000 ton
presses was recently installed and began producing production parts in early
1997. These large presses are comparatively scarce and expensive and are also
time-consuming to install. In acquiring more of these presses, the Company
enhanced its ability to bid for and produce large, complex automotive and non-
automotive parts.
SMC Production Capability: The addition of Goodyear-Jackson's SMC production
capacity will allow the Company to continue producing all of its key raw
material in-house and will permit consolidation of SMC production with the
Company's existing facilities. Further, the fact that Goodyear-Jackson's SMC
maker is 60 inches wide (which the Company believes is the widest in the
industry) gives the Company greater flexibility in product design and process
engineering.
THE APX ACQUISITION.
In February 1997, the Company acquired the Production Molded Composites
Division ("APX") of APX International, for a total purchase price of
approximately $2.4 million (the "APX Acquisition"). APX is a manufacturer
focused on supplying body panels to Chrysler for the Viper Roadster and Coupe
using the resin transfer molding ("RTM") manufacturing process. As a result of
the APX Acquisition, the Company improved its position as a Tier 1 supplier to
Chrysler by becoming the sole supplier of a majority of Viper exterior
components. In addition, the Company strengthened its RTM manufacturing
capabilities which allows the Company to offer a broader variety of products
and processes to its customers.
SENIOR SUBORDINATED NOTES DUE 2007.
On July 10, 1997, the Company issued (the "Offering") its Senior
Subordinated Notes due 2007, Series A (the "Series A Notes") in the principal
amount of $100 million. On January 14, 1998, the Company completed an exchange
offer (the "Exchange Offer") pursuant to which $98 million principal amount of
Series A Notes were exchanged for the Company's Senior Subordinated Notes due
2007, Series B (the "Series B Notes," together with the Series A Notes, the
"Notes"). The Notes bear interest at a rate of 10 1/4% per annum, payable on
each January 15 and July 15, commencing January 15, 1998. The Notes will
mature on July 15, 2007. On or after July 15, 2002, the Company may redeem the
Notes.
The Notes are general unsecured obligations of the Company. The Notes are
guaranteed on a senior subordinated basis by the Company's only existing U.S.
subsidiary, CE, and all of the Company's future U.S. subsidiaries (the
"Guarantors"). The Guarantees are general unsecured obligations of the
Guarantors. The proceeds of the Offering, together with financing under the
Credit Agreement (as defined below), were used, in part, to finance the Eagle-
Picher Acquisition and Goodyear-Jackson Acquisition.
As a result of the Exchange Offer, Section 13 of the Exchange Act, requires
that the Company file certain reports, including this Annual Report. However,
pursuant to Exchange Act Rule 15d-6, the Company filed a Form 15 with the
Securities and Exchange Commission before January 30, 1998, which suspended
the Company's duty to file Section 13 reports.
In connection with the issuance of the Notes, the Company agreed with Note
purchasers to prepare and distribute the reports specified by Section 13 to
Note holders and to submit those reports to the Securities and Exchange
Commission for filing under the Exchange Act. While the Company intends to
comply with its contractual obligations, the filing of Section 13 reports will
no longer be required by the Exchange Act after this Annual Report.
7
CREDIT AGREEMENT.
On July 10, 1997, the Company entered into a credit agreement (the "Credit
Agreement") with Bankers Trust Company as agent ("Agent") and other
institutions providing loans up to $280.0 million, consisting of: $70.0
million in aggregate principal amount of A Term Loans; $135.0 million in
aggregate principal amount of B Term Loans; and $75.0 million revolving credit
facility. The Company used the A Term Loans and the B Term Loans to repay term
loans under a previous credit agreement. As of March 28, 1998, the Company has
drawn $12.5 million of the revolving credit facility.
The Credit Agreement contains restrictive covenants which, among other
things, limit the incurrence of additional indebtedness, dividends,
transactions with affiliates, assets sales, acquisitions, mergers and
consolidations, prepayments of other indebtedness, liens and encumbrances,
capital expenditures and other matters customarily restricted in such
agreements. The covenants also require the Company to meet minimum levels of
EBITDA (earnings before interest, taxes, depreciation and amortization) and
interest coverage, and establish a maximum leverage ratio.
BUSINESS STRATEGY
The Company's strategy is to capitalize on its perceived competitive
strengths (see "Competition") in order to enhance its leadership position in
the industry through the following:
Capitalize on Increased Plastic Usage for Exterior and Structural/Functional
Components
The Company continues to seek opportunities to increase plastic content per
vehicle through the design, development and manufacture of plastic components
and systems which have been historically fabricated in metal. For example, the
Company generates significant revenue from several products which were not
previously fabricated in plastic, such as the plastic rocker arm covers, the
Cross Car Beam and the step-assist. The Company is now actively marketing
these technologies to other OEMs for use in other platforms. The Company has
recently won a contract from GM for a composite pickup truck bed that weighs
less and has increased durability compared to steel beds currently in use. The
Company expects plastic content per vehicle for exterior and
structural/functional/powertrain components to continue to increase during the
next several years.
Acquire Complementary Manufacturers
The Company intends to selectively pursue attractive opportunities to
acquire exterior or structural/functional parts manufacturers that have the
potential to increase profitability and improve its strategic position. These
acquisition opportunities are available because: (i) these product segments
have been historically fragmented; (ii) OEMs are focusing their supplier
consolidation efforts in these areas, requiring fewer, but more competitive,
suppliers; and (iii) many such suppliers are subsidiaries or divisions of
significantly larger entities (as in the acquisitions of Rockwell, GenCorp
RPD, Eagle-Picher and Goodyear-Jackson) which may not be inclined to devote
the resources necessary to compete effectively as a Tier 1 supplier.
Successful acquisitions could broaden the Company's product lines and
manufacturing capabilities, improve the absorption of corporate overhead and
enhance its attractiveness as a Tier 1 supplier to the OEMs. The Company's
ability to effectuate such a plan is limited by, and to the extent of, the
availability of seller financing or institutional financing, which is limited
by and subject to the terms of the Credit Agreement.
Penetrate New Markets and Access New Technologies Through Joint Ventures and
Licensing Arrangements
The Company seeks to exploit joint ventures and licensing arrangements to
develop new products, materials and processing technologies that provide
opportunities for growth while limiting its investment risk. The Company
currently has a joint venture with Menzolit Fibron and a licensing agreement
(through CE) with Empe Ernst Pelz GmbH & Co. KG and Empe Ernst Pelz Vetrebs
GmbH.
EXISTING JOINT VENTURES AND LICENSING ARRANGEMENTS
The Company has established several joint ventures and alliances in the
United States and in Europe to gain access to new materials, new processing
technologies and to open new markets. The forming of these joint ventures
provide considerable advantages to the Company over its traditional
competitors.
8
The Empe licensing agreement gives the Company exclusive rights in the NAFTA
market to the patented Empeflex material. This material consists of a matrix
of polypropylene and natural fibers which allows an interior Door Panel or
Package Shelf to be decorated during the compression molding cycle in a cost
saving, one step system.
The Menzolit Fibron joint venture was established to give the Company direct
access to the European automakers. The Company believes that Menzolit Fibron
is one of Europe's largest SMC supplier. The Company also has access to their
material and processing technologies. This joint venture has resulted in the
job award of a bumper beam support system from Mercedes.
For the year ended December 31, 1997, approximately 21.5% of the Company's
sales were to General Motors, approximately 31.0% were to Ford and
approximately 10.0% were to Chrysler.
CUSTOMERS
The Company has a diverse customer base, including, among others, Ford, GM,
Chrysler, Honda, Mazda, Nissan, Volkswagen, Freightliner, Kenworth, Mack Truck
and Volvo Heavy Truck. The Company has close ties to the automobile
manufacturing community and has integral components in some of the industry's
most popular vehicles. The Company currently has products in over 80 vehicles,
including high-volume, long-lasting model cars sold in the United States such
as the Ford Explorer, Ranger, Taurus and F-150 truck, the GM Suburban and
Astro Mini-Van and the Honda Accord. The following chart highlights vehicles
which use products produced by the Company:
1997 VEHICLE NAMEPLATES--AND SELECTED NON-AUTOMOTIVE CUSTOMERS
COMPANY MODELS
------- ---------------------------------------------------------------------
AUTOMOBILE AND LIGHT
TRUCK:
Auto Alliance(1)........ Mazda 626 Mazda MX6
Chrysler
Automobiles............ Chrysler Concorde Dodge Intrepid Dodge Viper Dodge Viper
Eagle Vision Neon Convertible Coupe
Light Trucks........... Dodge Caravan Dodge Ram Van
Jeep Grand Dodge Dakota Plymouth
Cherokee Jeep Wrangler Voyager Jeep Cherokee
Ford
Automobiles............ Ford Crown Ford Mustang Ford Taurus Ford
Victoria Lincoln Lincoln Mark Lincoln Town Thunderbird
Continental VIII Car
Mercury Grand
Marquis
Light Trucks........... Ford Aerostar Van Ford Explorer
Ford F-Series Ford Bronco Ford Econoline Mercury
Pickup Ford Ranger Ford Windstar Villager
General Motors
Automobiles............ Buick Riviera Buick LeSabre Buick Park Buick Regal
Cadillac Deville Cadillac Avenue Cadillac Cadillac
Cadillac Catera Eldorado Fleetwood Seville
Chevrolet Monte Chevrolet Chevrolet Chevrolet
Carlo Camero Corvette Lumina
Pontiac Bonneville Oldsmobile Oldsmobile Oldsmobile
Aurora Cutlass Saturn Intrigue
Pontiac SC Buick Century
Firebird Saturn SL
Light Trucks........... CK Chevrolet Chevrolet Oldsmobile
Pickup/Tahoe/Yukon Astro/Safari Blazer Silhouette
Chevrolet Suburban Chevrolet Tahoe Oldsmobile
Opel Pontiac Trans Bravada Venture
Sport Chevrolet
Honda................... Honda Accord Acura
Nissan.................. Quest
Volkswagen.............. Jetta Golf
CAMI(2)................. GEO Tracker
Mazda................... Miata MPV
Toyota.................. Micro Bus Sierra Minivan
Subaru.................. Legacy Wagon Legacy Sedan
Isuzu................... Frontera
Mitsubishi.............. Eclipse Eagle
9
COMPANY MODELS
------- --------------------------------------------------------------------
HEAVY TRUCKS:
Freightliner
GM
Ford
Volvo Heavy
Truck
Mack Truck
Kenworth
NON-AUTOMOTIVE:
Caradon.................. Residential door skins
Pease.................... Residential door skins
Premedoor................ Residential door skins
AM General............... Hummer Humvee
John Deere............... Tractors Combines
Kawasaki................. Jet skis
Ford New Holland......... Tractors
U.S. Military............ Tank set
Polaris.................. Jet skis
Toyota................... Lift Trucks
Mercury Marine........... Marine outboard engines
Xerox.................... Toner bottles
- --------
(1) Ford/Mazda joint venture.
(2) GM/Suzuki joint venture.
PRODUCTS
The Company's principal products include the exterior, structural/functional,
interior form and industrial parts listed below. The products manufactured by
the Company are made from a variety of thermoset and thermoplastic materials.
The Company's product diversity, illustrated by the table below, positions the
Company as a versatile source to the automotive and truck industry.
STRUCTURAL AND
EXTERIOR FUNCTIONAL INTERIOR NON-AUTOMOTIVE
- ---------------- ----------------- ------------- -----------------
Hoods and hood assemblies Steering Blow molded
Liftgates and doors Headlamp carriers column bottles
Engine shields/covers bezels Forklift body
Roof and roof moldings panels
Fenders Structural beams Glove box
Bumper beams door and Residential
Bodyside moldings/rubstrips assemblies door
systems
Windshield surrounds Structural component carriers
Deck lids Load floors Instrument
Hatches Fuel tank shields panel trim Personal
Storage doors Seat pans components watercraft
Spoilers Fluid systems linkages Liftgate decks &
Fairings Rocker arm covers trim panels covers
Fan shrouds Door trim Military
Grill opening retainers panels vehicle
Grill opening panels Radiator support beams hoods,
End gates Bearing cages Rear shelf engine
Truck pick-up boxes Steering yokes panels covers &
Battery trays Consoles/overhead seats
Gears Seat
Fuel valves backs/bases Tractor
Plenums (firewalls) Shift knobs hoods,
Windshield cowls Garnish shields/pans,
Air spring pistons molding consoles
Cross car beam systems and seats
Handles/assists Combine
straps components
Electrical Lift truck
carriers hoods
Cargo doors Outboard
Sunshades engine
Knee cowls
bolsters
Sleeper bunk
Window
shades
Door modular
system
Rear package
tray system
MANUFACTURING PROCESSES
The Company has a full range of equipment, including compression molding
presses from 50 to 4,400 tons, injection molding presses from 28 to 2,500 tons,
single and twin screw extrusion and co-extrusion machines and
10
7 to 90 ton blow-molding machines. These capabilities allow the various
operating divisions of the Company extensive manufacturing flexibility. The
Company is capable of processing both thermosets and thermoplastics.
Thermosets are heated and pressurized plastics which undergo a chemical change
and generally provide superior impact strength, dimensional stability and heat
resistance as compared to other plastics. Thermoplastics are heated into a
liquid state and then formed through injection, blow-molding, extrusion or
compression processing techniques. Thermoplastics can be re-heated to be used
again in conjunction with virgin materials.
The Company is a leading manufacturer of SMC, a material from which large
exterior body panels are molded. SMC is a newer technology in the automotive
plastics industry and the Company's Shelbyville, Indiana facility, is one of
the newer state of the art facilities producing parts from SMC. SMC is a type
of fiber reinforced plastic, which, in 1997, was used for over 400 components
on over 100 domestic and import passenger and truck lines produced by 16
manufacturers. The use of SMC has increased from approximately 147 million
pounds in 1992 to 240 million pounds in 1997. The use of SMC is projected to
continue to grow to 265 tons. SMC is particularly well-suited for exterior and
structural/functional parts because of its superior design flexibility,
corrosion resistance, dent resistance, dimensional and structural stability
and low investment. Management believes that it is the leading manufacturer of
SMC automotive products in North America.
Through the Eagle-Picher Acquisition, the Company acquired 48 additional
compression molding presses ranging up to 4,400 tons and also acquired
additional SMC production capacity. Further, the Eagle-Picher Acquisition
added top coat paint lines, providing a capability to top coat paint
automotive components to Class A standards, which the Company did not
previously have.
The Company's automated paint systems acquired through the Eagle-Picher
Acquisition have high volume capabilities. The conveyor lines have adjustable
speeds and can handle parts in a variety of sizes (up to ten feet in length by
five feet wide and three feet thick). Related systems include ovens (up to
500^(degrees)F) with high discharge rates; multi-stage power washers; and
numerous waterfall spray booths connected to ovens by conveyors.
Through the Goodyear-Jackson Acquisition, the Company acquired 16
compression molding presses ranging from 250 to 3,000 tons and 10 injection
molding presses ranging from 500 to 2,200 tons. The Goodyear-Jackson
Acquisition also added additional SMC-making production capacity.
Quality throughout the manufacturing process is maintained through the
implementation of statistical process control ("SPC") techniques. Typical
characteristics measured and controlled through SPC methods include material
properties such as viscosity, gel time, sheen or gloss color and other
quantifiable physical and appearance properties for exterior and interior
components. Characteristics for structural/functional parts including physical
properties and dimensional stability at both the component and systems level
are monitored. SPC data provide the production operator with trend information
on the process which allows for proactive measures to be implemented to assure
product specifications are maintained and to minimize variation.
RAW MATERIALS AND SUPPLIERS
The Company's primary raw materials include engineered resins, glass-filled
resins, mineral-filled resins, polyethylene, polypropylene, polyvinyl chloride
and ABS resins. Additionally, the Company manufactures all of its own SMC. The
Company's principal suppliers include General Electric Company (resins), Bayer
(resins), Ashland Chemical (resins), Alpha Owens Corning (resins), Dow
Chemical Company (resins), DuPont (resins), GenCorp, Inc. (adhesives and
paint), Vetrotex Certainteed (glass fiber), Owens Corning (glass fiber), PPG
(glass fiber and paint) and Sherwin Williams (paint). Historically, the vast
majority of the Company's raw materials generally have been available, and no
serious shortages or delivery delays have been encountered. Certain of the
Company's suppliers must be pre-qualified by the Company's customers.
Management believes that its relations with its principal suppliers are good.
The Company has never experienced major disturbances in its flow of raw
material or supplies. The Company attempts to work with suppliers to obtain
longer-term buying agreements, share technologies and resources and build
relationships.
11
ENGINEERING/RESEARCH AND DEVELOPMENT
The Company has the ability to design and engineer its products to meet its
customers' specific applications and needs. The Company has an engineering and
research and development staff of professionals. The Company utilizes advanced
quality planning techniques by coordinating manufacturing and engineering in
development/launch teams. These teams work together to produce the most
efficient, cost competitive design for the customer using advanced techniques
including integrated CAD/CAM design systems. The Company has further extended
its product engineering and design capabilities by supporting each division
with dedicated expertise and equipment to address customer needs.
COMPETITION
The Company operates in a highly competitive environment. Recently, the
automotive plastic parts industry has consolidated many small entities into
fewer, much larger entities. The OEMs have adopted supplier management
policies designed to rationalize their supply base. See "--Automobile and
Light Truck Components Industry--Consolidation of Supplier Base by OEMs." In
the exterior and structural/functional market segments, the Company's major
competitors include Budd Canada, Venture Holdings Trust and Rymac Investment
Trust. The interior business is largely consolidated around such suppliers as
Magna International, Textron Automotive Division, JCI, Inc., United
Technologies Automotive Division and Lear Seating. Although the exterior and
structural/functional market segments are still fragmented, the Company
expects them to consolidate along the lines of the interior market segments.
The Company competes on the basis of cost, product quality, timely delivery,
design support, customer service, product mix and new product innovation. The
Company competes for new business both at the beginning of the development of
new models and upon the redesign of existing models by its major customers.
New model development generally begins two to five years prior to the
marketing of such models to the public. Once a supplier has been designated to
supply parts to a new program, an OEM will usually continue to purchase those
parts from the designated supplier for the life of the program, and generally
the supplier has an advantage in obtaining replacement business.
The Company has significantly increased its size and enhanced its strategic
position. Management believes that the following are the Company's primary
competitive strengths.
Tier 1 Status and Strong Relationships with OEMs
The Company has established a position as a leading Tier 1 supplier of
plastic components and systems to Ford, General Motors, Chrysler, Toyota,
Honda, Mazda, Nissan, Volkswagen, Volvo Heavy Truck, Mack Truck, Kenworth and
Freightliner. Tier 1 status and strong customer relationships are important
elements in achieving continued profitable growth because as OEMs narrow their
supplier bases, well-regarded, existing suppliers have an advantage in gaining
new contracts. The evolution of OEM relationships into strategic partnerships
provides a significant advantage to Tier 1 suppliers with systems integration
capabilities (such as the Company) in retaining existing contracts as well as
in participating during the design phase for new vehicles, which is integral
to becoming a supplier to such new platforms.
Diverse Process and Material Manufacturing Capabilities
The Company utilizes a broad range of manufacturing processes including
compression molding, injection molding, blow molding, extrusion, pultrusion,
spray-up molding and RTM and is able to use a wide variety of materials
including SMC, bulk molding compound ("BMC"), glass mat thermoplastic ("GMT"),
structural foam, glass reinforced urethane, polyethylene, polypropylene,
polyvinyl chloride, Azdel and resinated natural fibers. The Company has
secondary finishing capabilities including painting, in-mold coating,
ultrasonic and vibration welding and bonding with urethane and epoxy adhesives
and top coat painting capabilities sufficient to meet OEM Class A standards.
These capabilities give the Company the ability to select a cost effective
combination of materials and manufacturing methods for a given component and
to deliver a finished component
12
which is ready for installation. They also allow the Company to change its
manufacturing techniques as technological innovation allows in order to reduce
costs and improve product performance. Many competitors are dependent on fewer
manufacturing processes and are at a competitive disadvantage to the Company
when changes in manufacturing specifications by the OEM or new technologies or
materials emerge that favor one raw material or manufacturing method over
another. The Company believes this capability enhances its relationship with
OEMs and further solidifies its role as a Tier 1 supplier.
Low Cost, High Quality Manufacturing Position
The Company believes that it is one of the lowest cost Tier 1 suppliers of
plastic automotive components in North America. This is largely due to the
strict cost controls implemented following its acquisitions and continuous
improvement programs to enhance productivity and further reduce costs.
Management believes OEMs prefer stable suppliers who can generate productivity
gains that can be shared to reduce OEM costs. The Company's cost controls are
closely integrated with its high quality manufacturing operations, thereby
allowing it to profitably deliver high quality, easy to install and
competitively priced components on a just-in-time basis. The Company has
received numerous quality and performance awards including Ford's Q1, General
Motors' Targets of Excellence award, GM Supplier of the Year (1995, 1996 and
1997), Chrysler's QE designation, Honda's Quality, Plant & Delivery Award, and
Mazda's Total Quality Excellence award. Quality levels are currently being
standardized across OEMs through the QS 9000 program. The Company has achieved
QS 9000 certification in its Lenoir, NC, Newton, NC, Centralia, IL, Lapeer,
MI, Canandaigua, NY, and Madison Heights, MI facilities. The Company has
achieved ISO 9000 certification in its Jackson, OH facility. The Company is in
the process of obtaining QS 9000 certification in the remainder of its
facilities.
Strong Design and Engineering Expertise
The Company has an engineering and research and development staff that
develops new products, materials and processing technologies through computer-
aided design techniques. The Company works directly with OEM designers to
create innovative solutions that simplify vehicle assembly. For example, the
Company redesigned the rocker arm cover for the Ford 3.0L engine by combining
the gasket, attachments, tubes and plates into one lightweight unit that can
be more easily installed by the OEM. This part weighs 2 pounds (or 48%) less
than a comparable steel rocker arm cover. Subsequently, this rocker arm cover
has been successfully rolled out to Ford's 4.6L engine and a similar design
was used for the 7.3L diesel engine cover. The Company also designed,
engineered and now produces the Cross Car Beam, a structural component for the
Ford Ranger/Explorer platform on which all of the instrument panel components
are mounted. This Cross Car Beam eliminates approximately 20 separate metal
and plastic parts, weighs less and reduces noise and vibration by
approximately 33% compared to the steel structure it replaced. In 1997, the
Company won a contract to supply the step-assist on GM's GMT800 sport utility
vehicle. The Company's step-assist allowed design flexibility not possible
with steel and is 20% lighter than a functionally similar steel step-assist.
The Company recently won a program on GM's H-car for a front-end system
(headlamp carrier) that, in comparison to traditional methods, consolidated
five separate parts into one, and reduced the weight of the system by 40%.
EMPLOYEES
As of February 28, 1998, the Company had approximately 4,207 employees,
1,661 of whom are union members; approximately 3,479 employees are hourly and
approximately 728 are salaried. The Company is a party to collective
bargaining agreements with respect to hourly employees at its Centralia,
Lapeer, Woodstock, Dearborn, Jackson and Rio Clara facilities. The agreement
with the UAW at the Centralia facility expires on October 1, 1998. With
respect to this agreement, the Company and the UAW have begun preliminary
discussions regarding benefits and other issues to minimize potential
obstacles to reaching an acceptable agreement prior to expiration. The
agreement with the UAW at Dearborn expires on September 30, 1999, and the
agreement with the UAW at the Lapeer facility expires on February 1, 2000.
Each of the Company's agreements with the UAW contains a no-strike clause. The
agreement with The Canadian Automobile Workers Union at the Woodstock facility
expired on March 22, 1998, however the CAW has signed an indefinite contract
extension while the
13
negotiation process continues. Management believes discussions to this point
have been very positive. The collective bargaining agreements with the United
Steel Workers of America at Jackson expire on April 15, 2000. The industry
wide agreement at Rio Clara is negotiated each year with the current agreement
expiring on November 30, 1998. There do not appear to be any significant
issues which would prevent an adoption of a mutually acceptable agreement in
November 1998.
Management believes its relationship with its employees is generally good.
The Company has not experienced significant work interruptions resulting from
serious labor disputes with its employees.
PATENTS
The Company owns various patents which aid in maintaining its competitive
position. These patents expire over the next ten years. The expiration of such
patents are not expected to have a material adverse effect on the Company's
operations.
ENVIRONMENTAL MATTERS
Like similar companies, the Company's operations and properties are subject
to extensive federal, state, local and foreign regulation under environmental
laws and regulations concerning, among other things, emissions into the air,
discharges into the water, the remediation of contaminated soil and
groundwater, and the generation, handling, storage, transportation, treatment
and disposal of waste and other materials (collectively, "Environmental
Laws"). Inherent in manufacturing operations and the Company's real estate
ownership and occupance activities is the risk of environmental liabilities as
a result of both current and past operations, which liabilities cannot be
predicted with certainty. The Company has incurred and will continue to incur
costs associated with Environmental Laws in its business. As is the case with
manufacturers in general, if a release of hazardous materials occurs on the
Company's properties or at any off-site disposal location utilized by the
Company or its predecessors, the Company may be held strictly, jointly and
severally liable for response costs and natural resource damages under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, and similar state and foreign laws (collectively, "Superfund").
While the Company devotes resources to ensuring that its operations are
conducted in a manner which reduces such risks, the amount of such liability
could be material.
The soil and groundwater at the Company's Brickyard Road facility, located
in Canandaigua, New York, contain hazardous materials in excess of applicable
state cleanup standards. The Company currently estimates that the total cost
to be incurred at this facility as a result of environmental conditions could
range up to $0.6 million.
The soil and groundwater at the Company's 111 North Street facility, located
in Canandaigua, New York, contain hazardous materials in excess of applicable
state cleanup standards. The Company is currently remediating the facility
pursuant to a consent order entered into with the State of New York. The
Company has spent approximately $0.25 million to date and currently estimates
that remediation costs over the next four or five years should not exceed an
additional $0.5 million.
The soil and groundwater at a facility located on Linden Road in Rochester,
New York, which is vacant, contain hazardous materials in excess of applicable
state cleanup standards. The Company currently estimates that expenditures for
remediation could reach $0.5 million.
Each of these preliminary cost estimates is based upon currently available
information. The actual cost of further investigation or remediation could
differ materially from these projections.
Under the terms of the Company's acquisition of Rockwell Plastics, Rockwell
has indemnified the Company for past environmental liabilities (the "Rockwell
Environmental Indemnity"), subject to a maximum aggregate contribution by the
Company of $0.6 million and to the survival period of Rockwell's environmental
representations and warranties, which expire July 2004. Since the time of the
Rockwell Plastics acquisition,
14
Rockwell, pursuant to the Rockwell Environmental Indemnity, has performed
additional investigation and analyses of the facilities acquired in that
acquisition. These assessments verified some of the Company's findings but
disagreed with others. Rockwell has subsequently remediated certain areas of
the facilities and Rockwell and the Company are currently discussing the
remaining unremediated areas. Notwithstanding the Rockwell Environmental
Indemnity, the Company could be pursued in the first instance by governmental
authorities or third parties with respect to such matters, subject to its
right to seek indemnification from Rockwell. If Rockwell fails to honor its
obligations under the Rockwell Environmental Indemnity, the Company would be
required to bear the cost of bringing the former Rockwell facilities into
substantial compliance in which event the Company's total exposure could be
material. However, the Company has no reason to believe that Rockwell will not
honor its remediation commitments.
With respect to the facilities acquired in the Company's acquisition of
GenCorp RPD, the Company identified a number of permitting, contamination,
off-site liability, recordkeeping, reporting and hazardous waste regulation
non-compliance issues. Since that acquisition, the Company believes it has
brought the former GenCorp facilities into substantial compliance with
applicable Environmental Laws. Under the terms of the transaction, the Company
did not assume any liabilities arising from pre-existing violations of
Environmental Laws, pre-existing contamination at GenCorp RPD facilities or
off-site disposal of waste materials under Superfund. The Company is
completely indemnified for these non-assumed liabilities (the "GenCorp
Indemnity"). Notwithstanding the GenCorp Indemnity, the Company could be
pursued in the first instance by governmental authorities or third parties
with respect to such matters, subject to its right to seek indemnification
from GenCorp, Inc. If GenCorp, Inc. fails to honor the GenCorp Indemnity, the
Company's total exposure for environmental matters arising from its
acquisition of GenCorp RPD could be material. However, the Company has no
reason to believe that GenCorp, Inc. will not honor the GenCorp Indemnity.
With respect to the facilities acquired in the Eagle-Picher Acquisition, the
Company identified a number of permitting, contamination, off-site liability,
recordkeeping, reporting and hazardous waste regulation non-compliance issues.
The Company intends to bring the Eagle-Picher facilities into substantial
compliance with applicable Environmental Laws as soon as possible. Under the
terms of the transaction, the Company did not assume any liabilities arising
from off-site disposal of waste materials under Superfund, and the Company is
completely indemnified for this potential Superfund liability by Eagle-Picher.
In addition, the Company is indemnified by Eagle-Picher against any fines or
penalties arising out of any pre-existing violations of Environmental Laws.
Subject to a maximum indemnification limit of $53.25 million, the Company is
also indemnified for any unidentified on-site contamination at, on, under or
about the former Eagle-Picher facilities and unindemnified non-compliance
issues, provided the Company asserts an indemnification claim within four
years of the Eagle-Picher Acquisition. Finally, and in addition to its
indemnity obligations, Eagle-Picher covenanted to remediate identified
contamination as presently in place or as materially changed prior to 2003,
(subject to certain financial limitations in the event of change in clean-up
standards) at the former Eagle-Picher facilities pursuant to and in accordance
with applicable state industrial standards. Notwithstanding these Eagle-Picher
covenants and indemnification obligations, the Company could be pursued in the
first instance by governmental authorities or third parties with respect to
such matters, subject to its right to seek indemnification from Eagle-Picher.
If Eagle-Picher fails to honor those indemnities or covenants provided to the
Company, the Company's total exposure for environmental matters arising from
the Eagle-Picher Acquisition could be material. However the Company has no
reason to believe that Eagle-Picher will not honor the covenants or
indemnities provided to the Company under the Eagle-Picher Acquisition.
With respect to the facility acquired in the Goodyear-Jackson Acquisition,
the Company identified a number of contamination, off-site liability,
recordkeeping, hazardous waste regulation, underground storage tank,
wastewater discharge and permitting non-compliance issues. The Company intends
to bring the Goodyear-Jackson facility into substantial compliance with
Environmental Laws as soon as possible. Under the terms of the acquisition,
the Company is indemnified for the costs associated with rectifying identified
violations of Environmental Laws. The Company did not assume any liabilities
arising from off-site disposal of waste materials under Superfund, and the
Company is fully indemnified for any potential Superfund liability by
15
Goodyear. In addition, the Company is indemnified by Goodyear, subject to a
maximum indemnification limit of $2.5 million and after bearing the first
$0.25 million of claims and a cost-sharing formula thereafter, against any
unidentified pre-existing compliance issues under Environmental Laws and any
unidentified on-site contamination at, on, under or about the former Goodyear-
Jackson facility, provided the Company asserts an indemnification claim within
three years of the Goodyear-Jackson Acquisition. In addition to its indemnity
obligations, Goodyear covenanted to remediate identified contamination in
excess of applicable regulatory limits and to make reasonable efforts to
obtain a covenant not to sue under applicable state laws. Before remediating,
Goodyear agreed to reimburse the Company, up to a maximum of $1.0 million, to
investigate and repair the causes or sources of the identified contamination.
Notwithstanding these Goodyear covenants and indemnification obligations, the
Company could be pursued in the first instance by governmental authorities or
third parties with respect to such matters, subject to its right to seek
indemnification from Goodyear. If Goodyear refuses to honor the indemnities or
covenants provided to the Company, the Company's total exposure for
environmental matters arising from the Goodyear-Jackson Acquisition could be
material. However, the Company has no reason to believe that Goodyear will not
honor the covenants or indemnities provided to the Company in connection with
the Goodyear-Jackson Acquisition.
With respect to the facilities leased as a result of the Livingston
Acquisition, the Company did not assume any of the liabilities for violation
of environmental laws with respect to solid waste or hazardous materials
transported by or on behalf of Livingston for off-site disposal or any
liabilities of Livingston for the violation of environmental laws arising from
the operation of Livingston prior to the closing date, including, any fine or
penalty arising from any permit violation. Under the terms of the Livingston
Acquisition, Livingston must indemnify the Company for all liabilities not
assumed by the Company. However, Livingston's liability for all indemnity
claims (environmental and non-environmental) is capped at approximately $1.7
million.
A number of the Company's facilities are likely to be required to comply
with the provisions of the Federal Clean Air Act ("CAA"), including Titles III
and V of the CAA. Title III of the CAA includes provisions requiring the
implementation of Maximum Achievable Control Technology ("MACT") to reduce
emissions of certain hazardous air pollutants, including styrene, at certain
manufacturing facilities emitting designated quantities of such pollutants.
Air pollution controls to address styrene emissions could cost approximately
$1.0 million per facility and, if MACT is ultimately required in connection
with both the manufacture and use of this compound, may be required at three
to five of the Company's facilities. It is possible that the cost of complying
with the CAA could be material and the Company's failure to comply with the
CAA in the future would likely have a material adverse effect on the Company.
Based upon the Company's experience to date, as well as the existence of
certain remediation and indemnification agreements obtained in connection with
those acquisitions described above, the Company believes that the future cost
of compliance with existing Environmental Laws (with the possible exception of
the cost of CAA compliance described above) and liability for identified
environmental claims will not have a material adverse effect on the Company's
business, results of operations or financial position. However, future events,
such as new information, more vigorous enforcement policies of regulatory
agencies, stricter or different interpretations of existing Environmental
Laws, changes in existing Environmental Laws or their interpretation, or the
failure of indemnitors to fulfill their contractual obligations, may give rise
to additional costs or claims that could have a material adverse effect on the
Company's business, results of operations or financial condition.
The Company's accounting policy is to accrue for environmental claims which
it considers probable and reasonably estimable and to disclose a range of
reasonably possible claims. See Note 1 to the Company's consolidated financial
statements contained in Item 8 of this Annual Report.
16
ITEM 2--PROPERTIES
The Company's executive offices are located in approximately 24,000 square
feet of owned space at 555 Horace Brown Drive, Madison Heights, Michigan. The
Company has 22 operating facilities with a total of approximately 2.6 million
square feet of space. Molding operations are located at all of its operating
facilities other than Rushville, Indiana, which is an assembly and warehouse
facility. The Company believes that substantially all of its property and
equipment are in good condition and that it has sufficient capacity to meet
its current and projected manufacturing and distribution needs through the
1997 model year. The following sets forth certain information concerning the
Company's operating facilities:
LOCATION SQUARE FOOTAGE OWNED/LEASED
-------- -------------- ------------
Dearborn, MI (3 facilities).................. 87,000 Owned
Lapeer, MI................................... 230,000 Owned
Woodstock, Ontario, Canada................... 50,000 Leased
Canandaigua, NY (3 facilities)............... 280,000 Owned
Newton, NC................................... 54,000 Owned
Lenoir, NC (3 facilities).................... 160,000 Owned/Leased
Centralia, IL................................ 473,000 Owned
Shelbyville, IN.............................. 366,000 Owned
Rushville, IN................................ 97,440 Leased
Madison Heights, MI.......................... 90,000 Leased
Grabill, IN.................................. 225,000 Owned
Ashley, IN................................... 130,000 Owned
Jackson, OH.................................. 220,400 Owned/Leased
Rio Clara, Brazil............................ 79,008 Leased
Auburn, WA (2 facilities).................... 85,000 Leased
---------
Total...................................... 2,619,368
=========
The Company also owns property and improvements in (i) Vassar, Michigan,
which is currently leased (with an option to purchase) to a third party, (ii)
Pittsford Township, New York, which is currently unoccupied, and (iii)
Huntington, Indiana, which is currently unoccupied.
ITEM 3--LEGAL PROCEEDINGS
From time to time the Company is engaged in routine litigation arising in
the ordinary course of business; however, the Company is not party to any
lawsuit or proceeding which, individually or in the aggregate, in the opinion
of management, is likely to have a material adverse effect on the financial
condition or results of operations of the Company.
Eagle-Picher is a defendant in litigation commenced in May 1997 by Caradon
Doors and Windows Inc. ("Caradon"), in the U.S. District Court, Northern
District of Georgia. Caradon alleges that Eagle-Picher induced it to buy door
skins from Eagle-Picher, causing Caradon to infringe upon a patent held by
Therma-Tru Corporation, contrary to Eagle-Picher's representations. The
complaint alleges claims for damages exceeding $10 million. Eagle-Picher
intends to vigorously defend the claims in the complaint.
On September 15, 1997, Therma-Tru Corporation filed an action against the
Company and Pease Industries, Inc. alleging patent infringement under 35
U.S.C. (S) 271 and related claims, based upon substantially the same facts as
in the Caradon case. Therma-Tru seeks an injunction against Cambridge and
money damages of an unspecified amount. Discovery commenced December 31, 1997.
The Company anticipates that a hearing to determine the property described in
and protected by the patent, generally called a "Markmon hearing," will be
held this summer. Therma-Tru filed a motion requesting summary disposition of
certain issues material to determining the property rights protected by the
patent. The Company anticipates that the hearing on Therma Tru's motion will
occur sometime before the Markmon hearing.
17
The proceedings are not sufficiently advanced in either the Caradon or the
Therma-Tru case to allow an assessment of the Company's exposure in either
case, if any. Under the terms of the Eagle-Picher Acquisition, the Company
believes that it will be fully indemnified by Eagle-Picher for any amounts
ultimately owed to Caradon or Therma-Tru resulting from the litigation.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In lieu of a special meeting of the shareholders of Holdings, by written
consent dated December 31, 1997, the holders of 97% of the voting securities
of Holdings approved an amendment to the Amended and Restated Certificate of
Incorporation of Holdings (the "Certificate of Incorporation") to set the
value of Holdings' Class P Common Stock (the "Class P Common") at $316.6667
per share. The Certificate of Amendment (the "Certificate of Amendment") to
the Certificate of Incorporation was filed with the Delaware Secretary of
State on January 21, 1998. Prior to the filing of the Certificate of
Amendment, the value of the Class P Common was determined based on the net
sales (as defined in the Certificate of Incorporation) of the Company.
PART II
ITEM 5--MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common
stock.
The number of holders of each class of common equity of the Company are as
follows:
Class A
Common: 19
Class L
Common: 20
Class P
Common: 1
Preference: 1
There were no cash dividends paid during the two most recent fiscal years.
The Credit Agreement imposes certain restrictions on the issuance of
dividends, and the indenture governing the Notes prohibits the declaration of
dividends. The Company has no intention to pay cash dividends in the
foreseeable future.
As of December 31, 1997, Holdings sold 2,666.68 shares of Holdings' Class A
Common Stock to twelve key employees for an aggregate purchase price of
$880,030.57, payable pursuant to promissory notes. When paid, the proceeds
will be used for general working capital purposes.
These shares were sold by the Company pursuant to a claim of exemption from
the registration requirements of the Securities Act of 1933 (the "Act") under
Section 4(2) of the Act. The claim of exemption is supported by the Company's
determination, based in part on the purchasers' representations, that:
(a) the purchasers are key employees of the Company with access to
financial and other information of the type available in a registration
statement under the Act;
(b) the purchasers were provided access to officers of the Company for
information concerning the Company and its operations;
(c) by virtue of their key positions with the Company, education, industry
experience and investment experience, the purchasers were capable of
evaluating the merits and risks associated with an investment in the
Company's common stock;
(d) the purchasers acquired the shares for investment and not with a view
to resale or distribution; and
(e) the purchasers were able to financially withstand a loss on the shares,
including a total loss of their investment.
Based on the foregoing factors and other facts, the Company claims that the
shares were sold in transactions not involving any public offering.
18
ITEM 6--SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements included elsewhere in this Form 10-K. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected consolidated balance sheet and statement of operations data presented
below, as of December 31, 1997 and 1996, and for the years ended December 31,
1997, 1996 and 1995, are derived from the Company's audited consolidated
financial statements included elsewhere in this Form 10-K. The selected
balance sheet data and the selected statement of operations data as of
December 31, 1995 and as of and for the years ended December 31, 1994 and
1993, were derived from audited financial statements, not presented herein.
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993(1) 1994(2) 1995 1996(3) 1997(4)
------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS
DATA:
Sales................... $74,544 $190,944 $297,746 $346,026 $426,094
Cost of sales........... 62,727 159,455 253,893 294,742 367,037
------- -------- -------- -------- --------
Gross profit............ 11,817 31,489 43,853 51,284 59,057
Selling, general and
administrative
expenses............... 9,654 15,312 17,678 26,240 31,742
------- -------- -------- -------- --------
Income from operations.. 2,163 16,177 26,175 25,044 27,315
Interest expense........ 1,769 6,161 12,388 23,190 28,036
Other (income) expense.. (519) (657) (746) 180 (56)
------- -------- -------- -------- --------
Income (loss) before
income taxes........... 913 10,673 14,533 1,674 (665)
Income tax expense
(benefit)(5)........... -- (1,450) 5,410 565 (238)
------- -------- -------- -------- --------
Income (loss) before
extraordinary item..... 913 12,123 9,123 1,109 (427)
Extraordinary item(6)... -- -- 4,426 -- 9,788
------- -------- -------- -------- --------
Net income (loss)....... $ 913 $ 12,123 $ 4,697 $ 1,109 $(10,215)
======= ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization........... $ 1,893 $ 8,952 $ 16,715 $ 21,319 $ 24,082
Capital expenditures.... 70 3,972 10,646 9,630 17,913
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993(1) 1994(2) 1995 1996(3) 1997
------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
(deficit).............. $ (269) $ 24,887 $ 25,544 $ 37,529 $ 48,377
Total assets............ 40,547 189,317 175,115 262,230 369,484
Long-term debt, less
current portion........ 16,254 124,500 177,133 224,112 314,789
Total stockholders'
equity (deficit)....... 1,787 (14,753) (63,839) (62,141) (72,494)
- --------
(1) Includes results of Voplex from its February 1993 acquisition, which was
accounted for as a purchase.
(2) In August 1994, the Company acquired Rockwell Plastics, and such
transaction was accounted for as a purchase. The operating results of
Rockwell Plastics are included in the Company's consolidated operating
results from August 1, 1994. Also, effective August 1, 1994, the
stockholders of Wolf and Voplex formed the Company and contributed shares
of such businesses or merged such businesses into the Company. This
transaction constituted a combining of interests under common control and
was accounted for in a manner similar to a pooling of interests and prior
year separate company financial statements were consolidated.
(3) In March 1996, the Company acquired GenCorp RPD for a purchase price of
$32 million. The operating results of GenCorp RPD are included in the
consolidated operating results from March 1, 1996.
(4) In February 1997, the Company acquired APX for a purchase price of $2.4
million. The operating results of APX are included in the Company's
consolidating operating results from February 1, 1997. In July 1997, the
Company completed the Goodyear-Jackson Acquisition and the Eagle-Picher
Acquisition. The results
19
of acquired Eagle-Picher and Goodyear-Jackson operations are included in
the Company's consolidated operating results from July 1, 1997.
(5) In August 1994, the Company changed its tax status from Subchapter S to
Subchapter C; prior to 1994, the Company's earnings were included in the
taxable income of the Company's stockholders. If the Company had operated
as a Subchapter C corporation during each of the periods presented, the
pro forma income tax provision would be approximately $4.1 million and
$0.4 million in 1994 and 1993, respectively.
(6) As part of the refinancing which occurred in 1995, a prepayment premium of
$3.7 million was incurred, and approximately $3.4 million in deferred
financing costs were charged against operations, net of certain tax
benefits of $2.7 million. The extraordinary item for 1997 reflects the
write-off of existing financing costs, remaining original issue discount
and expense on early extinguishment of debt, net of tax, in connection
with the Offering and borrowings under the Credit Agreement, and
application of the proceeds thereof.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a leading designer, developer and manufacturer of plastic
components and systems for a variety of automobile, light truck and heavy
truck OEMs.
The Company has experienced rapid growth since 1990 due to increased plastic
usage by OEMs, five major acquisitions and significant new product
introductions. Such acquisitions include: Voplex in 1993, Rockwell Plastics in
1994, GenCorp RPD in 1996 and Eagle-Picher and Goodyear-Jackson in July 1997.
The acquisition of Voplex increased the Company's overall molding and
painting capabilities and significantly increased its sales through the entry
into the interior plastic trim market. The acquisition of Rockwell Plastics
increased sales to Ford, added Transplants and heavy truck OEMs as customers,
enhanced the Company's functional parts manufacturing capabilities and added
structural and exterior body panel manufacturing capabilities. The acquisition
of GenCorp increased the Company's SMC capabilities, significantly increased
its sales to General Motors and added Volvo Heavy Truck and Kenworth as heavy
truck customers. The Eagle-Picher Acquisition added top coat painting
capability, expanded the Company's non-automotive markets presence, enhanced
relationships with Transplants, added to the Company's compression molding
press capacity and is expected to enable the Company to consolidate its
manufacturing of SMC. The Goodyear-Jackson Acquisition is expected to
strengthen the Company's position as the leading SMC supplier to the medium
and heavy truck OEMs, enhance relationships with Ford and Freightliner, expand
its product offerings, and expand its SMC manufacturing, compression molding
and injection molding capacity.
Management believes that the Company has significant competitive advantages,
including: (i) Tier 1 status and strong relationships with OEMs, which are
important elements in achieving continued profitable growth; (ii) diversity of
processes and materials which, in contrast to many competitors, allows the
Company to manufacture each part in a cost effective manner, utilizing the
optimal raw material and manufacturing method; (iii) a low cost, high quality
manufacturing position; and (iv) strong design and engineering expertise. See
"Business--Competition."
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
% OF SALES % OF SALES % OF SALES
---------- ---------- ----------
Sales................... 100.0% 100.0% 100.0%
Gross profit............ 14.7 14.8 13.9
Selling, general and ad-
ministrative expenses.. 5.9 7.6 7.4
Income (loss) before ex-
traordinary item....... 3.1 0.3 (0.1)
Extraordinary item...... 1.5 -- 2.3
Net income (loss)....... 1.6 0.3 (2.4)
20
1997 Compared to 1996
SALES
Sales increased by $80.1 million, or 23.1% to $426.1 million in 1997,
compared to $346.0 million in 1996. The increase in sales was primarily the
result of the 1997 acquisitions of APX in February, Goodyear-Jackson and
Eagle-Picher in July and Owens-Corning Brazil in September 1997. These
acquisitions added sales of approximately $84.3 million in aggregate in 1997.
Sales at existing Cambridge operations decreased $4.2 million, resulting from
changes in product mix (due to the build out of such programs as Honda Accord
bumpers, C-4 Corvette, U-Van, Ford Aerostar liftgates, Ford's Bronco liftgate,
and Winstar), and lower volumes on GM's F-car, Suburban, M-Van and Ford's
Taurus/Sable wagon load floors. These decreases were offset, in part, by
increases in volumes on C-5 Corvette, Jeep, GMT530, Volvo, Ranger,
Freightliner, Kenworth T-2000 and F-Series (PH96).
GROSS PROFIT
Gross profit increased by $7.8 million or 15.2%, to $59.1 million for 1997,
compared to $51.3 million for 1996. The increase was primarily the result of
the acquisitions of APX, Goodyear-Jackson, Eagle-Picher and Owens-Corning
Brazil in 1997, which added aggregate gross profit of $12.7 million. Gross
margin decreased from 14.8% in 1996 to 13.9% in 1997. The decline in gross
margin resulted primarily from launch costs incurred on programs launched
beginning in the fourth quarter of 1996 (C-5 Corvette, Jeep and Volvo), along
with costs associated with realignment of products among the Company's
divisions. Certain changes in the Company's product mix, including lower
volumes on such higher margin programs as Honda bumpers, which balanced out in
1997, Taurus/Sable wagon load floors, Honda sunshade and GM M-van, negatively
impacted gross margins. Higher volumes on such programs as Freightliner,
PACCAR, Chrysler-Jeep louvre, Buick H car and Pontiac W car, partially offset
the negative impact on gross margin.
Management expects 1998 gross margins to decline slightly from 1997 levels
as the result of plant consolidations and manufacturing realignment, delays in
HN80 component production as manufacturing is transferred from Ford to
Freightliner during the first quarter of 1998, and costs associated with
launches beginning in the third quarter of 1998. However, management
anticipates gross margins in 1999 to rebound to 1996 levels upon completion of
the launches, realization of benefits of manufacturing alignments, and a full
year of production of the HN80.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") of $31.7 million
decreased to 7.4% of sales for 1997, compared to $26.2 million or 7.6% of
sales for 1996. The increase in SG&A of $5.5 million reflects the addition of
APX, Goodyear-Jackson, Eagle-Picher and OC-Brazil, which added SG&A costs of
$2.2 million. The decrease in SG&A expenses as a percentage of sales reflects
the spreading of overhead costs, particularly the Company's previous
investments in infrastructure discussed below, over the Company's expanding
sales base.
EXTRAORDINARY ITEM
In July 1997, the Company retired all of its outstanding indebtedness with
proceeds from the Offering and borrowings under the Credit Agreement. In
connection with this refinancing, the Company recorded an extraordinary loss
of $9.8 million, net of tax, reflecting the write-off of existing deferred
financing costs, remaining original issue discount and expense upon early
extinguishment of debt.
NET INCOME
The Company recorded a net loss, before extraordinary item, of $0.4 million
in 1997, compared to net income of $1.1 million in 1996. This decrease was the
result of the items mentioned above and an increase in interest expense of
$4.8 million to $28.0 million in 1997, compared to $23.2 million for 1996. The
increase in interest expense for 1997 was primarily attributable to the
increase in debt outstanding related to the Goodyear-Jackson, Eagle-Picher,
APX and the Owens-Corning Brazil acquisitions.
21
1996 Compared to 1995
SALES
The Company's sales increased by $48.3 million, or 16.2%, to $346.0 million
in 1996, compared to $297.7 million in 1995. The increase was primarily the
result of the inclusion of GenCorp RPD operations for ten months following the
Company's acquisition of GenCorp RPD, which added sales of $53.8 million.
Sales at the existing Cambridge operations were $5.6 million lower than in
1995. This decrease resulted primarily from lower production volumes on the
Chrysler Viper due to issues at other suppliers to the Viper, and on the Ford
L&H series heavy trucks, which were discontinued earlier than expected in
favor of the HN80, the L&H replacement vehicle.
GROSS PROFIT
Gross profit increased by $7.4 million, or 16.9%, to $51.3 million in 1996,
compared to $43.9 million in 1995. Gross margins remained relatively constant
in 1996 at 14.8% of sales compared to 14.7% in 1995. The inclusion of GenCorp
RPD operations for ten months following the Company's acquisition of GenCorp
RPD added $1.2 million of gross profit, or 2.2% of GenCorp RPD sales. The
GenCorp RPD gross margin reflects termination of GM's APV vehicle and costs
associated with the launch of the following new programs: the Jeep hard top;
the Volvo 2200; the GMT 530; and the Kenworth T2000. The impact of GenCorp RPD
operations on consolidated gross margin was largely offset by strong gross
margins in the Company's existing operations, reflecting production
efficiencies for programs including the Cross Car Beam, Honda bumpers and
Freightliner heavy truck programs, which the Company is able to realize as it
gains experience with manufacturing new programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A increased to 7.6% of sales, or $26.2 million, in 1996, compared to 5.9%
of sales or $17.7 million, in 1995. The increase was due in part to inclusion
of GenCorp RPD operations for ten months following the GenCorp Acquisition
which added $3.4 million in SG&A. An additional increase of $3.1 million is
attributable to the investment in infrastructure at corporate headquarters,
which added personnel in the areas of management information systems, finance,
program management, human resources, sales/marketing and quality. Management
believes that these investments position the Company for growth without
commensurate increases in SG&A. The increase in 1996 SG&A also reflects
increased sales commissions, increased professional fees associated with
acquisition activities,and costs associated with expanding the Company's CAD
and design areas.
NET INCOME
The Company's net income was $1.1 million in 1996, compared to $9.1 million
(before an extraordinary item of $4.4 million) in 1995. This decrease was
primarily the result of the increased SG&A explained above and increased
interest expense, which grew to $23.2 million in 1996, from $12.4 million in
1995, partially offset by the increase in gross profit explained above. The
increase in interest was primarily due to additional indebtedness associated
with the 1995 Transaction (as defined) and the GenCorp Acquisition. The
Company's effective tax rate in 1996 was 34%, compared to 37% in 1995.
The Company recorded a net loss of $2.9 million for the quarter ended
December 31, 1996, as compared with net income of $4.0 million for the nine
months ended September 30, 1996. The fourth quarter loss was attributable to
new automotive and commercial truck program launches during the second half of
1996, including the Jeep hard top, C-5 Corvette, Volvo 2200, Kenworth T-2000
and GMT 530 truck. In addition, fourth quarter 1996 operating results reflect
costs incurred by the Company to move three significant truck programs between
facilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs historically have been for operating
expenses, working capital and capital expenditures. Acquisitions have been
financed through debt facilities collateralized by the Company's
22
assets and cash flows. Management expects future cash will be required for
capital expenditures and to fund working capital as the Company continues to
expand its operations. Management expects capital expenditures to be
approximately $23.0 million in 1998.
Upon consummation of the Offering, the Company's previous credit agreement
was replaced by the Credit Agreement, pursuant to which the Company may borrow
up to $280.0 million. The Credit Agreement consists of $205.0 million in
aggregate principal amount of term loans and a $75.0 million revolving credit
facility available for working capital and general corporate purposes. The A
Term Loans and B Term Loans of the Credit Agreement mature on the fifth and
eighth anniversary of the initial borrowing, respectively, and will require
annual principal payments (payable in quarterly installments) totaling
approximately $7.4 million in 1998, $13.9 million in 1999, $16.4 million in
2000, $21.4 million in 2001, $34.0 million in 2002, $35.0 million in 2003,
$40.0 million in 2004 and $37.1 million in 2005. The revolving credit portion
of the Credit Agreement matures on the fifth anniversary of the initial
borrowing. The interest rate under the Credit Agreement is based on the
Eurodollar rate plus the applicable Eurodollar margin.
The Company believes that, based on current levels of operations and
anticipated growth, its cash from operations together with other available
sources of liquidity, including borrowings under the Credit Agreement will be
sufficient over the next several years to make required payments of principal
and interest on its debt, including payments due on the Notes and remaining
obligations under the Credit Agreement, permit anticipated capital
expenditures and fund working capital requirements.
Net cash provided by operating activities for 1997 was $15.8 million,
comprising net loss before extraordinary item for 1997 of $0.4 million with
non-cash adjustments of $23.2 million. The non-cash items consisted of
depreciation and amortization of $24.1 million, a non-cash charge to income
for postretirement benefits of $2.2 million and deferred income tax benefit of
$3.1 million. Changes in working capital components used $6.9 million,
primarily as a result of timing of collections on trade accounts receivable,
including billed reimbursable tooling.
Net cash used in operating activities was $4.2 million for 1996 resulting
from net income of $1.1 million, offset by non-cash expenses of $24.5 million
and a negative change in working capital of $29.8 million. The negative cash
flow from working capital is the result of timing of collections on customer
tooling and other trade receivables, and timing of cash disbursements.
The Company had capital expenditures of approximately $17.5 million in 1997,
in comparison to approximately $9.6 million in 1996. Expenditures in 1997
relate primarily to the GM step assist, Ford 4.6L Cam Cover, Volvo L-5
program, Ford PN96, Kenworth T603/T2000, Ford Ranger, Sterling H80, Case and
MIS installations. Cash used for acquisitions of $72.4 million in 1997 relates
to Goodyear-Jackson, Eagle-Picher, APX and Owens Corning-Brazil; acquisitions
of $18.2 million in 1996 relate to GenCorp RPD.
In March 1996, the Company purchased certain assets and liabilities of
GenCorp RPD for a purchase price of approximately $32.0 million, comprised of
a cash payment of $18.2 million and debt issued of $13.8 million. The Company
and Holdings retired indebtedness related to the subordinated notes payable
and paid down the debt under the Previous Credit Agreement with the proceeds
from the issuance of the Initial Offering.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer and other operating systems as the millennium (year 2000)
approaches. The issue is whether the date sensitive information within the
various operating systems will properly recognize the date when the year
changes to 2000. Systems that do not properly recognize such information could
generate erroneous data or cause systems to fail.
The Company is using both internal and external resources to identify,
correct or reprogram and test the systems for year 2000 compliance. It is
anticipated that all reprogramming efforts will be completed in early 1999 to
allow adequate time for testing. The Company is currently completing the
review process whereby
23
machines and processors are evaluated for year 2000 compliance. Management is
also developing plans to address non-complying systems. Management has not yet
assessed the year 2000 compliance expense and related potential effect on the
Company's earnings.
CERTAIN IMPORTANT FACTORS
All forward-looking statements contained in this Annual Report reflect the
Company's current views with respect to future events and financial
performance, but are subject to many uncertainties and factors relating to the
Company's operations and business environment, specifically including but not
limited to the following important factors, all of which may cause the actual
results of the Company to be materially different from any future results
expressed or implied by such forward-looking statements.
INDUSTRY CONDITIONS
The Company's business is tied to the North American vehicle industry which
is highly cyclical and dependent on consumer spending and general economic
conditions in North America. There can be no assurance that North American
automotive production will not decline in the future or that the Company will
be able to utilize any additional capacity it adds in the future. Economic
factors adversely affecting automotive sales and production and consumer
spending could adversely impact the Company's sales and its operating results.
See "Business--Automotive and Light Truck Components Industry." In addition,
the growing trend among OEMs to reduce their supplier base and to reduce costs
while increasing quality control places great pressure on suppliers such as
the Company.
Many OEMs and their suppliers have unionized work forces. Work stoppages or
slow-downs experienced by OEMs or their suppliers could result in slow-downs
or closures of assembly plants where the Company's products are included in
assembled vehicles. These events could have a material adverse effect on the
Company's results of operations.
INDUSTRY CONSOLIDATION
The automotive plastic component supply industry has undergone, and is
likely to continue to experience, consolidation. See "Business--Automotive and
Light Truck Components Industry--Consolidation of Supplier Base by OEMs." The
Company believes that in order for its to maintain and enhance its position as
a Tier 1 supplier to OEMs, it is important that it participate in this
consolidation. Accordingly, the Company intends to selectively pursue
acquisition targets that will broaden its product and process capabilities.
There can be no assurance, however, that it will be successful in consummating
such acquisitions or that it will be able to successfully integrate any such
acquisitions without adversely affecting the Company's financial position or
results of operations.
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, including the internal component operations of
the OEMs as well as independent suppliers, some of which are larger than the
Company and have substantially greater resources. There can be no assurance
that the Company's business will not be adversely affected by increased
competition in the market in which it currently operates or in markets in
which it will operate in the future, or that the Company will be able to
improve or maintain its profit margins on sales to OEMs. In addition, the
Company principally competes for new business both at the beginning of the
development of new models and upon the redesign of existing models by its
major customers. New model development generally begins two to five years
prior to the marketing of such models to the public. Although the Company has
been successful in obtaining significant new business on new models, there can
be
24
no assurance that the Company will continue to be able to obtain such new
business. Certain of the Company's competitors currently are larger, have
greater operating flexibility and have greater financial resources than the
Company. See "Business--Competition."
RELIANCE ON MAJOR CUSTOMERS
For the year ended December 31, 1997, approximately 21.5% of the Company's
sales were to General Motors, approximately 31.0% of the Company's sales were
to Ford and approximately 10% of the Company's sales were to Chrysler. Sales
to these customers consist of a large number of different parts, tooling and
other services, which are sold to separate divisions and operating groups
within each customer's organization.
Although the Company believes that its overall relations with customers are
good, there can be no assurance that such customers will continue to purchase
the Company's products, continue with a particular vehicle program or purchase
the Company's products for any successor vehicle program. The loss of any one
of such customers, or a significant decrease in demand for certain models or a
group of related models sold by any of its major customers, could have a
material adverse effect on the Company. The failure of the Company to obtain
new business for new models or to retain or increase business on redesigned
existing models could have a material adverse effect on the Company. Decline
in the production of new North American vehicles, due to reductions in North
American vehicle demand or an increase in the share of the North American
vehicle market by foreign OEMs manufacturing in their home countries, could
have a material adverse effect on the Company. Moreover, because sales are
typically secured during the two to five year vehicle model development period
prior to marketing to the public, there can be no assurance that efforts to
replace any lost sales, if successful, would yield cash revenues in time to
prevent a material adverse effect on the Company. See "Business--Customers."
Automotive suppliers are under constant pressure to reduce product prices.
General Motors, Ford and Chrysler have established policies which do not
permit price increases, even though underlying material or other costs may
have increased due to circumstances beyond a supplier's control. Most of the
Company's products are manufactured using petroleum-based plastic resins. The
price of petroleum, while relatively stable in recent years, has experienced
wide fluctuations in the past. Significant increases in the price of petroleum
could result in increased cost of the Company's principal raw materials which,
if not recoverable from the Company's customers, could have a material adverse
effect on the Company's results of operations.
At the same time, OEMs continue to pressure suppliers such as the Company to
reduce costs, to increase quality control and, in some cases, to share cost
savings with them through a reduction of parts prices. Although the Company
believes that its prices will remain competitive, there can be no assurance
that it will be able to improve or maintain its profit margins on sales to
OEMs.
INTEGRATION OF ACQUISITIONS
The Company has successfully integrated a number of significant operations
in the past and believes that it has developed comprehensive plans to
consummate integration of Eagle-Picher, Goodyear-Jackson, Owens-Corning Brazil
and Livingston. Successful integration requires realization of cost savings
through consolidation of SG&A functions, optimization of manufacturing
processes, reduction of materials' cost through consolidated purchasing and
other identified strategies. The realization of these cost savings, in some
instances, requires cooperation of customers, suppliers and employees of the
Company and no assurance can be given that the integration of Eagle-Picher,
Goodyear-Jackson, Owens-Corning Brazil, Livingston or future acquisitions will
be successful or that their anticipated strategic benefits will be realized.
If the Company is unable to successfully integrate these or future
acquisitions, the Company's results from operations may be adversely affected.
See "Business--The Eagle-Picher Acquisition" and "--The Goodyear-Jackson
Acquisition."
25
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
INDEX TO FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Accountants....................................... F-1
Independent Auditor's Report............................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1996............... F-3
Consolidated Statements of Operations for each of three years in the
period ended December 31, 1997......................................... F-4
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1997......................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
Financial Statement Schedule:
Report of Independent Accountants on Financial Statement Schedule....... F-29
Independent Auditor's Report on Financial Statement Schedule............ F-30
Schedule II--Valuation and Qualifying Accounts for each of the three
years in the period ended December 31, 1997............................ F-31
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PREVIOUS INDEPENDENT ACCOUNTANTS
On October 16, 1997, the Company dismissed Deloitte & Touche LLP as its
independent accountants. The reports of Deloitte & Touche LLP on the Company's
financial statements for the years ended December 31, 1996 and 1995 contained
no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principle. The Company's Board of
Directors participated in and approved the decision to change independent
accountants. In connection with its audits for the two most recent fiscal
years and through October 16, 1997, there have been no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Deloitte & Touche LLP
would have caused them to make reference thereto in their report on the
financial statements for such years.
During the years ended December 31, 1996 and 1995 and through October 16,
1997, there have been no reportable events (as defined in Regulations S-K Item
304(a)(l)(v)).
NEW INDEPENDENT ACCOUNTANTS
The Company engaged Price Waterhouse LLP as its new independent accountants
as of October 17, 1997. During the two most recent fiscal years and through
October 17, 1997, the Company has not consulted with Price Waterhouse LLP
regarding either (i) the application of accounting principles to a specific
transaction either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements, and either a written
report was provided to the Company or oral advice was provided that Price
Waterhouse LLP concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting
issue; or (ii) any matter that was either the subject of a disagreement, as
that term is defined in Item 304(a)(l)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that
term is defined in Item 304(a)(l)(v) of Regulation S-K.
26
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages as of March 1, 1998 and a brief account
of the business experience of each person who is a director, executive officer
or other significant employee of the Company or Holdings.
NAME AGE POSITION
---- --- --------
Richard S. Crawford..... 51 Chairman of the Board and Chief Executive Officer
Kevin J. Alder.......... 40 Chief Operating Officer and President
John M. Colaianne....... 41 Chief Financial Officer and Secretary
C. Keith Chulumovich.... 36 Corporate Controller and Treasurer
Thomas N. Paisley....... 47 President--Engineered/Exterior and Powertrain Divisions
Richard H. Frank........ 58 President--Commercial Truck Division
Patrick Pavelka......... 46 President--Interior Systems Division
Terry S. Werrell........ 61 President--Industrial Products Division
Michael E. Kilpinen..... 52 Executive Vice President--R&D-Technical Services
Alan M. Swiech.......... 39 Vice President--Human Resources
David W. Marten......... 41 Vice President--Quality
Ira J. Jaffe............ 58 Director
Robert C. Gay........... 46 Director
Edward W. Conard........ 41 Director
Ronald P. Mika.......... 37 Director
RICHARD S. CRAWFORD founded a predecessor of the Company in 1988. Mr.
Crawford was President, Chief Executive Officer and director of the Company,
Holdings and its predecessors from their inception to March, 1996 when he
became Chief Executive Officer and Chairman of the Board of the Company and
Holdings. Prior to founding the company which was to become the Company, Mr.
Crawford founded a real estate, construction and marketing firm, the Lakeside
Investment Company. He has also been active as a real estate developer,
financial investor and merger and acquisition specialist.
KEVIN J. ALDER joined the Company in November 1996. Mr. Alder possesses 17
years of industrial experience varying from Engineering to Operations
Management. From 1993 until joining the Company, Mr. Alder was the Vice
President Operations & Sales at Magna Interior Systems Group. In addition, he
held the position of Vice President Operations at Textron, President and Chief
Operating Officer at US Farathane Corporation and Vice President Operations
(General Plants Manager) at Johnson Controls and Engineer/Quality Engineer at
John Deere.
JOHN M. COLAIANNE joined the Company in June 1996, was appointed Executive
Vice President Business Development in December 1996, and in April 1997 was
appointed Chief Financial Officer. Mr. Colaianne has 18 years financial
experience with 12 years automotive related and six years aerospace and
railway experience. From 1993 until joining the Company, Mr. Colaianne was
Chief Financial Officer at RPI, Inc. and Butler Metal Products, American &
Canadian subsidiaries of Oxford Investment Group. Prior to that he was
Corporate Controller and Vice President of Freedom Forge Corporation
(specializing in railway parts), Corporate Controller/Controller at American
Technologies/Ferro Manufacturing (specializing in automotive and aerospace)
and auditor of automotive and property development industries with Touche Ross
& Co.
C. KEITH CHULUMOVICH joined the Company in 1993 as controller of the
Dearborn facility. Prior to becoming corporate controller in early 1996, he
was also controller of the Lapeer facility. Prior to joining the Company, Mr.
Chulumovich was a manager with Deloitte & Touche LLP in Detroit, serving
clients for nine years in manufacturing, leasing and other industries.
THOMAS N. PAISLEY joined the Company upon the consummation of the Company's
acquisition of Rockwell Plastics. Mr. Paisley has over 27 years experience in
manufacturing. Mr. Paisley joined the Company's Ontario
27
facility of Butler Polymet in 1976 as Production Manager. In 1983 he moved to
Lenoir as Manufacturing Manager. In 1990, after the acquisition of Butler
Polymet by Rockwell Plastics, Mr. Paisley was promoted to Plant Manager of the
Lenoir facility. In 1993, Mr. Paisley was promoted to Director of
Structural/Functional and Energy Management Systems for Rockwell Plastics. In
August 1994 Mr. Paisley became General Manager of Cambridge North Carolina
operations and was promoted to President of Engineered Products Division in
October 1994.
RICHARD H. FRANK joined the Company in 1994 upon the consummation of the
Company's acquisition of Rockwell Plastics, where he had been employed for 18
years. Prior to joining Rockwell, Mr. Frank was employed for 18 years in
various positions by General Motors. Mr. Frank is a member of the Industrial
Development Research Council, the Society of Plastic Engineers and the Project
Management Institute.
PATRICK PAVELKA joined the Company in 1988 and, prior to becoming the
General Manager of the Lapeer facility, was General Manager of the Dearborn
facility. Prior to joining the Company, Mr. Pavelka was a manufacturing and
materials manager for Signet Industries. Mr. Pavelka has over 20 years of
experience in the areas of manufacturing and materials management.
TERRY S. WERRELL joined a predecessor of the Company in June 1992. Mr.
Werrell has 42 years of manufacturing and engineering experience in the
automotive industry, 20 years with General Motors in various management
positions and 22 years in the supplier industry serving in general management
positions. Prior to joining the Company he was a co-owner of a decorative zinc
die casting company headquartered in Detroit.
MICHAEL E. KILPINEN joined the Company in March 1996 upon the consummation
of the Company's acquisition of GenCorp RPD where he had been employed since
1989. Prior to becoming Executive vice President Engineering and Technology,
Mr. Kilpinen served in various engineering management positions with ASC, Ford
Motor Company Body Engineering and American Motors Corporation.
ALAN M. SWIECH joined the Company in August 1996. Prior to joining the
Company Mr. Swiech served as Employee & Industrial Relations Manager at United
Technologies Automotive since 1993. He was previously with Pratt & Whitney
Aircraft (United Technologies Corporation), an aerospace manufacturer, from
May 1982 until July 1993 where he held various management positions within the
Human Resources Organization. Mr. Swiech has over 18 years experience in the
area of labor relations and human resource management.
DAVID W. MARTEN joined the Company in 1996 as Vice President of Quality and
Continuous Improvement. Mr. Marten has over 22 years experience in automotive
and heavy truck component manufacturing. From January 1995 until joining the
Company, Mr. Marten was Director--Product & Process Improvement for Echlin
Automotive, Preferred Technical Group. From April 1989 until joining Echlin
Automotive, Mr. Marten was Manager--Product & Process Quality for TRW Inc.,
Vehicle Safety Systems.
IRA J. JAFFE has been a director of the Company and Holdings since February
27, 1996. Mr. Jaffe has been a member of the law firm of Jaffe, Raitt, Heuer &
Weiss, Professional Corporation since 1968, which provides legal services to
Holdings and the Company.
ROBERT C. GAY became a director of the Company and Holdings on November 17,
1995. Mr. Gay has been a Managing Director of Bain Capital, Inc. since April
1993 and has been a general partner of Bain Venture Capital since 1989. Mr.
Gay is a director of IHF Capital, Inc., parent of ICON Health and Fitness,
Inc., Physio-Control International Corporation, GT Bicycles, Inc., GS
Technologies Operating Co., Inc. and American Pad & Paper Company.
EDWARD W. CONARD became a director of the Company and Holdings on November
17, 1995. Mr. Conard has been a Managing Director of Bain Capital, Inc. since
April 1993. From 1990 to 1993, Mr. Conard was a director of Wasserstein
Perella, an investment banking firm that specializes in mergers and
acquisitions. Previously, he was a Vice President at Bain & Company, where he
headed the firm's operations practice area. Mr. Conard is a director of Waters
Corporation and Medical Specialties Group, Inc.
28
RONALD P. MIKA became a director of the Company and Holdings in March 1996.
Mr. Mika has been a Managing Director of Bain Capital, Inc. since January 1997
and, prior to that time, had been a principal of Bain Capital, Inc. since
December 1992. Mr. Mika is a director of IHF Capital, Inc., parent of ICON
Health and Fitness, Inc.
GERALD L. GLICK was a director of the Company and Holdings until December 4,
1997, at which time Mr. Glick's resignation was accepted.
DIRECTORS' COMPENSATION POLICY
Directors currently receive no directors' compensation. During 1997, Mr.
Glick received $2,500 per Board meeting.
ITEM 11--EXECUTIVE COMPENSATION
The following table and notes set forth information concerning the
compensation for 1997 for Mr. Crawford, the four other most highly compensated
executive officers and the two most highly compensated executive officers of
the Company or Holdings who were not executive officers as of the end of 1997.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------
SALARY BONUS OTHER ANNUAL
NAMES AND PRINCIPAL POSITION* ($) ($) COMPENSATION(3)
- ----------------------------- -------- ------- ---------------
Richard S. Crawford, Director, CEO............ $475,000 370,833 10,267
Kevin J. Alder, COO, President(3)............. 275,000 148,582 7,025
Thomas N. Paisley, President--Engineered/
Exterior and Powertrain Divisions(3)......... 200,000 44,585 18,020
Patrick Pavelka, President--Interior System
Division(3).................................. 175,000 54,585 8,325
John M. Colaianne, CFO(3)..................... 151,458 84,585 16,208
Richard E. Warnick, COO(1).................... 218,750 -0- 9,500
Donald Holton, Director, President(2)......... 475,000 -0- -0-
- --------
(1) In connection with the 1995 Transaction, Holdings purchased Mr. Warnick's
20% interest in Holdings (actually held by R&C Warnick, L.L.C., a limited
liability company owned by Mr. Warnick and his wife (the "Warnick LLC"),
for $10 million, pursuant to a Stock Purchase Agreement dated as of
November 17, 1995 in which the Warnick LLC and Mr. Warnick agreed to a
five-year covenant not to compete. Simultaneously, Mr. Warnick and the
Company entered into an Employment Agreement pursuant to which Mr. Warnick
agreed to provide transitional assistance to the Company for a period of
two years. Under the Employment Agreement, Mr. Warnick received an annual
salary of $218,750 in 1997.
(2) Effective December 4, 1996, the employment of Donald Holton as President
and a Director of the Company was terminated by mutual agreement of the
Company and Mr. Holton. The Company and Mr. Holton have negotiated terms
of an agreement, but a written agreement has not yet been concluded. The
negotiated terms include: (i) the purchase by Mr. Holton of shares of
Class A and Class L Common Stock of Holdings for an aggregate purchase
price of approximately $1 million to be paid by application of
approximately $350,000 of salary and bonus earned by Mr. Holton during
1996, a promissory note from Mr. Holton in the amount of $500,000 and
approximately $150,000 in cash; (ii) full vesting of 2,000 Tranche 1
option shares of Holdings previously granted to Mr. Holton; (iii) payments
of severance benefits of approximately $42,000; (iv) continuation of Mr.
Holton's non-competition agreement with the Company until December 31,
1997 and non-solicitation agreement until no later than December 31, 1998;
and (v) Mr. Holton's agreement not to sue Holdings and the Company. There
can be no assurance that an agreement with Mr. Holton will be concluded or
that if concluded, it will include these terms.
29
(3) As of December 1, 1997, certain key employees purchased shares of Holdings
Class A Common Stock and shares of Holdings Class L Common Stock and
certain key employees and were issued options to purchase Holdings Class A
Common Stock. The Company believes all stock purchased by such key
employees during 1997 was purchased at fair market value. The Company also
believes that the options for Holdings Class A Common Stock are
exercisable at fair market value as of the date of grant and that current
values of shares subject to options are at or below exercise prices. See
"Stock Option Grants in Last Fiscal Year" table, "Aggregated Option/SAR
Exercises in Last Fiscal Year and FY-End Option/SAR Values" table and
"Business--Stock Purchase and Stock Option Agreements" below.
STOCK OPTION GRANTS IN LAST FISCAL YEAR*
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
OF STOCK
PRICE
APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------ -------------
% OF TOTAL NUMBER OF SECURITIES EXERCISE
OPTIONS/SARS UNDERLYING STOCK PRICE EXPIRATION 5% 10%
NAME GRANTED (#) OPTIONS GRANTED (#) ($/SH) DATE ($) ($)
---- ------------ -------------------- -------- ---------- ------ ------
Richard S. Crawford..... -- -0- -- -- -- --
Kevin J. Alder.......... 58.1% Tranche 1: 1250 3.30 10-31-01 1,693 3,987
Tranche 2: 625 642.13 10-31-01 -0- -0-
Tranche 3: 625 972.13 10-31-01 -0- -0-
Thomas N. Paisley....... 10.5% Tranche 1: 225 3.30 12-17-00 305 718
Tranche 2: 112.5 642.13 12-17-00 -0- -0-
Tranche 3: 112.5 972.13 12-17-00 -0- -0-
Patrick Pavelka......... 10.5% Tranche 1: 225 3.30 12-17-00 305 718
Tranche 2: 112.5 642.13 12-17-01 -0- -0-
Tranche 3: 112.5 972.13 12-17-01 -0- -0-
John M. Colaianne....... 10.5% Tranche 1: 225 3.30 7-1-01 305 718
Tranche 2: 112.5 642.13 7-1-01 -0- -0-
Tranche 3: 112.5 972.13 7-1-01 -0- -0-
Richard E. Warnick...... -- -0- -- -- -- --
Donald Holton........... -- -0- -- -- -- --
- --------
* Table summarizes Holdings options.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES*
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE REALIZED OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
NAME ON EXERCISE (#) ($) EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
---- --------------- -------------- -------------------------- --------------------------
Richard S. Crawford..... -0- -0- 5,308.10/10,536.98 -0-
Kevin J. Alder.......... -0- -0- 500/2000 -0-
Thomas N. Paisley....... -0- -0- 180/270 -0-
Patrick Pavelka......... -0- -0- 180/270 -0-
John M. Colaianne....... -0- -0- 90/360 -0-
Richard Warnick......... -0- -0- -0- -0-
Donald Holton........... -0- -0- -0- -0-
- --------
* Table summarizes Holdings options.
(1) Consists of 7,922.54 at $3.30/sh, 3,096.27 at $312.13/sh, and 3,092.27 at
$642.13/sh.
30
EMPLOYMENT AGREEMENTS
In connection with the 1995 Transaction, Mr. Crawford entered into an
employment agreement with the Company, pursuant to which Mr. Crawford receives
an annual base salary in the amount of $475,000 and an annual performance
based bonus for an amount not to exceed 50% of his base salary. In addition,
Mr. Crawford was paid a $412,500 consulting fee in connection with the
Company's acquisition of GenCorp RPD. A December 31, 1997 amendment to Mr.
Crawford's employment agreement provides that at the closing of each
acquisition of an additional business the Company will pay Mr. Crawford a fee
in the amount of three quarters of one percent (0.75%). Mr. Crawford's
employment agreement also provides for a severance payment equal to three
months of his base salary in the event his employment is terminated for any
reason other than resignation. The employment agreement provides that Mr.
Crawford will not directly or indirectly compete with the Company for two
years following termination of his employment with the Company.
STOCK PURCHASE AND STOCK OPTION AGREEMENTS
Effective December 1, 1997, the Company distributed Stock Purchase and Stock
Option Agreements to 12 of its key employees. Pursuant to those agreements,
each such employee purchased shares of Class A Common Stock and Class L Common
Stock (the "Purchased Shares"), at a per share price of $3.30 and $1,306.80,
respectively, and some employees were granted options (the "Options") to
purchase additional shares of Class A Common Stock (the "Option Shares", and
together with the Purchased Shares, the "Shares").
The consideration for the Purchased Shares was paid as follows: (i) at least
fifty percent in cash or pursuant to a short-term 8.5% full recourse
promissory note, to be repaid out of the employee's bonuses for 1997 and 1998,
with any remaining balance being due on May 1, 1999; and (ii) the balance in
the form of a five-year 8.5% full recourse promissory note, with interest-only
payments being required on an annual basis. Both notes were secured by a
pledge of the Purchased Shares.
So long as the employee remains employed by the Company, the Purchased
Shares vest over a five year period, beginning on the later of November 17,
1995 or the date the employee first became employed by the Company.
The Options also vest over the same five year period, so long as the
employee remains employed by the Company, although the occurrence of certain
"acceleration events" may cause the Options to become fully vested.
In order to exercise the Options, the employee must so notify the Company
within thirty days after the earlier of the termination of the employee's
employment with the Company or the end of the fifth year after the date the
Option first became exercisable. Fifty percent of an employee's Options are
exercisable at a price of $3.30 per share, twenty-five percent are exercisable
at a price of $642.13 per share, and the balance are exercisable at a price of
$972.13 per share.
The employee may not transfer any of the Shares, except to a charitable
remainder trust or certain family members, or under other, limited
circumstances.
On termination of the employee's employment with the Company, the Company
and its shareholders may purchase all or a portion of the Shares. The purchase
price for vested Shares will be their fair market value, if the employee's
employment was terminated for any reason other than cause. In all other
circumstances, the repurchase price for the Shares, vested or unvested, will
be the lower of fair market value or the original purchase price paid for the
Shares. The Company must exercise the repurchase right within one year
following termination of the employee's employment, unless the Company is
legally or contractually prohibited from exercising such right during such
period, in which case the Company shall be entitled to defer such purchase
until all such restrictions have been removed.
31
Each employee is subject to non-compete, non-solicitation and
confidentiality provisions which are set forth in the agreements.
The following employees, who are named in the preceding compensation tables,
purchased shares of Class A Common Stock and Class L Common Stock and were
granted options for Class A Common Stock as follows:
SHORT-TERM EMPLOYEE
NAME CLASS A SHARES CLASS L SHARES PURCHASE PRICE NOTE AMOUNT NOTE AMOUNT
---- -------------- -------------- -------------- ----------- -----------
Kevin J. Alder.......... 757.58 189.39 $249,994.87 $124,997.44 $124,997.44
Thomas M. Paisley....... 303.03 75.76 100,003.17 50,001.59 50,001.58
Patrick T. Pavelka...... 303.03 75.76 100,003.17 50,001.59 50,001.58
John M. Colaianne....... 303.03 75.76 100,003.17 50,001.59 50,001.58
CHANGE IN CONTROL SEVERANCE AGREEMENTS
Effective December 1, 1997, the Company and each of Kevin J. Alder, John M.
Colaianne, Thomas N. Paisley, Richard H. Frank, Patrick T. Pavelka and Terry
S. Werrell executed a Change In Control Severance Agreement, pursuant to which
the Company will pay the employee up to one year's salary and will provide the
employee up to one year's benefits as severance pay, in the event there is a
"change in control" of the Company or substantially all of the Company's
assets are sold (a "Change In Control Event"), and the employee's employment
with the successor is terminated without cause or the employee terminates such
employment with good reason. Under those same circumstances, the employee will
have the option of causing the Company to purchase all or any portion of the
Shares, at their fair market value. The period of time during which the
Company must make such severance payments and provide such severance benefits
will be reduced by the amount of time during which the employee was employed
by the Company's successor after the Change In Control Event.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Cambridge Industries Holdings,
Inc. ("Holdings"). The capital stock of Holdings consists of preference stock,
par value $.01 per share ("Preference Stock"), Class A common stock, par value
$0.01 per share ("Class A Common"), Class L common stock, par value $0.01 per
share ("Class L Common"), and Class P common stock, par value $0.01 per share
("Class P Common" and collectively with the Class A Common and Class L Common,
"Common Stock"). The Preference Stock is senior in right of payment to the
Common Stock; the Class L Common is senior in right of payment to the Class A
Common and Class P Common; and the Class P Common is senior in right of
payment to the Class A Common. All of the issued and outstanding shares of
Preference Stock are owned by Crawford Investment Group L.L.C. ("Crawford
LLC"). Holders of Preference Stock have no voting rights except as required by
law. The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders of Holdings, including the
election of directors. The Bain Funds and Crawford LLC, own 55% and 42%,
respectively, of the voting stock and are parties to a stockholder agreement
regarding the ownership (including the voting) of such stock. By virtue of
such stock ownership and agreement, the Bain Funds and Crawford LLC will have
the power to control all matters submitted to a vote of stockholders,
including election of directors of Holdings and, indirectly, to elect all
directors of the Company.
The following tables set forth certain information as of December 31, 1997
regarding the beneficial ownership of (i) voting common stock by each person
(other than directors and executive officers of the Company) known to the
Company to own more than 5% of the outstanding voting common stock of Holdings
and (ii) voting and non-voting common stock by each director of the Company,
each named executive officer and all of the Company's directors and executive
officers as a group. To the knowledge of the Company, each of such
stockholders has sole voting and investment power as to the shares shown
unless otherwise noted.
32
NUMBER AND NUMBER AND NUMBER AND NUMBER AND NUMBER AND
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
CLASS A CLASS L CLASS P PREFERENCE VOTING
COMMON(1) COMMON(1) COMMON(1) STOCK SECURITIES(1)
---------------- ---------------- ---------------------------- -----------------
Bain Funds(2)........... 61,333.28 83.47% 15,333.32 55.99% --0-- 0% --0-- 0% 76,666.60 52.20%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Richard S. Crawford(3).. 5,308.10 7.22% 11,250.00 41.08% 45,000 100% 1,000 100% 62,558.10 42.60%
Cambridge Industries,
Inc.
555 Horace Brown Drive
Madison Heights, MI
48071
Robert C. Gay(2)........ 61,333.28 83.47% 15,333.32 55.99% --0-- 0% --0-- 0% 76,666.60 52.20%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Edward Conard(2)........ 61,333.28 83.47% 15,333.32 55.99% --0-- 0% --0-- 0% 76,666.60 52.20%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Ronald P. Mika(2)....... 61,333.28 83.47% 15,333.32 55.99% --0-- 0% --0-- 0% 76,666.60 52.20%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Kevin J. Alder.......... 1,257.58 1.71% 189.39 .69% --0-- 0% --0-- 0% 1,446.97 .99%
Thomas M. Paisley....... 483.03 .66% 75.76 .28% --0-- 0% --0-- 0% 558.79 .38%
Patrick T. Pavelka...... 483.03 .66% 75.76 .28% --0-- 0% --0-- 0% 558.79 .38%
John M. Colaianne....... 393.03 .53% 75.76 .28% --0-- 0% --0-- 0% 468.79 .32%
All Directors and
Executive Officers as a
Group
(12 persons)(1)(2)..... 69,258.05 94.25% 26,999.99 98.59% 45,000 100% 1,000 100% 142,258.04 99.00%
- --------
(1) Includes a total of 13,111.981 shares of Class A Common and a total of
1,720.82 shares of Class L Common, respectively, issuable upon exercise of
warrants and options exercisable currently or within 60 days from the date
hereof. Does not include shares which may be issued to Donald Holton, a
former officer and director of the Company. See "Business--Compensation of
Executive Officers".
(2) Amounts shown represent the aggregate number of shares of Class A Common
(including warrants to obtain Class A Common) and Class L Common
(including warrants to obtain Class L Common) held by Bain Capital Fund V,
L.P., Bain Capital Fund V-B, L.P., Bain Capital Fund IV, L.P., Bain
Capital Fund IV-B, L.P., BCIP Associates, BCIP Trust Associates, L.P. and
Bain Capital V Mezzanine Fund, L.P. (collectively, the "Bain Funds").
Messrs. Gay, Conard and Mika are directors of the Company and Holdings and
are managing directors of Bain Capital Investors, Inc. ("BCI") and Bain
Capital Investors V, Inc. ("BCI-V"). BCI is the general partner of Bain
Capital Partners IV ("BCP-IV"), BCI-V is the general partner of Bain
Capital Partners V ("BCP-V") and Bain Capital V Mezzanine Partners, L.P.
("BCMP-V"). Messrs. Gay and Conard are also limited partners of BCP-IV and
BCP-V and Mr. Mika is a limited partner of BCP-V. BCP-IV is the general
partner of Bain Capital Fund IV, L.P. and Bain Capital Fund IV-B, L.P.
BCP-V is the general partner of Bain Capital Fund V, L.P. and Bain Capital
Fund V-B, L.P. BCMP-V is the general partner of Bain Capital V Mezzanine
Fund, L.P. Messrs. Gay, Conard and Mika are general partners of BCIP
Associates and BCIP Trust Associates, L.P. Accordingly, Messrs. Gay,
Conard and Mika may be deemed to beneficially own shares owned by the Bain
Funds; although Messrs. Gay, Conard and Mika disclaim beneficial ownership
of any such shares.
(3) Includes 45,000 shares of Class P Common and 11,250 shares of Class L
Common and 1,000 shares of Preferred Stock beneficially owned by Richard
S. Crawford through Crawford Investment Group LLC, formerly known as
22708-12 Harper L.L.C., owned 45% by Mr. Crawford, 45% by the 1994 Richard
Crawford Qualified Annuity Trust u/a/d December 22, 1994, 5% by Elizabeth
T. Crawford, his wife, and 5% by the 1994 Elizabeth T. Crawford Qualified
Annuity Trust u/a/d December 23, 1994.
33
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE 1995 TRANSACTION
In November 1995, Holdings was recapitalized (the "1995 Transaction"), the
terms of which included: (i) the purchase of Holdings' common stock for
approximately $18 million by the Bain Funds; (ii) the repurchase by Holdings
of shares of its common stock (the "Redeemed Shares") (a) from Crawford LLC
for $23.25 million, (b) from an affiliate of Richard E. Warnick for $10.0
million, (c) from an affiliate of John D. Craft, an officer and former
director of the Company and a former principal stockholder of Holdings, for
$16 million and (d) from DLJ Merchant Banking, Inc. for $21.3 million; and
(iii) the exchange of shares of Holdings' common stock (the "Exchanged
Shares") held by Crawford LLC for newly issued shares of Holdings' capital
stock. The Exchanged Shares and the Redeemed Shares represented all of the
outstanding stock of Holdings prior to the 1995 Transaction. As a result, the
newly issued capital stock of Holdings referred to above represents all of the
capital stock of Holdings. See "Security Ownership."
STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
Pursuant to a stockholders agreement which was amended as of December 31,
1997 (the "Stockholders Agreement"), Holdings, Crawford LLC, the Bain Funds
and certain other investors have agreed that until certain designated events
occur, such parties will vote for three of Bain's nominees and two of Crawford
LLC's nominees to the Company's and Holdings' boards of directors. The
Stockholders Agreement and both the Company's and Holdings' By-Laws require
that four of the five Directors be present in person or by proxy to constitute
a quorum for voting purposes; the affirmative vote of four of the five
Directors is required to approve a proposal voted upon. The Stockholders
Agreement also contains restrictions (with certain exceptions) on the transfer
of the common stock by a party thereto, including rights of first offer of
Holdings and other stockholders of Holdings and establishes drag-along and
preemptive rights in certain events. The parties to the Stockholders Agreement
have also entered into a registration rights agreement providing certain
registration rights relating to their shares of Common Stock.
STOCK OPTION AGREEMENT
At the time of the 1995 Transaction, Holdings entered into a stock option
agreement with Mr. Crawford (the "Stock Option Agreement") which grants him
options to acquire 15,845.08 shares of Class A Common in the following
tranches: (i) a three year straight-line vested option to purchase up to
7,922.54 shares of Class A Common for $3.30 per share; and (ii) options to
purchase up to 3,961.27 shares of Class A Common at an exercise price of
$312.13 per share and up to 3,961.27 shares of Class A Common at $642.13 per
share, exercisable after the Company has achieved earnings before interest and
taxes of at least $32 million. All three tranches expire on the earlier of the
November 17, 2005, the termination of Mr. Crawford's employment by the Company
or Holdings or the occurrence of certain transactions resulting in Holdings
becoming a public company or otherwise undergoing a change of control. The
Stock Option Agreement also includes restrictions on transfer and the right of
Holdings to repurchase the options or shares upon termination of Mr.
Crawford's employment with Holdings and the Company. Holdings may in the
future enter into additional stock option agreements with other members of
management.
MANAGEMENT SERVICES AGREEMENT
The Company is party to a five year management services agreement with Bain
Capital, Inc. ("Bain"), dated as of November 17, 1995, amended as of March 1,
1996, and further amended as of December 31, 1997, pursuant to which the
Company paid Bain a fee of $2.25 million in connection with the 1995
Transaction and a fee of $412,500 in connection with the GenCorp Acquisition
and will pay Bain (i) at the closing of each acquisition of an additional
business an amount equal to three-quarters of one percent (.75%) of the
transaction value of such acquisition and (ii) an annual fee of $950,000 per
year, plus out-of-pocket expenses. Pursuant to the management services
agreement, the Company paid Bain fees of approximately $937,000 during 1996
and
34
fees of $950,000 in 1997. In addition, the Company paid Bain $3.8 million in
connection with the Offering, the Credit Agreement, the Eagle-Picher
Acquisition and the Goodyear-Jackson Acquisition.
AIRCRAFT LEASE
Effective January 1, 1998, the Company and Mack, L.L.C. (now named Mack
Aviation, L.L.C.), a limited liability company owned by Mr. Crawford and his
wife and managed by Mr. Crawford, entered into an aircraft lease (the
"Aircraft Lease") pursuant to which the Company leases a Lear 35A aircraft
from Mr. Crawford. The terms of the Aircraft Lease include (i) monthly rent in
the amount of $28,823, (ii) a one-time preparation fee in the amount of
$250,000, and (iii) the obligation of the Company to bear all costs of
maintenance, repair, inspection, taxes and insurance (which the Company
estimates to be approximately $16,000 per month). In connection with the
execution of the Aircraft Lease, the Company entered into a sublease of the
Aircraft Lease (the "Aircraft Sublease") with Mr. Crawford. The Aircraft
Sublease provides, among other things, that Mr. Crawford has the right to hire
and lease the aircraft from the Company for a maximum of 30 hours each month
(which may be increased every 6 months) at an hourly rate of $710. The Company
believes that the terms of both the Aircraft Lease and the Aircraft Sublease
reflect currently available market terms and rates for similar aircraft.
Mack Aviation, L.L.C. acquired a larger airplane as of March 27, 1998, which
it anticipates leasing to the Company in lieu of the Lear 35A, upon terms and
rates reflective of the market for similar aircraft.
HOLDINGS SERVICES AGREEMENT
The Company and Holdings have entered into a ten year services agreement
dated as of July 1, 1997, pursuant to which Holdings provides the Company with
management services and personnel necessary to perform such services. Under
such agreement, the Company must reimburse Holdings for: (i) reasonable out-
of-pocket expenses actually paid to unaffiliated third parties in connection
with such services; and (ii) other expenses of Holdings of up to $500,000 per
year incurred in connection with such services.
LEGAL SERVICES
Ira J. Jaffe, a director of the Company, practices law with, and is a
shareholder of, the law firm of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation ("JRH&W"). JRH&W has served as general counsel to Holdings and the
Company since their inceptions and has represented them in a variety of legal
matters, including the 1995 Transaction, the acquisition of GenCorp RPD, the
APX Acquisition, the Eagle-Picher Acquisition, the Goodyear Acquisition, the
Owens-Corning Brazil Acquisition and the Livingston Acquisition. During 1997
Holdings and the Company paid JRH&W legal fees of approximately $1.9 million.
SUBORDINATED NOTES AND WARRANT AGREEMENTS
In connection with the 1995 Transaction, the Company obtained a bridge loan
in the aggregate principal amount of $11.9 million from Bankers Trust. On
December 14, 1995, the notes evidencing this bridge loan were repurchased from
Bankers Trust by the Company using, inter alia, the proceeds received from
issuance of the Company's senior subordinated notes to two of the Bain Funds,
Bain Capital V Mezzanine Fund, L.P. and BCIP Trust Associates, L.P.
(collectively the "Bain MezFunds"). The Company's senior subordinated notes
issued to the Bain MezFunds bear interest at 12% and mature in November 2005.
Interest is due semi-annually, beginning on April 30, 1996. Voluntary
prepayment or mandatory prepayment in the case of a Change in Control (as
defined therein) bears a prepayment premium beginning at 12% and declining
annually. Prepayments are required to the extent permitted by the Credit
Agreement, upon the occurrence of an Asset Sale. Casualty Event (each as
defined therein) or Change in Control. To the extent the Bain MezFunds receive
any prepayments, they are obligated to use such prepayments to purchase
Holdings' Senior Subordinated Notes. See "Business--GenCorp RPD." The
Company's senior subordinated notes are subordinated to the Company's senior
debt, including indebtedness under the Credit Agreement. The credit agreement
related to the Company's Senior subordinated notes contains covenants similar
to, but less onerous than, those in the Credit Agreement.
35
In connection with the issuance of the Company's senior subordinated notes,
Holdings entered into a warrant agreement with the Bain MezFunds pursuant to
which the Bain MezFunds purchased warrants exercisable for an aggregate of
4,723.01 shares of Class A Common at an exercise price of $3.30 per share and
1,180.75 shares of Class L Common at an exercise price of $1,306.80 per share.
The warrants are exercisable immediately, provide for anti-dilution rights
upon the occurrence of certain events and are entitled to all dividends
distributed by Holdings on an as if exercised basis.
In connection with the Company's acquisition of GenCorp RPD, Holdings issued
the Holdings' Junior Subordinated Notes in the aggregate principal amount of
$5.1 million to the Bain MezFunds and Crawford LLC. Crawford LLC subsequently
sold its notes to the Bain MezFunds. The terms of these notes are
substantially similar to the terms of those issued under the Company's senior
subordinated notes, but they are subordinated to indebtedness under the Credit
Agreement, Holdings' senior subordinated notes and the Company's senior
subordinated notes.
In connection with the issuance of Holdings' junior subordinated notes,
Holdings entered into a warrant agreement with the Bain MezFunds and Crawford
LLC pursuant to which the Bain MezFunds and Crawford LLC purchased warrants
exercisable for an aggregate of 2,160.27 shares of Class A Common at an
exercise price of $3.30 per share and 540.07 shares of Class L Common at an
exercise price of $1,306.80 per share. The warrants are exercisable
immediately, provide for anti-dilution rights upon the occurrence of certain
events and are entitled to all dividends distributed by Holdings on an as if
exercised basis. Crawford LLC subsequently sold its warrants to the Bain
MezFunds in connection with the sale of its Holdings' Junior Subordinated
Notes to the Bain MezFunds.
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report.
1.Financial Statements referred to in Item 8.
2.Financial Statement Schedules referred to in Item 8.
3. The exhibits listed on the "Index to Exhibits" on pages I-1 and I-2
are filed with this Annual Report or incorporated by reference as
set forth below.
(b) The following reports on Form 8-K were filed during the quarter ended
December 31, 1997.
None.
(c) The exhibits listed on the "Index to Exhibits" on pages I-1 and I-2 are
filed with this Annual Report or incorporated by reference as set forth
below.
(d) Additional Financial Statement Schedules.
None.
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Cambridge Industries, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Cambridge Industries, Inc. and
its subsidiaries at December 31, 1997, and the results of their operations and
their cash flows for the year then ended, 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.
The consolidated financial statements of Cambridge Industries, Inc. and its
subsidiaries for the years ended December 31, 1996 and 1995 were audited by
other independent accountants whose report dated March 28, 1997 expressed an
unqualified opinion on those statements.
PRICE WATERHOUSE LLP
Bloomfield Hills, Michigan
March 30, 1998
F-1
INDEPENDENT AUDITORS' REPORT
Cambridge Industries, Inc.
We have audited the accompanying consolidated balance sheet of Cambridge
Industries, Inc. and subsidiaries ( the "Company"), as of December 31, 1996,
and the related consolidated statements of operations and of cash flows for
the years ended December 31, 1996 and 1995. These consolidated 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Cambridge Industries, Inc.
and subsidiaries as of December 31, 1996 and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Detroit, Michigan
March 28, 1997
F-2
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------
1997 1996
-------- --------
ASSETS
Current assets
Cash..................................................... $ 3,788 $ 11,942
Receivables.............................................. 82,117 48,985
Inventories.............................................. 25,111 21,297
Reimbursable tooling costs............................... 16,913 17,674
Income tax refundable.................................... 2,555 3,270
Deferred income taxes and other.......................... 12,108 6,571
-------- --------
Total current assets................................... 142,592 109,739
Property, plant and equipment, net......................... 197,635 133,324
Other assets............................................... 29,257 19,167
-------- --------
Total assets........................................... $369,484 $262,230
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current portion of long-term debt........................ $ 7,765 $ 9,080
Accounts payable......................................... 48,759 38,028
Accrued liabilities...................................... 37,691 25,102
-------- --------
Total current liabilities.............................. 94,215 72,210
Noncurrent liabilities
Long-term debt (including related party amount of $16,480
at December 31, 1996)................................... 314,789 224,112
Workers' compensation.................................... 1,251 968
Postretirement healthcare benefits....................... 20,669 15,164
Other noncurrent liabilities............................. 3,365 2,244
Deferred income taxes.................................... 7,689 9,673
-------- --------
Total liabilities...................................... 441,978 324,371
-------- --------
Commitments and contingencies (Note 15)
Stockholder's deficit
Common stock, $.01 par value, 3,000 shares authorized,
1,000 shares issued and outstanding.....................
Paid-in capital.......................................... 17,539 17,539
Unrealized foreign currency translation.................. (225) (87)
Accumulated deficit...................................... (89,808) (79,593)
-------- --------
Total stockholder's deficit............................ (72,494) (62,141)
-------- --------
Total liabilities and stockholder's deficit............ $369,484 $262,230
======== ========
See notes to consolidated financial statements
F-3
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
Sales............................................. $426,094 $346,026 $297,746
Cost of sales..................................... 367,037 294,742 253,893
-------- -------- --------
Gross profit...................................... 59,057 51,284 43,853
Selling, general and administrative expenses...... 31,742 26,240 17,678
-------- -------- --------
Income from operations............................ 27,315 25,044 26,175
Other expense (income)
Interest expense................................ 28,036 23,190 12,388
Other, net...................................... (56) 180 (746)
-------- -------- --------
Income (loss) before income tax and extraordinary
item............................................. (665) 1,674 14,533
Income tax expense (benefit)...................... (238) 565 5,410
-------- -------- --------
Income (loss) before extraordinary item........... (427) 1,109 9,123
Extraordinary loss, net of income tax benefit of
$5,465 and $2,712 in 1997 and 1995,
respectively..................................... 9,788 4,426
-------- -------- --------
Net income (loss)................................. $(10,215) $ 1,109 $ 4,697
======== ======== ========
See notes to consolidated financial statements.
F-4
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
Cash flows from operating activities
Income (loss) before extraordinary item....... $ (427) $ 1,109 $ 9,123
Adjustments to reconcile income (loss) before
extraordinary item to net cash provided by
(used in) operating activities
Depreciation and amortization............... 24,082 21,319 16,715
Postretirement benefit expenses, net of cash
payments................................... 2,229 2,211 960
Deferred income tax provision (benefit)..... (3,148) 1,015 (1,100)
Changes in assets and liabilities, excluding
the effect of acquisitions
Receivables............................... (23,723) (16,950) 20,604
Inventories............................... 2,351 (1,744) 1,065
Reimbursable tooling costs................ 7,297 2,710 3,352
Accounts payable and accrued liabilities.. 11,192 (12,121) (17,213)
Income tax refundable..................... 2,140 2,733 537
Other..................................... (6,186) (4,432) (255)
--------- -------- ---------
Net cash provided by (used in) operating
activities............................. 15,807 (4,150) 33,788
--------- -------- ---------
Cash flows from investing activities
Acquisitions, net of cash acquired............ (72,434) (18,160)
Purchases of property, plant and equipment.... (17,509) (9,630) (10,646)
--------- -------- ---------
Net cash used in investing activities... (89,943) (27,790) (10,646)
--------- -------- ---------
Cash flows from financing activities
Net borrowings from revolving debt............ 11,500 13,000 5,000
Principal payments on capital lease
obligations.................................. (244)
Proceeds from issuance of long-term debt...... 305,000 73,178 176,620
Repayment of long-term debt................... (233,712) (48,363) (130,450)
Cost of debt and equity financing............. (16,424) (2,907) (14,573)
Distribution to stockholder................... (70,339)
Contribution from stockholder................. 275 18,200
--------- -------- ---------
Net cash provided by (used in) financing
activities............................. 66,120 35,183 (15,542)
--------- -------- ---------
Effect of foreign currency rate fluctuations
on cash...................................... (138) 37 (58)
--------- -------- ---------
Net increase (decrease) in cash............... (8,154) 3,280 7,542
Cash at beginning of period................... 11,942 8,662 1,120
--------- -------- ---------
Cash at end of period......................... $ 3,788 $ 11,942 $ 8,662
========= ======== =========
See notes to consolidated financial statements.
F-5
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Cambridge Industries, Inc. and its subsidiaries (collectively, the Company)
are engaged primarily in the manufacture of plastic molded systems and
subassemblies for the North American transportation industry. The Company
operates facilities in the United States, Canada and Brazil. The Company is
wholly-owned by Cambridge Industries Holdings, Inc. (Holdings), which has no
significant assets other than its investment in the Company.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
balances of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
REVENUE AND ACCOUNTS RECEIVABLE
Sales, net of estimated returns and allowances, and costs of sales are
recorded upon shipment of product to customers and transfer of title under
standard commercial terms. Three of the Company's customers each accounted for
over 10% of sales in 1997, 1996 and 1995. Sales to these customers as a group
totaled approximately 62%, 68% and 73% in 1997, 1996 and 1995, respectively.
Sales to these customers individually ranged from 10% to 31% during those
periods.
All of the Company's accounts receivable are due from a limited number of
customers in the automotive and truck manufacturing industry. Consistent with
industry practice, such receivables are not collateralized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term, highly-
liquid investments with original maturities of 90 days or less when purchased.
INVENTORIES
Inventories are stated at the lower of cost or market, as determined under
the first-in, first-out method.
REIMBURSABLE TOOLING COSTS
Reimbursable tooling costs are stated at amounts which management expects to
recover under customer agreements. Unrecoverable tooling costs are charged to
cost of sales when estimated aggregate costs exceed amounts considered
collectible. Excess reimbursements on tooling projects are recognized when the
tooling project is substantially complete.
F-6
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PROPERTY AND EQUIPMENT
Property is stated at cost and is depreciated under the straight-line method
over the estimated useful lives of such assets. Estimated service lives are as
follows:
YEARS
-----
Leasehold improvements................................................. 5-13
Buildings.............................................................. 5-40
Machinery and equipment................................................ 3-11
Company-owned tooling.................................................. 3-5
Furniture and fixtures................................................. 2-11
Significant renewals and betterments are capitalized, while maintenance and
repair expenditures are charged against operations.
GOODWILL
The Company recognizes goodwill on purchase business combinations for the
amount by which the purchase price exceeds the fair value of the assets
acquired and liabilities assumed. Goodwill is amortized on a straight-line
basis over 15-25 years.
IMPAIRMENT
Property, equipment and goodwill are reviewed for impairment whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable. In performing the review for recoverability, the Company
estimates the future undiscounted cash flows expected to result from the use
of the assets and their eventual disposition. Any impairment loss recognized
is measured as the amount by which the carrying amount of the asset exceeds
its fair value. As of December 31, 1997 and 1996, no significant impairment
exists.
ACCRUED COMMITMENTS UNDER LOSS CONTRACTS
Accrued commitments under loss contracts are recorded based on management's
estimate of the future profitability of sales contracts. The Company evaluates
the profitability of its sales contracts on a vehicle platform basis, which is
consistent with the measures utilized by management in monitoring the
Company's operations. A vehicle platform represents one or more vehicles
produced by one manufacturer utilizing common basic engineering and design
features and common components. The Company records a reserve for loss
contracts when management's estimate of expected costs exceeds the related
estimated revenues.
WORKERS' COMPENSATION
The Company records as workers' compensation expense the estimated cost, not
reimbursable under insurance contracts, of settling such claims. Accruals for
workers' compensation claims for which the Company is self-insured are
estimated from historical claims experience using computations of the
estimated ultimate settlement cost, including claims incurred but not yet
reported.
INCOME TAXES
The Company provides deferred taxes on temporary differences between the
book and tax bases of assets and liabilities. The Company assesses the
realizability of deferred tax assets and records a valuation allowance when
realization of deferred tax assets is not considered more likely than not.
F-7
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FINANCIAL INSTRUMENTS
The Company carries its financial instruments, which include accounts
receivable, accounts payable and indebtedness, at cost which approximates fair
value.
ENVIRONMENTAL CLAIMS
The Company periodically evaluates the existence of contingent obligations
related to environmental claims and clean-up costs, including claims related
to Superfund sites where it may be identified as a potentially responsible
party. Accruals are established whenever such obligations are considered
probable, which would normally occur when a specific claim is asserted and a
preliminary investigation is performed. The Company's accruals for
environmental claims were not significant at December 31, 1997 and 1996.
Additional environmental claims considered reasonably possible by the Company
totaled approximately $750 and $1,000 at December 31, 1997 and 1996,
respectively.
STOCK COMPENSATION
The Company accounts for stock-based compensation expense using the
intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (FAS) No. 123, "Accounting for
Stock-Based Compensation," which defines a fair value method of accounting for
stock options and other equity instruments. In determining the fair value of
stock options issued, the Company uses a risk-free rate, which approximates
the rate on U.S. Treasury obligations with similar duration, and expected
lives based on the provisions of the option agreements. As Holdings' stock
currently does not include a dividend, dividend payments are not included in
fair value determinations.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes costs associated with the development and
implementation of software obtained or developed for internal use. Capitalized
costs include internal payroll and payroll-related costs for employees who are
directly associated with implementation programs, and related external costs.
Capitalized costs totaled $986 and $200 at December 31, 1997 and 1996,
respectively. Upon project completion, capitalized costs are amortized over a
three-year useful life.
In November 1997, the Company changed its accounting for business process
reengineering costs, as required by the consensus of the Emerging Issues Task
Force on issue 97-13. The Company recorded a pre-tax charge of $483 to write-
off previously capitalized reengineering costs to recognize the cumulative
effect of this change in accounting principle. The Company has included this
charge in selling, general and administrative expenses.
SUPPLEMENTAL CASH FLOW DISCLOSURES
Income taxes paid totaled $1,340, $1,032 and $5,546 in 1997, 1996 and 1995,
respectively; interest payments totaled $20,113, $20,828 and $13,119 in these
periods, respectively.
In 1997, the Company entered into a capital lease covering certain computer
equipment and assumed capital lease obligations in conjunction with an
acquisition; these obligations totaled $898. The Company also issued a note
payable of $5,400 to the sellers in connection with its purchase of OC-Brazil
(as defined).
F-8
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
RECLASSIFICATIONS
Certain reclassifications have been made to prior-year financial statements
to conform to 1997 presentation.
2. ACQUISITIONS
Effective July 1, 1997, the Company acquired certain net assets of the
engineered composite business (Goodyear-Jackson) of The Goodyear Tire & Rubber
Company, and certain net assets of the plastics division (Eagle-Picher) of
Eagle-Picher Industries, Inc., for $38,219 and $32,035, respectively,
including acquisition costs. The Company accounted for these acquisitions
under the purchase method. The Company's operating results include Goodyear-
Jackson and Eagle-Picher from July 1, 1997.
A summary of the Company's purchase price allocation for the Goodyear-
Jackson and Eagle-Picher acquisitions follows:
GOODYEAR- EAGLE-
JACKSON PICHER
--------- --------
Receivables............................................. $ 41 $ 9,027
Inventories............................................. 1,796 4,328
Reimbursable tooling costs (advances)................... 8,131 (421)
Deferred income taxes and other assets.................. 2,115 5,026
Property, plant and equipment........................... 26,520 33,634
Other assets............................................ 3,823
Goodwill................................................ 5,362
Accounts payable........................................ (2,678) (2,458)
Accrued liabilities..................................... (6,891) (12,477)
Deferred income tax liability........................... (4,624)
-------- --------
Net assets acquired................................... $ 38,219 $ 32,035
======== ========
The purchase price allocation for Goodyear-Jackson is preliminary and
subject to change after completion of valuations of certain acquired assets
and liabilities, and management's evaluations of such information. Management
does not anticipate material changes from its preliminary allocation.
During 1997, the Company also completed acquisitions of certain net assets
of the production molded composites division of Aero-Detroit, Inc. (PMC), and
the molded plastics and pultrusion operations of a Brazilian subsidiary of
Owens-Corning (OC-Brazil), for aggregate purchase price of approximately
$8,000, including acquisition costs. The Company accounted for these
acquisitions using the purchase method. The operating results and acquired
assets of PMC and OC-Brazil are not material.
Effective March 1, 1996, the Company acquired certain assets and assumed
certain liabilities of the Reinforced Plastics Division of GenCorp., Inc.
(GenCorp RPD). The transaction was accounted for as a purchase. The total
purchase price was $33,482, which consisted of $18,200 of cash, a note payable
of $13,700 and acquisition costs of $1,582. An adjustment to the purchase
price is currently the subject of ongoing negotiation (Note 15); future
adjustments to the estimated settlement of this matter will be included as a
component of operations in the period in which such adjustments are
determinable. The Company's operating results include GenCorp RPD from March
1, 1996.
F-9
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of the purchase price allocation to the assets acquired and
liabilities assumed follows:
Inventories........................................................ $ 2,549
Reimbursable tooling costs......................................... 5,258
Property, plant and equipment...................................... 63,598
Accounts payable................................................... (5,128)
Accrued commitments under acquired contracts....................... (25,191)
Accrued compensation and other liabilities......................... (5,004)
Other postretirement benefits...................................... (2,600)
--------
Net assets acquired.............................................. $ 33,482
========
Contemporaneously with the acquisition, the Company terminated certain
former employees of GenCorp RPD; the Company accrued in purchase accounting
$1,780 in termination costs, substantially all of which were disbursed in
1996.
The following unaudited pro forma information presents certain operating
data calculated to give pro forma effect to the acquisitions of PMC, Goodyear-
Jackson, Eagle-Picher, OC-Brazil and GenCorp RPD, as if the acquisitions had
taken place at the beginning of such periods.
YEARS ENDED
DECEMBER 31,
------------------
1997 1996
-------- --------
(UNAUDITED)
Sales..................................................... $499,427 $519,702
Income before extraordinary item.......................... (100) 2,218
Net income (loss)......................................... (9,922) 2,218
Such pro forma data do not purport to represent what actual operating
results would have been if the acquisitions had been consummated on the dates
indicated or what such results will be for any future period.
Subsequent to December 31, 1997, the Company completed the acquisition of
substantially all of the operating assets of Livingston, Inc. for $2,150,
subject to post-closing adjustment.
3. RECEIVABLES
A summary of receivables at December 31 follows:
1997 1996
------- -------
Trade accounts............................................. $85,017 $51,777
Other...................................................... 154 1,129
------- -------
Total.................................................... 85,171 52,906
Less--allowance for doubtful accounts...................... (3,054) (3,921)
------- -------
Receivables, net........................................... $82,117 $48,985
======= =======
F-10
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. INVENTORIES
A summary of inventories at December 31 follows:
1997 1996
------- -------
Finished goods........................................... $10,811 $ 6,023
Work-in-process.......................................... 6,598 4,724
Raw materials............................................ 6,773 8,299
Supplies................................................. 2,152 3,401
------- -------
Total.................................................. 26,334 22,447
Less--allowance for obsolescence and lower of cost or
market reserve.......................................... (1,223) (1,150)
------- -------
Inventories, net......................................... $25,111 $21,297
======= =======
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31 follows:
1997 1996
-------- --------
Land and land improvements............................... $ 5,409 $ 3,837
Buildings and building improvements...................... 44,094 36,489
Machinery, equipment and tooling......................... 188,589 130,061
Furniture and fixtures................................... 6,420 4,597
Construction in progress................................. 19,575 2,572
-------- --------
Total.................................................. 264,087 177,556
Less--accumulated depreciation........................... (66,452) (44,232)
-------- --------
Property, plant and equipment, net....................... $197,635 $133,324
======== ========
6. OTHER ASSETS
A summary of other assets at December 31 follows:
1997 1996
------- -------
Deferred financing costs (net of accumulated amortization
of $978 and $2,434)...................................... $13,610 $13,899
Goodwill (net of accumulated amortization of $1,082 and
$749).................................................... 9,006 3,883
Prepaid pension costs..................................... 537 600
Favorable lease agreement (net of accumulated amortization
of $90).................................................. 3,733
Other..................................................... 2,371 785
------- -------
Other assets.............................................. $29,257 $19,167
======= =======
F-11
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. ACCRUED LIABILITIES
A summary of accrued liabilities at December 31 follows:
1997 1996
------- -------
Payroll and employee benefit related......................... $10,727 $ 8,760
Accrued commitments under acquired contracts................. 6,418 8,910
Accrued interest............................................. 8,262 2,280
Other........................................................ 12,284 5,152
------- -------
Accrued liabilities.......................................... $37,691 $25,102
======= =======
8. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
1997 1996
-------- --------
Revolving lines of credit.............................. $ 11,500 $ 28,000
Term loans............................................. 205,000 174,962
Senior subordinated notes due 2007..................... 100,000
Notes payable for acquisition.......................... 5,400
Senior subordinated note payable....................... 13,750
Subordinated notes payable, net of unamortized discount
of $520............................................... 16,480
Capital leases......................................... 654
-------- --------
Total................................................ 322,554 233,192
Less--current portion.................................. (7,765) (9,080)
-------- --------
Long-term debt....................................... $314,789 $224,112
======== ========
On July 10, 1997, the Company retired all previously outstanding debt with
the proceeds of issuance of $100,000 in senior subordinated notes (the Notes)
and borrowings under a new credit agreement (the Credit Agreement), comprising
$205,000 in term loans and $2,500 in draws under a revolving line of credit.
As a result of the refinancing, the Company recorded an extraordinary item of
$9,788 (net of tax), reflecting the write-off of deferred financing costs,
unamortized discount and other costs upon early extinguishment of debt.
The Notes bear interest at 10.25% and mature in 2007. The new Credit
Agreement provides for maximum borrowings of $280,000, consisting of $205,000
in two term loans (in principal amounts of $70,000 and $135,000) and $75,000
under a revolving credit facility. The term loans mature on the fifth and
eighth anniversaries of the Credit Agreement, respectively, and the revolving
credit facility matures on the fifth anniversary of the Credit Agreement.
Interest on borrowings under the Credit Agreement is calculated at an
increment over a defined base rate. At December 31, 1997, the interest rates
on the term loans were 8.3% and 8.8%, respectively; the interest rate on the
revolving credit facility was 10.0%. The line of credit includes a commitment
fee on the average unused balance of the commitment. This fee ( 1/2 of 1% at
December 31, 1997) varies based upon the company's leverage ratio.
Indebtedness under the Credit Agreement is collateralized by substantially
all assets of the Company, a pledge of intercompany notes and a pledge of
certain stock of the Company's subsidiaries. The Notes are guaranteed by the
Company's parent and the Company's domestic subsidiaries. (See Note 16.) The
Notes are subordinated to the Company's obligations under the Credit
Agreement.
F-12
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Credit Agreement includes covenants requiring the Company to maintain
(i) minimum levels of consolidated EBITDA (earnings before interest, taxes,
depreciation and amortization), (ii) minimum interest coverage ratios, and
(iii) maximum leverage ratios. The Credit Agreement also contains covenants
limiting capital expenditures, additional indebtedness, dividends,
transactions with affiliates, acquisitions and asset sales, prepayments of
indebtedness and liens.
The notes payable for acquisition at December 31, 1997 represent amounts due
to the former owner of OC-Brazil. A portion of the notes bears interest at a
variable rate (8.8% at December 31, 1997). Borrowings under these notes are
secured by the assets of OC-Brazil. The notes are payable in installments that
are calculated based upon the earnings of OC-Brazil.
At December 31, 1996, the Company had borrowings of $28,000 on its previous
$35,000 revolving line of credit, at a variable interest rate of 9.4%.
Borrowings under the line were secured by substantially all the assets of the
Company. The previous line of credit included a commitment fee of 1/2 of 1% of
the average unused balance of the commitment. Borrowings under the previous
line of credit were repaid in connection with the 1997 refinancing described
above.
The term loans at December 31, 1996 were divided into four separate
commitments (A, B, C and D) and secured by all assets of the Company.
Substantially all of the term loans carried interest at a Eurodollar-based
lending rate (5.63% at December 31, 1996) plus 2.75%, 3.25%, 3.75% and 4.00%
for the A, B, C and D commitments, respectively. The term loans were repaid in
connection with the 1997 refinancing described above.
The senior subordinated note payable at December 31, 1996 represented
amounts due from Holdings to the former owner of GenCorp RPD. This note bore
interest at 8% annually. The subordinated notes payable at December 31, 1996
represented amounts due from Holdings or the Company to certain shareholders
of Holdings. These notes were due in November 2005 and bore interest at 12%
annually. Borrowings under the senior subordinated and the subordinated notes
payable were repaid in connection with the 1997 refinancing described above.
The annual maturities of long-term debt, including principal payments on
capital leases, at December 31, 1997 are as follows:
YEAR ENDING
DECEMBER 31,
------------
1998............................................................... $ 7,765
1999............................................................... 14,636
2000............................................................... 16,873
2001............................................................... 21,430
2002............................................................... 45,500
Thereafter......................................................... 216,350
--------
$322,554
========
As part of a refinancing that occurred in 1995, the Company recorded an
extraordinary item of $4,426 (net of tax), reflecting the write-off of
deferred financing and other costs upon early extinguishment of debt.
F-13
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. PENSION BENEFITS
The Company sponsors 401(k) retirement plans for substantially all of its
employees, which allow employees to contribute up to a specified percentage of
their compensation into tax deferred accounts. The Company recorded expense
for its contributions to these plans of $932, $303 and $213 in 1997, 1996 and
1995, respectively.
The Company has noncontributory defined benefit pension plans covering
eligible employees of two of its plants. Pension plan benefits are based on
participants' years of credited service. The Company's policy is to fund the
minimum required annual contribution to the plans. Plan assets generally
consist of mutual funds. The components of net periodic pension cost relating
to the defined benefit pension plans are summarized below:
1997 1996 1995
---- ---- ----
Service cost on benefits earned during the year............ $930 $830 $414
Interest cost on projected benefit obligation.............. 143 85 46
Actual earnings on plan assets............................. (316) (153) (12)
Net amortization and deferral.............................. 48 111 47
---- ---- ----
Net periodic pension cost.................................. $805 $873 $495
==== ==== ====
The actuarial present value of benefit obligations and funded status for the
defined benefit pension plans are summarized below:
1997 1996
------ ------
Actuarial present value of benefit obligations
Vested benefit obligation................................... $2,350 $1,454
Nonvested benefit obligation................................ 693 472
------ ------
Accumulated and projected benefit obligation.................. 3,043 1,926
Plan assets at fair value..................................... 3,335 2,299
------ ------
Excess of plan assets over projected benefit obligation....... 292 373
Unrecognized prior service cost............................... 10 10
Unrecognized net loss......................................... 235 217
------ ------
Accrued pension asset......................................... $ 537 $ 600
====== ======
The discount rate used in developing the projected benefit obligations was
7.25% at December 31, 1997 and 1996. The expected long-term rate of return on
plan assets was assumed to be 10% as of December 31, 1997 and 1996.
10. POSTRETIREMENT HEALTHCARE BENEFITS
The Company provides postretirement healthcare and prescription drug
benefits to a limited number of current retirees; certain active hourly
employees and their covered dependents may become eligible for these benefits,
although the Company does not necessarily have a legal obligation to provide
benefits to all such participants. The Company recognizes the estimated cost
of providing such benefits over the service lives of the covered employees.
Postretirement benefits provided by the Company are unfunded.
F-14
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the Company's accrued postretirement benefit
obligation at December 31:
1997 1996
------- -------
Retirees.................................................... $ 6,298 $ 5,942
Fully-eligible active plan participants..................... 1,707 1,398
Other active plan participants.............................. 18,067 12,740
------- -------
Accumulated postretirement benefit obligation............... 26,072 20,080
Unamortized net loss........................................ 5,403 4,916
------- -------
Accrued postretirement benefit obligation................... $20,669 $15,164
======= =======
The components of periodic postretirement benefit cost were as follows:
1997 1996 1995
------ ------ ------
Service cost........................................... $1,188 $1,132 $ 518
Interest cost.......................................... 1,582 1,288 638
Amortization of unrecognized net loss.................. 162 190
------ ------ ------
Net periodic postretirement benefit cost............... $2,932 $2,610 $1,156
====== ====== ======
The Company assumed a weighted average annual rate of increase in the per
capita cost of covered healthcare benefits of 9.8% in 1997, declining to 5.0%
in 2004 and remaining at that level thereafter. A one percentage point
increase each year in the assumed healthcare cost trend rate would increase
the accumulated postretirement benefit obligation at December 31, 1997 by
12.95% and the service and interest cost components of net periodic
postretirement benefit cost for 1997 by 11.82%. The Company assumed a discount
rate of 7.25% at December 31, 1997 and 1996.
11. INCOME TAXES
The income tax provision (benefit) for 1997, 1996 and 1995 consists of the
following components:
1997 1996 1995
------ ------ -------
Current provision (benefit)......................... $2,910 $ (450) $ 6,510
Deferred provision (benefit)........................ (3,148) 1,015 (1,100)
------ ------ -------
Income tax expense (benefit)........................ $ (238) $ 565 $ 5,410
====== ====== =======
A reconciliation of the Company's statutory and effective income tax rates
follows:
1997 1996 1995
---- ---- ----
Applicable statutory rate.................................... 34% 34% 34%
State income taxes........................................... 2 3 5
Net operating loss utilization in foreign jurisdiction....... (2)
Other........................................................ (3)
--- --- ---
Effective tax rate........................................... 36% 34% 37%
=== === ===
F-15
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The components of the Company's deferred asset and liabilities at December
31 are as follows:
1997 1996
--------------------- ---------------------
DEFERRED DEFERRED DEFERRED DEFERRED
INCOME TAX INCOME TAX INCOME TAX INCOME TAX
ASSET LIABILITY ASSET LIABILITY
---------- ---------- ---------- ----------
Property, plant and equipment,
net........................... $ -- $21,952 $ -- $16,656
Accrued liabilities............ 8,130 7,079
Postretirement healthcare
benefits...................... 7,709 3,783
Alternative minimum tax credit
carryforwards................. 733 2,162
Net operating loss
carryforwards................. 6,447
Other.......................... 2,311 951 71 845
------- ------- ------- -------
Total........................ $25,330 $22,903 $13,095 $17,501
======= ======= ======= =======
The Company has net operating loss carryforwards with potential future tax
benefits of $5,730 for federal income tax purposes and $717 for state income
tax purposes at December 31, 1997. The federal net operating losses expire in
2018 and the state net operating losses expire during the years 2013 through
2018. In addition, the Company has alternative minimum tax credit
carryforwards aggregating $733 at December 31, 1997, which can be carried
forward indefinitely.
If the Company experiences a change in ownership within the meaning of
Section 382 of the Internal Revenue Code, an annual limitation could be placed
upon the Company's ability to realize the benefits of its net operating loss
carryforwards.
12. STOCKHOLDER'S DEFICIT
A summary of the changes in the Company's stockholder's deficit accounts
follows:
COMMON UNREALIZED MINIMUM
STOCK FOREIGN PENSION
$.01 PAR PAID-IN CURRENCY LIABILITY ACCUMULATED
VALUE CAPITAL TRANSLATION ADJUSTMENTS DEFICIT TOTAL
-------- ------- ----------- ----------- ----------- --------
December 31, 1994....... $-- $ 1,600 $ 96 $ -- $(16,449) $(14,753)
Contribution by
stockholder relating
to issuance of stock
and warrants.......... 17,264 17,264
Net income............. 4,697 4,697
Translation
adjustments........... (220) (220)
Minimum pension
liability
adjustments........... (277) (277)
Distribution to
stockholder........... (1,600) (68,950) (70,550)
---- ------- ----- ----- -------- --------
December 31, 1995....... -- 17,264 (124) (277) (80,702) (63,839)
Contribution by
stockholder relating
to issuance of
warrants.............. 275 275
Net income............. 1,109 1,109
Translation
adjustments........... 37 37
Minimum pension
liability
adjustments........... 277 277
---- ------- ----- ----- -------- --------
December 31, 1996....... -- 17,539 (87) -- (79,593) (62,141)
Net loss............... (10,215) (10,215)
Translation
adjustments........... (138) (138)
---- ------- ----- ----- -------- --------
December 31, 1997....... $-- $17,539 $(225) $ -- $(89,808) $(72,494)
==== ======= ===== ===== ======== ========
The accumulated deficit at January 1, 1995 resulted from distributions to
stockholders of $29,817 during 1994.
F-16
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Each of the 1,000 shares of common stock outstanding of the Company is owned
by Holdings. The following summarizes the rights of the various classes of the
Holdings' preference and common stock.
PREFERENCE STOCK
Preference stock, which is nonvoting, contains a liquidation premium equal
to $18,150 per share, plus a yield equal to 9.1% per year of such liquidation
amount, measured from December 1995. Such liquidation amount is payable upon
liquidation, sale of the Company, or upon the completion of an initial public
offering of Holdings' common stock. There were 1,000 shares of preference
stock outstanding at December 31, 1997 and 1996.
CLASS P COMMON STOCK
Class P common stock is voting stock, which includes a liquidation
preference equal to $250 per share, if the Company's net sales exceed $505,000
for any previous year or $125 per share, if the Company's net sales exceed
$405,000 for any previous year. Class P common stock has no liquidation
preference if neither of these conditions is achieved. There were 45,000
shares of Class P common stock outstanding at December 31, 1997 and 1996.
CLASS L COMMON STOCK
Class L common stock is voting stock, which includes a liquidation
preference equal to $1,307 per share plus a 10% yield per year on such
liquidation amount measured from December 1995. There were 25,667 shares and
25,000 shares of Class L common stock issued and outstanding at December 31,
1997 and 1996, respectively.
CLASS A COMMON STOCK
Class A common stock is voting stock, but contains no liquidation
preference. There were 57,667 and 55,000 shares of Class A common stock issued
and outstanding at December 31, 1997 and 1996, respectively.
The rights and obligations of the holders of these classes of stock are
governed by a stockholders' agreement, which provides for the election of
directors and officers, a right of first refusal in the sales of shares, and
other provisions which allow particular groups of shareholders to require a
sale of the Company after March 31, 1998.
During 1997, Holdings entered into agreements with certain officers and key
employees of the Company pursuant to which the employees purchased 2,667
shares and 667 shares of Class A and Class L common stock, respectively, for
an aggregate purchase price of $880. The employees executed full recourse
promissory notes for the purchase price of the stock. Shares purchased under
these agreements vest in 20% increments annually. Upon termination of
employment, the Company, at its option, may repurchase vested shares for fair
value and unvested shares for the lower of original cost or fair value.
In 1996, warrants were issued to certain shareholders and lenders to acquire
2,160 shares of Holdings' Class A common stock at $3.30 per share and 540
shares of Holdings' Class L common stock at $1,307 per share. The warrants are
exercisable through November 2005. The fair value of the warrants was recorded
as an increase to additional paid-in capital during the year.
In 1995, warrants were issued to certain lenders to acquire 2,672 shares of
Holdings' Class A common stock at par value, 4,723 shares of Holdings' Class A
common stock for $3.30 per share and 1,181 shares of Holdings'
F-17
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Class L common stock for $1,307 per share. Such warrants can be exercised
through November 2005. The fair value of the warrants was recorded as an
increase to additional paid-in capital during the year.
13. STOCK-BASED COMPENSATION
Holdings is authorized to grant options to the Company's executive officers
at the discretion of the Board of Directors up to the authorized number of
shares for Holdings. The exercise price, vesting schedule and maximum term of
options granted are set by the Board of Directors. The Company recognizes
compensation cost (if any) for options and other stock-based compensation
granted by Holdings to the Company's employees. The Company's compensation
cost with respect to grants under the stock-based compensation program was not
significant; compensation cost calculated in accordance with FAS 123 is also
not material.
For purposes of FAS 123 disclosures, the Company estimates the fair value of
each option grant on the date of grant using the minimum value option-pricing
method with the following weighted-average assumptions used for grants in
1997, 1996, and 1995: dividend yield rate of zero, as Holdings does not pay
dividends on its common stock, risk-free interest rates of approximately
6.00%, representing rates on U.S.Treasury obligations with similar duration,
and an expected life of 5 years.
A summary of option activity for 1997, 1996 and 1995, follows:
1997 1996 1995
---------------- ---------------- ----------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
Outstanding at beginning
of year................ 15,845 $240.21 15,845 $240.21 -- $ --
Granted................. 4,300 405.22 15,845 240.21
Exercised...............
Forfeited or expired....
------ ------- ------ ------- ------ -------
Outstanding at end of
year................... 20,145 $275.43 15,845 $240.21 15,845 $240.21
====== ======= ====== ======= ====== =======
Exercisable at year
end.................... 6,439 2,614 --
Weighted average fair
value of options
granted during the
year................... $ 0.81 $ -- $ 0.93
The following table summarizes information about stock options outstanding
at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
$ 3.30 10,073 7.4 $ 3.30 5,873 $ 3.30
312.13 3,961 8.0 312.13 312.13
642.13 5,036 7.4 642.13 283 642.13
972.13 1,075 5.0 972.13 283 972.13
F-18
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. RELATED PARTY TRANSACTIONS
Management and advisory services are provided by an affiliate of certain
shareholders of Holdings, under an agreement which requires an annual fee of
$950, plus certain other contingent fees. Total fees charged to the Company by
such affiliate during 1997, 1996 and 1995 were approximately $6,475, $1,350
and $3,105, respectively.
Certain legal services were provided by an affiliate of a director of the
Company. Total fees charged to the Company by such affiliate were
approximately $1,900 and $1,600 in 1997 and 1996, respectively. The Company
also leases certain equipment from an affiliate of Holdings; total fees
charged to the Company by such affiliate were approximately $250 in 1997.
As discussed in Note 8, notes payable were due to certain current and former
shareholders of Holdings at December 31, 1996. In addition, a $413 fee was
paid to a shareholder and officer of Holdings in connection with the GenCorp
Acquisition.
15. COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into equipment leases which are classified
as capital leases. Assets under capital leases at December 31, 1997 are as
follows:
Equipment.............................................................. $898
Accumulated amortization............................................... (271)
----
$627
====
The Company leases certain equipment and plant facilities under
noncancellable operating leases. Rental expense for the Company totaled
approximately $4,383, $2,385 and $1,568 during 1997, 1996 and 1995,
respectively.
Minimum payments for operating leases having initial or remaining non-
cancelable lease terms in excess of one year at December 31, 1997 are
summarized below:
YEAR ENDING
DECEMBER 31
-----------
1998.............................................................. $ 3,384
1999.............................................................. 2,748
2000.............................................................. 2,137
2001.............................................................. 1,359
2002.............................................................. 1,071
Thereafter........................................................ 5,522
-------
Total........................................................... $16,221
=======
F-19
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company has letters of credit outstanding of $4,100 at December 31,
1997.
Subsequent to the closing of the GenCorp RPD acquisition, the Company has
been unable to reach an agreement with the seller on the related purchase
price adjustment. The seller filed suit against the Company in June 1996, in
an effort to prevent the Company from submitting the dispute to arbitration.
Although the Company's right to seek arbitration was upheld, this matter is
still subject to negotiation by the parties. The outcome of this matter is
uncertain; however, management does not believe that the outcome of this
uncertainty will have a material adverse effect on the consolidated financial
position, results of operations or cash flows of the Company.
The Company is also subject to other lawsuits and claims pending or asserted
with respect to matters arising in the ordinary course of business. Management
does not believe that the outcome of these uncertainties will have a material
adverse effect on the consolidated financial position, results of operations
or cash flows of the Company.
16. CONDENSED CONSOLIDATING INFORMATION
The Notes are guaranteed by CE Automotive Trim Systems, Inc. (CE), a wholly-
owned consolidated subsidiary of the Company, but are not guaranteed by the
Company's other consolidated subsidiaries, Voplex of Canada and the Brazilian
subsidiary. The guarantee of the Notes by CE is full and unconditional. The
following condensed consolidated financial information presents the financial
position, results of operations and cash flows of (i) the Company, as parent,
as if it accounted for its subsidiaries on the equity method; (ii) CE, the
guarantor subsidiary, and (iii) Voplex of Canada and the Brazilian subsidiary,
as non-guarantor subsidiaries. The financial position and operating results of
the non-guarantor subsidiaries do not include any allocation of overhead or
other similar charges.
Separate financial statements of CE are not presented herein, as management
does not believe that such statements would be material. CE was formed in 1994
as a joint venture with an unrelated entity. The Company accounted for its 50%
interest in CE as an equity investment as of December 31, 1996; the Company's
equity investment in CE at that date was $0. In 1997, the Company purchased
the other entity's interest in CE for an immaterial amount, and CE became a
consolidated subsidiary of the Company. CE had no revenues or operations
during the periods presented.
F-20
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------ ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets
Cash.................. $ 1,646 $ 2,142 $-- $-- $ 3,788
Receivables .......... 79,960 5,926 (3,769) 82,117
Inventories........... 23,081 2,030 25,111
Reimbursable tooling
costs................ 16,727 186 16,913
Income tax
refundable........... 2,555 2,555
Deferred income taxes
and other............ 11,911 197 12,108
-------- ------- ---- -------- --------
Total current
assets............. 135,880 10,481 -- (3,769) 142,592
Property, plant and
equipment, net......... 193,328 4,307 197,635
Other long-term assets.. 29,257 29,257
Investment in
consolidated
subsidiaries........... 6,600 (6,600)
-------- ------- ---- -------- --------
Total assets........ $365,065 $14,788 $-- $(10,369) $369,484
======== ======= ==== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities
Current portion of
long-term debt....... $ 7,765 $ -- $-- $-- $7,765
Accounts payable...... 50,995 1,533 (3,769) 48,759
Accrued liabilities... 36,211 1,480 37,691
-------- ------- ---- -------- --------
Total current
liabilities........ 94,971 3,013 -- (3,769) 94,215
Noncurrent liabilities
Long-term debt........ 309,389 5,400 314,789
Workers'
compensation......... 1,251 1,251
Postretirement
healthcare benefits.. 20,669 20,669
Other long-term
liabilities.......... 3,365 3,365
Deferred income
taxes................ 7,689 7,689
-------- ------- ---- -------- --------
Total liabilities... 437,334 8,413 -- (3,769) 441,978
-------- ------- ---- -------- --------
Stockholder's equity
(deficit)
Common stock..........
Paid-in capital....... 17,539 5,057 (5,057) 17,539
Unrealized foreign
currency
translation.......... (225) (225)
Retained earnings
(accumulated
deficit)............. (89,808) 1,543 (1,543) (89,808)
-------- ------- ---- -------- --------
Total stockholder's
equity (deficit)... (72,269) 6,375 -- (6,600) (72,494)
-------- ------- ---- -------- --------
Total liabilities
and stockholder's
equity (deficit)... $365,065 $14,788 $-- $(10,369) $369,484
======== ======= ==== ======== ========
F-21
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
NON-GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets
Cash.................. $ 7,795 $4,147 $ -- $ -- $ 11,942
Receivables........... 47,854 1,131 48,985
Inventories........... 20,716 581 21,297
Reimbursable tooling
costs................ 17,606 68 17,674
Income tax
refundable........... 3,270 3,270
Deferred income taxes
and other............ 6,571 6,571
-------- ------ ----- ------- --------
Total current
assets............. 103,812 5,927 -- -- 109,739
Property, plant and
equipment, net......... 132,769 555 133,324
Other long-term assets.. 19,167 19,167
Investment in
consolidated
subsidiaries........... 5,326 (5,326)
-------- ------ ----- ------- --------
TOTAL ASSETS........ $261,074 $6,482 $ -- $(5,326) $262,230
======== ====== ===== ======= ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities
Current portion of
long-term debt....... $ 9,080 $ -- $ -- $ -- $ 9,080
Accounts payable...... 37,281 747 38,028
Accrued liabilities... 24,606 496 25,102
-------- ------ ----- ------- --------
Total current
liabilities........ 70,967 1,243 -- -- 72,210
Noncurrent liabilities
Long-term debt........ 224,112 224,112
Workers'
compensation......... 968 968
Postretirement
healthcare benefits.. 15,164 15,164
Accrued commitments
under acquired
contracts............ 2,244 2,244
Deferred income
taxes................ 9,673 9,673
-------- ------ ----- ------- --------
Total liabilities... 323,128 1,243 -- -- 324,371
-------- ------ ----- ------- --------
Stockholder's equity
(deficit)
Common stock..........
Paid-in capital....... 17,539 5,057 (5,057) 17,539
Unrealized foreign
currency
translation.......... (87) (87)
Retained earnings
(accumulated
deficit)............. (79,593) 269 (269) (79,593)
-------- ------ ----- ------- --------
Total stockholder's
equity (deficit)... (62,054) 5,239 -- (5,326) (62,141)
-------- ------ ----- ------- --------
TOTAL LIABILITIES
AND STOCKHOLDER'S
EQUITY (DEFICIT)... $261,074 $6,482 $ -- $(5,326) $262,230
======== ====== ===== ======= ========
F-22
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
NON-GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
Sales................... $413,536 $12,558 $ -- $ -- $426,094
Cost of sales........... 357,439 9,598 367,037
-------- ------- ------ ------- --------
Gross profit............ 56,097 2,960 -- -- 59,057
Selling, general and
administrative
expenses............... 31,239 957 (454) 31,742
-------- ------- ------ ------- --------
Income from operations.. 24,858 2,003 -- 454 27,315
Other expense (income)
Interest expense...... 27,941 95 28,036
Other, net............ (431) (79) 454 (56)
-------- ------- ------ ------- --------
Income (loss) before in-
come tax............... (2,652) 1,987 -- -- (665)
Income tax expense (ben-
efit).................. (951) 713 (238)
-------- ------- ------ ------- --------
Income (loss) before
extraordinary item..... (1,701) 1,274 -- -- (427)
Extraordinary loss...... 9,788 9,788
-------- ------- ------ ------- --------
Income (loss) before
equity in income of
consolidated
subsidiaries........... (11,489) 1,274 -- -- (10,215)
Equity in income of
consolidated
subsidiaries........... 1,274 (1,274)
-------- ------- ------ ------- --------
Net income (loss)....... $(10,215) $ 1,274 $ -- $(1,274) $(10,215)
======== ======= ====== ======= ========
F-23
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
NON-GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
Sales................... $336,470 $9,556 $ -- $ -- $346,026
Cost of sales........... 287,629 7,113 294,742
-------- ------ ------ ----- --------
Gross profit............ 48,841 2,443 -- -- 51,284
Selling, general and
administrative
expenses............... 25,963 761 (484) 26,240
-------- ------ ------ ----- --------
Income from operations.. 22,878 1,682 -- 484 25,044
Other expense (income)
Interest expense...... 23,190 23,190
Other, net............ (737) 433 484 180
-------- ------ ------ ----- --------
Income before income
tax.................... 425 1,249 -- -- 1,674
Income tax expense...... 148 417 565
-------- ------ ------ ----- --------
Income before equity in
income of consolidated
subsidiaries........... 277 832 -- -- 1,109
Equity in income of
consolidated
subsidiaries........... 832 (832)
-------- ------ ------ ----- --------
Net income.............. $ 1,109 $ 832 $ -- $(832) $ 1,109
======== ====== ====== ===== ========
F-24
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
NON-GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
Sales................... $288,644 $9,102 $ -- $ -- $297,746
Cost of sales........... 247,002 6,891 253,893
-------- ------ ------ ------- --------
Gross profit............ 41,642 2,211 -- -- 43,853
Selling, general and
administrative
expenses............... 16,905 1,234 (461) 17,678
-------- ------ ------ ------- --------
Income from operations.. 24,737 977 -- 461 26,175
Other expense (income)
Interest expense...... 12,388 12,388
Other, net............ (1,078) (129) 461 (746)
-------- ------ ------ ------- --------
Income before income
tax.................... 13,427 1,106 -- -- 14,533
Income tax expense...... 5,410 5,410
-------- ------ ------ ------- --------
Income before extraordi-
nary item.............. 8,017 1,106 -- -- 9,123
Extraordinary loss...... 4,426 4,426
-------- ------ ------ ------- --------
Income before equity in
income of consolidated
subsidiaries........... 3,591 1,106 -- -- 4,697
Equity in income of
consolidated
subsidiaries........... 1,106 (1,106)
-------- ------ ------ ------- --------
Net income.............. $ 4,697 $1,106 $ -- $(1,106) $ 4,697
======== ====== ====== ======= ========
F-25
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
NON-GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARY CONSOLIDATED
--------- ------------- ---------- ------------
(DOLLARS IN THOUSANDS)
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES.... $ 17,663 $(1,856) $ -- $ 15,807
--------- ------- ----- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisitions, net of cash
acquired.................... (72,434) (72,434)
Purchases of property, plant
and equipment............... (17,498) (11) (17,509)
--------- ------- ----- ---------
NET CASH USED IN INVESTING
ACTIVITIES................ (89,932) (11) -- (89,943)
--------- ------- ----- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net borrowings from revolving
debt........................ 11,500 11,500
Principal payments on capital
lease obligations........... (244) (244)
Proceeds from issuance of
long-term debt.............. 305,000 305,000
Repayment of long-term debt.. (233,712) (233,712)
Cost of debt and equity
financing................... (16,424) (16,424)
--------- ------- ----- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES...... 66,120 -- -- 66,120
--------- ------- ----- ---------
Effect of foreign currency
rate fluctuations on cash... (138) (138)
--------- ------- ----- ---------
Net decrease in cash......... (6,149) (2,005) -- (8,154)
Cash at beginning of period.. 7,795 4,147 11,942
--------- ------- ----- ---------
Cash at end of period........ $ 1,646 $ 2,142 $ -- $ 3,788
========= ======= ===== =========
SUPPLEMENTAL DISCLOSURE OF
NONCASH FINANCING
TRANSACTION
Notes payable issued in
connection with
acquisition................. $ -- $ 5,400 $ -- $ 5,400
========= ======= ===== =========
F-26
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
NON-GUARANTOR GUARANTOR
PARENT SUBSIDIARY SUBSIDIARY CONSOLIDATED
-------- ------------- ---------- ------------
(DOLLARS IN THOUSANDS)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES......... $ (5,929) $1,779 $ -- $ (4,150)
-------- ------ ------ --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisitions, net of cash ac-
quired....................... (18,160) (18,160)
Purchases of property, plant
and equipment................ (9,394) (236) (9,630)
-------- ------ ------ --------
NET CASH USED IN INVESTING
ACTIVITIES................. (27,554) (236) -- (27,790)
-------- ------ ------ --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net borrowings from revolving
debt......................... 13,000 13,000
Proceeds from issuance of
long-term debt............... 73,178 73,178
Repayment of long-term debt... (48,363) (48,363)
Cost of debt and equity fi-
nancing...................... (2,907) (2,907)
Contribution by stockholder... 275 275
-------- ------ ------ --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES....... 35,183 -- -- 35,183
-------- ------ ------ --------
Effect of foreign currency
rate fluctuations on cash.... 37 37
-------- ------ ------ --------
Net increase in cash.......... 1,700 1,580 -- 3,280
Cash at beginning of period... 6,095 2,567 8,662
-------- ------ ------ --------
Cash at end of period......... $ 7,795 $4,147 $ -- $ 11,942
======== ====== ====== ========
F-27
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
NON-GUARANTOR GUARANTOR
PARENT SUBSIDIARY SUBSIDIARY CONSOLIDATED
--------- ------------- ---------- ------------
(DOLLARS IN THOUSANDS)
NET CASH PROVIDED BY
OPERATING ACTIVITIES........ $ 32,597 $1,191 $ -- $ 33,788
--------- ------ ------ ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property, plant
and equipment............... (10,569) (77) (10,646)
--------- ------ ------ ---------
NET CASH USED IN INVESTING
ACTIVITIES................ (10,569) (77) -- (10,646)
--------- ------ ------ ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net borrowings from revolving
debt........................ 5,000 5,000
Proceeds from issuance of
long-term debt.............. 176,620 176,620
Repayment of long-term debt.. (130,450) (130,450)
Cost of debt and equity fi-
nancing..................... (14,573) (14,573)
Distribution to stockholder.. (70,339) (70,339)
Contribution by stockholder.. 18,200 18,200
--------- ------ ------ ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES...... (15,542) -- -- (15,542)
--------- ------ ------ ---------
Effect of foreign currency
rate fluctuations on cash... (58) (58)
--------- ------ ------ ---------
Net increase in cash......... 6,486 1,056 -- 7,542
Cash at beginning of period.. (391) 1,511 1,120
--------- ------ ------ ---------
Cash at end of period........ $ 6,095 $2,567 $ -- $ 8,662
========= ====== ====== =========
F-28
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Cambridge Industries, Inc.
Our audit of the consolidated financial statements of Cambridge Industries,
Inc. and subsidiaries as of December 31, 1997 and for the year then ended
referred to in our report dated March 30, 1998 appearing on page F-1 of this
Annual Report on Form 10-K also included an audit of the accompanying
Financial Statement Schedule. In our opinion, this Financial Statement
Schedule of Cambridge Industries, Inc. and its subsidiaries presents fairly in
all material respects, the information set forth therein as of December 31,
1997 and for the year then ended when read in conjunction with the related
consolidated financial statements.
The consolidated financial statements and the Financial Statement Schedule
for the years ended December 31, 1996 and 1995 were audited by other
independent accountants whose report dated March 28, 1997 expressed an
unqualified opinion on those statements and that schedule.
Price Waterhouse LLP
Bloomfield Hills, MI
March 30, 1998
F-29
INDEPENDENT AUDITOR'S REPORT ON
FINANCIAL STATEMENT SCHEDULE
Cambridge Industries, Inc.
We have audited the consolidated financial statements of Cambridge
Industries, Inc. and subsidiaries as of December 31, 1996 and for the years
ended December 31, 1996 and 1995 and have issued our report thereon dated
March 28, 1997; such financial statements and report are included in this
Annual Report on Form 10-K. Our audits included the Financial Statement
Schedule of Cambridge Industries, Inc. and subsidiaries for the years ended
December 31, 1996 and 1995 listed in Item 14. This Financial Statement
Schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the Financial Statement Schedule based on our
audits. In our opinion, such Financial Statement Schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein
for the years ended December 31, 1996 and 1995.
Deloitte & Touche LLP
Detroit, Michigan
March 28, 1997
F-30
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
BEGINNING OF AND TO OTHER WRITE- AT END OF
YEAR EXPENSES ACCOUNTS OFFS YEAR
------------ -------- -------- ------- ---------
Allowance for doubtful ac-
counts
For the year ended December
31,
1997...................... $3,921 $ 642 $ -- $(1,509) $3,054
1996...................... $1,479 $3,355 $ -- $ (913) $3,921
1995...................... $3,877 $2,964 $ -- $(5,362) $1,479
Allowance for inventory ob-
solescence and lower of
cost or market reserve
For the year ended December
31,
1997...................... $1,150 $ -- $ 405 $ (332) $1,223
1996...................... $ 610 $ 315 $ 603 $ (378) $1,150
1995...................... $ 630 $ 313 $ -- $ (333) $ 610
Allowance for reimbursable
tooling
For the year ended December
31,
1997...................... $4,100 $ -- $ -- $ -- $4,100
1996...................... $1,373 $ 27 $2,700 $ -- $4,100
1995...................... $ -- $1,373 $ -- $ -- $1,373
F-31
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, CAMBRIDGE INDUSTRIES, INC. AND CE AUTOMOTIVE TRIM
SYSTEMS, INC. HAVE DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MADISON HEIGHTS, STATE
OF MICHIGAN, ON APRIL 1, 1998.
Cambridge Industries, Inc.
By: /s/ Richard S. Crawford
---------------------------------
RICHARD S. CRAWFORD
Chief Executive Officer
CE Automotive Trim Systems, Inc.
By: /s/ Richard S. Crawford
---------------------------------
RICHARD S. CRAWFORD
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED:
CAMBRIDGE INDUSTRIES, INC.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Richard S. Crawford Chairman of the April 1, 1998
- ------------------------------------- Board and Chief
RICHARD S. CRAWFORD Executive Officer
(Principal
Executive Officer)
/s/ John M. Colaianne Secretary and Chief April 1, 1998
- ------------------------------------- Financial Officer
JOHN M. COLAIANNE (Principal
Financial Officer)
/s/ C. Keith Chulumovich Treasurer and April 1, 1998
- ------------------------------------- Corporate
C. KEITH CHULUMOVICH Controller
(Principal
Accounting Officer)
/s/ Ira J. Jaffe* Director April 1, 1998
- -------------------------------------
IRA J. JAFFE
/s/ Robert C. Gay* Director April 1, 1998
- -------------------------------------
ROBERT C. GAY
/s/ Edward W. Conard* Director April 1, 1998
- -------------------------------------
EDWARD W. CONARD
/s/ Ronald P. Mika* Director April 1, 1998
- -------------------------------------
RONALD P. MIKA
i
CE AUTOMOTIVE TRIM SYSTEMS, INC.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Richard S. Crawford Chairman of the April 1, 1998
- ------------------------------------- Board (Principal
RICHARD S. CRAWFORD Executive Officer)
and Director
/s/ Kevin J. Alder President and
- ------------------------------------- Director
KEVIN J. ALDER
/s/ John M. Colaianne Secretary and Chief April 1, 1998
- ------------------------------------- Financial Officer
JOHN M. COLAIANNE (Principal
Financial Officer)
/s/ C. Keith Chulumovich Corporate Controller April 1, 1998
- ------------------------------------- (Principal
C. KEITH CHULUMOVICH Accounting Officer)
ii
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 Amended and Restated Certificate of Incorporation of Cambridge
Industries, Inc.*
3.2 Amended and Restated Bylaws of Cambridge Industries, Inc.*
3.3 Articles of Incorporation of CE Automotive Trim Systems, Inc.*
3.4 Bylaws of CE Automotive Trim System, Inc.*
10.1 Employment Agreement, dated as of November 17, 1995, between Richard
S. Crawford and Cambridge Industries, Inc.*+
10.2 Amendment to Employment Agreement, dated as of March 1, 1996, between
Richard S. Crawford and Cambridge Industries, Inc.*+
10.3 Employment Agreement, dated as of November 17, 1995, between Richard
E. Warnick and Cambridge Industries, Inc.*+
10.4 Employment Agreement, dated as of November 17, 1995, between John D.
Craft and Cambridge Industries, Inc.*+
10.5 Management Services Agreement, dated as of November 17, 1995 and
amended as of March 1, 1996, between Cambridge Industries, Inc. and
Bain Capital, Inc.*+
10.6 Warrant Agreement dated as of November 17, 1995 between Cambridge
Industries Holdings, Inc. and Bankers Trust Company.*+
10.7 Amendment to Warrant Agreement between Cambridge Industries Holdings,
Inc. and Bankers Trust Company, dated as of December 12, 1995.*+
10.8 Warrant Agreement dated as of December 14, 1995 among Bain Capital V
Mezzanine Fund, L.P., BCIP Trust Associates, L.P. and Cambridge
Industries Holdings, Inc.*+
10.9 Class A Warrant Certificate No. W-A1, Date of Issuance: December 14,
1995.*
10.10 Class A Warrant Certificate No. W-A2, Date of Issuance: December 14,
1995.*
10.11 Class L Warrant Certificate No. W-L1, Date of Issuance: December 14,
1995.*
10.12 Class L Warrant Certificate No. W-L2, Date of Issuance: December 14,
1995.*
10.13 Warrant Agreement, dated as of March 1, 1996, among Cambridge Holdings
Industries, Inc., Bein Capital V Mezzeine Fund, L.P., BCIP Trust
Associates, L.P. and Crawford Investment Group, L.L.C.*
10.14 Class A Warrant Certificate No. W-A3, Date of Issuance: March 1,
1996.*
10.15 Class A Warrant Certificate No. W-A4, Date of Issuance: March 1,
1996.*
10.16 Class A Warrant Certificate No. W-A5, Date of Issuance: March 1,
1996.*
10.17 Class A Warrant Certificate No. W-A6, Date of Issuance: March 1,
1996.*
10.18 Class A Warrant Certificate No. W-A7, Date of Issuance: March 1,
1996.*
10.19 Class A Warrant Certificate No. W-L3, Date of Issuance: March 1,
1996.*
10.20 Class A Warrant Certificate No. W-L4, Date of Issuance: March 1,
1996.*
10.21 Class A Warrant Certificate No. W-L5, Date of Issuance: March 1,
1996.*
10.22 Class A Warrant Certificate No. W-L6, Date of Issuance: March 1,
1996.*
10.23 Class A Warrant Certificate No. W-L7, Date of Issuance: March 1,
1996.*
10.24 Asset Purchase Agreement, dated as of March 1, 1996, among GenCorp.
Inc., Cambridge Industries Holdings, Inc. and Cambridge Industries,
Inc.*
10.25 Management Agreement with Donald I. Holton, dated as of October 15,
1996.*+
10.26 Holdings Services Agreement, dated as of July 1, 1997, between
Cambridge Industries, Inc. and Cambridge Industries Holdings, Inc.*
10.27 Credit Agreement, dated as of July 10, 1997, among Cambridge
Industries Holdings, Inc., Cambridge Industries, Inc., various
lending institutions, and Bankers Trust Company, as Agent.*
10.28 Subsidiary Guaranty, dated as of July 10, 1997.*
10.29 Pledge Agreement, dated as of July 10, 1997, among Cambridge
Industries Holdings, Inc., Cambridge Industries, Inc., various
lending institutions, and Bankers Trust Company, as Agent.*
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EXHIBIT
NUMBER EXHIBIT
------- -------
10.30 Security Agreement, dated as of July 10, 1997, among Cambridge
Industries Holdings, Inc., Cambridge Industries, Inc., various
lending institutions, and Bankers Trust Company, as Agent.*
10.31 Asset Purchase Agreement, dated as of July 9, effective as of June 30,
1997, between Eagle-Picher Industries, Inc. and Cambridge Industries,
Inc.*
10.32 Agreement, dated as of July 8, 1997, between Cambridge Industries,
Inc. and the Goodyear Tire & Rubber Company.*
10.33 Stock Purchase Agreement, dated as of April 25, 1997 between Erpe
Ernst Pelz Vertriebs GmbH and Cambridge Industries, Inc.*
10.34 Joint Venture Agreement, dated as of March 4, 1994, among Cambridge
Industries, Inc., Empe Ernst Pelz GmbH & Co. and Erpe Ernst Pelz
Vertriebs GmbH (the "Empe-Erpe JV Agreement").*
10.35 Purchase Election, dated as of March 13, 1997 by Cambridge Industries,
Inc. in relation to the Empe-Erpe JV Agreement.*
10.36 Acceptance of Empe-Erpe JV Agreement Purchase Election, dated as of
March 28, 1997.*
10.37 Election to Terminate the Empe-Erpe JV Agreement, dated as of February
6, 1997.*
10.38 Amendment to Stockholders Agreement, dated December 31, 1997, among
Holdings, Richard S. Crawford, certain individual members of the Bain
Group, Bankers Trust Company and each other
Bank Holder which becomes a party to the Stockholders Agreement.+**
10.39 Second Amendment to Employment Agreement, dated December 31, 1997,
effective January 1, 1998, between the Company and Richard S.
Crawford.+**
10.40 Second Amendment to Management Services Agreement, dated December 31,
1997, effective January 1, 1998, between the Company and Bain
Capital, Inc.+**
10.41 Aircraft Lease, dated January 1, 1998, between Mack L.L.C. and the
Company.**
10.42 Aircraft Lease, dated January 1, 1998, between the Company and Richard
S. Crawford.**
16.1 Letter regarding Change in Independent Accountants.*
21.1 List of All Subsidiaries.*
27.1 Financial Data Schedule++
- --------
* Incorporated by reference to the Company's Registration Statement on Form S-
4 effective as of December 10, 1997.
**Previously filed with the Company's Annual Report on Form 10-K on March 31,
1998.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report.
++This exhibit was the subject of a Form 12b-25 and is included herein.
I-2