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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 33-75154
J.B. POINDEXTER & CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0312814
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Louisiana
Suite 5400
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (713) 655-9800
Securities registered pursuant to Section 12(b) of the Act: None
Name of each exchange where registered: None
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 Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $ 0
The number of shares outstanding of each of the registrants' classes of common
stock as of March 7, 1997: 3059
Documents Incorporated by Reference: None
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
PART I.
Item 1. Business
J.B. Poindexter & Co., Inc. ("JBPCO") operates a variety of manufacturing
and wholesale distribution businesses. JBPCO's subsidiaries consist of Morgan
Trailer Mfg Co., ("Morgan"), Truck Accessories Group, Inc., ("TAG"), Lowy Group,
Inc. ("Lowy," or "Lowy Group"), EFP Corporation ("EFP"), and Magnetic
Instruments Corp. ("Magnetic Instruments").
Unless the context otherwise requires, the "Company" refers to JBPCO
together with its consolidated subsidiaries. The Company is controlled by John
B. Poindexter. In May 1994 the Company completed an initial public offering of
$100 million, 12 1/2% Senior Notes due 2004 (sometimes referred to herein as the
"Note Offering") and concurrent with the Note Offering the Company acquired,
from John B. Poindexter and various minority interests, TAG, Lowy Group, EFP and
Magnetic Instruments. The Company manages its assets on a decentralized basis,
with a small corporate staff providing strategic direction and support.
The Company has three industry segments: Automotive (Morgan and TAG), Floor
Covering (Lowy Group), and Plastic and Precision Machining (EFP and Magnetic
Instruments). See Note 12 to the Consolidated Financial Statements of the
Company.
Automotive - Morgan
Morgan is the nation's largest manufacturer of commercial van bodies ("van
bodies") for medium-duty trucks. Morgan products, which are mounted on truck
chassis manufactured and supplied by others, are used for general freight and
deliveries, moving and storage and distribution of refrigerated consumables. Its
eighty-four authorized distributors, five manufacturing plants and two service
facilities are positioned in strategic locations to provide nationwide service
to its customers, which include rental companies, truck dealers and companies
that operate fleets of delivery vehicles. Formed in 1952, Morgan is
headquartered in Morgantown, Pennsylvania and was acquired in 1990.
Morgan's van bodies are manufactured and installed on truck chassis, which
are classified by hauling capacity or gross vehicular weight rating ("GVWR").
There are eight classes of GVWR. Morgan generally manufactures products for
Classes 3 through 7, those having a GVWR of between 10,001 pounds (light duty
dry freight vans) and 33,000 pounds (medium-duty trucks). It generally does not
manufacture products for Classes 1 or 2 (pickup trucks) or Class 8. The
principal products offered by Morgan are the following:
Dry Freight Bodies (Classes 3-7). Dry freight bodies typically are
fabricated with pre-painted aluminum or fiberglass reinforced plywood ("FRP")
panels, aerodynamic front-end treatment, hardwood floors and various door
configurations to accommodate end-user loading and unloading
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
requirements. These products are used for diversified dry freight transportation
and represent more than one-half of Morgan's sales.
Refrigerated Van Bodies (Classes 3-7). Refrigerated vans are equipped with
insulated aluminum or FRP bodies that accommodate controlled temperature and
refrigeration needs of end-users. These products are used primarily on trucks
that transport dairy products, frozen food and meats.
Cutaway Van Bodies (Classes 3-5). Aluminum or FRP cutaway van bodies (which
differ from conventional vans generally by having different floor configurations
and shorter lengths) are installed only on cutaway chassis which are available
with or without access to the cargo area from the cab. Cutaway bodies are used
primarily for local delivery of parcels, freight and perishables.
Morgan also manufactures stake bodies, which are flatbeds with various
configurations of removable sides. Stake bodies are used for the movement of a
variety of materials for the agricultural and construction industries, among
others. Some of the components of Morgan's products, such as certain patented
methods for making curtained doors for vehicle bodies, are proprietary. Morgan
also offers certain products manufactured by others, including those distributed
by Morgan's Advanced Handling Systems Division that facilitate the loading and
unloading of cargo. Morgan distributes spare equipment parts and offers a
comprehensive service program through its own facilities and its eighty four
authorized distributors.
Customers and Sales. The van body industry has two major categories of
customers: (1) customers operating their own fleets of vehicles or who lease
their vehicles to third parties (collectively, "fleet/leasing customers"); and
(2) truck dealers and distributors who sell vehicles to others (collectively,
"dealer/distributor customers"). Morgan's net sales constituted 34%, 42% and 40%
of the Company's total net sales in 1996, 1995 and 1994, respectively.
Morgan's revenue stream is generated by five sources: (1) sales to
commercial divisions of leasing companies, companies with fleets of delivery
vehicles, truck dealers and distributors ("Commercial Sales"); (2) sales to
consumer rental companies ("Consumer Rental Sales"); (3) parts; (4) service; and
(5) the Advanced Handling Systems Division.
Consumer Rental Sales are composed of sales to companies that maintain large
fleets of one-way and local moving vehicles available for rent to the general
public. Procurement contracts for Consumer Rental Sales are negotiated annually,
ususally in late summer to early fall and tend to be the most volatile and price
sensitive aspect of Morgan's business.
Morgan's two largest customers have historically represented approximately
40-50% of Morgan's total net sales. Each has been a customer of Morgan for
approximately 20 years, and management considers relations with each to be good.
Sales to these customers represented 14%, 21% and 24% of the Company's
consolidated net sales during the years 1996, 1995, and 1994, respectively.
Morgan's business strategy is designed, in part, to expand its sales to other
customers in an effort to reduce its reliance on sales to these customers.
Morgan sells products through its own sales force and through independent
distributors. Most of the distributors are equipment dealers who sell a wide
variety of truck related equipment to truck dealers and end-users.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Manufacturing and Supplies. Morgan operates manufacturing, body mounting and
service facilities in Pennsylvania, Wisconsin, Georgia, Texas, and Arizona. It
also has sales, service and body mounting facilities in Florida and California.
Generally all van bodies manufactured by Morgan are produced to order. The
shipment of a unit is dependent upon receipt of the chassis supplied by the
customer and the customer's arrangements for delivery of completed units. A
chassis consists of an engine, a frame with wheels and, in most cases, a cab.
Accordingly, revenue is recognized and the customer is billed upon final body
assembly and quality inspection. Because contracts for Consumer Rental Sales are
entered into in the summer or fall but production does not begin until the
following January, Morgan generally has a significant backlog of Consumer Rental
Sales orders at the end of each year that is processed through May of the
following year. In addition, Morgan typically maintains a significant backlog of
Commercial Sales. At December 31, 1996 and 1995, Morgan's total backlog was
$50.2 million and $41.9 million, respectively. All of the products under the
orders outstanding at December 31, 1996 are expected to be shipped during 1997.
Morgan maintains an inventory of raw materials necessary to build van bodies
according to customers' orders. Raw materials are acquired from a variety of
sources, and Morgan has not experienced significant shortages of materials in
recent years. Fiberglass reinforced panels, which are important components of
Morgan's products, are acquired principally from two suppliers. The loss of
either of those suppliers could disrupt Morgan's operations until a replacement
source could be located. Morgan's customers purchase their truck chassis from
major truck manufacturing companies. The delivery of a chassis to Morgan is
dependent upon truck manufacturers' production schedules which are beyond
Morgan's control. Delays in chassis deliveries can disrupt Morgan's operations
and can increase its working capital requirements.
Industry. Industry revenue and growth are dependent primarily on the demand
for delivery vehicles in the general freight, moving and storage, parcel
delivery and food distribution industries. The food industry is affected less
significantly by economic cycles than the other industries described above.
Replacement of older vehicles in fleets represents an important revenue source,
with replacement cycles varying from approximately four to six years, depending
on the particular type of vehicle. During economic downturns, replacement orders
are often deferred or, in some cases, older vehicles are retired without
replacement.
Competition. The van body manufacturing industry is highly competitive.
Morgan competes with a limited number of large manufacturers and other, smaller
manufacturers. Some of Morgan's competitors operate from more than one location.
Certain competitors are publicly-owned with substantial capital resources.
Competitive factors in the industry include product quality, delivery time,
geographic proximity of manufacturing facilities to customers, warranty terms,
service and price.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Automotive - TAG
During 1995, the name of the Company's subsidiary, Leer Inc., was changed to
Truck Accessories Group, Inc. (together with its subsidiaries, "TAG"). The
Company completed the reorganization of the operating structure of TAG during
1995. TAG established two operating divisions: TAG Manufacturing Division
consisting of Leer Manufacturing, Gem Top, 20th Century Fiberglass and Raider
Industries in Canada; and TAG Distribution Division consisting of retail (Leer
Retail) and wholesale distribution businesses (National Truck Accessories).
TAG is the nation's largest manufacturer and distributor of pickup truck
caps and tonneau covers, which are fabricated enclosures that fit over the beds
of pickup trucks, converting the beds into weatherproof storage areas. Sales of
caps represented approximately 21% of the Company's consolidated net sales in
each of the prior three years. In addition, TAG distributes other accessories
for light trucks, minivans and sport utility vehicles such as running boards,
steps, reinforced bumpers, wind deflectors, bedliners, hood shields, visors,
bumper covers and roof-mounted luggage carriers. TAG's eight manufacturing
plants and network of over 600 independent dealers, 44 company-owned retail
stores and four wholesale distribution centers provide a national network
through which its products are marketed to individuals, small businesses and
fleet operators. Leer Retail has increased the number of company-owned stores
from 8 at the beginning of 1991 to 44 at the end of 1996, and intends to
increase the number in the future. Leer Retail closed 4 uneconomical stores
during 1996. TAG's net sales constituted 37%, 30% and 29% of the Company's total
net sales during 1996, 1995 and 1994, respectively. Formed in 1971, TAG is
headquartered in Elkhart, Indiana and was acquired in 1987.
Customer and Sales. Most purchasers of TAG's products (whether purchased
from company-owned stores or from dealers) are individuals. TAG's products are
sold primarily through its national network of independent dealers and though
its company-owned stores. TAG also sells its products in Canada and Europe. In
1996, foreign sales represented less than 5% of TAG's total sales. TAG has a
sales and marketing staff who, among other things, train dealers and
company-owned store personnel.
Manufacturing and Supplies. TAG designs and manufactures caps in eight
manufacturing facilities located in California, Indiana, Minnesota, Oregon,
Pennsylvania and Saskatchewan Canada. Approximately 85% of the caps sold by TAG
are fiberglass, with aluminum and steel representing the balance. TAG maintains
an inventory of raw materials necessary to manufacture its products. Raw
materials are obtained from a variety of sources, and TAG has not experienced
significant shortages of materials in recent years. TAG purchases a substantial
majority of its windows for caps from a single supplier. Although the loss of
that supplier would disrupt TAG's production activities until a replacement
supplier could be located, management does not believe that such loss would have
a material adverse effect on the Company.
Industry. Sales of caps tend to correspond to the level of new pickup truck
sales. Sales of accessories are affected by sales of new pickup trucks, sport
utility vehicles and minivans. Nationally, registrations of light trucks (pickup
trucks, sport utility vehicles and minivans) have increased each year since
1991, although there can be no assurance that those sales will increase further
or maintain current levels in the future. For example, pickup truck
registrations declined each
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
year from 1988 until 1991. Cap sales are seasonal, with sales typically being
higher in the fall and spring than in the summer and winter.
Competition. The cap and accessory industry is highly competitive.
Competitive factors include product availability and exposure, quality, price
and installation services. Competitors in the distribution of accessories
include other cap manufacturers, auto parts stores, and mass merchants, such as
Wal-Mart and K-Mart who, in certain instances, have the purchasing power to buy
and sell accessories at discount prices.
Floor Covering - Lowy Group
Lowy Group which was acquired in 1991 operates in the floor covering
business through three separate divisions: Lowy Distribution (a wholesale floor
covering distributor), Blue Ridge (a carpet manufacturer) and Courier (a dyer
and printer of carpeting). Lowy Group's net sales comprised 17%, 17% and 20% of
the Company's total net consolidated sales in 1996, 1995 and 1994, respectively.
Lowy Distribution
Lowy Distribution is a leading wholesale floor covering distributor in the
Midwest, serving twelve Midwestern states. It operates seven facilities, located
in Ankeny, Iowa near Des Moines; Lenexa, Kansas; New Brighton, Minnesota near
Minneapolis; Omaha, Nebraska; and St. Louis and vicinity (three locations).
Products. Lowy Distribution offers two broad categories of products, each
of which includes multiple product lines and accessories:
o Hard Surface Products. Hard surface products include sheet vinyl,
vinyl tiles, wood flooring, ceramic floor and wall tiles and
accessories.
o Soft Surface Products. This product line consists of carpet, padding
substrate used in carpet installation, area rugs and sundry items,
such as carpet cleaners and installation accessories. Most of Lowy
Distribution's carpet sales are for residential installation, with the
balance being sales to the commercial market. Its carpet line is
anchored by carpet manufactured by Peerless Carpet of Canada and
Milliken and Co. Lowy Distribution also offers private label carpeting
marketed under the "Americana" and "Essex House" names and
manufactured by various suppliers, including the Blue Ridge division
of Lowy Group.
Customers and Sales. Lowy Distribution sells its products primarily to
floor covering retailers, most of whom are privately owned, small- to
medium-sized dealers located away from major metropolitan areas. These dealers
rely on wholesalers, such as Lowy Distribution, to provide a broad line of
products with adequate inventory ready for immediate delivery and to provide
sales and marketing support.
Inventory and Supplies. Lowy Distribution offers products manufactured
by a variety of suppliers. Its largest supplier is Congoleum Corporation
("Congoleum"), whose products represented approximately 35%, 30% and 30% of Lowy
Distribution's total revenue during each of
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
the last three years, respectively. Lowy Distribution has purchased products
from Congoleum since 1967, and management considers its relations with Congoleum
to be good. Nonetheless, Congoleum is entitled to terminate its relationship
with Lowy Distribution at any time subject to certain notice requirements. Lowy
Distribution is an exclusive distributor of Congoleum's products in certain
markets and competes with other Congoleum distributors in other markets.
Congoleum may appoint additional distributors of its products in Lowy
Distribution's markets at any time. The loss of Congoleum as a supplier, or the
introduction of other Congoleum distributors into Lowy Distribution's markets,
could adversely affect Lowy Distribution's operations.
Industry. The wholesale distribution of floor covering is affected by
the level of new home and remodeling construction activity. Lowy Distribution
believes that approximately two-thirds of its sales are generated by home
remodeling activities. The industry is also affected by consumer taste and floor
covering fashion trends. During the 1980s, carpet manufacturers increasingly
began shipping products directly from their mills to the end users, bypassing
wholesale distribution such that management believes that a substantial majority
of carpet sales are now direct from the mill to end users. Excess manufacturing
capacity in the carpet industry has resulted in relatively level pricing during
the past several years, forcing manufacturers to reduce their distribution costs
in order to preserve their operating margins. Lower freight costs occasioned by
the deregulation of the freight industry and the emergence of discount carpet
retailers have bolstered this direct-to-customer distribution trend. The
industry is somewhat seasonal, with the second and third quarters generally
having higher sales than the other quarters.
Competition. The floor covering wholesale distribution business is
highly competitive. Lowy Distribution competes with other wholesale
distributors, and large carpet and tile manufacturing companies who sell their
products directly to their customers. The growth of large retail building supply
concerns that compete with Lowy Distribution's retail floor covering customers,
coupled with direct selling activities by carpet and tile manufacturers, could
adversely affect the floor covering wholesale distribution industry in the
future. Management believes that the ability of floor covering wholesale
distributors to carry broader product lines and to provide prompt service are
competitive advantages to the wholesale distributors. Lowy Distribution also
competes with several regional distributors.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Blue Ridge
Blue Ridge designs, manufactures and markets distinctive mid- to
high-end commercial carpet and, to a limited extent, residential carpet for sale
throughout the United States and abroad. Formed in 1968, Blue Ridge is located
in Ellijay, Georgia.
Products and Design. At present, Blue Ridge offers approximately 40
styles of commercial carpeting with an average of 15 colors per style. Its
residential carpet line currently consists of approximately 12 printed patterns
with a total of 35 colors. Blue Ridge also manufactures custom carpet (e.g.,
imprinting a company's logo in the carpet) and custom colors within existing
styles. Blue Ridge manufactures "tufted" carpeting, which is made by inserting
yarn into the carpet backing, forming loops that may or may not be cut,
depending on the particular carpet style being made (e.g., cut pile, level loop
or textured level loop carpeting). All of Blue Ridge's commercial carpeting is
offered and sold under the "Blue Ridge" brand name. Its residential carpeting is
manufactured for third parties who sell it under their own private labels. Blue
Ridge designs all of the carpet that it offers except for certain carpet that is
custom made or sold under private labels.
Customers and Sales. Blue Ridge's commercial carpeting is used by
businesses and organizations with high traffic areas, such as health care
facilities (nursing homes, clinics and hospitals), schools and universities,
hotels and motels, restaurants and office buildings.
Sales and marketing efforts for the commercial line are conducted by
Blue Ridge's sales force. Blue Ridge markets its commercial market line
primarily through architects, designers and specifiers. Management oversees
marketing of the residential carpet line, which is marketed and sold through
distributors and dealers. Blue Ridge maintains a sales office and showroom in
Chicago for use by architects, designers and specifiers in the mid-central area
of the nation.
Manufacturing and Supplies. Blue Ridge owns and operates an integrated,
185,000 square foot mill that performs tufting, backing and finishing of its
products. Dyeing and printing of carpeting is performed for Blue Ridge by
Courier. Blue Ridge maintains a significant inventory of raw materials and
carpet because of its commitment to deliver products quickly after receiving a
customer's order.
Blue Ridge acquires its nylon and other fibers for yarn from large
companies, primarily Allied-Signal, Inc., and B.A.S.F. Corporation. Pursuant to
their licensing arrangements with Blue Ridge, these suppliers periodically test
Blue Ridge's carpeting to ensure that appropriate manufacturing procedures are
being followed. Favorable test results are required to enable Blue Ridge to
market its products using the supplier's brand names and to offer the supplier's
warranties.
Industry. Sales of broadloom carpeting in the industry's two major
markets, residential and commercial, represent approximately 75% and 25% of
total sales, respectively. According to an industry survey, a majority of the
sales in the commercial market in which Blue Ridge competes relate to the
modernization and renovation of facilities, with the remaining sales relating to
installations in new construction. Excess capacity in the industry has resulted
in relatively level pricing during the past several years, forcing manufacturers
to reduce manufacturing costs through a higher degree of vertical integration
and distribution costs by implementing factory-direct sales in order to preserve
their operating margins. Installations in new construction are affected by the
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
prevailing new construction activity. The industry is somewhat seasonal, with
the second and third quarters generally having higher sales than the other
quarters.
Competition. With approximately 200 carpet manufacturers in the United
States, the carpet manufacturing industry is highly competitive. The industry
competes also with other floor covering industries, such as hardwood and tile
flooring. Management believes that both the consolidation of the carpet industry
and the use of direct marketing of commercial carpet to end-users will continue.
Nonetheless, management believes that smaller companies, such as Blue Ridge,
will continue to satisfy market niches. The principal competitive factors in the
industry are style, quality, price and service, although management believes
that the commercial market in which it principally operates is less
price-sensitive than the residential market.
Courier
Courier dyes and prints patterns on commercial and residential
carpeting that is manufactured by Blue Ridge and other companies. Management
believes that Courier's 66,000 square-foot dyeing and printing plant is one of
the most modern facilities of its kind operating in the carpet industry.
Services. The plant, located in Ellijay, Georgia, is designed to print
and dye carpeting with multi-color patterns and random color effects. Its
continuous dyeing line has the ability to place up to 14 different colors on
carpet in the desired pattern. Moreover, in response to the industry's increased
use of polyester fibers in residential carpeting, Courier has developed a
process to dye polyester fiber. Courier also owns two "Jet Beck" dyeing
machines, each of which is capable of dyeing in excess of 1,000 square yards of
carpet in a single dye lot, ensuring color consistency for large orders. Most of
Courier's 1996 net sales are generated by services performed for unaffiliated
manufacturers, with the remaining being performed for Blue Ridge.
Plastic and Precision Machining - EFP
EFP molds and markets expandable foam plastics used primarily by the
automotive, electronics, furniture and appliance industries as packaging, shock
absorbing and materials handling products. Management believes that EFP is the
nation's third largest producer and marketer of custom-shaped, molded expandable
plastics. Management believes that EFP's competitive strengths include its
ability to manufacture high quality products for competitive prices while
providing excellent service to its customers, including timely delivery of
products. EFP's net sales made up less than 10% of the Company's total net sales
during each of the last three years. Founded in 1954, EFP is headquartered in
Elkhart, Indiana and was acquired in 1985.
Products. EFP's products are manufactured from expandable polystyrene
("EPS"), expandable polypropylene ("EPP"), expanded polyethylene ("EPE"), a
copolymer of polyethylene and polystyrene ("Copolymer") and certain high heat
resistant resins ("Resins"). EPP, EPE, Copolymer and Resins are each tougher and
more resilient, or have higher temperature tolerances, than EPS. Products made
from expandable foams are lightweight and durable, capable of absorbing shocks
and impacts, provide thermal insulation and are chemically neutral.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
EFP manufactures and markets the following products:
o Packaging and Shock Absorbing Products. EFP sells these products to
other manufacturers who use them to package and ship a wide assortment
of industrial and consumer products, such as computers, television
sets, toys, furniture, appliances, and cameras. Virtually all of these
products are custom made to fit the "footprint" of the particular
product or item for which EFP's product is being manufactured. These
products are manufactured from EPS and EPP, with EPP being used for
more fragile products. Sales of packaging and shock absorbing products
represent approximately 75% of EFP's total sales.
o Material Handling Products. These products include reusable trays or
containers that are used for transporting components to or from a
customer's manufacturing facility (such as the transportation of an
automotive dashboard from a components supplier to an assembly plant).
EFP also offers its Thin-Wall(TM) products which are used as parts
positioning trays for robotic or automatic product assembly (such as
camera manufacturing). Material handling products generally are
produced from EPS, EPP or Copolymer.
o Thermal Insulation Products. EFP manufactures thermal insulation
products, its StyroPak(R) products are used to transport sensitive or
temperature critical products or materials (such as drugs and certain
food products). EFP sold the StyroPak(R) product line of beverage
coolers for retail consumption effective September 8, 1995.
o Components. EFP provides materials manufactured from EPP which are
used as energy absorbing components of automobile bumpers. EFP also
offers a line of its Styro-Cast(R) foam foundry patterns used by
foundries in the "lost foam" or "evaporative casting" metal pouring
process. During 1996, EFP began the production of door cores, with a
molded- in metal frame, for use in the mobile home manufacturing
industry.
Customers and Sales. EFP's products are sold to the automotive,
electronics, beverage, furniture, appliance, and marine industries, among
others. EFP has a diversified customer base.
EFP utilizes an in-house sales force and engages independent
representatives from time to time to provide supplemental sales support in the
marketing of EFP's packaging and shock absorbing products. EFP also employs an
engineering staff that assists customers in the production, design and testing
of products. Because expanded foams are very bulky, freight charges impose
geographical limitations on sales of those products. Generally, EFP considers
its target market to be limited to a 300-mile radius surrounding each
manufacturing facility. In certain circumstances, however, EFP has shipped its
products greater distances.
Manufacturing and Supplies. EFP manufactures its products at facilities
located in Indiana, Wisconsin, Alabama, Tennessee and Texas. The Texas and
Tennessee facilities manufacture products primarily for Compaq Computer
Corporation and Toshiba Corporation, respectively, although EFP intends to
utilize both facilities to manufacture products for other customers as well.
As is customary in the industry, EFP purchases its raw materials from a
variety of sources on a purchase order basis and not pursuant to long term
supply contracts. Raw material prices
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
fluctuate and EFP historically has been affected by price increases in the past
but has not experienced significant shortages of raw materials in recent years.
Industry. Because most of EFP's products are manufactured for use by
other industries, economic conditions which affect those other industries
generally will affect EFP's operations. In particular, growth or a downturn in
the automotive, electronics, furniture or appliance industries generally would
be expected to have a corresponding effect on EFP's business as those are the
principal industries served by its packaging and shock absorbing products. Sales
of EFP's products typically are not seasonal other than during a slight downturn
during the latter part of December and early January.
Competition. EFP competes with other molded, expandable plastic
producers and with manufacturers of alternative packaging and handling
materials, including paper, corrugated boxes and other foam products (such as
soft urethane). Many of these competitors, particularly the paper companies, are
large companies having greater financial resources than EFP. Certain other
expandable plastic manufacturers have multiple facilities. EFP also competes
with other companies in the foundry patterns market. Competitive factors include
price, quality and timely delivery of products.
Plastics and Precision Machining - Magnetic Instruments
Magnetic Instruments is a manufacturer, caster and assembler of
precision metal parts used in the worldwide oil and gas exploration industry. In
November 1994, Magnetic Instruments opened an electronic assembly facility and a
prototype machining center in Houston. The electronic assembly facility is
operating under the name ElectroSpec. Formed in 1963, Magnetic Instruments is
located in Brenham, Texas and was acquired in 1992. Magnetic Instruments' net
sales made up less than 10% of the Company's net sales during each of the last
three years.
Products. Magnetic Instruments manufactures various precision metal
parts and electro-mechanical devices that are utilized in a variety of
oilfield-related applications. Most of the precision parts currently
manufactured by Magnetic Instruments are utilized in connection with the
exploration for oil and gas reserves. Parts produced by Magnetic Instruments are
utilized for complex functions, such as well bore perforation and fracturing.
Its products are also applicable to many seismic and geophysical activities.
ElectroSpec assembles electronic printed circuit boards and instrumentation
packages for the same or similar applications. Management believes that the
addition of electronic assembly provides additional sales opportunities by
providing turnkey value-added assemblies to its customers which incorporate
machined parts and electronics in the manufacture of their products.
Customers. Magnetic Instruments sells its products primarily to
international oilfield service companies. Magnetic Instruments' four largest
customers represented approximately 69% of its total net sales during 1996. All
of these customers have been customers of Magnetic Instruments for more than
five years, and management considers relations with them to be good. ElectroSpec
markets to many of the same customers as Magnetic Instruments. As part of its
business strategy, Magnetic Instruments is seeking to expand its customer base
beyond the oil and gas industry, although there can be no assurance that it will
be successful in those efforts.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Manufacturing and Supplies. Magnetic Instruments manufactures its
products in a 75,500 square-foot manufacturing facility located approximately 70
miles northwest of Houston, Texas, which is a key center for oil and gas
exploration and production. The prototype machining facility and ElectroSpec are
in two manufacturing facilities located in Houston totaling 16,750 square feet.
Management believes that Magnetic Instruments' manufacturing capabilities are
among the most sophisticated in the industry. It performs a broad range of
computer-controlled precision machining and welding, including electrostatic
discharge machining, electron beam welding, trepanning, gun drilling and
investment casting.
Magnetic Instruments obtained ISO 9000 certification during 1994. ISO
is an internationally recognized certification of production practices and
techniques employed in manufacturing processes.
Products are manufactured primarily from non-magnetic stainless steel,
alloy steels, nickel based alloys, titanium, brass and beryllium copper.
Materials are obtained from a variety of sources and Magnetic Instruments has
not experienced significant shortages in materials in recent years.
Industry. Because Magnetic Instruments' products are sold to large,
international oilfield service companies, Magnetic Instruments is not dependent
solely on the domestic oil and gas industry. Rather, demand for equipment and
services supplied by those oilfield service companies and, in turn, sales of
related parts manufactured by Magnetic Instruments and ElectroSpec, are directly
related to the level of worldwide oil and gas drilling activity. Worldwide
drilling activity increased during 1996 thereby increasing the demand for
services from oilfield service companies which, in turn, increased Magnetic
Instruments' sales. Some of Magnetic Instruments' customers have subcontracted
to Magnetic Instruments the manufacturing of precision components that they
formerly manufactured themselves.
Competition. Magnetic Instruments competes with other businesses
engaged in the machining, casting, and manufacturing of parts and equipment
utilized in the oil and gas exploration industry. Technological know-how and
production capacity are the primary competitive factors in Magnetic Instruments'
industry.
Trademarks and Patents
The Company owns rights to certain presentations of Leer's name which
the Company believes is valuable insofar as management believes that it is
recognized as being a leading "brand name." Leer has learned that another person
claims to own the "Leer" name in Mexico; Leer has challenged the validity of
that person's rights to the name in Mexico. Until this claim is resolved it
could, or if it is resolved against Leer it would, adversely affect Leer's use
of the "Leer" name in Mexico. The Company also owns rights to certain other
trademarks and tradenames, including certain presentations of Morgan's name.
Although these and other trademarks and tradenames used by the Company help
customers differentiate Company product lines from those of competitors, the
Company believes that the trademarks or tradenames themselves are less important
to customers than the quality of the products. The Company also holds patents on
certain products which, although valuable to the Company, are not critical to
the Company's operations. In addition, Blue Ridge uses, with permission, certain
of its suppliers' tradenames and trademarks which are important to its business.
-12-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Employees
At January 31, 1997, the Company had approximately 3,500 permanent
employees. Personnel are unionized in Lowy Distribution's New Brighton,
Minnesota (contract expires May 1999), St. Louis (contract expires January 1998)
and Ankeny, Iowa (contract expires December 1999) warehouses (covering 12, 13,
and 8 persons, respectively) and EFP's Decatur, Alabama facility (covering
approximately 100 persons, with a contract expiring in August 1997). The Company
believes that relations with its employees are good.
Environmental Matters
The Company's operations are subject to numerous environmental statutes
and regulations, including laws and regulations affecting its products and
addressing materials used in manufacturing the Company's products. In addition,
certain of the Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air and water. The Company also generates non-hazardous
wastes. The Company has received occasional notices of noncompliance from time
to time with respect to its operations which are typically resolved by
correcting the conditions and the payment of minor fines, none of which
individually or in the aggregate has had a material adverse effect on the
Company. However, the Company expects that the nature of its operations will
continue to make it subject to increasingly stringent environmental regulatory
standards. Although the Company believes it has made sufficient capital
expenditures to maintain compliance with existing laws and regulations, future
expenditures may be necessary as compliance standards and technology change.
Unforeseen significant expenditures required to maintain such future compliance,
including unforeseen liabilities, could limit expansion or otherwise have a
material adverse effect on the Company's business and financial condition.
Morgan was named as a potentially responsible party ("PRP") with
respect to its alleged disposal of certain solvents at the Industrial Solvents
and Chemical Co. state hazardous waste site in Newberry, Township, Pennsylvania
("ISCC site") and at the Berks Associates Waste Recovery Superfund Site near
Douglasville, Pennsylvania ("Berks site"). Under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 and the Pennsylvania Hazardous
Sites Clean-Up Act, past and present site owners and operators, transporters and
waste generators are all potentially jointly and severally responsible for clean
up costs. However, typically, the generator portion of the costs are allocated
between generators, with each generator bearing costs proportionate to the
volume and nature of the wastes it disposed of at the site. Although a precise
estimate of liability cannot currently be made with respect to these sites,
based upon information known to Morgan, the agreements Morgan is party to and
including the size of the waste sites, their years of operation, the large
number of past users and potentially responsible parties of some of the sites,
the alleged waste contribution by Morgan at some of these sites and the nature
of the substances alleged to be present at the waste sites, the Company
currently believes that Morgan's proportionate share, if any, of the ultimate
costs related to any necessary investigation and remedial work at those sites
will not have a material adverse effect on the Company.
National Steel Service Company (NSSC), a company into which Morgan was
merged in December 1992, has been listed as a potentially responsible party
("PRP") at the Wichita Brass Co.,
-13-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Inc. National Priority List site at 29th & Mead in Wichita, Kansas. Although the
extent of NSSC's liability, if any, is not known at this time, management
currently believes that NSSC's allocated share of the ultimate costs related to
any necessary investigation and remedial work at this site will not have a
material adverse effect on the Company. The Company is not aware of any other
significant pending environmental claims pertaining to NSSC.
Since the 1980s and early 1990s, products manufactured from expandable
polystyrene, such as some of the products manufactured by EFP, have been
criticized as being allegedly harmful to the environment. Although management
believes that more recent information suggest that expandable polystyrene is not
as harmful to the environment as reported earlier, negative publicity relating
to the material has had, and in the future could have, an adverse effect on
EFP's business, although this publicity has not had a material adverse effect on
EFP's results of operations.
-14-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Item 2. Properties
The Company owns or leases the following manufacturing, distribution,
office and sales facilities:
Owned
Approximate or Lease
Location Principal Use Square Feet Leased Expiration(a)
Morgan:
Ehrenberg, Arizona ............. Manufacturing 125,000 Owned --
Fontana, California ............ Sales and service 9,000 Leased 2001
Tampa, Florida ................. Sales and service 13,500 Owned --
Rydal, Georgia ................. Manufacturing 85,000 Leased 1999
Cary, North Carolina ........... Sales 1,218 Leased 2000
Ephrata, Pennsylvania .......... Manufacturing 50,000 Owned --
Morgantown, Pennsylvania ....... Manufacturing 62,900 Leased 1997
Morgantown, Pennsylvania ....... Office & manufacturing 261,500 Owned --
Morgantown, Pennsylvania ....... Sales and service 9,600 Leased 1997
Corsicana, Texas ............... Manufacturing 60,000 Owned --
Janesville, Wisconsin .......... Manufacturing 23,000 Leased 1998
Janesville, Wisconsin .......... Manufacturing 32,000 Owned --
Leer:
Woodland, California ........... Manufacturing 92,000 Leased 2007
Elkhart, Indiana ............... Office & research 17,500 Owned --
Elkhart, Indiana ............... Manufacturing 139,000 Leased 2007
Milton, Pennsylvania ........... Manufacturing 102,000 Leased 2007
Century/Raider/GemTop:
Elkhart, Indiana ............... Manufacturing 91,900 Owned --
Elkhart, Indiana ............... Office 18,400 Leased 2005
Clackamas, Oregon .............. Manufacturing 78,000 Leased 1998
Drinkwater, Saskatchewan, Canada Office & manufacturing 72,000 Owned --
Moose Jaw, Saskatchewan, Canada Manufacturing 87,000 Leased 2005
Moose Jaw, Saskatchewan, Canada Truck repair 5,000 Leased 1997
Leer Retail: (b)
Brainerd, Minnesota ............ Manufacturing & sales 11,900 Leased 1999
Houston, Texas ................. Office & sales 6,300 Leased 2000
NTA:
Woodland, California ........... Office & warehouse 31,000 Leased 1999
Conyers, Georgia ............... Office & warehouse 13,000 Leased 1999
Elkhart, Indiana ............... Office & warehouse 57,000 Leased 2000
Milton, Pennsylvania ........... Office & warehouse 21,000 Leased 1998
Lowy Distribution:
Ankeny, Iowa ................... Warehouse, office & showroom 30,000 Owned --
Lenexa, Kansas ................. Warehouse, office & showroom 12,000 Leased 1997
New Brighton, Minnesota ........ Warehouse, office & showroom 120,000 Owned --
St. Louis, Missouri ............ Warehouse, office & showroom 85,000 Owned --
St. Louis, Missouri ............ Warehouse, office & showroom 45,000 Owned --
St. Louis, Missouri ............ Warehouse, office & showroom 14,000 Leased 1997
Omaha, Nebraska ................ Warehouse, office & showroom 7,000 Leased 1998
Blue Ridge:
Ellijay, Georgia ............... Office & manufacturing 195,000 Owned --
Ellijay, Georgia ............... Truck shop 3,500 Owned --
Chicago, Illinois .............. Office & showroom 2,300 Leased 1999
Courier:
Ellijay, Georgia ............... Office & manufacturing 66,000 Owned --
EFP:
Decatur, Alabama ............... Manufacturing 175,000 Leased 1999
Elkhart, Indiana ............... Office & manufacturing 211,600 Owned --
Elkhart, Indiana ............... Manufacturing 24,900 Leased 1997
Gordonsville, Tennessee ........ Manufacturing 40,000 Leased 2001
Marlin, Texas .................. Manufacturing 73,000 Leased 1998
Waukesha, Wisconsin ............ Manufacturing 13,850 Leased 1997
Magnetic Instruments:
Brenham, Texas ................. Office & manufacturing 75,500 Owned --
Houston, Texas ................. Manufacturing 16,750 Leased 1998
- ---------------
(a) Including all renewal terms.
(b) In addition, Leer leases 44 company-owned stores aggregating
approximately 100,000 square feet pursuant to leases with terms
averaging approximately nine years (including renewal options).
-15-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
The Company utilizes principally all of its facilities and believes
that its facilities are adequate for its current needs and are capable of being
utilized at higher capacities to supply increased demand if necessary.
Item 3. Legal Proceedings
The Company is involved in various lawsuits which arise in the ordinary
course of business. In the opinion of management, the ultimate outcome of these
lawsuits will not have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The registrant's common equity is privately held and not publicly
traded. As of March 1997, one individual owned all of the registrant's issued
and outstanding common equity. During the last two fiscal years, JBPCO paid no
cash dividends.
The registrant's ability to pay dividends on its common equity is
restricted to the extent described in the Indenture, dated as of May 23, 1994,
pertaining to the registrant's 12 1/2% Senior Notes due 2004 and the Loan and
Security Agreement, dated as of June 28, 1996, with Congress Financial
Corporation, as lender.
-16-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Item 6. Selected Financial Data
The historical financial data presented below for the years ended
December 31, 1996, 1995 and 1994 are derived from the audited Consolidated
Financial Statements of the Company. The data presented below should be read in
conjunction with Management's Discussion and Analysis of Results of Operations
and Financial Condition and the Consolidated Financial Statements of the Company
and notes thereto. The financial information is not directly comparable due to
the acquisitions of Magnetic Instruments (June 1992), Gem-Top Mfg., Inc. (March
1993), Radco (December 1994), 20th Century Fiberglass, Century Distributing and
Raider Industries (June 1995).
Year Ended December 31,
(Dollars in Millions, Except Per Share Amounts)
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Operating Data:
Net sales ..................... $ 432.4 $ 450.7 $ 386.6 $ 327.4 $ 279.3
Cost of sales ................. 338.0 365.3 301.3 254.9 219.0
Selling, general and
administrative expense....... 84.0 82.0 64.9 56.0 48.3
Plant closure expenses ........ 1.4 -- -- -- --
Other (income) expense ........ (0.1) (1.2) 0.4 1.2 0.4
-------- -------- -------- -------- --------
Operating income .............. 9.1 4.6 20.0 15.3 11.6
Interest expense .............. 16.2 15.9 11.5 6.4 6.8
Income tax provision (benefit) (1.0) (2.8) 3.0 2.3 1.2
Minority interests ............ -- -- -- (0.1) 0.1
-------- -------- -------- -------- --------
Income (loss) before
extraordinary loss .......... (6.1) (8.5) 5.5 6.7 3.5
Extraordinary loss ............ 0.3 -- 2.1 -- --
-------- -------- -------- -------- --------
Net income (loss) ............. $ (6.4) $ (8.5) $ 3.4 $ 6.7 $ 3.5
======== ======== ======== ======== ========
Earnings (loss) per share ..... $ (2,097) $ (2,790) $ 1,503 $ 6,656 $ 3,546
======== ======== ======== ======== ========
Cash dividends per share....... -- $ -- $ 2,910 $ 1,136 $ 693
======== ======== ======== ======== ========
Pro Forma for Taxes (a):
Income (loss) before income
taxes, minority interests and
extraordinary loss .......... $ (7.1) $ (11.2) $ 8.5 $ 8.9 $ 4.8
Income tax provision (benefit) (1.0) (2.8) 3.5 3.7 1.7
Minority interests ............ -- -- -- (0.1) 0.1
Extraordinary loss ............ 0.3 -- 2.1 -- --
-------- -------- -------- -------- --------
Net income (loss) ............. $ (6.4) $ (8.5) $ 2.9 $ 5.3 $ 3.0
======== ======== ======== ======== ========
-17-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Year Ended December 31,
(Dollars in Millions)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Balance Sheet Data (at period end):
Working capital ................. $ 22.4 $ 29.4 $ 56.6 $ 19.6 $ 12.3
Total assets .................... 173.5 180.8 173.2 139.8 115.2
Total long term obligations ..... 105.6 107.6 106.9 75.9 68.9
Stockholder's equity ............ $ 3.0 $ 9.5 $ 17.8 $ 15.2 $ 6.5
Other Data:
EBITDA (b)(c) ................... $ 20.9 $ 15.1 $ 28.2 $ 23.1 $ 18.0
Capital expenditures ............ 8.1 11.9 9.2 9.8 4.2
Depreciation and amortization (c) 11.2 10.5 8.2 7.8 6.4
Consolidated EBITDA
Coverage Ratio (d) .............. 1.3x 1.0x 2.5x 3.6x 2.7x
(a) Pro Forma for Taxes data reflect the Company's income taxes (benefits)
assuming that Lowy Group and Magnetic Instruments, which had been "S"
corporations prior to May 16, 1994, were taxable "C" corporations
during the relevant periods. Lowy Group and Magnetic Instruments were
taxable "C" corporations, effective May 16, 1994.
(b) "EBITDA" means earnings before deducting interest expense, taxes,
depreciation and amortization and minority interests as defined in the
Indenture pertaining to the Senior Notes. EBITDA is not included
herein as operating data and should not be construed as an alternative
to operating income (determined in accordance with generally accepted
accounting principles) as an indicator of the Company's operating
performance. The Company has included EBITDA because it is relevant
for determining compliance under the Indenture and because the Company
understands that it is one measure used by certain investors to
analyze the Company's operating cash flow and historical ability to
service its indebtedness.
(c) Depreciation and amortization excludes amortization of debt issuance
cost of $0.7 million, $0.7 million and $0.4 million in 1996, 1995 and
1994, respectively.
(d) "Consolidated EBITDA Coverage Ratio" is the ratio of EBITDA to
interest expense that is used in the Indenture to limit the amount of
indebtedness that the Company may incur.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements of the Company and its subsidiaries, Morgan, TAG, Lowy, EFP
and Magnetic Instruments (the Subsidiaries) and the notes thereto.
-18-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Basis of Financial Statements
Concurrently with the initial public offering of $100.0 million, 12
1/2% Senior Notes due 2004, (the "Senior Notes"), effective May 23, 1994, the
Company acquired TAG, Lowy, EFP and Magnetic Instruments from John B. Poindexter
and certain minority interests. The historical, Consolidated Financial
Statements reflect the acquisition of the Subsidiaries as an exchange of
interests in companies under common control in a manner similar to a pooling of
interests, except that each subsidiary is included only from the date of Mr.
Poindexter's purchase of his interest therein.
Overview
The Company has grown from 1992 through 1996, both internally and
through acquisitions (Magnetic Instruments and Gem-Top were acquired in June
1992 and March 1993, respectively). During 1994, the Company acquired Radco, a
pick up truck accessory retailer, and Tile by Design, a wholesale floor covering
distributor. TAG acquired the businesses and assets of three companies,
effective June 30, 1995: 20th Century Fiberglass, a manufacturer of pick up
truck caps, Century Distributing, a wholesaler of light truck accessories, both
based in Elkhart, Indiana, and Raider Industries, a manufacturer of pick up
truck caps and tonneau covers based in Drinkwater, Saskatchewan, Canada. Net
sales increased from $279.3 million in 1992 to $450.7 million in 1995, however,
decreased to $432.4 million during 1996. Operating income increased from $11.6
million in 1992 to $20.0 million in 1994, however, during 1995 and 1996 TAG
incurred operating losses of $12.1 million and $6.9 million, respectively, which
reduced the Company's consolidated operating income to $4.6 million and $9.1
million respectively.
The following table represents the net sales, operating income and
operating margins for each Subsidiary and on a consolidated basis.
-19-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Years Ended December 31,
(Dollars in Millions)
1996 1995 1994
------ ------ ------
Net Sales:
Morgan ............. $ 145.5 $ 187.7 $ 154.5
TAG ................ 158.6 137.5 111.4
Lowy ............... 71.3 75.0 77.4
EFP ................ 31.5 30.2 30.6
Magnetic Instruments 25.5 20.3 12.7
------ ------ ------
Consolidated ....... $ 432.4 $ 450.7 $ 386.6
====== ====== ======
Operating Income (Loss):
Morgan ............. $ 7.1 $ 9.9 $ 8.2
TAG ................ (6.9) (12.1) 4.5
Lowy ............... 3.9 4.9 5.9
EFP ................ 2.7 1.7 1.5
Magnetic Instruments 4.8 2.9 1.3
JBPCO .............. (2.5) (2.7) (1.4)
------ ------ ------
Consolidated ....... $ 9.1 $ 4.6 $ 20.0
====== ====== ======
Operating Margins:
Morgan ............. 4.9% 5.2% 5.3%
TAG ................ (4.4) (8.8) 4.0
Lowy ............... 5.5 6.6 7.6
EFP ................ 8.6 5.7 4.9
Magnetic Instruments 18.8 14.4 10.2
------ ------ ------
Consolidated ....... 2.0% 1.0% 5.2%
====== ====== ======
Results of Operations
Consolidated Operating Results
Comparison of 1996 to 1995
Net sales decreased 4% to $432.4 million in 1996 compared to $450.7
million in 1995. The decrease was due primarily to Morgan whose sales decreased
22% or $42.2 million partially offset by increases of $21.1 million (15%) at TAG
and $5.2 million (26%) at Magnetic Instruments.
Cost of sales decreased 8% to $338.0 million in 1996 from $365.3
million in 1995, and gross profit increased 11% to $94.4 million (22% of net
sales) in 1996 compared to $85.4 million (19% of net sales) in 1995. EFP,
Magnetic Instruments and TAG recorded 47%, 38% and 37% increases in gross
profit, respectively.
Selling, general and administrative expense increased 3% to $84.1
million (19% of net sales) in 1996 compared to $82.0 million (18% of net sales)
in 1995.
-20-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Operating income increased 95% to $9.1 million in 1996 compared to $4.6
million in 1995. Operating losses at TAG decreased 43% to $6.9 million compared
to $12.1 million during 1995. The Company's management took steps to improve the
operating results of TAG including closing an inefficient plant and certain
unprofitable retail locations resulting in closure costs of $1.4 million during
1996.
Interest expense increased 2% to $16.2 million in 1996 compared to
$15.9 million in 1995, average total debt increased 9% to $134.6 million during
1996 compared to $123.2 million during 1995.
The Company recorded an aggregate income tax benefit of $1.1 million
for the year ended December 31, 1996 compared to a $2.7 million benefit during
1995. See Note 11 of Notes to the Consolidated Financial Statements.
Comparison of 1995 to 1994
The Company made three acquisitions during June 1995. TAG acquired 20th
Century Fiberglass and Century Distributing, which are a manufacturer and
wholesaler, respectively, of pick up caps and accessories, both based in
Elkhart, Indiana and Raider, a Canadian manufacturer of pick up caps and tonneau
covers.
Net sales increased 17% to $450.7 million in 1995 compared to $386.6
million in 1994. The increase was due primarily to Morgan whose sales increased
22% or $33.2 million.
Cost of sales increased 21% to $365.3 million in 1995 from $301.3
million in 1994, and gross profit decreased less than 1% to $85.4 million (19%
of net sales) in 1995 compared to $85.3 million (22% of net sales) in 1994.
Selling, general and administrative expense increased 26% to $82.0
million (18% of net sales) in 1995 compared to $64.9 million (17% of net sales)
in 1994.
Due to an operating loss of $12.1 million at TAG, operating income
decreased 77% to $4.6 million (1.0% of net sales) in 1995 compared to $20.0
million (5.2% of net sales) in 1994.
Interest expense increased 38% to $15.9 million in 1995 compared to
$11.5 million in 1994, because of increased interest cost associated with
additional borrowings required to finance operations and acquisitions, and
higher interest rates associated with the Company's Senior Notes issued May 23,
1994, compared to the interest rates on the debt retired on that date with
proceeds of the Senior Notes.
The Company recorded an income tax benefit of $2.7 million for the year
ended December 31, 1995 compared to an expense of $3.0 million during 1994. The
benefit represents an estimate of the future value of deductions to be used to
reduce future taxable income.
-21-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Morgan
Comparison of 1996 to 1995
Net sales decreased 22% to $145.5 million in 1996 compared to $187.7
million in 1995. Shipments of van body units decreased 25% to 18,647 units in
1996 compared to 25,016 units during 1995. Consumer Rental Sales (as defined
under Business) decreased 60% to $13.9 million and Commercial Sales decreased
12% to $117.7 million in 1996 compared to 1995. Backlog at December 31, 1996 was
$50.2 million compared to $41.8 million at the end of 1995. The increase in
backlog reflects an increase in consumer rental orders following the cyclical
downturn in that business.
Cost of sales decreased 23% to $126.1 million in 1996 compared to
$163.4 million in 1995 as a result of the decrease in units produced. Gross
profit decreased $4.9 million or 20% compared to 1995. Gross profit margins
increased slightly as a result of slightly lower raw material costs and the
implemention of selling price increases.
Selling, general and administrative expense decreased 14% to $12.3
million (9% of net sales) in 1996 compared to $14.4 million (8% of net sales) in
1995. Selling expense decreased 11% and General and Administrative expense
decreased 18% as Morgan continued to develop the Commercial Sales business.
Morgan's operating income decreased 28% to $7.1 million in 1996
compared to $9.9 million in 1995 due to its decreased net sales. As a percentage
of net sales, operating income remained at 5% in 1996 the same as in 1995.
Comparison of 1995 to 1994
Net sales increased 22% to $187.7 million in 1995 compared to $154.5
million in 1994. Shipments of van body units increased 23% to 25,016 units in
1995 compared to 20,310 units during 1994. Consumer Rental Sales (as defined
under Business) increased 43% to $34.7 million and Commercial Sales increased
14% to $134.4 million in 1995 compared to 1994. Backlog at December 31, 1995 was
$41.8 million compared to $63.7 million at the end of 1994. The decline in
backlog reflected a cyclical downturn in Class 3 through Class 7 truck sales.
Cost of sales increased 22% to $163.4 million in 1995 compared to
$134.1 million in 1994 as a result of the increase in units produced. Gross
profit increased $3.9 million or 19% compared to 1994. Gross profit margins
declined slightly as a result of increased raw material costs and delay in
implementing selling price increases.
Selling, general and administrative expense increased 16% to $14.4
million (8% of net sales) in 1995 compared to $12.4 million (8% of net sales) in
1994. Selling expense increased 27% primarily as a result of additional sales
personnel and the associated costs in anticipation of efforts during 1996 to
increase Commercial Sales. General and administrative expense remained
consistent with the prior year.
-22-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Morgan's operating income increased 21% to $9.9 million in 1995
compared to $8.2 million in 1994 due primarily to increased net sales. As a
percentage of net sales, operating income remained at 5.3% in 1995 the same as
in 1994.
TAG
Comparison of 1996 to 1995
Total net sales for TAG increased 15% to $158.6 million in 1996
compared to $137.5 million in 1995. TAG Manufacturing Division net sales
increased 21% to $91.5 million during 1996 compared to $75.9 million during
1995. Net sales during 1995 include sales of 20th Century Fiberglass and Raider
Industries for the six months subsequent to their acquisition during June 1995.
Combined net sales for 20th Century Fiberglass and Raider Industries were $36.0
million for the year ended December 31, 1996 compared to $17.6 million for the
six months ended December 31,1995.
TAG Distribution Division net sales increased 9% to $67.1 million
during 1996 compared to $61.6 million during 1995, operations acquired during
June 1995 increased sales approximately $3.2 million for the year ended December
31, 1996 compared to 1995. Leer Retail sales increased $2.9 million (7%) and
wholesale sales, excluding Century Distribution, remained flat. TAG closed four
unprofitable stores during 1996, resulting in closure costs of approximately
$0.3 million.
Cost of sales increased $10.1 million (9%) to $117.7 million in 1996
compared to $107.6 million in 1995. Gross profit increased 37% to $40.9 million
(26% of net sales) during 1996 compared to $29.9 million (22% of net sales)
during 1995. The increase was due primarily to the TAG Manufacturing Division as
product mix changes and efforts to improve product quality and delivery times
were reflected in lower cost of sales . Also during 1996, TAG Manufacturing
Division eliminated the production of plastic caps.
Selling, general and administrative expense increased 10% to $46.4
million (29% of net sales) during 1996 compared to $42.1 million (31% of net
sales) during 1995. Selling expense increased 5% or $0.9 million and general and
administrative expense increased 14% or $3.4 million, primarily as a result of
the inclusion of operations, acquired during June 1995, for twelve months of
1996.
TAG incurred an operating loss for the year ended December 31, 1996 of
$6.9 million compared to an operating loss of $12.1 million in 1995. The
improvement in operating performance was primarily the result of efforts to
remedy manufacturing problems associated with the introduction of new product
lines, product design changes and paint finishing processes.
The Company continues to respond in a number of ways to correct the
manufacturing problems encountered by TAG during 1996 and 1995. The Leer
Manufacturing plant in the Southeastern United States was closed during the last
quarter of 1996 due to inefficient operations. Production has been transferred
to the remaining TAG Manufacturing plants with an associated reduction in
overhead costs. Including costs of closing the Gem Top East facility, total
closure costs of approximately $1.1 million were charged to expense during 1996.
Management has taken steps
-23-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
to address the manufacturing problems including among others, redesigning
certain products and implementing additional quality control procedures. Other
improvement measures are being evaluated.
Comparison of 1995 to 1994
Total net sales for TAG increased 23% to $137.5 million in 1995
compared to $111.4 million in 1994. Excluding operations acquired June 30, 1995,
sales increased $3.2 million or 3%.
TAG incurred an operating loss for the year ended December 31, 1995 of
$12.1 million compared to an operating profit of $4.5 million in 1994. Excluding
acquired operations the TAG operating loss was approximately $13.2 million. The
decline in comparable operating income of $17.7 million includes $2.9 million in
non-cash charges related to increased bad debt, inventory obsolescence and
warranty reserves. The reduction in operating performance was primarily the
result of manufacturing problems associated with the introduction of new product
lines, product design changes and paint finishing processes. These problems
contributed to higher product returns and production delays.
During 1995, compared to 1994, retail sales increased $10.3 million
(35%) and wholesale sales, excluding Century Distribution, increased $1.0
million (5%), however, manufacturing sales declined $8.1 million (12%). TAG
operated 48 company owned retail stores at December 31, 1995. The increase in
retail sales was primarily attributable to the acquisition of eight Radco stores
during December 1994 which contributed $8.0 million in sales during 1995 and the
addition of seven new stores opened during the year. TAG closed three
unprofitable stores during 1995.
TAG operated four wholesale distribution centers and nine manufacturing
locations, including three from the acquisition of Century/ Raider. The Leer
manufacturing locations shipped approximately 125,000 units during 1995, 14%
less than during 1994 due to the problems referred to above.
Cost of sales increased $29.6 million (38%) to $107.7 million in 1995
compared to $78.1 million in 1994. Excluding operations acquired June 30, 1995,
cost of sales increased approximately $12.0 million (15%). Gross profit
decreased $3.5 million (10%), or $8.7 million (26%) excluding acquired
operations. The decrease was due primarily to manufacturing costs associated
with the problems referred to above. The gross profit from retail operations
increased $3.6 million or 43%, including $2.3 million from Radco stores acquired
December 1994.
Selling, general and administrative expense increased 46% to $42.1
million during 1995. Excluding acquired operations, expenses increased
approximately $9.0 million or 31% to $37.8 million. Selling, general and
administrative expense includes approximately $1.0 million of non-cash charges
related to increased bad debt reserves. The establishment of separate operating
divisions and the centralization of certain functions at the Leer manufacturing
division increased general and administrative expenses approximately $3.6
million during 1995. Additional delivery costs associated with product returns
increased costs approximately $1.2 million. Selling expense increased $2.7
million, excluding acquired operations, to $16.2 million or 14% of sales
compared
-24-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
to 12% of sales in 1994. The increase is primarily attributable to Radco selling
expense of $2.5 million.
The Company responded in a number of ways in an effort to correct the
manufacturing problems encountered by TAG during 1995. Senior management of the
Leer manufacturing division was changed significantly including the replacement
of the division's President and Chief Financial Officer. At the same time, Leer
filled a number of senior positions which in the past remained vacant. Those
positions included a Director of Engineering, Director of Quality Assurance, a
Director of Human Resources and a Manager of Credit and Collections. In addition
to changing the make-up and breadth of its senior management, the Leer division
also allocated more responsibilities to the General Managers of the
manufacturing plants.
Lowy Group
Comparison of 1996 to 1995
Net sales decreased 5% to $71.3 million in 1996 compared to $75.0
million in 1995. Sales from the floor covering distribution business declined
$4.3 million (9%) and carpet manufacturing activity sales increased $0.6 million
(2%).
Cost of sales decreased 5% to $51.5 million in 1996 from $54.0 million
in 1995. Accordingly, gross profit decreased 6% to $19.8 million (28% of net
sales) in 1996 compared to $21.0 million (28% of net sales) in 1995.
Selling, general and administrative expense decreased 2% to $15.9
million (22% of net sales) in 1996 compared to $16.2 million (21% of net sales)
in 1995. The decrease was due primarily to lower expenses associated with a
reduction in personnel partially offset by higher sample expense and increased
fixed selling costs.
Lowy Group's operating income decreased 21% to $3.9 million (6% of net
sales) in 1996 compared to $4.9 million (7% of net sales) in 1995.
Comparison of 1995 to 1994
Net sales decreased 3% to $75.0 million in 1995 compared to $77.4
million in 1994. Sales from the floor covering distribution business declined
$1.9 million (4%) carpet manufacturing activity sales declined $0.5 million
(1%).
Cost of sales decreased 2% to $54.0 million in 1995 from $55.3 million
in 1994. Accordingly, gross profit decreased 9% to $21.0 million (28% of net
sales) in 1995 compared to $22.1 million (29% of net sales) in 1994. Lowy
benefited from lower material costs in 1994 as a result of purchasing material
at unusually favorable terms which were not available in 1995.
Selling, general and administrative expense increased 2% to $16.2
million (21% of net sales) in 1995 compared to $15.9 million (21% of net sales)
in 1994. The increase was due primarily to
-25-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
increased carpet sample expense, partially offset by lower selling expense as a
result of lower commission payments and lower costs associated with a reduction
in sales personnel.
Lowy Group's operating income decreased 17% to $4.9 million (7% of net
sales) in 1995 compared to $5.9 million (8% of net sales) in 1994.
EFP
Comparison of 1996 to 1995
Net sales increased 4% to $31.5 million in 1996 compared to $30.2
million in 1995. EFP's Components (as defined under Business) sales increased
$3.9 million, on the strength of new business, offset by decreased Styrocast
business and the absence of revenue from the beverage cooler business sold in
1995.
Cost of sales decreased 3% to $25.0 million in 1996 from $25.8 million
in 1995. Accordingly, gross profit increased 47% to $6.5 million (21% of net
sales) in 1996 compared to $4.4 million (15% of net sales) in 1995. The decrease
in cost of sales was due to a decrease in labor costs as a result of the sale of
the beverage cooler product line.
Selling, general and administrative expense remained $3.8 million (12%
of net sales) in 1996 compared to $3.8 million (13% of net sales) in 1995. The
decrease in expense as a percentage of net sales is primarily due to the
elimination of the beverage product line.
EFP's operating income increased 58% to $2.7 million (9% of net sales)
in 1996 compared to $1.7 million (6% of net sales) in 1995.
Comparison of 1995 to 1994
Net sales decreased 1% to $30.2 million in 1995 compared to $30.6
million in 1994. Packaging sales increased approximately $3.4 million during
1995 which offset the anticipated reduction in Styro-Cast business of $3.8
million during 1995. During September 1995 EFP sold its beverage cooler product
line which decreased sales approximately $0.1 million during the last quarter of
1995.
Cost of sales increased 5% to $25.8 million in 1995 from $24.6 million
in 1994. Accordingly, gross profit decreased 27% to $4.4 million (15% of net
sales) in 1995 compared to $6.0 million (20% of net sales) in 1994. The increase
in cost of sales was due to increased raw material costs associated with a
change in product mix and increased raw material prices. Labor costs declined as
a result of product mix changes.
Selling, general and administrative expense decreased 14% to $3.8
million (13% of net sales) in 1995 compared to $4.4 million (14% of net sales)
in 1994 due primarily to a $0.6 million (22%) decrease in general and
administrative expense associated with a reduction in personnel.
-26-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
EFP's operating income increased 13% to $1.7 million (6% of net sales)
in 1995 compared to $1.5 million (5% of net sales) in 1994. Excluding the income
attributable to the sale of EFP's beverage cooler product line, operating income
declined by 47% to $0.7 million.
Magnetic Instruments
Comparison of 1996 to 1995
Net sales increased 26% to $25.5 million in 1996 compared to $20.3
million in 1995. The increase was attributable to an increased demand for
Magnetic's products and services due to increased levels of activity in the
energy exploration and production business.
Cost of sales increased 21% to $17.6 million in 1996 compared to $14.5
million in 1995. Accordingly, gross profit increased 38% to $7.8 million (31% of
net sales) in 1996 compared to $5.7 million (28% of net sales) in 1995 due
primarily to a higher volume of sales in 1996.
Selling, general and administrative expense increased 18% to $3.0
million (12% of net sales) compared to $2.6 million (12% of net sales) in 1995,
principally because of increased sales commission payments and increased
personnel costs.
Operating income increased 65% to $4.8 million during 1996, or 19% of
net sales, compared to $2.9 million or 14% of net sales in 1995.
Comparison of 1995 to 1994
Net sales increased 60% to $20.3 million in 1995 compared to $12.7
million in 1994. The increase was primarily attributable to an increased demand
for Magnetic's products and services due to increased levels of activity in the
energy exploration and production business.
Cost of sales increased 56% to $14.5 million in 1995 compared to $9.3
million in 1994. Accordingly, gross profit increased 70% to 5.7 million (29% of
net sales) in 1995 compared to $3.4 million (27% of net sales) in 1994 due to a
higher volume of sales in 1995.
Selling, general and administrative expense increased 18% to $2.6
million (12% of net sales) compared to $2.2 million (17% of net sales) in 1994,
primarily because of increased general and administrative expense associated
with increased personnel costs as well as attorneys' fees associated with a
lawsuit against Magnetic.
Operating income increased to $2.9 million during 1995, or 14% of net
sales, compared to $1.3 million or 10% of net sales in 1994.
-27-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Liquidity and Capital Resources
During 1996 net cash provided by operations increased $18.9 million to
$10.7 million compared to net cash used by operations of $8.2 million during
1995. Overall changes in working capital provided cash of $6.4 million during
1996 compared to using cash of $5.8 million during 1995. The improvement was due
primarily to a decrease in working capital requirements and improved operating
results during 1996. The cash provided by operations in 1996 was used primarily
to fund capital expenditures of $8.1 million and debt repayments of $2.2
million.
At December 31, 1995, the Revolving Credit Agreement, entered into on
May 23, 1994, contained numerous restrictive covenants which, among other
things, restricted the ability of the Company to dispose of assets and incur
debt and restrict certain corporate activities. In addition, the Company was
required to maintain specified financial covenants including a minimum net worth
and debt coverage ratio. At December 31, 1995, the Company was not in compliance
with the minimum net worth requirements or the debt coverage ratio as specified
by the Revolving Credit Agreement and borrowings by certain subsidiaries had
exceeded their borrowing base.
The covenant violations as of December 31, 1995 primarily resulted from
the Company incurring a net loss of $8.5 million in 1995, which included
significant losses at TAG, as a result of manufacturing problems associated with
new product development, design changes and paint finishing processes. These
problems contributed to higher than normal product returns and production
delays. Management of JBPCO and TAG, began taking steps during 1995 to address
these problems including, among others, redesigning certain products and
implementing additional quality control procedures and closing inefficient
operations. In addition, during 1996, TAG Manufacturing Division closed a
manufacturing facility and TAG Distribution closed certain unprofitable retail
locations resulting in a total charge of $1.4 million.
Subsequent to December 31, 1995, upon determination of the available
borrowing base, the Company took action to conform the borrowings of the
subsidiaries to the limits of the then available borrowing bases. In addition,
the lenders agreed to waive the covenant violations and to amend the financial
covenants of the Revolving Credit Agreement through its May 1997 expiration,
subject to the completion of certain documentation requirements.
On June 28, 1996, the Company entered into a new secured revolving loan
agreement (Revolving Loan Agreement) with a new lender providing for borrowings
by its Subsidiaries of up to $50,000,000. The arrangement allows the Company to
borrow funds and provides for the guarantee of letters of credit and certain
foreign exchange contracts, issued by the company's banks, up to the lesser of
$50,000,000 or a percentage of eligible accounts receivable and of eligible
inventory of the Subsidiaries. The Revolving Loan Agreement provides for
borrowings at variable rates of interest, based on either Core States Bank N.A.
prime rate or LIBOR and expires June 28, 1999. Interest is payable monthly. The
Subsidiaries are guarantors of this indebtedness to which inventory and
receivables are pledged.
Effective June 28, 1996, the Company used proceeds of $24.3 million
from the Revolving Loan Agreement to repay all indebtedness outstanding under
the Revolving Credit Agreement entered into on May 23, 1994. The ability to
borrow under the Revolving Loan Agreement depends
-28-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
on the amount of eligible collateral which depends on certain advance rates
applied to the value of accounts receivables and inventory. At March 7, 1997 the
Company had unused available borrowing capacity of $13.7 million under the terms
of the Revolving Loan Agreement. At December 31, 1996 the Company had total
borrowing capacity of $43.8 million, of which $8.2 million was used to secure
letters of credit and $0.9 million was used to secure trade finance borrowings.
Additionally, $28.2 million had been borrowed to fund operations resulting in
unused available borrowing capacity of $9.9 million.
As discussed in Notes 8 and 9 to the Consolidated Financial Statements,
the Company's Revolving Loan Agreement and Senior Notes Indenture restrict the
ability of the Company to dispose of assets, incur debt, pay dividends and
restrict certain corporate activities.
The Company believes that it has adequate resources to meet its working
capital and capital expenditure requirements consistent with past trends and
practices, and that its cash balances and the borrowing availability under the
Revolving Credit Agreement will satisfy the Company's cash requirements for the
foreseeable future given its anticipated additional capital expenditure and
working capital requirements and its known obligations. Although there are no
assurances, the Company's management believes that operational issues related to
TAG will be resolved resulting in the Company maintaining adequate liquidity.
Other Matters
The Company is significantly leveraged (debt represented 95% of total
capitalization at December 31, 1996). Through its floating rate debt, the
Company will be subject to interest rate fluctuations. The Company operates in
cyclical businesses and the markets for its products are highly competitive. In
addition, the Company places significant reliance on a relatively few number of
customers with two customers accounting for 14% of 1996 consolidated net sales.
The combination of these factors, which are outside the Company's control, cause
it to be subject to changes in economic trends and new business developments.
Inflation historically has not materially affected the Company's
business, although raw materials and general operating expenses, such as
salaries and employee benefits, are subject to normal inflationary pressures.
The Company believes that generally it has been able to increase its selling
prices to offset increases in costs due to inflation.
Morgan has been named as a potentially responsible party under various
environmental laws (See Note 15 of Notes to Consolidated Financial Statements),
with respect to two different sites, and has been requested to provide
information to the Environmental Protection Agency with respect to those sites.
Under the Comprehensive Environmental Response Compensation and Liability Act of
1980 and the Pennsylvania Hazardous Sites Clean-Up Act, past and present site
owners and operators, transporters and waste generators are all potentially
jointly and severally responsible for clean up costs. However, typically, the
generator portion of the costs are allocated between generators, with each
generator bearing costs proportionate to the volume and nature of the wastes it
disposed of at the site. Although the extent of Morgan's liability, if any, is
not known at this time, management currently believes that Morgan's allocated
share of the ultimate costs related to any necessary investigation and remedial
work at these sites will not have a material adverse effect on
-29-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
the Company. Certain of the Company's operations utilize paints and solvents in
their businesses. Also, raw materials used by EFP contain pentane, which is a
volatile organic compound subject to regulation under the Clean Air Act.
Although the Company believes that it has made sufficient capital expenditures
to maintain compliance with existing laws and regulations, future expenditures
may be necessary as compliance standards and technology change. In addition, as
discussed in Note 15, the Company is aware of certain environmental matters
pertaining to NSSC.
Although all of the Subsidiaries have reviewed the benefits of the
adoption of ISO 9000, an internationally recognized certification regarding
production practices and techniques employed in manufacturing processes, only
Magnetic Instruments has obtained certification. Its implementation of this
standard is in recognition of the international nature of a number of its
customers as well as being reflective of the high precision nature of its
services. EFP has plans to implement the standard within the next two years. The
Company believes that, except for Magnetic Instruments and EFP, none of the
customers of the Company have requested or expect the adoption by the Company of
ISO 9000.
The Subsidiaries have historically made payments to a partnership and a
corporation controlled by Mr. Poindexter in the form of allocated overhead
expenses, consulting services and management fees. Upon consummation of the Note
Offering, the Company pays fees to that corporation for, among other things,
services provided by Messrs. Poindexter and Magee. The Company charges the
Subsidiaries for their use of funds and for stewardship services provided to
them by the Company.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements: Page
Report of Independent Auditors (Ernst & Young LLP) ................ 31
Report of Independent Public Accountants (Arthur Andersen LLP) .... 32
Consolidated Balance Sheets as of December 31, 1996 and 1995 ...... 33
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 ............................. 34
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 ............................. 35
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1996, 1995 and 1994 ............................. 36
Notes to Consolidated Financial Statements ........................ 37
-30-
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
J.B. Poindexter & Co., Inc.
We have audited the accompanying consolidated balance sheet of J.B. Poindexter &
Co., Inc. and subsidiaries as of December 31, 1996 and the related consolidated
statements of operations, cash flows and stockholder's equity for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require than 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of J.B. Poindexter &
Co., Inc. and subsidiaries at December 31, 1996 and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 21, 1997
-31-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To J.B. Poindexter & Co., Inc.:
We have audited the accompanying consolidated balance sheets of J.B. Poindexter
& Co., Inc. (a Delaware Corporation) and subsidiaries, as of December 31, 1995
and 1994, and the related consolidated statements of operations, cash flows and
stockholder's equity for each of the two years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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.
As discussed in Note 8, the Company incurred a significant loss in 1995
attributable to losses by one of its subsidiaries. As a result, JBPCO violated
certain financial covenants of its revolving credit agreement. The lenders have
agreed to waive the covenant violations and amended financial covenants have
been established through expiration of the facility in May 1997. The steps taken
by Company management to address certain operational issues of the subsidiary
are also discussed in Note 8.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J.B. Poindexter &
Co., Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 1996
-32-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
December 31,
1996 1995
--------- ---------
Current assets
Restricted cash .............................................. $ 2,607 $ 1,714
Accounts receivable, net of allowance for doubtful accounts of
$1,863 and $2,626 respectively ...................... 31,258 33,848
Inventories, net ............................................. 48,612 51,937
Deferred income taxes ........................................ 2,588 3,417
Prepaid expenses and other ................................... 2,139 2,299
--------- ---------
Total current assets ................................ 87,204 93,215
Property, plant and equipment, net ................................ 51,097 52,746
Goodwill, net ..................................................... 21,773 22,860
Deferred income taxes ............................................. 5,174 2,470
Other assets ...................................................... 8,233 9,503
--------- ---------
Total assets ........................................ $ 173,481 $ 180,794
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term debt .............................................. $ 917 $ 4,184
Current portion of long-term debt ............................ 1,885 2,337
Borrowings under revolving credit facility ................... 28,238 24,288
Accounts payable ............................................. 14,624 13,826
Accrued compensation and benefits ............................ 7,427 6,726
Accrued income taxes ......................................... 372 363
Accrued warranty liabilities ................................. 2,799 2,660
Other accrued liabilities .................................... 8,576 9,400
--------- ---------
Total current liabilities ........................... 64,838 63,784
--------- ---------
Noncurrent liabilities
Long-term debt, less current portion ......................... 102,767 104,543
Employee benefit obligations and other ....................... 2,846 3,016
--------- ---------
Total noncurrent liabilities ........................ 105,613 107,559
--------- ---------
Commitments and contingencies
Stockholder's equity
Common stock and paid-in capital ............................. 16,486 16,486
Cumulative translation adjustment ............................ 39 46
Accumulated deficit .......................................... (13,495) (7,081)
--------- ---------
Total stockholder's equity .......................... 3,030 9,451
--------- ---------
Total liabilities and stockholder's equity .......... $ 173,481 $ 180,794
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
-33-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
Year Ended December 31,
1996 1995 1994
--------- --------- ---------
Net sales ............................................. $ 432,387 $ 450,716 $ 386,645
Cost of sales ......................................... 337,957 365,313 301,338
--------- --------- ---------
Gross profit .......................................... 94,430 85,403 85,307
Selling, general and administrative expense ........... 84,062 81,971 64,915
Plant closure expenses ................................ 1,375 -- --
Other (income) expense, net .......................... (76) (1,211) 384
--------- --------- ---------
Operating income ...................................... 9,069 4,643 20,008
Interest expense ...................................... 16,214 15,901 11,481
--------- --------- ---------
Income (loss) before income taxes, minority
interests and extraordinary loss .................. (7,145) (11,258) 8,527
Income tax provision (benefit) ........................ (991) (2,722) 3,027
--------- --------- ---------
Income (loss) before minority interests
and extraordinary loss ............................ (6,154) (8,536) 5,500
Minority interests .................................... -- -- 37
Extraordinary loss on early extinguishment of
debt, net of income tax benefit of $135 in 1996 and
$935 in 1994 ...................................... 260 -- 2,066
--------- --------- ---------
Net income (loss) ..................................... $ (6,414) $ (8,536) $ 3,397
========= ========= =========
Earnings (loss) per share:
Income (loss) before extraordinary loss ........... $ (2,012) $ (2,790) $ 2,418
Extraordinary loss ................................ (85) -- (915)
--------- --------- ---------
Net income (loss) ................................. $ (2,097) $ (2,790) $ 1,503
========= ========= =========
Weighted average shares outstanding ................... 3,059 3,059 2,259
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
-34-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Net income (loss) .................................................... $ (6,414) $ (8,536) $ 3,397
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Minority interests .............................................. -- -- 37
Depreciation and amortization ................................... 11,862 11,155 8,617
Extraordinary loss on early extinguishment of debt,
net of tax .................................................. 260 -- 2,066
Gain (loss) on sale of equipment ............................... 19 (1,144) (12)
Deferred federal income tax provision (benefit) ................. (1,875) (3,875) (850)
Other ........................................................... 453 96 (146)
Increase (decrease) in operating cash flows resulting from changes in:
Accounts receivable ............................................. 2,590 923 (5,904)
Inventories ..................................................... 3,325 5,126 (11,512)
Prepaid expenses and other ...................................... 160 71 1,309
Accounts payable ................................................ 798 (13,430) (1,222)
Accrued income taxes ............................................ 9 224 2,748
Other accrued liabilities ....................................... (500) 1,229 (274)
-------- -------- --------
Net cash provided by (used in) operating activities ......... 10,687 (8,161) (1,746)
-------- -------- --------
Cash flows used in investing activities:
Purchase of businesses, net of cash acquired .................... -- (10,277) (3,739)
Purchase of minority interests .................................. -- -- (2,360)
Proceeds from disposition of equipment .......................... 416 2,988 131
Proceeds from sale of short-term investments .................... -- 180 1,160
Acquisition of property, plant and equipment .................... (8,091) (11,870) (9,218)
Other ........................................................... 178 (34) (428)
-------- -------- --------
Net cash used in investing activities ....................... (7,497) (19,013) (14,454)
-------- -------- --------
Cash flows provided by financing activities:
Net proceeds (payments) of revolving lines of credit ............ 683 21,615 (25,476)
Proceeds of long-term debt and capital leases ................... -- -- 95,316
Payment penalties on extinguishment of debt ..................... -- -- (1,827)
Payments of long-term debt and capital leases ................... (2,228) (1,848) (37,828)
Dividends to majority stockholder ............................... -- -- (6,574)
Distributions to minority stockholder ........................... -- -- (165)
Debt issuance costs ............................................. (752) -- --
-------- -------- --------
Net cash provided (used in) financing activities ............ (2,297) 19,767 23,446
-------- -------- --------
Increase (decrease) in restricted cash and
cash equivilents ................................... 893 (7,407) 7,246
Restricted cash and cash equivalents, beginning of period ............ 1,714 9,121 1,875
-------- -------- --------
Restricted cash and cash equivalents, end of period .................. $ 2,607 $ 1,714 $ 9,121
======== ======== ========
Supplemental information:
Cash paid for income taxes ...................................... $ 1,010 $ 937 $ 896
======== ======== ========
Cash paid for interest cost ..................................... $ 16,211 $ 14,873 $ 9,522
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
-35-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994,
1995 and 1996 (Dollars in thousands,
except share amounts)
Shares of Common Retained Currency
Common Stock and Earnings Translation
Stock Paid-in Capital (Deficit) Adjustment Total
------- ---------- ---------- ---------- ----------
December 31 , 1993 .......................... 1,000 $ 10,616 $ 4,613 $ -- $ 15,229
Stock issued to acquire subsidiaries 2,059 -- -- --
Contribution of note due shareholder -- 4,685 -- -- 4,685
Redemption of minority interest .... -- (249) -- -- (249)
Dividends .......................... -- -- (6,574) -- (6,574)
Capital contributions .............. -- 1,434 -- -- 1,434
Pension liability adjustment ....... -- -- (110) -- (110)
Net income ......................... -- -- 3,397 -- 3,397
------- ---------- ---------- ---------- ----------
December 31, 1994 ........................... 3,059 16,486 1,326 -- 17,812
Net loss ........................... -- -- (8,536) -- (8,536)
Pension liability adjustment ....... -- -- 129 -- 129
Translation adjustment ............. -- -- -- 46 46
------- ---------- ---------- ---------- ----------
December 31, 1995 ........................... 3,059 16,486 (7,081) 46 9,451
Net loss ........................... -- -- (6,414) -- (6,414)
Translation adjustment ............. -- -- -- (7) (7)
------- ---------- ---------- ---------- ----------
December 31, 1996 ........................... 3,059 $ 16,486 $ (13,495) $ 39 $ 3,030
======= ========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
-36-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization & Business:
J.B. Poindexter & Co., Inc. ("JBPCO") and its subsidiaries (the
"Subsidiaries", and together with JBPCO, the "Company") operate primarily
manufacturing and wholesale distribution businesses.
JBPCO and the Subsidiaries are controlled by John B. Poindexter, with Morgan
Trailer Manufacturing Co., being JBPCO's only subsidiary prior to the Note
Offering (See Note 9). In order to enhance the financial and operating
flexibility of the companies, prior to the Note Offering discussed in Note 9,
JBPCO acquired ownership of the other Subsidiaries in exchange for additional
stock of JBPCO. The historical consolidated financial statements presented
herein reflect the acquisition of the Subsidiaries as an exchange of interests
in companies under common control in a manner similar to a pooling of interests,
except that each Subsidiary is included only from the date of Mr. Poindexter's
purchase of his interest therein. The purchase of minority interests in the
Subsidiaries that was funded by a portion of the offering proceeds was recorded
on May 23, 1994. Such minority interests were reflected in the historical
consolidated financial statements based on the minority interest owners'
proportionate ownership of the respective Subsidiaries for the applicable period
prior to May 23, 1994.
Morgan Trailer Manufacturing Co. ("Morgan") Acquired January 12, 1990,
Morgan manufactures truck bodies for dry freight and refrigerated vans
(excluding those made for pickup trucks and tractor trailer trucks). Its
customers include rental companies, truck dealers and companies that operate
fleets of delivery vehicles. Morgan merged into National Steel Service Center
(NSSC) in December 1993, and the surviving entity assumed the Morgan name and
business. NSSC, acquired in 1986, ceased operations and completed the sale its
principal operating assets 1993.
Truck Accessories Group, Inc., ("TAG") (formerly Leer, Inc.). Acquired on
August 14, 1987, TAG is a manufacturer and distributor of pickup truck "caps"
and tonneau covers which are fabricated enclosures that fit over the open beds
of pickup trucks, converting the beds into weatherproof storage areas. In
addition, TAG distributes other accessories for light trucks, minivans and
sports utility vehicles.
Gem-Top Manufacturing, Inc. ("Gem-Top") was acquired by TAG on August 31,
1993. Gem-Top is in the same line of business as TAG and the acquisition
resulted in expanded product lines and distribution area for TAG. Radco
Industries, Inc., ("Radco") was acquired on December 28, 1994. Radco is in the
same line of business as TAG. 20th Century Fiberglass and Century Distributing
were acquired June 29, 1995. Raider Industries Ltd., a Saskatchewan, Canada
corporation was formed during 1995 to acquire a cap manufacturing business in
Canada on June 30, 1995.
During 1995, the TAG operations were organized into two separate and
distinct operating divisions: TAG Manufacturing Division, manufactures caps and
tonneau covers and certain other accessories; TAG Distribution Division,
operates as a retail and wholesale distributor of products manufactured by TAG
divisions and other suppliers.
As discussed in Note 8, in 1996 TAG Manufacturing Division closed two
manufacturing facilities and TAG Distribution closed certain unprofitable retail
locations, resulting in a charge of $1,375,000. The charge for plant closures
included a write down of assets of $453,000 and an accrual of approximately
-37-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$922,000 for remaining lease obligations, severance and various other closure
costs. Approximately $340,000 of the accrued expenses were paid in 1996 and the
remainder will be paid in 1997.
Lowy Group, Inc. ("Lowy Group") Acquired August 30, 1991, Lowy Group
operates in the floor covering business through three divisions. Lowy
Distribution is a wholesale floor covering distributor that serves all or a
portion of twelve Midwestern states through six company-owned facilities. Blue
Ridge Carpet Mills designs, manufactures and markets mid- to high-end commercial
carpeting for sale throughout the United States and abroad. Courier Division
uses state of the art equipment to dye and print patterns on commercial and
residential carpeting that is manufactured by Blue Ridge and other unrelated
companies.
EFP Corporation ("EFP") Acquired on August 2, 1985, EFP molds and markets
expandable foam products which are used as casting patterns, packaging, shock
absorbing and materials handling products primarily by the automotive,
electronics, furniture, appliance and other industries. It also manufactures
products used as thermal insulators. On August 31, 1992, EFP acquired Astro
Pattern Corporation's ("Astro") assets. Astro's assets are used to produce
machine tooling and wood patterns primarily for the foundry industry.
On September 8, 1995, EFP sold certain assets related to its line of
beverage cooler products and recognized a net gain of $1,040,000.
Magnetic Instruments Corp. ("Magnetic Instruments") Acquired on June 19,
1992, Magnetic Instruments is a manufacturer, investment caster and assembler of
precision metal parts for use in the worldwide oil and gas exploration industry.
2. Summary of Significant Accounting Policies:
Principles of Consolidation. The historical consolidated financial
statements are presented on the basis described in Note 1.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. All intercompany accounts and
transactions have been eliminated in consolidation.
Restricted Cash. At December 31, 1996 and 1995, substantially all of the
Company's cash is restricted pursuant to the terms of the revolving credit
facility (See Note 8).
Cash and Cash Equivalents. For the purposes of the statement of cash flows,
the Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Accounts Receivable. Accounts receivable are stated net of an allowance for
doubtful accounts. During the years ended December 31, 1996, 1995 and 1994, the
Company charged to expense and other accounts, $723,000, $2,079,000, and
$349,000, respectively, as a provision for doubtful accounts and deducted from
the allowance $1,486,000, $714,000, and $360,000, respectively, for write-offs
of bad debts.
-38-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for certain operating
companies and by the first-in, first-out (FIFO) method by other operating
companies. During the year ended December 31, 1995, Morgan and a division of TAG
changed from LIFO to FIFO which did not have a material effect on the
accompanying consolidated financial statements.
Property, Plant & Equipment. Property, plant and equipment, including
property under capital leases, are stated at cost. The cost of property under
capital leases represents the present value of the future minimum lease payments
at the inception of the lease. Depreciation and amortization is computed by
using the straight-line method over the estimated useful lives of the applicable
assets for financial reporting purposes and accelerated methods for income tax
purposes. The cost of maintenance and repairs is charged to operating expense as
incurred and the cost of major replacements and significant improvements is
capitalized.
Warranty. Certain Subsidiaries (Morgan, TAG and Lowy Group) provide product
warranties for periods up to ten years, except for TAG in which case the
warranty period, exclusive to the original truck owner, is in general but with
exclusions one year for parts, five years for paint and lifetime for structure.
A provision for warranty costs is included in cost of sales when goods are sold
based on historical experience and the estimated warranty liability is adjusted
based on current performance. Actual warranty costs could differ from estimates
made.
Income Taxes. The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109,
deferred tax assets and liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted tax rates. Deferred income tax expenses or credits are based on the
changes in the deferred tax asset or liability from period to period.
Net Sales Recognition. Net sales are recognized upon shipment of the product
to customers, except for Morgan where revenue is recognized and the customer is
billed upon final body assembly and quality inspection. Adjustments to arrive at
net sales are estimated allowances for discounts and returns.
Earnings per Share. Earnings per share is calculated by dividing net income
by the weighted average number of shares outstanding during the period. No
common stock equivalents exist.
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.
-39-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation. The functional currency of a subsidiary of one
of the Company's Subsidiaries is the applicable local currency. The translation
of the foreign currency into U.S. Dollars is performed for balance sheet
accounts using the exchange rate in effect at the balance sheet date and for
income statement accounts using a weighted average exchange rate for the period.
The gains or losses resulting from such translation are included as a separate
component of stockholder's equity.
3. Acquisitions:
During June 1995, the Company's TAG subsidiary acquired substantially all of
the assets of five companies: 20th Century Fiberglass, Inc., Century
Distributing, Inc., Brown Industries Ltd., Pro-More Industries Ltd., and Lo
Rider Industries Inc. The aggregate purchase price approximated $10.3 million in
cash and TAG assumed liabilities of approximately $8.5 million of which $1.6
million was repaid in full at closing. The results of all businesses acquired
during the year ended December 31, 1995, have been included in the consolidated
financial statements from the dates of acquisition.
The Company's consolidated results of operations on an unaudited pro forma
basis, as though the businesses acquired during the year ended December 31, 1995
had been acquired on January 1, 1994, are as follows (Dollars in thousands,
except per share amounts):
1995 1994
(Unaudited)(Unaudited)
Net sales .............................................. $ 474,415 $432,970
Operating income ....................................... 5,647 22,545
Income (loss) before extraordinary loss ................ (8,261) 6,213
Net income (loss) ...................................... (8,261) 4,147
Income (loss) per common and common equivalent share
before extraordinary loss ......................... (2,651) 2,750
Net income (loss) ...................................... $ (2,651) 1,835
These pro forma results are presented for informational purposes only and do
not purport to show the actual results which would have occurred had the
business combinations been consummated on January 1, 1995, nor should they be
viewed as indicative of future results of operations.
Additionally on December 27, 1994, TAG acquired the outstanding stock of
Radco Industries, Inc. ("Radco"), a manufacturer and retail distributor of
aluminum and fiberglass truck cap and accessory products. The purchase price
approximated $3.3 million in cash.
-40-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Inventories:
Consolidated net inventories consist of the following (Dollars in thousands):
December 31,
1996 1995
---- ----
FIFO Basis Inventory:
Raw Materials ...................... $13,231 $19,267
Work in Process .................... 12,052 8,904
Finished Goods ..................... 12,436 13,588
------ ------
37,719 40,949
------ ------
LIFO Basis Inventory:
Raw Materials ...................... 2,041 2,245
Work in Process .................... 1,595 1,529
Finished Goods ..................... 7,257 7,214
----- -----
10,893 10,988
------ ------
Total Inventory ............................ $48,612 $51,937
======= =======
If the FIFO method had been used for all inventory, inventory would have
approximated inventory valued on a LIFO basis at December 31, 1996 and would
have been $352,000 greater than reported at December 31, 1995.
Inventories are stated net of an allowance for excess and obsolete
inventory of $1,754,000 and $1,028,000 at December 31, 1996 and 1995,
respectively. During the years ended December 31, 1996, 1995 and 1994, the
Company charged to expense and other accounts $2,453,000, $1,795,000 and
$313,000, respectively, as a provision for excess and obsolete inventory and
deducted from the allowance $1,727,000, $1,341,000 and $122,000, respectively
for write-offs of excess and obsolete inventory.
5. Property, Plant and Equipment:
Property, plant and equipment as of December 31, 1996 and 1995,
consisted of the following (Dollars in thousands):
Range of Useful Lives 1996 1995
--------------------- -------- --------
Land ...................................... -- $ 4,122 $ 4,163
Buildings and improvements ................ 5-32 21,012 20,626
Machinery and equipment ................... 3-10 50,332 47,546
Furniture and fixtures .................... 2-10 7,385 6,550
Transportation equipment .................. 2-10 4,129 3,884
Leasehold improvements .................... 3-10 5,449 5,215
Construction in progress .................. -- 3,647 1,470
-------- --------
96,076 89,454
Accumulated depreciation and amortization . (44,979) (36,708)
-------- --------
Property, plant and equipment, net ........ $ 51,097 $ 52,746
======== ========
-41-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation expense was $9,191,000, $8,364,000 and $6,867,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
6. Other Assets and Goodwill:
Other assets and goodwill as of December 31, 1996 and 1995, consist of
the following (Dollars in thousands):
1996 1995
------------------------- ------------------------
Amortization Accumulated Net Book Accumulated Net Book
Period Amortization Value Amortization Value
----------- ------------ ---------- ---------- ----------
Other Assets:
Cash surrender value of
life insurance ............... -- $ -- $ 2,077 $ -- $ 2,002
Agreements not-to-compete ...... 3-6 3,467 1,581 2,466 2,582
Debt issuance costs and other .. 3-10 1,426 4,575 1,349 4,919
---------- ---------- ---------- ----------
Total ............................ $ 4,893 $ 8,233 $ 3,815 $ 9,503
========== ========== ========== ==========
Goodwill ......................... 25-40 $ 6,727 $ 21,773 $ 5,640 $ 22,860
========== ========== ========== ==========
Goodwill is being amortized on a straight-line basis over forty years for
Morgan and twenty-five years for TAG. The carrying value of the intangible asset
is reviewed if the facts and circumstances suggest it may be impaired. If this
review indicates that this intangible asset will not be recoverable, as
determined based upon the undiscounted cash flows over the remaining
amortization periods, the carrying value is reduced by the estimated shortfall
of cash flows.
7. Short-term debt:
Short-term debt as of December 31, 1996 and 1995, consists of the following
(Dollars in thousands):
1996 1995
------- -------
Morgan:
Bankers' acceptances generally 180 day terms
with interest rates ranging from 4.9% to 7.7%.... $ 917 $ 4,184
======= =======
-42-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Revolving Credit Agreement:
Amounts outstanding under the Revolving Credit Agreement as of December
31, 1996 and 1995 were (in thousands):
1996 1995
------- -------
$50,000,000 revolving loan due June 1999 ........... $28,238 $ --
$50,000,000 revolving loan due May 1997 ............ -- 24,288
------- -------
Total .............................. $28,238 $24,288
======= =======
On May 23, 1994, concurrently with the consummation of the public debt
offering discussed in Note 9, the Company entered into a senior secured
revolving credit agreement (Revolving Credit Agreement) providing for borrowings
by its Subsidiaries of up to $50.0 million. The Revolving Credit Agreement
provided for borrowings at variable rates of interest, based on either LIBOR
(London Interbank Offered Rate) or U.S. prime rate.
The Revolving Credit Agreement contained numerous restrictive covenants
which, among other things, restricted the ability of the Company to dispose of
assets and incur debt and restrict certain corporate activities. In addition,
the Company was required to maintain specified financial covenants including a
minimum net worth and debt coverage ratio. At December 31, 1995, the Company was
not in compliance with the minimum net worth requirements or, the debt coverage
ratio as specified by the Revolving Credit Agreement and certain Subsidiaries
exceeded their borrowing base.
The covenant violations as of December 31, 1995 primarily resulted from
the Company incurring a net loss of $8,536,000 in 1995, which included
significant losses at TAG, primarily as a result of manufacturing problems
associated with new product development, design changes and the paint finishing
processes. These problems contributed to higher than normal product returns and
production delays. Management of JBPCO and Truck Accessories Group, Inc., began
taking steps during 1995 to address these problems including, among others,
redesigning certain products and implementing additional quality control
procedures. In addition, during 1996, TAG Manufacturing Division closed two
manufacturing facilities and TAG Distribution closed certain unprofitable retail
locations resulting in a charge of $1,375,000. (See Note 1).
Subsequent to December 31, 1995, upon determination of the available
borrowing base, the Company took action to conform the borrowings of the
subsidiaries to within the limits of the then available borrowing base. In
addition, the lenders agreed to waive the covenant violations and to amend the
financial covenants of the Revolving Credit Agreement through its May 1997
expiration, subject to the completion of certain documentation requirements. The
Revolving Credit Agreement was further amended whereby the lenders were to be
provided with a security interest in certain of the Company's property, plant
and equipment in return for which the Company and its subsidiaries would be
allowed to borrow an additional $5,500,000 under the terms of the credit
facility, subject to certain limitations, including the $50,000,000 limit on
total borrowings. At that time, the ability of the Company to maintain adequate
liquidity, comply with the credit agreements and achieve successful future
operations depended primarily on the Truck Accessories Group, Inc.'s ability to
remedy the manufacturing problems discussed above and significantly improve its
operating
-43-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
results during 1996, as well as the other Subsidiaries continuing to maintain
levels of operating results such that liquidity requirements and financial
covenants would be met on a consolidated basis.
On June 28, 1996, the Company entered into a new senior secured
revolving loan agreement (Revolving Loan Agreement) providing for borrowing by
its Subsidiaries of up to $50.0 million. The Company used proceeds of
$24,321,000 from the Revolving Loan Agreement to repay all indebtedness
outstanding under the Revolving Credit Agreement. The arrangement allows the
Company to borrow funds and provides for the guarantee of letters of credit and
certain foreign exchange contracts, issued by the Company's banks, up to the
lesser of $50,000,000 or an amount based on advance rates applied to the total
amounts of eligible accounts receivable and inventories of the Subsidiaries. The
advance rates vary by subsidiary and range between 75 percent and 85 percent for
receivables and between 40 percent and 60 percent for inventory. The Revolving
Loan Agreement provides for borrowing at variable rates of interest, based on
either LIBOR (London Interbank Offered Rate, 5.4 percent at December 31, 1996)
or U.S. prime rate (8.25 percent at December 31, 1996), and expires June 28,
1999. Interest is payable monthly including a fee of one half percent on the
amount of unused borrowings. The Subsidiaries are guarantors of this
indebtedness, and inventory and receivables are pledged under the Revolving Loan
Agreement. At December 31, 1996, the Company had total borrowings of
$28,238,000, bank acceptances of $917,000 and letters of credit and foreign
exchange accommodations of $5,878,140 outstanding pursuant to the Revolving Loan
Agreement. At December 31, 1996, the Company's unused available borrowing under
the Revolving Loan Agreement totaled approximately $9,938,000.
The Company wrote off certain capitalized financing costs and recorded
an extraordinary loss of $260,000, net of tax benefits, as a result of
refinancing the revolver debt.
The Revolving Loan Agreement contains provisions allowing the lender to
accelerate debt repayment upon the occurrence of an event the lender determines
to represent a material adverse change. Accordingly, balances outstanding under
the Revolving Loan Agreement are classified as a current liability. The
Revolving Loan Agreement also contains restrictive covenants which among other
things restrict the ability of the Company to dispose of assets, incur debt and
restrict certain corporate activities. At December 31, 1996, the Company was
prohibited from paying dividends under the terms of the Revolving Loan
Agreement. Additionally, the Company's cash balance is restricted under the
terms of the Revolving Loan Agreement.
-44-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Long-term debt and Note Offering:
Long-term debt as of December 31, 1996 and 1995 consists of the
following (Dollars in the table in thousands):
1996 1995
-------- --------
JBPCO:
12 1/2% Senior Notes due 2004 .......................................... $100,000 $100,000
-------- --------
TAG:
Note payable, due June 15, 2000, monthly principal payments
of $26,666 plus interest at U.S. prime, (8.25% at
December 31, 1996) ................................................. 1,120 1,440
Obligations under various non-compete agreements ....................... 1,490 2,092
Obligations under capital leases ....................................... 589 958
-------- --------
3,199 4,490
-------- --------
Morgan:
Capital lease obligation due in monthly installments of $17,704
including interest at 8.2%, through May 10, 1998 .................... 284 464
Other .................................................................. 28 54
-------- --------
312 518
-------- --------
Lowy Group:
Life insurance policy loans, secured by the cash surrender value
accumulated on each policy, balances are payable at the termination
of the policy. Interest rates range from 5%
to 8.6% ............................................................. 184 184
Term note payable to a vendor .......................................... -- 91
Other .................................................................. 3 15
-------- --------
187 290
-------- --------
EFP:
Various equipment notes, due in monthly or annual installments, interest
from 8.12% to 10%, with maturities from May 1997 to
September 1997, each collateralized by specific assets .............. 678 885
Other .................................................................. 83 137
-------- --------
761 1,022
-------- --------
Magnetic Instruments:
Covenant not-to-compete with previous shareholders originating on June
19, 1992 in the amount of $2,000,000 payable over 6 years
in equal monthly installments ....................................... 193 560
-------- --------
193 560
-------- --------
Total long-term debt ................................................... 104,652 106,880
Less current portion ................................................... 1,885 2,337
-------- --------
Long-term debt, less current portion ................................... $102,767 $104,543
======== ========
-45-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 23, 1994 the Company completed the Note Offering of $100 million,
12 1/2 % Senior Notes due in 2004 (the "Senior Notes") with interest payable
semiannually. The net proceeds of the Note Offering, of approximately
$95,000,000, were used to: (1) repay outstanding long-term debt of the Company
of $76,581,000 including interest and prepayment penalties, which represented
substantially all of the previous debt then outstanding, (2) purchase all
minority interests in the Subsidiaries and JBPCO, for an aggregate price of
$2,360,000, and (3) fund the payment of $5,429,000 of "S" corporation
shareholder dividend promissory notes. The prepayment penalties together with
the write-off of related deferred debt issuance costs, net of related tax
benefits, resulted in an extraordinary loss of $2,066,000 during the year ended
December 31, 1994.
The Senior Notes Indenture contains restrictive covenants which, among
other things, restrict the ability of the Company to dispose of assets, incur
debt and restrict certain corporate activities. At December 31, 1996, the
Company was prohibited from paying dividends under the terms of the Senior Notes
Indenture.
The Company's obligations under the Senior Notes are guaranteed by each
directly wholly-owned Subsidiary of JBPCO (the "Subsidiary Guarantors"). Each
guarantee is a senior unsecured obligation of the Subsidiary providing such
Guarantee and ranks pari passu with all other senior unsecured indebtedness of
such subsidiary. In addition, the Subsidiary Guarantors guarantee the
indebtedness outstanding under the Revolving Loan Agreement and have pledged
substantially all of their assets. Separate financial statements of the
Subsidiary Guarantors are not included because (a) all the Subsidiary Guarantors
provide the Guarantees, and (b) the Subsidiary Guarantors are jointly and
severally liable on a full and unconditional basis. Condensed financial
information for the Subsidiary Guarantors and non-guarantor subsidiaries as a
group is included in Note 17.
The Company estimates the fair value of the 12 1/2% Senior Notes to be
$107,000,000 based on their publicly traded value at December 31, 1996 compared
to a recorded amount of $100,000,000 as of December 31, 1996.
Maturities. Aggregate principal payments on long-term debt for the next
five years subsequent to December 31, 1996, are as follows (In thousands):
1997 .................................................. $ 1,885
1998 .................................................. 1,233
1999 .................................................. 975
2000 .................................................. 375
2001 .................................................. --
Thereafter ............................................ 100,184
--------
$104,652
========
-46-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Operating Leases:
The Company leases certain manufacturing facilities and equipment under
noncancelable operating leases certain of which contain renewal options. The
future minimum lease payments for the next five years subsequent to December 31,
1996 are as follows (Dollars in thousands):
1997 ................................................. $ 7,022
1998 ................................................. 5,220
1999 ................................................. 3,851
2000 ................................................. 1,682
2001 ................................................. 942
-------
$18,717
=======
Total rental expense under all operating leases was $7,694,000, $7,617,000
and $5,640,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
11. Income Taxes:
The income tax provision (benefit) consists of the following for the
years ended December 31, 1996, 1995 and 1994 (Dollars in thousands):
1996 1995 1994
------- ------- -------
Current:
Federal ............................. $ -- $ -- $ 1,114
State ............................... 884 1,172 849
Deferred:
Federal ............................. (1,945) (3,666) 1,092
State ............................... 70 (146) (28)
Foreign ............................. -- (82) --
------- ------- -------
Income tax provision (benefit) ....... $ (991) $(2,722) $ 3,027
======= ======= =======
-47-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the differences between the statutory
Federal income tax rate and the effective tax rate for the years ended December
31, 1996, 1995 and 1994 (Dollars in thousands):
1996 1995 1994
--------------- --------------- ---------------
Amount % Amount % Amount %
------- ---- ------- ---- ------- ----
Tax provision (benefit) at statutory
Federal income tax rate .............. $(2,430) 34% $(3,828) 34% $ 2,899 34%
Goodwill amortization ................... 335 (5) 268 (2) 215 3
Tax effect of "S" corporations .......... -- -- (459) (5)
State income taxes, net of Federal income
tax benefit ............................ 517 (7) 980 (9) 642 7
Losses (profit) from foreign corporations 368 (5) -- -- -- --
Other ................................... 219 (3) (142) 1 (270) (3)
------- ---- ------- ---- ------- ----
Provision (benefit) for income taxes
and effective tax rates ............... $ (991) 14% $(2,722) 24% $ 3,027 36%
======= ==== ======= ==== ======= ====
Deferred taxes are based on the estimated future tax effects of
differences between the financial statements and tax basis of assets and
liabilities given the provisions of the enacted tax laws. The net deferred tax
assets and liabilities as of December 31, 1996 and 1995 are comprised of the
following (Dollars in thousands):
1996 1995
-------- -------
Current deferred tax (assets):
Allowance for doubtful accounts ................. $ (764) $(1,171)
Employee benefit accruals and reserves .......... (997) (1,198)
Warranty liabilities ............................ (118) (946)
Plant closure costs ............................. (328) --
Other ........................................... (381) (102)
-------- -------
Total current deferred tax (assets) .......... (2,588) (3,417)
Long term deferred tax (assets):
Tax benefit carryforwards ....................... (10,343) (8,143)
Warranty liabilities ............................ (932) (192)
Other ........................................... -- (1,029)
Valuation allowance ............................. 1,035 1,035
-------- -------
Total long term deferred tax (asset) ......... (10,240) (8,329)
Long term deferred tax liabilities:
Depreciation and amortization ................... 4,603 5,159
Other ........................................... 463 700
-------- -------
Net long term deferred tax (asset) ........... (5,174) (2,470)
-------- -------
Net deferred tax assets .............. $ (7,762) $(5,887)
======== =======
-48-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax Carryforwards. The Company has investment tax credit carryforwards
of approximately $852,000 for U.S. federal income tax purposes which will expire
between 1997 and 2001 if not previously utilized. The company has recorded a
valuation allowance of $327,000 against the investment tax credit carryforward
as the Company believes that the corresponding deferred tax asset may not be
realizable. The Company has alternative minimum tax credit carryforwards of
approximately $583,000 for U.S. federal income tax purposes which may be carried
forward indefinitely. The utilization of the alternative minimum tax credit
carryforward is restricted to the taxable income of one Subsidiary. In addition,
the Company has net operating loss carryforwards of approximately $26.2 million
for U.S. federal income tax purposes at December 31, 1996, which if not
utilized, will expire at various dates through 2011. The Company has recorded a
valuation allowance of $708,000 against the net operating loss carryforwards as
the Company believes that the corresponding deferred tax asset may not be
realizable.
The Company has considered prudent and feasible tax planning strategies
in assessing the need for the valuation allowance. The Company has assumed
approximately $9.3 million ($10.3 million net of a valuation allowance of $1.0
million) of benefits attributable to such tax planning strategies. In the event
the Company were to determine in the future that any such tax planning
strategies would not be implemented, an adjustment to the deferred tax asset
would be charged to income in the period such determination was made.
Unaudited Pro Forma Operating Data Adjusted for Nontaxable
Subsidiaries. Two Subsidiaries (Lowy Group and Magnetic Instruments) were "S"
corporations which paid no corporate income tax during the period prior to
acquisition by JBPCO. The unaudited pro forma net income for the year ended
December 31, 1994 was $2,897,000 assuming Lowy Group and Magnetic Instruments
had been tax paying "C" corporations at 34% for the entire periods and as a
result reflect an increased 1994 effective tax rate from 36% to 41%. Lowy Group
and Magnetic Instruments became tax paying corporations as part of the
consolidated tax return of JBPCO upon JBPCO's acquisition of the Subsidiaries
(See Note 1).
-49-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Segment Data:
The Company operates in three industry segments: Automotive, Floor
Covering and Plastics and Other. The Automotive segment includes Morgan and TAG,
the Floor Covering segment includes Lowy Group and the Plastics and Other
segment includes EFP and Magnetic Instruments. The Company operates principally
in only one geographic segment (the United States). The following is a summary
of the industry segment data for the years ended December 31, 1996, 1995 and
1994 (Dollars in thousands):
Operating Identifiable Depreciation/ Capital
Net Sales Income Assets Amortization Expenditures
---------- ---------- ---------- ---------- ----------
1996:
Automotive* ............. $ 304,119 $ 138 $ 115,594 $ 7,207 $ 6,093
Floor Covering .......... 71,343 3,927 23,815 617 304
Plastics and Other ...... 56,925 7,539 25,074 3,363 1,650
JBPCO .................. -- (2,535) 8,998 832 32
---------- ---------- ---------- ---------- ----------
Consolidated ......... $ 432,387 $ 9,069 $ 173,481 $ 12,019 $ 8,079
========== ========== ========== ========== ==========
1995:
Automotive .............. $ 325,249 $ (2,227) $ 121,196 $ 6,400 $ 8,128
Floor Covering .......... 74,955 4,944 24,018 678 875
Plastics and Other ...... 50,512 4,644 26,024 3,308 2,704
JBPCO ................... -- (2,718) 9,556 769 163
---------- ---------- ---------- ---------- ----------
Consolidated ......... $ 450,716 $ 4,643 $ 180,794 $ 11,155 $ 11,870
========== ========== ========== ========== ==========
1994:
Automotive .............. $ 265,906 $ 12,708 $ 107,852 $ 4,441 $ 6,155
Floor Covering .......... 77,427 5,890 26,182 711 388
Plastics and Other ...... 43,312 2,846 25,122 2,992 2,627
JBPCO .................... -- (1,436) 14,008 473 48
---------- ---------- ---------- ---------- ----------
Consolidated ......... $ 386,645 $ 20,008 $ 173,164 $ 8,617 $ 9,218
========== ========== ========== ========== ==========
* Includes a $1,375,000 charge associated with the closure of certain
manufacturing and retail facilities.
13. Stockholder's Equity:
As of December 31, 1996 and 1995, there were 100,000 shares authorized
and 3,059 shares outstanding of JBPCO common stock with a par value of $.01 per
share. JBPCO was incorporated in Delaware. No other classes of common stock,
preferred stock or common stock equivalents exist.
Since the date of Mr. Poindexter's initial investment in the
Subsidiaries, he has acquired portions of the minority interest in a series of
transactions. These step purchases were accounted for as additions to the total
purchase price and allocated to the assets of the respective subsidiary.
Minority interests in the Subsidiaries are reflected in the consolidated
financial statements based on their proportionate ownership of the respective
Subsidiaries for the applicable period. JBPCO purchased the remaining minority
interests
-50-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in the Subsidiaries with a portion of the funds provided by the issuance of the
Senior Notes (See Note 9).
The Company recorded capital contributions for (1) amounts contributed
to fund initial purchases of Subsidiaries, (2) amounts contributed to fund
purchases of minority interest and (3) subsequent additional capital
contributions. In addition, the 1994 capital contribution included income tax
benefits of NSSC of approximately $1.4 million, which was used to offset
consolidated taxable income.
14. Employee Benefit Plans:
Defined Contribution Plans
JBPCO 401(k) Plan. Effective January 1, 1996, substantially all
employees of the Company are eligible to participate in the JBPCO-sponsored
401(k) savings plan. This plan allows participating employees to contribute
through salary reductions up to 15 percent of gross pay and provides for Company
matching contributions up to two percent of gross pay as well as an annual
discretions contribution. Vesting in the Company matching contribution is 20
percent per year over the first five years. The Company incurred expenses of
$1,426,000 during the year ended December 31, 1996, including administrative
fees of approximately $74,000.
The Subsidiaries (except Magnetic Instruments) had various defined
contribution plans for their employees prior to January 1, 1996. Effective
January 1, 1996 certain of these plans were merged into the JBPCO 401 (k) plan.
Total employer contributions to defined contribution plans for all Subsidiaries
were $40,000, $932,000 and $999,000 for the years ended December 31, 1996, 1995
and 1994, respectively. Each Subsidiary's plan is summarized below.
Morgan. Morgan had a profit participation program for certain members
of management which provided for payments to participants in 1995. This plan was
terminated in 1995. Morgan maintains a separate noncontributory profit sharing
plan which provides for an annual contribution at the discretion of the board of
directors. This plan and the JBPCO 401(k) plan are administered under a master
trust agreement which became effective January 1, 1996. Contributions are based
on the earnings of Morgan as defined under the plan agreement.
TAG. TAG had a profit sharing plan that covers substantially all
full-time employees which was merged into the JBPCO 401(k) plan effective
January 1, 1996.
Lowy Group. Certain warehouse employees participate in a
collectively-bargained, multi-employer defined contribution pension plan to
which the Lowy Group makes required payments. The basis for contributions and
the amount contributed is set forth in the collectively-bargained contract. Lowy
Group makes discretionary contributions to individual retirement accounts
established by and for the benefit of certain non-union employees.
EFP. Certain employees of EFP who are covered by a collective bargaining
agreement, participate in a defined contribution retirement plan whereby EFP's
contribution is based on the number of hours worked. Employees of EFP who were
not covered by the collective bargaining agreement were eligible to
-51-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
participate in the employer-sponsored 401(k) profit sharing plan, which was
merged into the JBPCO 401(k) plan effective January 1,1996.
Substantially all employees of EFP's Astro division are covered by a
defined contribution plan. The Money Purchase Pension Plan requires EFP to
contribute four and one half percent of each participant's compensation as
defined in the plan agreement. Vesting is based on years of service. Effective
January 1, 1996, the EFP Astro division's 401(k) profit sharing plan was merged
into the Company's 401(k) plan. Also, effective January 1, 1996, the
contribution percentage to the money purchase pension plan was reduced to two
and one half percent.
Defined Benefit Plans
Morgan, Lowy Group, TAG and EFP have defined benefit plans as discussed
below. The other Subsidiaries do not have defined benefit plans.
Morgan. Morgan assumed future sponsorship of the NSSC pension plan and
continues to make contributions to the plan in accordance with the funding
requirements of the Internal Revenue Service. The No further benefits have
accrued subsequent to February 12, 1992, plan assets consist primarily of
investments in two bank funds and the plan is overfunded by $136,000.
Lowy Group. Lowy Group has an unfunded executive defined benefit plan
whereby deferred compensation contracts provide a fixed amount of retirement
benefits to key corporate and sales employees. The accumulated benefit
obligation related to this plan is approximately $1.7 million at December 31,
1996 and 1995. Lowy Group makes no contributions to the plan, and no assets are
held in trust to secure benefits accumulating in the plan. Lowy Group does,
however, maintain life insurance policies to fund the plan obligations and
accumulate cash surrender values. The cash surrender value of life insurance
policies of which Lowy Group was beneficiary totaled $1,560,000 and $1,588,000
at December 31, 1996 and 1995, respectively, and is included in other
non-current assets in the accompanying consolidated balance sheet. Payments made
to retired individuals in the plan were $136,000, $147,000 and $148,513 in 1996,
1995 and 1994, respectively. The benefits are based on the employee's age at
retirement and the fixed monthly benefit amount specified in each individual
deferred compensation contract. The actuarial present value of projected future
benefits attributed to employee service to date represents the projected benefit
obligation in the following table.
EFP. EFP had a defined benefit plan covering substantially all
full-time employees of one of its divisions. Benefits under the plan were based
on years of service and a percentage of the employee's average monthly earnings.
This plan was terminated effective April 15, 1996 and the assets distributed
effective October 10, 1996. The Company realized a gain of approximately
$200,000 upon termination of the plan. Participants of this plan are eligible to
participate in the J.B. Poindexter & Co., Inc. 401(k) plan effective January 1,
1996.
TAG. TAG had a defined benefit plan covering hourly employees of Gem
Top working at least 1,000 hours per year. The normal retirement benefit is
equal to $20 per month for each year of service. Normal retirement date is 65
years of age. The plan was frozen effective March 31, 1996, and at December
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31, 1996 plan assets approximated projected benefit obligations.
The components of net periodic pension cost for the defined benefit
plans of the Company are as follows (Dollars in thousands):
1996 1995 1994
------ ------ ------
Service costs benefits earned during the year $ 75 $ 254 $ 272
Interest costs on projected benefit obligation 342 575 552
Actual return on plan assets ................. (338) (1,031) 240
Net amortization & deferral and other costs .. (216) 544 (1,039)
------ ------ ------
Net pension expense (income) ................. $ (137) $ 342 $ 25
====== ====== ======
The following table sets forth the funded status and amounts recognized
in the Company's consolidated balance sheets as of December 31, 1996 and 1995,
and the significant assumptions used in accounting for the defined benefit plans
(Dollars in table in thousands):
1996 1995
------ ------
Accumulated benefit obligations .................................. $ 5,137 $ 8,447
========== ==========
Projected benefit obligations for services
rendered to date, including vested benefits
of $3,367,000 and $6,624,000 ................................... $ 5,137 $ 9,486
Plan assets at fair value ........................................ 3,511 6,479
---------- ----------
Projected benefit obligation in excess of plan assets ............ (1,626) (3,007)
Unrecognized net (gain) loss from past experience
different from that assumed and effects
of changes in assumptions ...................................... (27) 1,299
Prior service cost not yet recognized in net periodic pension cost -- (27)
Unrecognized transition cost ..................................... -- (366)
---------- ----------
Accrued pension liabilities ...................................... $ (1,653) $ (2,101)
========== ==========
Cash surrender value of Lowy Group's life insurance policies ..... $ 1,560 $ 1,588
========== ==========
Major assumptions at measurement dates:
Discount rate ................................................... 5.2% to 8.0%
Expected long-term rate of return on plan assets ................ 7.5% to 9.0%
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," the
Company recorded an increase in equity of $129,000, to recognize a reduction in
the minimum liability in 1995.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Commitments and Contingencies:
Claims and Lawsuits. The Company is involved in certain claims and
lawsuits arising in the normal course of business. In the opinion of management,
the ultimate resolution of these matters will not have a material adverse effect
on the financial position or results of operations of the Company.
In February 1995, a lawsuit was filed against Magnetic, JBPCO and
another entity unrelated to the Company, except through common ownership, by two
companies under common ownership alleging violation of a confidentiality
agreement entered into in 1994 when Magnetic and JBPCO were considering an
acquisition of the two companies. The lawsuit was settled by all parties during
1996 and the action dismissed with prejudice.
Concentration of Credit Risk. Concentration of credit risk exists in
three Subsidiaries. Morgan has two customers (truck rental companies) accounting
for approximately 40%, 50% and 50% of Morgan's net sales during 1996, 1995 and
1994, respectively and 14%, 21% and 20% of consolidated net sales, respectively.
EFP has two customers in the electronics industry accounting for approximately
21% and 20% of EFP's net sales in 1996 and 1995, respectively and 2% and 1% of
consolidated net sales, respectively. Magnetic Instruments has an industry
concentration pertaining to international oil field service companies and four
customers represent approximately 69%, 79% and 71% of Magnetic Instruments' net
sales and 4%, 3% and 3% of consolidated net sales in 1996, 1995 and 1994.
Letters of Credit and Other Commitments. Morgan had approximately
$1,628,000 and $2,932,000 in letters of credit outstanding as of December 31,
1996 and 1995. The Company had $4,250,000 and $3,025,000 in standby letters of
credit outstanding at December 31, 1996 and 1995, respectively, securing the
Company's insurance programs.
Environmental Matters. Morgan has been named as a potentially
responsible party ("PRP") with respect to its alleged disposal of certain
solvents at the Industrial Solvents and Chemical Co. state hazardous waste site
in Newberry Township, Pennsylvania ("ISCC site") and at the Berks Associates
Waste Recovery Superfund Site near Douglasville, Pennsylvania ("Berks site").
Under the Comprehensive Environmental Response Compensation and Liability Act of
1980 and the Pennsylvania Hazardous Sites Clean-Up Act, past and present site
owners and operators, transporters and waste generators are all potentially
jointly and severally responsible for clean up costs. However, typically, the
generator portion of the costs are allocated between generators, with each
generator bearing costs proportionate to the volume and nature of the wastes it
disposed of at the site. Although a precise estimate of liability cannot
currently be made with respect to these sites, based upon information known to
Morgan, the agreements Morgan is party to and including the size of the waste
sites, their years of operation, the large number of past users and potentially
responsible parties of some of the sites, the alleged waste contribution by
Morgan at some of these sites and the nature of the substances alleged to be
present at the waste sites, the Company currently believes that Morgan's
proportionate share, if any, of the ultimate costs related to any necessary
investigation and remedial work at those sites will not have a material adverse
effect on the Company.
NSSC has been listed as a potentially responsible party at the Wichita
Brass Co., Inc. National
-54-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Priority List site at 29th & Mead in Wichita, Kansas. Although the extent of
NSSC's liability, if any, is not known at this time, management currently
believes that NSSC's allocated share of the ultimate costs related to any
necessary investigation and remedial work at this site will not have a material
adverse effect on the Company. The Company is not aware of any other significant
pending environmental claims pertaining to NSSC.
Certain of the Company's operations utilize paints and solvents in their
businesses. Also, raw materials used by EFP contain pentane, which is a volatile
organic compound subject to regulation under the Clean Air Act. Although the
Company believes that it has made sufficient capital expenditures to maintain
compliance with existing laws and regulations, future expenditures may be
necessary if and when compliance standards and technology change.
Self-Insured Risks. The Subsidiaries utilize a combination of insurance
coverage and self-insurance programs for health care and workers compensation.
The portion of certain risks not covered by insurance are summarized as follows:
Workers compensation individual deductibles range from $100,000 to $250,000 and
health care individual deductibles range from $25,000 to $75,000 with certain
Subsidiaries self-insuring up to $1,000,000 (aggregate stop-loss) under both
workers compensation and health care coverage.
The Company has reserves recorded to cover the self-insured portion of
these risks based on known facts and historical trends and management believes
that such reserves are adequate and the ultimate resolution of these matters
will not have a material adverse effect on the financial position or results of
operations of the Company.
16. Related Party Transactions:
Concurrently with the Note Offering on May 23, 1994, the Company entered
into a Management Services Agreement with Southwestern Holdings, Inc. a
corporation ("Southwestern") owned by Mr. Poindexter. Pursuant to the Management
Services Agreement, Southwestern provides services to the Company, including
those of Mr. Poindexter and Mr. Magee its Chief Financial Officer. The Company
pays to Southwestern approximately $600,000 per year for these services, subject
to annual automatic increases based upon the consumer price index. The Company
may also pay a discretionary annual bonus to Southwestern subject to certain
limitations, $63,000 was paid in 1995 and none was paid in 1996 or 1994. The
Company and Subsidiaries use certain facilities provided by Southwestern for
meetings and conferences, the Company did not use the facilities during 1996,
the Company paid Southwestern $23,000 during 1995 for the use of the facilities.
The Company paid Southwestern approximately $600,000, $653,000 and $366,000
during 1996, 1995 and 1994, respectively. During 1995, the Company paid
approximately $16,000 to a company owned by Mr. Poindexter for the use of a
private plane to transport company employees to the facilities provided by
Southwestern. A subsidiary of the Company, which is not a restricted subsidiary
under the terms of the Bond Indenture or a guarantor under the terms of the
Company's Revolving Loan Agreement, paid Southwestern Holdings $50,000 during
1996 for certain services.
During the period prior to the Note Offering, certain Subsidiaries paid an
affiliated limited partnership, of which Mr. Poindexter is a limited partner, a
fee for managerial and support services. Certain Subsidiaries
-55-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
also reimbursed the limited partnership for expenses incurred on their behalf,
which totaled $580,000 in 1994. In addition, certain subsidiaries paid an
affiliated company, owned by Mr. Poindexter, management and consulting fees
which totaled approximately $1,121,000 during 1994. These agreements were
terminated upon the consummation of the Note Offering.
Mr. Poindexter, Mr. Magee of JBPCO and certain members of Morgan's
management are partners in a partnership that leases certain real property in
Georgia to Morgan. Morgan paid approximately $200,000 in rent to the partnership
in 1996, 1995 and 1994 pursuant to such lease.
The Company paid management fees of $192,000 during 1994 to a
corporation controlled by a former officer of the Company. The Subsidiaries also
paid approximately $20,000 to this corporation as expense reimbursements during
1994. In addition, Lowy Group has agreed to pay to the former officer $18,000
per year for 10 years after his July 1994 retirement as a consultant. Further,
Morgan has agreed to pay the former officer $25,000 per year for 15 years after
his July 1994 retirement as a consultant. Morgan provides health insurance for
the consultant and his spouse.
TAG leases certain real estate and purchases raw materials from an
entity which is partially owned by a former minority interest shareholder of
TAG. Total lease expense was $1,197,000 in 1994. Total related party purchases
were $3,022,000 in 1994. TAG also had a consulting agreement with that founder
providing for the payment of consulting fees on a per diem basis (with a maximum
fee of approximately $100,000 per year). TAG paid approximately $100,000
pursuant to that agreement during each of 1995 and 1994. During 1994 TAG repaid
$0.3 million to its founder under a demand note with proceeds of the Note
Offering.
TAG leases certain real estate in Canada from an entity controlled by an
executive vice president of TAG. Total lease expense was $114,000 and $64,000 in
1996 and 1995, respectively.
Mr. Magee, who prior to May 23, 1994, owned approximately 1%, 3% and 2%
of the common stock of JBPCO, Magnetic Instruments and Lowy Group, respectively,
sold those shares to the Company concurrent with the Note Offering. The
aggregate negotiated sales price was $1.1 million, paid with a portion of the
proceeds from the Note Offering. In addition, approximately $1.3 million of the
Note Offering proceeds were used to purchase minority interests in TAG owned by
certain members of TAG's management and TAG's founder. The prices that the
Company paid for those shares were negotiated amounts and did not necessarily
reflect the actual fair market value of the shares being purchased by the
Company. Approximately $5.0 million of the proceeds of the Note Offering were
used to repay indebtedness owed to certain of the minority shareholders of TAG
and former shareholders of Morgan.
17. Supplemental Guarantor Information:
The Company's obligations under the Senior Notes are guaranteed by each
directly wholly-owned Subsidiary of JBPCO. In addition, the Subsidiary
Guarantors guarantee the indebtedness outstanding under the Revolving Loan
Agreement. The Indenture and Revolving Loan Agreement provides for acquired
subsidiaries subsequent to the issuance of the Senior Notes to be designated as
guarantors of the Senior Notes, provided certain financial ratio tests are met.
-56-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidating financial information is presented for
purposes of complying with the reporting requirements of the parent company and
the Guarantor Subsidiaries. The financial information includes condensed balance
sheet information as of December 31, 1996 and 1995 and condensed operating and
cash flow statements information for each of the three years then ended. The
Company's non-guarantor subsidiaries are Radco Industries (acquired December
1994), Tile by Design (acquired November 1, 1994), and Acero-Tech, S.A. de C.V.
The Company believes that separate financial statements or other disclosures of
the guarantors are not material to the investors.
Consolidating Condensed Balance Sheet Information:
December 31, 1996
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Assets
Current assets ............. $ 86,220 $ 1,336 $ (352) $ 87,204
Noncurrent assets .......... 75,724 3,961 6,592 86,277
-------- -------- -------- --------
Total assets ............... $161,944 $ 5,297 $ 6,240 $173,481
======== ======== ======== ========
Liabilities and Equity
Current liabilities ........ $ 62,641 $ 569 $ 1,628 $ 64,838
Noncurrent liabilities ..... 1,903 3,710 100,000 105,613
Stockholder's equity ....... 97,400 1,018 (95,388) 3,030
-------- -------- -------- --------
Total liabilities and equity $161,944 $ 5,297 $ 6,240 $173,481
======== ======== ======== ========
December 31, 1995
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
Assets
Current assets.............. $ 88,997 $ 2,752 $ 1,466 $ 93,215
Noncurrent assets .......... 75,307 4,182 8,090 87,579
-------- -------- -------- --------
$164,304 $ 6,934 $ 9,556 $180,794
======== ======== ======== ========
Liabilities and Equity
Current liabilities......... $ 62,513 $ 1,123 $ 148 $ 63,784
Noncurrent liabilities ..... 3,203 4,356 100,000 107,559
Stockholder's equity ....... 98,588 1,455 (90,592) 9,451
-------- -------- -------- --------
Total liabilities and equity $164,304 $ 6,934 $ 9,556 $180,794
======== ======== ======== ========
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidating Condensed Income Statement Information for the Year ended:
December 31, 1996
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
Net sales ........... $ 421,275 $ 11,112 $ -- $ 432,387
Cost of sales ....... 330,206 7,751 -- 337,957
Income (loss) before
extraordinary item (7,099) (437) 1,382 (6,154)
Net loss ............ (7,099) (437) 1,122 (6,414)
December 31, 1995
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
Net sales ........... $ 440,104 $ 10,612 $ -- $ 450,716
Cost of sales ....... 357,628 7,685 -- 365,313
Income (loss) before
extraordinary item (10,884) (586) 2,934 (8,536)
Net income (loss) ... (10,884) (586) 2,934 (8,536)
December 31, 1994
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
Net sales ........... $ 386,406 $ 239 $ -- $ 386,645
Cost of sales ....... 301,176 162 -- 301,338
Income (loss) before
minority interest
and extraordinary item 7,890 (352) (2,038) 5,500
Net income (loss) ... 5,824 (352) (2,075) 3,397
-58-
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidating Condensed Statement of Cash Flows Information for the Year ended:
December 31, 1996
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
Net cash provided (used) by
operating activities ............ $ 10,326 $ (416) $ 777 $ 10,687
-------- -------- -------- --------
Capital expenditures ................. (8,048) (11) (32) (8,091)
Other ................................ 594 -- -- 594
-------- -------- -------- --------
Net cash used in
investing activities ............ (7,454) (11) (32) (7,497)
-------- -------- -------- --------
Net proceeds of
revolving lines of credit ....... 683 -- -- 683
Net payments long-term
debt and capital leases ......... (2,106) (122) -- (2,228)
Other ................................ (156) 156 (752) (752)
-------- -------- -------- --------
Net cash provided (used ) by
financing activities ............ (1,579) 34 (752) (2,297)
-------- -------- -------- --------
Increase (decrease) in restricted
cash and cash equivalents ....... $ 1,293 $ (393) $ (7) $ 893
======== ======== ======== ========
December 31,1995
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
Net cash provided (used) by
operating activities ............ $ (8,245) $ (507) $ 591 $ (8,161)
-------- -------- -------- --------
Capital expenditures ................. (11,045) (662) (163) (11,870)
Purchase of business ................. (10,277) -- -- (10,277)
Proceeds from sale of assets ......... 2,988 -- -- 2,988
Other ................................ 19 -- 127 146
-------- -------- -------- --------
Net cash used in investing activities (18,315) (662) (36) (19,013)
-------- -------- -------- --------
Net proceeds of
revolving lines of credit ....... 21,615 -- -- 21,615
Net payments of long-term
debt and capital leases ......... (1,473) (375) -- (1,848)
Intercompany transfers ............... 5,663 838 (6,501) --
-------- -------- -------- --------
Net cash provided (used ) by
financing activities ............ 25,805 463 (6,501) 19,767
-------- -------- -------- --------
Decrease in restricted cash and cash
equivalents ..................... $ (755) $ (706) $ (5,946) $ (7,407)
======== ======== ======== ========
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,1994
Guarantor Non-guarantor JBPCO and
Subsidiaries Subsidiaries Eliminations Consolidated
Net cash provided (used) by
operating activities ............ $ 1,005 $ (331) $ (2,420) $ (1,746)
-------- -------- -------- --------
Capital expenditures ................. (8,067) (1,103) (48) (9,218)
Purchase of business ................. -- (3,739) -- (3,739)
Purchase of minority interests ....... -- -- (2,360) (2,360)
Other ................................ (297) -- 1,160 863
-------- -------- -------- --------
Net cash used in investing activities (8,364) (4,842) (1,248) (14,454)
-------- -------- -------- --------
Net payments of
revolving lines of credit ....... (25,476) -- -- (25,476)
Net proceeds (payments) of long-
term debt and capital leases .... (37,392) -- 94,880 57,488
Intercompany transfers ............... 79,090 5,032 (84,122) --
Dividends and distributions paid ..... (6,739) -- -- (6,739)
Other ................................ (1,827) -- -- (1,827)
-------- -------- -------- --------
Net cash provided by
financing activities ............ 7,656 5,032 10,758 23,446
-------- -------- -------- --------
Increase (decrease) in restricted cash
and cash equivalents ............ $ 297 $ (141) $ 7,090 $ 7,246
======== ======== ======== ========
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure as discussed in Form 8K filed on October 11, 1996.
As discussed in Form 8K filed on October 11, 1996, during October 1996,
the Company engaged Ernst & Young LLP as the Company's independent auditors to
audit the Company's consolidated financial statements for the fiscal year ended
December 31, 1996. The Company chose not to renew the engagement of Arthur
Andersen LLP, who previously served as the Company's independent auditors. The
change of independent auditors was approved by the Company's Board of Directors.
In connection with the audits of the Company for the years ended
December 31, 1994 and 1995 and since such time, there were no disagreements with
Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of Arthur Andersen LLP, would have caused Arthur
Andersen LLP to make reference to the subject matter of the disagreement in
connection with its report.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are set forth
below. All directors hold office until the next annual meeting of stockholders
of the Company or until their successors are duly elected and qualified.
Executive officers of the Company are appointed by the Board of Directors
annually and serve at the discretion of the Board of Directors.
Name Age Position
---- --- --------
John B. Poindexter 52 Chairman of the Board, President and
Chief Executive Officer
Stephen P. Magee 49 Chief Financial Officer, Treasurer and Director
W.J. Bowen 75 Director
John B. Poindexter has served as Chairman of the Board and Director of
the Company since 1988 and Chief Executive Officer since 1994. Since 1985, Mr.
Poindexter has been the majority limited partner of J.B. Poindexter & Co., L.P.,
a privately held, long-term equity investment and management firm formed by Mr.
Poindexter. From 1983 through 1985, he was co-managing partner of KD/P Equities,
a privately held equity investment firm that he co-founded. From 1976 through
1985, Mr. Poindexter worked for Smith Barney, Harris Upham & Co. While with
Smith Barney, he became a senior vice president for its Smith Barney Venture
Corporation and Smith Barney Capital Corporation ("SBCC") affiliates and a
partner in First Century Partnership II, an investment fund managed by SBCC.
Stephen P. Magee has served as Treasurer and Director of the Company
since 1988 and Chief Financial Officer since 1994.
W.J. Bowen retired in 1992 as the Chairman of the Board of Transco Energy
Company ("Transco"), a diversified energy company based in Houston, Texas. Mr.
Bowen served as Chief Executive Officer of Transco from 1974 until his
retirement from that position in 1987. He is a member of the board of directors
of Tejas Power Corporation.
Directors who are officers or employees of the Company do not receive
fees for serving as directors. The Company pays $20,000 per year as director's
fees to each outside director.
Other Significant Persons
Although not an executive officer of the Company, each of the following
persons is an officer of the referenced Subsidiary or division thereof and is an
important contributor to the Company's operations:
Name Age Position
---- --- --------
James R. Chandler 61 President of EFP
Norman E. Gibbs, Jr. 57 President of Blue Ridge and Courier
Mike Hart 50 President of Lowy Distribution
Lorri Palko 37 President of Morgan
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
James R. Chandler has served as President of EFP since 1978. Prior to
1978, Mr. Chandler worked in various marketing and executive positions with the
Ames Division of Miles Laboratories, Inc. and in the management consulting
section of Price Waterhouse & Co.
Norman E. Gibbs, Jr. has served as President of Blue Ridge & Courier
since the Company's acquisition of Lowy Group in 1991 and has more than 25 years
of experience in the carpet manufacturing industry. From 1973 until the
Company's acquisition of Lowy Group, Mr. Gibbs served successively as an
Executive Vice President and President of Blue Ridge and, since 1981, Courier
for their former owners.
J. Michael Hart, was named President of Lowy Group Inc. on June 2, 1995.
Mr. Hart has held a variety of positions during his thirty year career with the
company and served as Executive Vice President immediately preceding his
appointment to this current position.
Lorri Palko has served as President of Morgan since September 19, 1994.
From 1984 through 1994 Lorri Palko held various management positions at Morgan,
including Chief Financial Officer from December 1992 to September 1994.
Item 11. Executive Compensation
The following table sets forth certain information regarding the
compensation paid to the Company's Chief Executive Officer and the two other
executive officers whose total annual salary and bonus are anticipated to exceed
$100,000 for the fiscal years ended December 31, 1996, 1995 and 1994:
Summary Compensation Table
Annual Compensation All Other
-------------------------
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
John B. Poindexter 1996 $ (a) $ -- $ --
Chairman of the Board and 1995 (a)
Chief Executive Officer . 1994 (a)
Stephen P. Magee 1996 $ (a) $(b) $ --
Chief Financial Officer . 1995 (a)
1994 (a)
(a) Messrs. Poindexter and Magee do not receive salaries from the Company.
Rather, their services are provided to the Company pursuant to a Management
Services Agreement. See "Management Services Agreement." Historically,
Messrs. Poindexter and Magee did not receive salaries from the Company or
any of the Subsidiaries. Rather, these services were provided pursuant to
certain management agreements that were terminated upon consummation of the
Note Offering. See "Certain Transactions."
(b) It is anticipated that Mr. Magee will be eligible to receive in the future
an annual bonus pursuant to the incentive plan described below.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
The Company implemented an incentive plan covering certain of its
executive officers. Although the precise terms of that plan have not been
established, the Company anticipates that it will be similar to the Subsidiary
Incentive Plans described below. Messrs. Poindexter, Magee are covered by health
insurance provided by Morgan to its employees.
Management Services Agreement
Concurrently with the Note Offering, the Company entered into a
Management Services Agreement with a corporation ("Southwestern") owned by Mr.
Poindexter. Pursuant to the Management Services Agreement, Southwestern provides
services to the Company, including those of Mr. Poindexter who serves as the
Company's Chairman of the Board and Chief Executive Officer and of Mr. Magee who
serves as its Chief Financial Officer. The Company pays to Southwestern
approximately $600,000 per year for these services, subject to annual automatic
increases based upon the consumer price index. The Company may pay a
discretionary annual bonus to Southwestern for the provision of Mr. Poindexter's
services and may increase the annual fee payable above the automatic annual
increase, in each case subject to certain limitations, if after giving effect to
such payment and/or increase the Company's Consolidated EBITDA Coverage Ratio is
2.00 to 1 or higher. Pursuant to this agreement, the Company paid Southwestern
$63,000 and in 1995 and none in 1996 and 1994.
Subsidiary Incentive Plans
The Company has adopted an incentive compensation plan for members of
upper management of each of its Subsidiaries (collectively the "Incentive
Plans") to provide for the payments of annual bonuses based upon the attainment
of performance-based goals. Eligible employees will be entitled to receive a
bonus if the Subsidiary attains or surpasses a stated percentage (which varies
by Subsidiary) of that Subsidiary's budgeted pre-tax profit, with the amount of
bonus being tied to the Subsidiary's actual pre-tax profits. Individual bonuses
are then allocated among the eligible employees based upon their individual
achievement of stated performance objectives. The Subsidiaries also maintain
certain other benefit plans for their respective officers and employees. See
Note 14 to the Consolidated Financial Statements for the Company.
Compensation Committee Interlocks and Insider Participation
The Company does not have a compensation committee. Instead,
compensation decisions are made by the entire board of directors.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Item 12. Security of Ownership of Certain Beneficial Owners and Management
Beneficial Ownership
-------------------------
Number Percent
Directors, Officers and 5% Stockholders of Shares of Class
- --------------------------------------- --------- --------
John B. Poindexter 3,059 100%
c/o J.B. Poindexter & Co., Inc.
1100 Louisiana, Suite 5400
Houston, Texas 77002
Stephen P. Magee -- --
c/o J.B. Poindexter & Co., Inc.
1100 Louisiana, Suite 5400
Houston, Texas 77002
W.J. Bowen -- --
c/o J.B. Poindexter & Co., Inc.
1100 Louisiana, Suite 5400
Houston, Texas 77002
All directors and officers as a
group (5 persons) 3,059 100%
Mr. Poindexter has sole voting and investment power with respect to all
shares that he beneficially owns.
Item 13. Certain Relationships and Related Transactions
Messrs. Poindexter and Magee and certain members of Morgan's management are
members of a partnership ("Bartow") that leases certain real property in Georgia
to Morgan. During each of 1996, 1995 and 1994, Morgan paid approximately
$200,000 as rent to Bartow, and it will continue to pay such rent to Bartow in
the future. The Company believes that the rent paid by Morgan to Bartow is a
competitive market rate for the location.
The Company has entered into a Management Services Agreement with
Southwestern Holdings, Inc. a corporation ("Southwestern") owned by Mr.
Poindexter. Pursuant to the Management Services Agreement, Southwestern provides
services to the Company, including those of Mr. Poindexter and Mr. Magee its
Chief Financial Officer. The Company pays to Southwestern approximately $600,000
per year for these services, subject to annual automatic increases based upon
the consumer price index. The Company may also pay a discretionary annual bonus
to Southwestern subject to certain limitations, $63,000 was paid in 1995 and
none was paid in 1996 or 1994. The Company and Subsidiaries use certain
facilities provided by Southwestern for meetings and conferences, the Company
did not use the facilities during 1996, the Company paid Southwestern $23,000
during 1995 for the use of the facilities. The Company paid Southwestern
approximately $600,000, $653,000 and $366,000 during 1996, 1995 and 1994,
respectively.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
The Company believes that the amounts paid by it to Southwestern for the use of
these facilities is a market rate. A subsidiary of the Company, which is not a
restricted subsidiary under the terms of the Senior Notes Indenture or a
guarantor under the terms of the Company's Revolving Loan Agreement, paid
Southwestern Holdings $50,000 during 1996 for certain services.
A corporation owned by Mr. Poindexter has an airplane that the Company used
from time to time in 1995. During 1995, the Company paid approximately $16,000
for the use of the airplane and may use the airplane in the future. The Company
believes that the amount it paid for the use of the airplane was a market rate.
TAG purchases certain raw materials from an entity in which TAG's founder,
who was a minority interest holder in TAG prior to the Note Offering, has a
minority interest. During 1994, TAG paid $3.0 million to that entity and intends
to continue to purchase raw materials from that entity in the future. TAG
believes that the amounts paid to that entity represent competitive market rates
for those raw materials.
TAG leases certain real estate in Canada from an entity controlled by an
executive vice president of TAG. Total lease expenses was $114,000 and $64,000
in 1996 and 1995, respectively.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements - None, other than as previously listed
in response to Item 8.
(a)(2) Financial Statement Schedules - None
(a)(3) Exhibits
3.1(a) Second Restated Certificate of Incorporation
3.1.1(e) Certificate of First Amendment to Second Restated Certificate
of Incorporation.
3.2(a) Amended and Restated Bylaws
4.1(e) Form of 12 1/2% Senior Note due 2004 (included in Exhibit 4.2)
4.2(e) Indenture dated as of May 23, 1994
4.2.1(f) First Supplemental Indenture dated as of May 11, 1995.
Incorporated by reference to Exhibit 4.1 to the Form 10-Q for
the quarterly period ended June 30, 1995, as filed with the
Commission on August 15, 1995
4.2.2(f) Second Supplemental Indenture dated as of June 26, 1995.
Incorporated by reference to Exhibit 4.2 to the Form 10-Q for
the quarterly period ended June 30, 1995, as filed with the
Commission on August 15, 1995.
4.3(a) List of certain promissory notes
10.1(e) Loan and Agency Agreement dated as of May 23, 1994, among J.B.
Poindexter & Co., Inc., Meridian Bank as Agent and the Banks
(as defined therein)
10.1.1(f) First Amendment to Loan and Agency Agreement dated as of May
11, 1995, among J.B. Poindexter & Co., Inc., Meridian Bank as
Agent and the Banks (as defined therein)
10.1.2(f) Second Amendment to Loan and Agency Agreement dated as of
September 19, 1995, among J.B. Poindexter & Co., Inc.,
Meridian Bank as Agent and the Banks (as defined therein).
Incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarterly period ended September 30, 1995, as filed with the
Commission on November 14, 1995
10.1.3(f) Third Amendment to Loan and Agency Agreement dated as of
December 29, 1995, among J.B. Poindexter & Co., Inc., Meridian
Bank as Agent and the Banks (as defined therein)
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
10.1.4(g) Fourth Amendment to Loan and Agency Agreement dated as of
March 29, 1996, among J.B. Poindexter & Co., Inc. Meridian
Bank as Agent and the Banks (as defined therein).
10.1.5(h) Loan and Security Agreement by and among Congress Financial
Corporation and J.B. Poindexter & Co., Inc., dated June 28,
1996.
10.23(a) Lease Agreement, dated as of March 29, 1990, between Bartow
Partners, L.P. and Morgan Trailer Manufacturing Co., d/b/a
Morgan Corporation, as amended by the First Amendment to
Lease Agreement, dated June 13, 1991
10.32(a) Lease Agreement, dated August 14, 1987, between C&D Realty
Partnership and Leer, Inc., as amended by the Lease Option and
Amendment Agreement , dated as of August 14, 1992
10.33(a) Lease Agreement, dated August 14, 1987, between J&R Realty
Company and Leer, Inc.
10.34(a) Lease Agreement, dated August 14, 1987, between BCD Realty
Partnership with Leer, Inc., as amended by the Lease Option
and Amendment Agreement, dated as of August 14, 1992 (missing
page 2 of Amendment)
10.35(a) Lease Agreement, dated August 14, 1987, between John M.
Collins and Leer, Inc., as amended by the Lease Option and
Amendment Agreement, dated as of August 14, 1992, and the
Addendum to Lease Agreement, dated as of August 1, 1993
10.36(a) Lease agreement, dated August 14, 1987, between PCD Realty
Partnership and Leer, Inc., as amended by the Lease Option and
Amendment Agreement, dated as of August 14, 1992
10.41(a) Carpet Manufacturing Licensing Agreement, dated August 29,
1991, between Allied-Signal, Inc. and Lowy Group, Inc.
10.42(a) Confidential Distributor Agreement, dated as of January 1,
1988, between Congoleum Corporation and Lowy Enterprises, as
assigned to Lowy Group, Inc. pursuant to an Instrument of
Consent and Assignment, dated as of August 30, 1991, between
Lowy Group, Inc. and Congoleum Corporation
10.43(a) Confidential Ceramic Tile Distributor Agreement, dated as of
June 1, 1992, between Congoleum Corporation and Lowy Group,
Inc.
10.44(a) Employment Agreement, dated January 1, 1994, between Lowy
Group, Inc. and Norman E. Gibbs, Jr.
10.46(a) Non-competition Agreement, dated as of August 30, 1991,
between Lowy Group, Inc. and Norman E. Gibbs, Jr.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
10.84(a) Tax Benefit Agreement, dated October 26, 1993, among Traxxon
Holdings, Inc., Traxxon, Inc., National Steel Service Center,
Inc., Morgan Trailer Holdings, Inc., Morgan Trailer Mfg.
Co. and the Creditor Representative (as defined therein)
10.85(a) Tax Sharing Agreement, dated October 26, 1993, among Traxxon
Holdings, Inc., Traxxon, Inc., National Service Center, Inc.,
Morgan Trailer Holdings, Inc. and Morgan Trailer Mfg. Co.
10.86(e) Management Services Agreement dated as of May 23, 1994,
between J.B. Poindexter & Co., Inc. and Southwestern Holdings,
Inc.
10.92(b) Second Amendment to Loan and Security Agreement, dated
February 22, 1994
10.102(f) Asset Purchase Agreement, dated as of June 15, 1995, among
Leer Inc., 20th Century Fiberglass, Inc., Steven E. Robinson
and Ronald E. Hickman. Incorporated by reference to Exhibit
10.1 to the current report on Form 8-K, dated June 29, 1995,
as filed with the Commission on September 11, 1995
10.103(f) Promissory Note, dated June 29, 1995, executed by Leer, Inc.
Incorporated by reference to Exhibit 10.2 to the current
report on Form 8-K, dated June 29, 1995, as filed with the
Commission on September 11, 1995
10.104(f) Asset Purchase Agreement, dated as of June 15, 1995 among Leer
Inc., Century Distributing, Inc., Steven E. Robinson and
Ronald E. Hickman. Incorporated by reference to Exhibit 10.3
to the current report on Form 8-K, dated June 29, 1995, as
filed with the Commission on September 11, 1995
10.105(f) Consulting Agreement, dated as of June 29, 1995, between Leer,
Inc. and Steven E.Robinson. Incorporated by reference to
Exhibit 10.4 to the current report on Form 8-K, dated June 29,
1995, as filed with the Commission on September 11, 1995
10.106(f) Consulting Agreement, dated as of June 29, 1995, between Leer,
Inc. and Ronald E. Hickman. Incorporated by reference to
Exhibit 10.5 to the current report on Form 8-K, dated June 29,
1995, as filed with the Commission on September 11, 1995.
10.107(f) Non-Competition Agreement, dated as of June 29, 1995, between
Leer, Inc. and Steven E Robinson. Incorporated by reference to
Exhibit 10.6 to the current report on Form 8-K, dated June 29,
1995, as filed with the Commission on September 11, 1995.
10.108(f) Non-Competition Agreement, dated as of June 29, 1995, between
Leer, Inc. and Ronald E. Hickman. Incorporated by reference
to Exhibit 10.7 to the current report on Form 8-K, dated June
29, 1995, as filed with the Commission on September 11, 1995.
10.109(f) Share Purchase Agreement dated as of June 30, 1995, between
Raider Industries, Inc. and Martin Brown
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
10.110(f) Asset Purchase Agreement dated as of June 30, 1995, by and
between Raider Industries Inc., Pro-More Industries Ltd.,
Brown Industries (1976) Ltd. and Martin Brown
21.1 Subsidiaries of the Registrant
27.1 Financial data schedule
99.1(g) Waiver letter with respect to the Loan and Agency Agreement,
dated as of March 27, 1996, among J.B. Poindexter & Co., Inc.,
Meridian Bank as Agent and the Banks (as defined therein).
- ------------------------
(a) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 33-75154) as filed with the Commission on February 10,
1994
(b) Incorporated by reference to the Company's Amendment No. 1 to
Registration Statement (No. 33-75154) as filed with the Commission on
February 24, 1994
(c) Incorporated by reference to the Company's Amendment No. 2 to
Registration Statement (No. 33-75154) as filed with the Commission on
March 23, 1994
(d) Incorporated by reference to the Company's Amendment No. 3 to
Registration Statement (No. 33-75154) as filed with the Commission on
May 16, 1994
(e) Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, as filed with the Commission on
March 31, 1995.
(f) Incorporated by reference to the Company's Annual Report on form 10-K
for the year ended December 31, 1995, as filed with the Commission on
March 29, 1996.
(g) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, as filed with the Commission
on May 10, 1996.
(h) Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, as filed with the Commission
on August 13, 1996.
- ------------------------
(b) Reports of Form 8-K. The Company filed the following reports on Form 8-K
during the year:
1) Form 8-K filed with the Commission on October 7, 1996, reporting a
change in the Company's certifying accountant (Item 4)
2) Form 8-K/A filed with the Commission on October 11, 1996, filed Item 7,
Exhibit (16), the letter of response from Arthur Andersen, LLP, the
Company's former independent auditors.
Supplemental Information to Be Furnished With Reports Filed Pursuant to Section
15 (d) of the Act by Registrants Which Have Not Registered Securities Pursuant
to Section 12 of the Act.
The registrant has not delivered to its security holders any annual report to
security holders covering the last fiscal year, proxy statement, form of proxy
or other proxy soliciting material (as described under this caption in Form 10-K
as promulgated by the Securities and Exchange Commission). A copy of this Form
10-K will be sent to each registered holder of the registrant's 12 1/2% Senior
Notes due 2004.
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J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
J.B. POINDEXTER & CO., INC.
Date: March 26, 1997 By: John B. Poindexter
John B. Poindexter, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 26, 1997 John B. Poindexter
John B. Poindexter
Chairman and Chief Executive Officer
and Director
(Principal Executive Officer)
Date: March 26, 1997 Stephen P. Magee
Stephen P. Magee
Chief Financial Officer and Director
(Principal Financial Officer)
Date: March 26, 1997 W.J. Bowen
W.J. Bowen
Director
Date: March 26, 1997 Robert S. Whatley
Robert S. Whatley
Chief Accounting Officer
(Principal Accounting Officer)
-70-
Subsidiaries of J. B. Poindexter & Co., Inc.
1. EFP Corporation, a Delaware corporation
a. EFP Corporation also operates under the following names:
i. Astro Pattern Corporation
ii. Engineered Foam Plastics
2. Lowy Group, Inc., a Delaware corporation
a. Tile By Design, Inc., a Delaware corporation, is a
wholly-owned subsidiary of Lowy Group, Inc.
b. Lowy Group, Inc. also operates under the following names:
i. Blue Ridge Carpet Mills
ii. Courier
iii. Fred T. Lowy Distributors Division
iv. Lowy Enterprises of Minnesota
v. Fred Lowy Linoleum & Rug
vi. Flooring Distributors
vii. Lowy Distributors
3. Magnetic Instruments Corp., a Delaware corporation
a. Magnetic Instruments Corp. also operates under the name
Electrospec.
4. Morgan Trailer Mfg. Co., a New Jersey corporation
a. Acero-Tec S.A. de C.V., a Monterry, Nuevo Leon, Mexico
corporation, is a subsidiary of Morgan Trailer Mfg. Co.
b. Morgan Trailer Mfg. Co. also operates under the name Morgan
Corporation.
30129658.1 032797 1721C 90884990
5. Truck Accessories Group, Inc., a Delaware corporation, f/k/a Leer,
Inc., f/k/a Leer Holdings Inc.
a. Subsidiaries of Truck Accessories Group, Inc. include:
i. Raider Industries Inc., a Saskatchewan, Canada
corporation, is a wholly-owned subsidiary of Truck
Accessories Group, Inc.
(a) Raider Industries Inc. also operates
under the following names:
1) Lo Rider
2) Raider
ii. Leer Acquisition Company, Inc., a Delaware
corporation, is a wholly-owned subsidiary of Truck
Accessories Group, Inc.
(a) Radco Industries, Inc., a Minnesota
corporation, is a wholly-owned
subsidiary of Leer Acquisition
Company, Inc.
b. Truck Accessories Group, Inc. also operates under the
following names:
i. 20th Century Fiberglass
ii. Century Fiberglass
iii. Gem-Top Mfg.
iv. Leer
v. Leer Corporate
vi. Leer East
vii. Leer Midwest
viii. Leer Retail
ix. Leer Southeast
x. Leer Specialty Products
xi. Leer Truck Accessory Centers
xii. Leer West
xiii. National Truck Accessories
xiv. National Truck Accessories Headquarters
xv. National Truck Accessories Midwest
xvi. National Truck Accessories Southeast
xvii. National Truck Accessories West
30129658.1 032797 1721C 90884990