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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, 1998
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 19, 1999: 3059
Documents Incorporated by Reference: None
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
PART I.
Item 1. Business
J.B. Poindexter & Co., Inc. ("JBPCO") operates primarily manufacturing
businesses. JBPCO's subsidiaries are Morgan Trailer Mfg Co., ("Morgan"), Truck
Accessories Group, Inc., ("TAG"), Lowy Group, Inc. ("Lowy" or "Lowy Group"), EFP
Corporation, ("EFP") and Magnetic Instruments Corp., ("MIC Group").
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
$100.0 million, 12 1/2% Senior Notes due 2004 (sometimes referred to herein as
the "Note Offering"). Concurrent with the Note Offering, the Company acquired,
from John B. Poindexter and various minority interests, TAG, Lowy Group, EFP and
MIC Group. During 1998, the Company's management made the strategic decision to
concentrate resources on the Company's manufacturing operations. Consequently,
the retail and wholesale distribution operations of TAG and Lowy Group are being
held for sale and have been treated as discontinued operations in the
Consolidated Financial Statements of the Company. The Company manages its assets
on a decentralized basis, with a small corporate staff providing strategic
direction and support.
During 1998, the Company sold the carpet manufacturing and dyeing
operations (Blue Ridge/Courier) of Lowy Group. The plan to dispose of the
remaining operations of Lowy Group and the distribution operations of TAG (TAG
Distribution) are anticipated to be substantially complete by the end of the
second quarter of 1999. See Note 13 of Notes to the Consolidated Financial
Statements.
The Company considers each of its operating subsidiaries as an industry
segment. See Note 3 to the Consolidated Financial Statements of the Company.
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 119 authorized distributors, seven manufacturing plants and two service
facilities are in strategic locations to provide nationwide service to its
customers, including 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:
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Dry Freight Bodies (Classes 3-7). Dry freight bodies are typically
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 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 foods 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.
Stake Bodies and Flatbeds. 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.
Gem Top Pickup Truck Caps. Pickup truck caps are fabricated enclosures
that fit over the beds of pickup trucks, converting the beds into weatherproof
storage areas. Effective June 30, 1997, Morgan acquired the operations of Gem
Top from TAG. Gem Top services primarily commercial customers. For a more
detailed discussion of the truck accessories business see TAG below.
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 parts through and offers limited
service programs at some of its own facilities and through its 119 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 55%, 54% and 49%
of the Company's total net sales in 1998, 1997 and 1996, respectively.
Morgan's revenue 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, usually in late summer to early fall and tend to be the most volatile
and price sensitive aspect of Morgan's business.
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Morgan's two largest customers, Ryder Truck Rental, Inc. and Penske
Truck Leasing L.P., have, together, 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 26%, 24% and 21% of the Company's
consolidated net sales during the years 1998, 1997, and 1996, respectively.
Morgan sells products through its own sales force and through
independent distributors. Most of the distributors sell a wide variety of truck
related equipment to truck dealers and end-users.
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. Its Gem Top division is located in Oregon.
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.
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, 1998 and 1997, Morgan's total backlog was approximately $73
million and $55 million, respectively. All of the products under the orders
outstanding at December 31, 1998 are expected to be shipped during 1999.
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 plywood 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. Replacement of older vehicles in
fleets represents an important revenue source, with replacement cycles varying
from approximately four to six years, depending on vehicle types. 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 a large number
of 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
4
time, geographic proximity of manufacturing facilities to customers, warranty
terms, service and price.
TAG
TAG historically has had two operating divisions: TAG Manufacturing,
which consists of the Leer, 20th Century Fiberglass (Century) and Raider
Industries Inc., (Raider) operating divisions; and TAG Distribution, consisting
of retail (Leer Retail and Radco) and the wholesale distribution business
(National Truck Accessories, including Midwest Truck AfterMarket). During 1998,
the Company decided to dispose of the TAG Distribution business and has,
accordingly, treated it as discontinued in the Consolidated Financial
Statements. See Note 13 to the Consolidated Financial Statements of the Company.
TAG Manufacturing is the nation's largest manufacturer of pickup truck caps
and tonneau covers and its products are marketed under the brand names Leer,
Raider, LoRider and Century. Caps and tonneau covers are fabricated enclosures
that fit over the beds of pickup trucks, converting the beds into weatherproof
storage areas. TAG's eight manufacturing plants and network of over 600
independent dealers provide a national network through which its products are
marketed to individuals, small businesses and fleet operators. TAG's net sales
constituted 27%, 28% and 33% of the Company's total net sales during 1998, 1997
and 1996, respectively. Formed in 1971, TAG is headquartered in Elkhart, Indiana
and was acquired in 1987.
Customer and Sales. Most purchasers of TAG's products (purchased from
dealers) are individuals. TAG's products are sold through its national network
of independent dealers. TAG also sells its products in Canada and Europe. In
1998, foreign sales (primarily in Canada) represented approximately 8% of TAG's
total sales or less than 3% of the Company's total net sales. During 1998, 1997
and 1996, TAG Manufacturing had intercompany sales of $12.7 million, $13.7
million and $15.3 million, respectively, to TAG Distribution. Under the current
plan of disposal for TAG Distribution, a substantial portion of these sales may
not continue subsequent to the disposition.
Manufacturing and Supplies. TAG designs and manufactures caps and
tonneaus in seven manufacturing facilities located in California, Indiana,
Pennsylvania and Saskatchewan, Canada. Approximately 85% of the caps sold by TAG
are fiberglass, with aluminum 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 and tonneaus tend to correspond to the level of
new pickup truck sales. Cap sales are seasonal, with sales typically being
higher in the spring and fall than in the summer and winter.
Competition. The cap and tonneau cover industry is highly competitive.
Competitive factors include product availability, quality, price and
installation services.
5
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 approximately 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.
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. 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 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, furniture, appliance and marine industries, among others. EFP has a
reasonably 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
6
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 utilizes 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 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.
EFP is ISO 9001 certified. ISO 9001 is an internationally recognized
certification of production practices and techniques employed in manufacturing
processes.
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.
MIC Group
MIC Group is a manufacturer, caster and assembler of precision metal
parts used in the worldwide oil and gas, aerospace and general industries.
Formed in 1963, MIC Group is located in Brenham, Texas and was acquired in 1992.
MIC Group operates an electronic assembly facility in Houston, which operates
under the name ElectroSpec. MIC Group's net sales made up less than 10% of the
Company's net sales during each of the last three years.
Products. MIC Group manufactures various precision metal parts and
electro-mechanical devices that are utilized primarily in a variety of oilfield
applications and also in the aerospace and other industries. Most of the
precision parts currently manufactured by MIC Group are utilized in connection
with the exploration for oil and gas reserves. Parts produced by MIC Group are
utilized for complex functions, such as well bore logging, perforation and
fracturing. Its products are also applicable to many seismic and geophysical
7
activities. ElectroSpec assembles electronic printed circuit boards and
instrumentation packages for the same or similar applications. Electronic
assembly provides additional sales opportunities by providing turnkey
value-added assemblies to its customers, who incorporate machined parts and
electronics in the manufacture of their products.
Customers. MIC Group sells its products to primarily international
oilfield services and aerospace companies. MIC Group has one customer that
represents approximately 57% of its total net sales during 1998. The customer
has purchased products and services from MIC Group for more than five years and
management considers relations with the customer to be good.
Manufacturing and Supplies. MIC Group manufactures its products in
Brenham, Texas. ElectroSpec is located in Houston, Texas. Management believes
that MIC Group's manufacturing capabilities are among the most sophisticated in
the industry. It performs a broad range of services including
computer-controlled precision machining and welding, electrostatic discharge
machining, electron beam welding, trepanning and gun drilling. MIC Group also
performs investment casting services.
MIC Group is ISO 9002 certified. ISO 9002 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 MIC Group has not
experienced significant shortages in materials in recent years.
Industry. Because a significant amount of MIC Group's products are sold
to large, international oilfield service companies, MIC 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 MIC Group and ElectroSpec, are directly related to the
level of worldwide oil and gas drilling activity. Aerospace companies make up
the second largest segment of business and that business activity is dependent
on world economics and defense spending.
Competition. MIC Group competes with other businesses engaged in the
machining, casting and manufacturing of parts and equipment utilized in the oil
and gas exploration industry, aerospace and general industry. Technological
know-how and production capacity are the primary competitive factors in MIC
Group's industry.
Discontinued Operation - TAG Distribution
TAG Distribution distributes accessories for light trucks, minivans and
sport utility vehicles; including caps and tonneaus manufactured by TAG
Manufacturing. At December 31, 1998, Leer Retail operated 35 retail stores and
National Truck Accessories operated six wholesale distribution centers,
including Midwest Truck AfterMarket. The Company has decided to exit the truck
automotive accessory distribution business and has committed to a plan to sell
or close the wholesale and retail businesses of TAG Distribution. As of March
19, 1999, the Company has sold 14 retail stores, one wholesale distribution
center and closed one distribution center. The disposition of TAG Distribution
is expected to be substantially complete by mid-1999. TAG Distribution has been
8
treated as a discontinued operation in the Company's Consolidated Financial
Statements. See Note 13 to the Consolidated Financial Statements of the Company.
Discontinued Operation - Lowy
Lowy, which was acquired in 1991, operates in the floor covering
distribution business. The Company has decided to sell the Lowy distribution
business and, accordingly, has classified it as a discontinued operation in the
Company's Consolidated Financial Statements. Lowy included carpet manufacturing
and dyeing operations (Blue Ridge and Courier), which were sold, effective
August 31, 1998. See Note 13 to the Consolidated Financial Statements of the
Company.
Lowy is a leading wholesale floor-covering distributor, in the Midwest,
serving twelve Midwestern states. It operates seven facilities, located in Iowa,
Kansas, Minnesota, Nebraska and three locations in Missouri.
Products. Lowy 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, wood flooring, ceramic floor, wall tiles and accessories
and laminate flooring.
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'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
Barrett, the Beaulieu Group, Miliken, the Mohawk Group and the
Shaw Group. Lowy Distribution also offers private label carpeting
marketed under the "Americana" and "Essex House" names and
manufactured by various suppliers.
Customers and Sales. Lowy sells its products primarily to floor
covering retailers, most of which are privately owned, small to medium-sized
dealers located away from major metropolitan areas. These dealers rely on
wholesalers, such as Lowy, 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 offers products manufactured by a variety
of suppliers. Its largest supplier is Congoleum Corporation ("Congoleum"), whose
products represent approximately 30% of Lowy's total revenue during each of the
last three years. Lowy 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 at any time,
subject to notice requirements. Lowy 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's markets at any time. The loss of Congoleum as a supplier, or the
introduction of other Congoleum distributors into Lowy's markets, could
adversely affect Lowy's operations.
9
Industry. The wholesale distribution of floor covering is affected by
the level of new home and remodeling construction activity. 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 competes with other wholesale distributors, retail
building supply chains and large carpet and tile manufacturing companies, who
sell their products directly to their customers.
Trademarks and Patents
The Company owns rights to certain presentations of Leer's name (part
of TAG Manufacturing), which the Company believes is valuable insofar as
management believes that it is recognized as being a leading "brand name." 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 and services.
Employees
At February 28, 1999, the Company had approximately 3,300
full-time employees. Personnel are unionized in: Lowy Distribution's Fridley,
Minnesota (contract expires May, 1999), St. Louis (contract expires February,
2001) and Ankeny, Iowa (contract expires December, 1999) warehouses (covering
10, 14, and 7 persons, respectively); EFP's Decatur, Alabama facility (covering
approximately 65 persons, with a contract expiring in August 2000); and TAG
Manufacturing's Raider Industries facility in Canada (covering approximately 160
persons, with a contract expiring in December 2000). 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.
10
Morgan has been named as a potentially responsible party ("PRP") with
respect to the generation of hazardous materials alleged to have been handled or
disposed of at two Federal Superfund sites in Pennsylvania and one in Kansas.
Although a precise estimate of liability cannot currently be made with respect
to these sites, based upon information known to Morgan, the Company currently
believes that it'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.
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 suggests 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.
Item 2. Properties
The Company owns or leases the following manufacturing, office and
sales facilities as of March 19, 1999:
Owned
Approximate or Lease
Location Principal Use Square Feet Leased Expir-
ation(a)
Morgan:
Ehrenberg, Arizona ........... Manufacturing 125,000 Owned --
Rydal, Georgia ............... Manufacturing 85,000 Leased 1999
Ephrata, Pennsylvania ........ Manufacturing 50,000 Owned --
Morgantown, Pennsylvania ..... Manufacturing 62,900 Leased 1999
Morgantown, Pennsylvania ..... Office & manufacturing 261,500 Owned --
Corsicana, Texas ............. Manufacturing 60,000 Owned --
Janesville, Wisconsin ........ Manufacturing 23,000 Leased 1999
Janesville, Wisconsin ........ Manufacturing 32,000 Owned --
Clackamas, Oregon ............ Manufacturing 78,000 Leased 2003
TAG Manufacturing:
Woodland, California ......... Manufacturing 92,000 Leased 2001
Elkhart, Indiana ............. Office & research 17,500 Owned --
Elkhart, Indiana ............. Manufacturing 139,000 Leased 2001
Milton, Pennsylvania ......... Manufacturing 102,000 Leased 2001
Elkhart, Indiana ............. Manufacturing 91,900 Owned --
Elkhart, Indiana ............. Office & manufacturing 18,400 Leased 1999
Drinkwater, Saskatchewan, Canada Office & manufacturing 72,000 Owned --
Moose Jaw, Saskatchewan, Canada Manufacturing 87,000 Leased 2005
EFP:
Decatur, Alabama ............. Manufacturing 175,000 Leased 1999
Elkhart, Indiana ............. Office & manufacturing 211,600 Owned --
Elkhart, Indiana ............. Manufacturing 24,900 Leased 1999
Gordonsville, Tennessee ...... Manufacturing 40,000 Leased 2001
Marlin, Texas ................ Manufacturing 73,000 Leased 2001
Waukesha, Wisconsin .......... Manufacturing 13,850 Leased 2000
MIC Group:
Brenham, Texas ............... Office & manufacturing 75,500 Owned --
Houston, Texas ............... Manufacturing 9,600 Leased 2000
(a) Including all renewal terms.
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.
11
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.
EFP is subject to a lawsuit concerning the supply of natural gas to one
of its manufacturing plants. The utility company has alleged that EFP was
under-billed by approximately $500,000 over a four-year period, as a result of
errors made by the utility company. The Company is aggressively defending the
suit and believes that its resolution 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 19, 1999, one individual owned all of the registrant's
issued and outstanding common equity. During the last three 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 Senior Note Indenture, dated 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.
Item 6. Selected Financial Data
The historical financial data presented below, for the years ended
December 31, 1998, 1997, 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
Financial Condition and Results of Operations and the Consolidated Financial
Statements of the Company and notes thereto. The historical financial
information presented below has been restated to reflect the discontinuation of
12
TAG Distribution and Lowy. The financial information is not directly comparable
due to the acquisitions of Century and Raider in June 1995.
Year Ended December 31,
(Dollars in Millions, Except Per Share Amounts)
1998 1997 1996 1995 1994
Operating Data:
Net sales ........................ $ 365.3 $ 338.6 $ 310.9 $ 329.5 $ 278.9
Cost of sales .................... 310.1 280.2 257.1 283.6 229.0
Selling, general and
administrative expense ........ 47.6 48.4 44.7 43.9 34.3
Closed and excess facility costs . 0.3 1.4 1.0 -- --
Other (income) expense ........... (0.4) (0.4) 0.1 (1.0) --
----- ----- ----- ----- -----
Operating income ................. 7.7 9.0 8.0 3.0 15.6
Interest expense ................. 15.7 15.8 14.5 14.2 9.3
Income tax provision (benefit) ... 0.7 1.0 (1.0) (2.9) 3.0
----- ----- ----- ----- -----
Income (loss) before extraordinary
loss and discontinued operations .... (8.7) (7.8) (5.5) (8.3) 3.3
Income (loss) from discontinued
operations .......................... (3.4) 0.2 (0.6) (0.2) 2.2
Extraordinary loss ................... -- -- (0.3) -- (2.1)
--- --- --- --- ---
Net income (loss) ...................$(12.1) (7.6) $(6.4) $(8.5) $ 3.4
=== === === === ===
Earnings (loss) per share $(3,973) $(2,467) $(2,097) $ 2,790 $1,503
====== ====== ====== ====== ======
Cash dividends per share $ -- $ -- $ -- $ -- $2,910
===== ===== ====== ====== ======
Balance Sheet Data
(at period end):
Working capital ................. $ 15.0 $ 2.3 $ 1.4 $ 7.1 $ 36.8
Total assets .................... 133.9 161.2 162.9 169.0 159.8
Total long-term obligations ..... 102.9 103.3 103.7 105.6 109.0
Stockholder's equity (deficit) .. $ (17.2) $ (4.7) $ 3.0 $ 9.5 $ 17.8
Cash Flow Data:
Net cash provided by (used in)
operating activities ........ $ 11.7 $ (2.5) $ 10.7 $ (8.2)$ (1.7)
Capital expenditures ........... 6.3 7.3 8.1 11.9 9.2
Net cash provided by (used in)
investing activities ........ 10.3 (6.4) (7.5) (19.0) (14.5)
Net cash provided by (used in)
financing activities ....... (23.1) 9.5 (2.3) 19.8 23.5
Depreciation and amortization (a) 10.6 11.6 11.2 10.5 8.2
13
Other Data:
EBITDA (b) ........................ $17.2 $20.9 $17.1 $10.5 $ 21.6
Consolidated EBITDA
Coverage Ratio (c) ......... 1.1x 1.3x 1.2x 0.7x 2.3x
(a) Depreciation and amortization excludes amortization of debt issuance
cost of $0.9 million, $0.8 million, $0.7 million, $0.7 million and
$0.4 million in 1998, 1997, 1996, 1995 and 1994, respectively.
(b) "EBITDA" from continuing operations is net income increased by the sum
of interest expense, income taxes, depreciation and amortization and
other non-cash items 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 from continuing operations 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) "Consolidated EBITDA Coverage Ratio" is the ratio of EBITDA from
continuing operations of JBPCO and its subsidiaries that guarantee the
Notes, to interest expense that is used in the Indenture to limit the
amount of indebtedness that the Company may incur. Certain of the
Company's subsidiaries are not guarantors of the Notes, see Note 8 of
Notes to Consolidated Financial Statements.
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 the notes thereto.
Basis of Financial Statements
During 1998, the Company committed to plans for disposing of Lowy Group
and TAG Distribution. As of December 31, 1998, the Company has disposed of the
Blue Ridge/Courier operations of Lowy and certain portions of TAG Distribution.
The Company plans to dispose of the remaining portions of these business lines
in 1999. Accordingly, the remaining operations of Lowy and TAG Distribution are
being held for sale and the related operating results have been classified as
discontinued operations in the Consolidated Financial Statements for all periods
presented. As a result, the Company recorded a loss from discontinued operations
of $3.4 million, net of taxes in 1998. The components of this net loss are
discussed further under the captions "Discontinued Operations - TAG
Distribution" and "Discontinued Operations - Lowy Group" and in Note 13 to the
Consolidated Financial Statements.
14
Overview
The Company operates in various industries and considers each of its
main operating subsidiaries a separate business segment. The businesses are
dependent on various factors reflecting general economic conditions including
corporate profitability, consumer spending patterns, sales of truck chassis and
new pickup trucks and the level of oil and gas exploration activity. Net sales
at Morgan and EFP increased 32% and 21%, respectively over the three-year period
ended December 31, 1998, as each segment experienced increased demand for its
products. Sales at TAG Manufacturing decreased 6% during 1997 compared to 1996
as manufacturing quality problems at the Leer operations and the closure of a
Leer manufacturing facility caused a reduction in sales. However, TAG
Manufacturing sales during 1998 recovered to 1996 levels. The MIC Group business
segment experienced a decline in activity during 1998 as a result of the decline
in the level of world-wide oil and gas exploration activity.
The following table represents the net sales, operating income and
operating margins for each business segment and on a consolidated basis.
Years Ended December 31,
1998 1997 1996
---- ---- ----
(Dollars in Millions)
Net Sales:
Morgan ...................... $201.1 $181.7 $152.1
TAG Manufacturing.............. 99.3 95.4 101.9
EFP............................ 38.0 33.0 31.4
MIC Group...................... 26.9 28.5 25.5
-------- -------- --------
Consolidated................... $365.3 $338.6 $310.9
======= ======= ========
Operating Income (Loss):
Morgan......................... $ 2.8 $ 8.6 $ 6.3
TAG Manufacturing.............. 2.2 (4.5) (3.3)
EFP............................ 4.0 3.0 2.7
MIC Group...................... 1.5 4.7 4.8
JBPCO.......................... (2.8) (2.8) (2.5)
------- ------- -------
Consolidated................... $ 7.7 $ 9.0 $ 8.0
====== ======= =======
Operating Margins:
Morgan......................... 1% 5% 4%
TAG Manufacturing.............. 2% (5)% (3)%
EFP............................ 10% 9% 9%
MIC Group...................... 6% 17% 19%
Consolidated................... 2% 3% 3%
Net sales include $14.5 million, $15.6 million and $17.0 million,
respectively, from intercompany sales to TAG Distribution, which has been
classified as a discontinued operation. As a result, operating income includes
approximately $2.9 million, $3.1 million and $3.4 million, respectively, related
15
to profits on these sales. Since TAG Distribution's results of operations are
classified as discontinued, the intercompany sales do not eliminate on a line
item basis in the accompanying consolidated statement of operations. However, on
a consolidated basis, such intercompany transactions are eliminated in the
accompanying Consolidated Statement of Operations for each period presented.
Under the current plan of disposition for TAG Distribution, a substantial
portion of these sales may not continue subsequent to the disposition.
During 1998, MIC Group closed a facility and incurred charges of $0.3
million, which was included in operating income for the period. TAG
manufacturing operating income included $0.8 million and $1.0 million of charges
during the years ended December 31, 1997 and 1996, respectively, associated with
the closure or write-down in carrying value of certain excess facilities. During
1997, Morgan wrote down the carrying value of its facility in Mexico by $0.5
million.
Results of Operations
Consolidated Operating Results from Continuing Operations
Comparison of 1998 to 1997
Net sales increased 8% to $365.3 million in 1998 compared to $338.6
million in 1997. The increase was due primarily to Morgan, whose sales increased
11% or $19.4 million. EFP and TAG Manufacturing recorded sales increases of 15%
or $5.0 million and 6% or $5.0 million, respectively. Sales decreased 6% or $1.7
million at MIC Group.
Cost of sales increased 11% to $310.1 million in 1998 from $280.2
million in 1997. Gross profits decreased 5% to $55.2 million (15% of net sales)
in 1998 compared to $58.4 million (17% of net sales) in 1997. The decrease in
gross profits was due primarily to Morgan and MIC Group, whose gross profits
decreased 22% or $5.6 million and 34% or $2.7 million, respectively, partially
offset by increases at EFP of 22% or $1.5 million and at TAG Manufacturing of
20% or $3.7 million.
Selling, general and administrative expense decreased 2% to $47.6
million (13% of net sales) in 1998 compared to $48.4 million (14% of net sales)
in 1997. The decrease was due primarily to an 11% or $2.3 million decrease at
TAG Manufacturing.
Operating income decreased 14% to $7.7 million in 1998 compared to $9.0
million in 1997. TAG Manufacturing's operating income increased $6.8 million to
$2.2 million in 1998 compared to an operating loss of $4.6 million in 1997 and
EFP's operating income increased 31% or $1.0 million. Operating income decreased
67% or $5.8 million at Morgan and 67% or $3.2 million at MIC Group.
Interest expense decreased 1% to $15.7 million in 1998 compared to
$15.8 million in 1997 and weighted average total debt decreased approximately 5%
to $132.0 million during 1998 compared to $139.0 million during 1997.
16
The Company recorded an income tax expense of $0.7 million for the year
ended December 31, 1998 compared to a $1.0 million expense during 1997. The
income tax expense of $0.7 million in 1998 represents state and foreign income
taxes payable. The Company's income tax provision differs from the federal
statutory rate principally due to a $3.6 million increase in the deferred tax
valuation allowance relating to net operating losses that may not be realizable.
See Note 10 of Notes to the Consolidated Financial Statements.
Comparison of 1997 to 1996
Net sales increased 9% to $338.6 million in 1997 compared to $310.9
million in 1996. The increase was due primarily to Morgan, whose sales increased
19% or $29.6 million and increases at MIC Group of 12% or $3.1 million and at
EFP of 5% or $1.5 million. TAG Manufacturing sales decreased $6.5 million or 6%.
Cost of sales increased 9% to $280.2 million in 1997 from $257.1
million in 1996, and gross profits increased 8% to $58.4 million (17% of net
sales) in 1997 compared to $53.8 million (17% of net sales) in 1996. Morgan, EFP
and MIC Group recorded 26%, 9% and 2% increases in gross profits, respectively.
Selling, general and administrative expense increased 8% to $48.4 million
(14% of net sales) in 1997 compared to $44.7 million (14% of net sales) in 1996.
The Company recorded Closed and Excess Facility Costs of $1.4 million
and $1.0 million during the years ended December 31, 1997 and 1996,
respectively. During 1997, Morgan considered selling its idle facility in
Mexico. Accordingly, Morgan began marketing the property and, based on an
estimate of the fair value less the cost to sell the property, wrote down the
carrying value by $0.6 million. In 1996, TAG Manufacturing closed two
manufacturing facilities, resulting in a charge of $1.0 million for the year
ended December 31,1996, and additional charges during the year ended December
31, 1997 of $0.8 million.
Operating income increased 12% to $9.0 million in 1997 compared to $8.0
million in 1996. Operating losses at TAG Manufacturing increased 39% to $4.6
million during 1997 compared to $3.3 million during 1996.
Interest expense increased 9% to $15.8 million in 1997 compared to
$14.5 million in 1996 and average total debt increased 5% to $139.0 million
during 1997 compared to $132.3 million in 1996.
The Company recorded an aggregate income tax expense for continuing
operations of $1.0 million for the year ended December 31, 1997 compared to a
$1.0 million benefit during 1996. See Note 11 of Notes to the Consolidated
Financial Statements.
17
Business Segment Results
Morgan
During 1998, the Company appointed a new president of Morgan (See Part
III of the Company's Annual Report on Form 10-k). Subsequently, new key members
of management were appointed, including a Vice President of Operations, Chief
Financial Officer and a Vice President of Human Resources. Morgan acquired Gem
Top from TAG, effective June 30,1997. Gem Top manufactures pickup truck caps
primarily for commercial customers, which compliments the Morgan business.
Morgan's operating results have been restated to include Gem Top for all periods
presented.
Comparison of 1998 to 1997
Net sales increased 11% to $201.1 million in 1998 compared to $181.7
million in 1997. Shipments of van body units increased 13% to 26,600 units in
1998 compared to 23,600 units during 1997. Consumer Rental Sales (as defined
under Part I, Item I - Business) decreased 18% to $18.7 million and Commercial
Sales increased 22% to $158.1 million in 1998 compared to 1997. Backlog at
December 31, 1998 was $73.3 million compared to $55.2 million at the end of
1997. The increase in backlog reflects continued demand for Morgan products.
However, Morgan depends upon chassis manufacturers for timely delivery of its
customers' chassis. Approximately $13.2 million of backlog at December 31, 1998
is a result of delayed chassis deliveries.
Cost of sales increased 16% to $181.2 million in 1998 compared to
$156.1 million in 1997. Gross profits decreased 22% or $5.6 million to $20.0
million (10% of net sales) compared to $25.6 million (14% of net sales) in 1997.
The gross profit margin decreased as a result of the increased material and
overhead costs as a percentage of sales and less favorable pricing on certain of
Morgan's products. Corrective action taken by the new management team included
the re-negotiation of raw material supply arrangements and of certain product
pricing.
Selling, general and administrative expense increased 1% to $17.2
million (9% of net sales) in 1998 compared to $17.0 million (9% of net sales) in
1997. Selling expense increased 10% to $8.9 million primarily as a result of
increased sales commissions on higher sales. General and administrative expense
remained approximately the same in 1998 compared to 1997. An 18% reduction in
general and administrative personnel and the related cost reductions were offset
by severance payments and increased relocation costs associated with new
management personnel.
Morgan's operating income decreased 67% to $2.8 million (1% of net
sales) in 1998 compared to $8.6 million (5% of net sales) in 1997. The decline
in operating income was due primarily to the reasons cited above for the
reduction in gross profits.
Comparison of 1997 to 1996
Net sales increased 19% to $181.7 million in 1997 compared to $152.1
million in 1996. Shipments of van body units increased 26% to 23,600 units in
1997 compared to 18,700 units during 1996. Consumer Rental Sales increased 65%
to $22.9 million and Commercial Sales increased 10% to $131.3 million in 1997
18
compared to 1996. Backlog at December 31, 1997 was $55.2 million compared to
$50.2 million at the end of 1996. The increase in backlog reflects an increase
in consumer rental orders following a downturn in that business during 1996.
Cost of sales increased 19% to $156.1 million in 1997 compared to
$131.7 million in 1996 as a result of the increase in units produced. Gross
profits increased 26% or $5.2 million to $25.6 million (14% of net sales)
compared to $20.4 million (13% of net sales) in 1996. Gross profit margin
increased slightly as a result of slightly lower raw material costs and the
implementation of selling price increases.
Selling, general and administrative expense increased 23% to $17.0
million (9% of net sales) in 1997 compared to $13.8 million (9% of net sales) in
1996. General and administrative expense increased 50% or $3.0 million due to
increased personnel and the related costs.
Due to increased net sales, Morgan's operating income increased 35% to $8.6
million in 1997 compared to $6.3 million in 1996. As a percentage of net sales,
operating income increased to 5% in 1997 compared to 4% in 1996.
TAG Manufacturing
TAG historically was comprised of two divisions: TAG Manufacturing and
TAG Distribution. As a result of continued losses from TAG Distribution. During
1998, management committed to a formal plan to dispose of those operations.
Therefore, the following discussion excludes TAG Distribution.
The following discussion also excludes the operations of Gem Top, which
was acquired by Morgan in June 1997. TAG Manufacturing's results have been
restated to exclude Gem Top for all periods presented.
Comparison of 1998 to 1997
Net sales for TAG Manufacturing increased 4% to $99.4 million in 1998
compared to $95.4 million in 1997. Net sales included intercompany sales to TAG
Distribution of $12.7 million in 1998 compared to $13.7 million in 1997. TAG
Manufacturing's net third party sales increased 6% to $86.7 million during 1998
compared to $81.7 million during 1997. Total shipments of caps and tonneaus,
including shipments to TAG Distribution were 175,000 units during 1998 compared
to 162,000 units in 1997. The increase in units shipped is primarily due to
improved quality, more favorable product mix and product pricing.
Cost of sales was $78.0 million in 1998 and 1997. Gross profits
increased 20% to $21.4 million (21% of net sales) during 1998 compared to $17.7
million (19% of net sales) during 1997. The increase in gross profits was due
primarily to a decrease in warranty costs as a result of improved quality at the
Leer division and a 3% decrease in material costs as a percentage of sales.
Selling, general and administrative expense decreased 11% to $19.6
million (20% of net sales) during 1998 compared to $21.9 million (23% of net
sales) during 1997. General and administrative expense decreased 18% or $1.4
19
million, primarily as a result of a reduction in corporate overhead costs.
TAG Manufacturing incurred an operating profit for the year ended
December 31, 1998 of $2.2 million compared to an operating loss of $4.6 million
in 1997. The improvement in operating performance was primarily the result of
higher shipments and lower direct costs resulting in improved gross profits.
Comparison of 1997 to 1996
Net sales for TAG Manufacturing decreased 6% to $95.4 million in 1997
compared to $101.9 million in 1996. TAG Manufacturing sales included
intercompany sales to TAG Distribution of $13.7 million in 1997 and $15.3
million in 1996. Total shipments of caps and tonneaus, including shipments to
TAG Distribution, were 162,000 units during 1997 compared to 174,000 units in
1996. The decline in units shipped was primarily a result of the closing of the
Leer plant in the Southeastern United States and a decline in national market
share. Raider recorded an 8,900 unit or 44% increase in shipments and Century's
shipments were consistent with the prior year.
Cost of sales decreased $5.1 million (6%) to $77.7 million in 1997
compared to $82.7 million in 1996. Gross profits decreased 7% to $17.7 million
(19% of net sales) during 1997 compared to $19.2 million (19% of net sales)
during 1996. The decrease in gross profits was primarily due to a decrease of
$3.1 million or 29% at Leer Manufacturing as a result of increased material
costs arising from product quality problems.
Selling, general and administrative expense increased 2% to $21.9
million (23% of net sales) during 1997 compared to $21.6 million (21% of net
sales) during 1996. Selling expense increased 4% or $0.5 million, primarily as a
result of increased delivery costs.
TAG Manufacturing incurred an operating loss for the year ended December
31, 1997 of $4.6 million compared to an operating loss of $3.3 million in 1996.
The Leer Manufacturing plant in the Southeastern United States was
closed during the last quarter of 1996 due to inefficient operations. Production
was transferred to the remaining TAG Manufacturing plants with an associated
reduction in overhead costs. Including costs of closing another minor facility,
total closure costs of approximately $1.0 million were charged to expense during
1996 as Closed and Excess Facility Cost.
EFP
Comparison of 1998 to 1997
Net sales increased 15% to $38.0 million in 1998 compared to $33.0
million in 1997. EFP's Packaging and Shock Absorbing product (as defined under
Part I, Item I - Business) sales increased $4.0 million, on the strength of
increased shipments to customers in the consumer electronic industry.
20
Cost of sales increased 14% to $29.4 million in 1998 from $25.9 million
in 1997. Accordingly, gross profits increased 22% to $8.6 million (23% of net
sales) in 1998 compared to $7.1 million (21% of net sales) in 1997. The increase
in gross profits was due to a decrease in material costs and improved overhead
absorption on higher sales volume.
Selling, general and administrative expense increased 14% to $4.6
million (12% of net sales) in 1998 compared to $4.0 million (12% of net sales)
in 1997, primarily due to increased general and administrative expenses,
including higher incentive based costs.
EFP's operating income increased 31% to $4.0 million (10% of net sales)
in 1998 compared to $3.0 million (9% of net sales) in 1997, primarily due to
increased gross profits on higher sales.
Comparison of 1997 to 1996
Net sales increased 5% to $33.0 million in 1997 compared to $31.5
million in 1996. EFP's Components (as defined under Part I, Item I - Business)
sales increased $1.9 million, on the strength of new business, including the
door core business started in 1996.
Cost of sales increased 4% to $25.9 million in 1997 from $25.0 million
in 1996. Accordingly, gross profits increased 9% to $7.1 million (21% of net
sales) in 1997 compared to $6.5 million (21% of net sales) in 1996. The increase
in gross profits was due to a decrease in material costs, which were partially
offset by higher labor costs resulting from changes in product mix.
Selling, general and administrative expense increased 6% to $4.0 million
(12% of net sales) in 1997 compared to $3.8 million (12% of net sales) in 1996.
EFP's operating income increased 11% to $3.0 million (9% of net sales) in
1997 compared to $2.7 million (9% of net sales) in 1996.
MIC Group
During 1998, the Company appointed a new President of MIC Group and
subsequently appointed a new Vice President of Sales and a Vice President of
Quality.
Comparison of 1998 to 1997
Net sales decreased 6% to $26.9 million in 1998 compared to $28.6
million in 1997. The decrease was attributable to reduced demand for MIC's
products and services caused by lower levels of activity in the energy
exploration and production business. The decline in levels of activity in the
energy business accelerated in the second half of 1998 and continued into 1999.
MIC Group is increasing efforts to diversify its revenue base outside the energy
business.
Cost of sales increased 5% to $21.6 million in 1998 compared to $20.6
million in 1997. Gross profits decreased 34% to $5.3 million (20% of net sales)
in 1998 compared to $8.0 million (28% of net sales) in 1997. During the fourth
21
quarter of 1998, in response to a 33% decline in sales, measures were taken to
reduce direct costs, including a 25% reduction in labor personnel.
Further measures are being implemented.
Selling, general and administrative expense increased 6% to $3.5
million (13% of net sales) compared to $3.3 million (11% of net sales) in 1997,
primarily due to increased sales personnel and related costs associated with
efforts to diversify the customer base into the non-energy business.
During the year ended December 31, 1998, the Houston machine shop was
closed resulting in costs of $0.3 million included in Closed and Excess Facility
Costs.
Operating income decreased 67% to $1.5 million (6% of net sales) during
1998 compared to $4.7 million (17% of net sales) in 1997.
Comparison of 1997 to 1996
Net sales increased 12% to $28.6 million in 1997 compared to $25.5
million in 1996. The increase was attributable to greater demand for Magnetic's
products and services due to increased levels of activity in the energy
exploration and production business.
Cost of sales increased 17% to $20.6 million in 1997 compared to $17.6
million in 1996. Accordingly, gross profits increased 2% to $8.0 million (28% of
net sales) in 1997 compared to $7.8 million (31% of net sales) in 1996. Labor
costs increased $1.4 million or 18%, primarily due to increased training costs.
Selling, general and administrative expense increased 6% to $3.3
million (11% of net sales) compared to $3.0 million (12% of net sales) in 1996,
principally because of increased sales, personnel and related costs.
Operating income decreased 1% to $4.7 million (17% of net sales) during
1997 compared to $4.8 million (19% of net sales) in 1996.
Discontinued Operations - TAG Distribution
TAG Distribution incurred operating losses of $2.4 million, $5.4
million and $2.8 million during 1998, 1997 and 1996, respectively. As a result
of continued losses from TAG Distribution, on April 2, 1998, management
committed to a formal plan to dispose of TAG Distribution. Accordingly, the
results of operations of TAG Distribution have been classified as discontinued
operations in the accompanying financial statements for all periods presented.
The plan of disposal is expected to be substantially completed by the end of the
second quarter of 1999. In addition, the net assets and liabilities of TAG
Distribution, which are expected to be disposed of, have been segregated within
the accompanying consolidated balance sheets as "net assets of discontinued
operations." As of March 19, 1999, the Company has sold one wholesale location
and 14 retail locations. Two wholesale locations and two retail locations have
been closed.
As a result of this plan, the Company recorded a loss on TAG
Distribution's discontinued operations of $12.0 million, net of applicable
taxes, in 1998. This net loss is comprised of $1.2 million related to losses on
22
operations prior to April 2, 1998, and $10.8 million related to the estimated
loss on disposal, each net of applicable taxes. The Company estimates that this
loss on disposal will include losses of $2.8 million for operations from April
2, 1998 through the disposal date and $8.0 million for the excess of the
carrying value of assets over estimated net realizable value, each net of
applicable taxes.
Effective January 29, 1999 in accordance with the plan of disposal, the
Company sold the business and assets of Radco, which were part of the retail
operations of TAG Distribution. Proceeds of approximately $1.2 million were used
to repay borrowings under the revolving credit agreement entered into by Radco
during 1997. Effective on the same date, Radco changed its name to Welshman
Industries, Inc.
Comparison of 1998 to 1997
TAG Distribution net sales increased 6% to $58.5 million during 1998
compared to $54.9 million in 1997. At Leer Retail, sales decreased 5% to $35.4
million and at National Truck Accessories, wholesale sales increased 30% or $5.3
million. Sales of Midwest Truck AfterMarket, Inc., acquired in October 1997,
increased $6.3 million during 1998 compared to the two months of 1997.
Cost of sales increased $3.4 million (9%) to $40.8 million in 1998
compared to $37.4 million in 1997. Gross profits increased 1% to $17.7 million
(30% of net sales) during 1998 compared to $17.5 million (32% of net sales)
during 1997.
Selling, general and administrative expense decreased 17% to $19.0
million (33% of net sales) during 1998 compared to $22.9 million (42% of net
sales) during 1997. General and administrative expense decreased 39% or $3.0
million, primarily as a result of eliminating the costs associated with the TAG
Distribution headquarters office in Houston.
TAG Distribution incurred an operating loss for the year ended December 31,
1998 of $2.4 million compared to an operating loss of $5.4 million in 1997.
Comparison of 1997 to 1996
TAG Distribution net sales decreased 18% to $55.0 million during 1997
compared to $67.1 million during 1996. At Leer Retail, sales decreased 13% to
$37.2 million as same store sales decreased approximately 6%, primarily due to
lower cap sales. Leer Retail closed six stores between July 1996 and December
1997, which reduced sales approximately $2.8 million during 1997 compared to
1996. Wholesale sales decreased 27% or $6.7 million, primarily due to softness
in regional markets and loss of customers resulting from a reorganization of
service areas late in 1996. Effective October 31, 1997, TAG acquired the assets
of Midwest Truck AfterMarket, Inc., a wholesale distributor of light truck
accessories based in Tulsa, Oklahoma, for approximately $2.7 million. The
acquisition provided the wholesale operations of TAG Distribution with a
presence in a geographical market not previously served.
23
Cost of sales decreased $9.0 million (19%) to $37.4 million in 1997
compared to $46.4 million in 1996. Gross profits decreased 16% to $17.5 million
(32% of net sales) during 1997 compared to $20.8 million (31% of net sales)
during 1996. The decrease in gross profits was due primarily to the $12.1
million decline in sales.
Selling, general and administrative expense decreased 2% to $22.9
million (42% of net sales) during 1997 compared to $23.3 million (35% of net
sales) during 1996. Selling expense decreased 15% or $2.7 million primarily as a
result of a $1.7 million (13%) decrease in selling expense at Leer Retail,
resulting from the closure of six stores during 1997. General and administrative
expense increased 41% or $2.2 million primarily as a result of costs associated
with the headquarters office in Houston.
During the year ended December 31, 1997, TAG Distribution closed the
headquarters in Houston and eight unprofitable retail stores at a cost of $1.0
million.
TAG Distribution incurred an operating loss for the year ended December
31, 1997 of $5.4 million compared to an operating loss of $2.8 million in 1996.
The decline in operating performance was primarily the result of lower sales and
the costs associated with the closing and consolidation of various stores and
administrative activities.
Discontinued Operations - Lowy Group
The sale of the Blue Ridge/Courier division of Lowy was completed and
was effective on August 31, 1998, resulting in a gain of $6.5 million. Effective
September 8, 1998, the Company decided to pursue a plan to sell the Lowy
Distribution division of Lowy. Accordingly, the operations of Lowy Group have
been classified as discontinued in the Consolidated Financial Statements for all
periods presented. The net assets and liabilities of Lowy, which are expected to
be disposed of, have been segregated within the accompanying consolidated
balance sheets as "net assets of discontinued operations." Because the assets of
Blue Ridge/Courier were sold during the period, the following discussion is
related to the operations of Lowy Distribution only.
The Company expects to break even from the operations of Lowy through
the disposal date. The anticipated sales proceeds from the disposal of Lowy
Distribution's assets are expected to equal or exceed their carrying value at
December 31, 1998.
Comparison of 1998 to 1997
Net sales decreased 5% to $36.1 million in 1998 compared to $37.9
million in 1997, primarily due to poor sales of carpet and vinyl products
partially offset by increased wood flooring sales.
Cost of sales decreased 4% to $27.9 million in 1998 compared to $29.2
million in 1997. Gross profits decreased 6% to $8.2 million (23% of net sales)
in 1998 compared to $8.7 million (23% of net sales) in 1997.
24
Selling, general and administrative expense decreased 7% to $8.0
million (22% of net sales) in 1998 compared to $8.5 million (22% of net sales)
in 1997, due primarily to a decrease in selling expense as a result of a
reduction in sales personnel and related costs.
Lowy sold two properties during 1997, recognizing a gain of $2.7
million, which was included in Other Income, for the year ended December 31,
1997. A warehouse facility near Minneapolis, Minnesota was sold, effective March
31, 1997, and the operations moved to a new location during the quarter ended
June 30, 1997. Effective June 30, 1997, Lowy Distribution sold and leased back a
warehouse facility in Ankeny, Iowa.
Lowy Group's operating income, excluding the gains from the sale of real
estate, was $0.3 million (1% of net sales) in 1998 and 1997.
Comparison of 1997 to 1996
Net sales decreased 9% to $37.9 million in 1997 compared to $41.5
million in 1996. Cost of sales decreased 9% to $29.2 million in 1997 from $32.1
million in 1996. Accordingly, gross profits decreased 7% to $8.7 million (23% of
net sales) in 1997 compared to $9.4 million (23% of net sales) in 1996.
Selling, general and administrative expense decreased 3% to $8.5 million
(22% of net sales) in 1997 compared to $8.8 million (21% of net sales) in 1996.
Lowy Group's operating income, excluding the gains on the sale of real
estate during 1997 of $2.7 million, decreased 50% to $0.3 million (1% of net
sales) in 1997 compared to $0.6 million (2% of net sales) in 1996.
Liquidity and Capital Resources
During 1998, net cash provided by operations was $11.7 million compared
to net cash used of $2.5 million during 1997. Overall changes in working capital
provided cash of $14.1 million during 1998 primarily due to a reduction in
working capital at Morgan of $4.4 million. Cash provided by operations was used
to pay down revolver borrowings and to fund capital expenditures of $6.3
million.
The Company's ability to borrow under its Revolving Loan Agreement
depends on the amount of eligible collateral, which is dependent on certain
advance rates applied to the value of accounts receivables and inventory. At
March 13, 1999, the Company had unused available borrowing capacity of $20.7
million under the terms of the Revolving Loan Agreement. At December 31, 1998,
the Company had total borrowing capacity of $43.3 million, of which, $3.7
million was used to secure letters of credit and foreign exchange
accommodations. At December 31, 1998, the Company had unused available borrowing
capacity of approximately $22.0 million. On August 31, 1998, the Company
completed the sale of the assets of Blue Ridge/Courier and proceeds from the
sale of approximately $15.3 million were used to repay borrowings under the
Revolving Loan Agreement.
25
The initial term of the three-year Revolving Loan Agreement ends in June
1999, however, the agreement provides for borrowings on a year to year basis,
unless sooner terminated by the Company or lender, provided that the lender may
at its option extend the renewal date to a fourth year. On March 29, 1999, the
Company was notified by the lender, in writing, that it is exercising this
option thus extending the agreement to June 2000.
The Company's Radco subsidiary (part of TAG Distribution), which is a
non-guarantor subsidiary under the terms of the bond indenture, concurrently
with the acquisition of substantially all the assets of MTA, entered into a
three-year revolving credit agreement with the Company's revolving credit
lender. The agreement provided for borrowings of up to the lesser of $5,000,000
or an amount based on advance rates applied to the total amounts of eligible
accounts receivable and inventories of Radco. At December 31, 1998, Radco had
total borrowings of approximately $1.6 million under the revolving credit
agreement. Effective January 29, 1999, the business and assets of Radco were
sold to third parties. Net proceeds of approximately $1.2 million were used to
pay down borrowings under the Revolving Credit Agreement. At December 31, 1998,
accounts due under the facility are included in "Net Assets of Discontinued
Operations".
As discussed in Notes 7 and 8 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. The Company also believes 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.
Year 2000
The Year 2000 (Y2K) issue is the result of computer programs being
written using two digits rather than four to define a specific year. Absent
corrective actions, a computer program that has date sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failure or miscalculations resulting in disruptions to
operations.
The Company's plan to resolve the Y2K issue involves the following four
phases: assessment, remediation, testing, and implementation. Based on the
recently completed assessment of continuing operations, the Company determined
that it will be required to modify or replace significant portions of its
software and certain hardware so that those systems will properly utilize dates
beyond December 31, 1999 at certain of the companies subsidiaries. The Company
expects to have all remediated systems fully tested and implemented by September
30, 1999. The Company believes that with modifications or replacements of
existing software and certain hardware, the Y2K issue can be mitigated.
The Company has queried its significant suppliers and subcontractors
that do not share information systems with the Company (external agents). To
date, the Company is not aware of any external agent with a Y2K issue that would
26
materially impact the Company's results of operations, liquidity or capital
resources.
The Company has and will continue to utilize both internal and external
resources to reprogram or replace, test and implement software and operating
equipment for Y2K modifications. The total cost of the Y2K project is estimated
at $1.5 million and is being funded through operating cash flows. Approximately
20% of the cost is to replace equipment and the remainder is to upgrade or
reprogram software. The majority of these costs are being expended as incurred
and are not expected to have a material impact on the Company's results of
operations or financial position. To date, the Company has incurred
approximately $0.7 million related to all phases of the Y2K project.
The Company believes that the Y2K issue will not pose significant
operational problems for the Company. However, if all Y2K problems are not
identified and corrected in a timely manner, there can be no assurances that the
Y2K issue will not have a material adverse effect on the Company's results of
operations or adversely affect the Company's relationships with customers,
suppliers or other parties. In addition, there can be no assurance that outside
third parties, including customers, suppliers, utility and government entities,
will be in compliance with all Y2K issues. The Company believes that the most
likely worse case Y2K scenario, if one were to occur, would be the temporary
inability of third party suppliers, such as utility providers, telecommunication
companies and other critical suppliers to continue providing their products and
services. The failure of these third party suppliers to provide on-going
services could have a material adverse effect on the Company's results of
operations.
Management of the Company believes it has an effective program in place
to resolve the Y2K issue in a timely manner. However, the Company currently has
no contingency plans in place in the event it or any of its major suppliers do
not complete all phases of the Y2K program. The Company plans to evaluate the
status of the completion of its Y2K project and those of key suppliers in the
second quarter of 1999 and determine whether such a plan is necessary.
Other Matters
The Company is significantly leveraged and had a $17.2 million
stockholder's deficit at December 31, 1998. Through its floating rate debt, the
Company is 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 small number
of customers, with two customers accounting for 26% of 1998 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.
The Company has net operating loss carryforwards of approximately $34.0
million for U.S. federal income tax purposes at December 31, 1998, which, if not
utilized, will begin to expire in 2002. The Company has recorded a valuation
allowance of $5.0 million and $2.1 million as of December 31,1998 and 1997,
respectively, 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 $7.5
million of benefits attributable to such tax planning strategies. The Company
27
believes that after consideration of its options concerning the operations of
TAG, which incurred significant losses during 1998, 1997 and 1996, and other tax
planning strategies, that sufficient future taxable income will be generated to
utilize the deferred tax asset. 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
the determination was made.
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 ("PRP") with
respect to the generation of hazardous materials alleged to have been handled or
disposed of at two Federal Superfund sites in Pennsylvania and one in Kansas.
Although a precise estimate of liability cannot currently be made with respect
to these sites, based upon information known to Morgan, the Company currently
believes that it'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.
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.
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
MIC Group and EFP, at its facility in Indiana, have obtained certification. The
implementation of this standard is in recognition of the international nature of
a number of MIC Group's customers as well as being reflective of the high
precision nature of the services of both companies. Morgan and the Raider
division of TAG have plans to implement the standard and EFP, at its other
locations, within the next two years. The Company believes that, except for MIC
Group and EFP, none of the customers of the Company have requested or expect the
adoption by the Company of ISO 9000.
The Company pays fees to a corporation, owned by Mr. Poindexter, 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 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to certain market risks, including interest rate
risk and foreign currency risk. The adverse effects of potential changes in
these market risks are discussed below. The sensitivity analyses presented do
not consider the effects that such adverse changes may have on overall economic
28
activity, nor do they consider additional actions management may take to
mitigate the Company's exposure to such changes. Actual results may differ. See
the Notes to the Consolidated Financial Statements for a description of the
Company's accounting policies and other information related to these financial
instruments.
Interest Rates
Variable-Rate Debt. As of December 31, 1998, the Company had
approximately $16.8 million outstanding under a $55.0 million, asset-based,
revolving credit facility. The interest rate on this revolving credit facility
is based upon a spread above either the Prime Interest Rate or London Interbank
Overnight Rate (LIBOR), which rate is determined at the Company's option. The
amount outstanding under this revolving credit facility will fluctuate
throughout the year based upon working capital requirements. Based upon the
$16.8 million outstanding under the revolving credit facility at December 31,
1998, a 1.0% change in the interest rate (from the December 31, 1998 rate) would
cause a change in interest expense of approximately $0.2 million on an annual
basis. The Company's objective in maintaining these variable rate borrowings is
the flexibility obtained regarding early repayment without penalties and lower
overall cost as compared with fixed-rate borrowings.
Fixed-Rate Debt. As of December 31, 1998, the Company had approximately
$100.0 million of 12 1/2% Senior Notes, long-term debt, outstanding, with an
estimated fair value of approximately $94.0 million based upon their publicly
traded value at that date. Market risk, estimated as the potential increase in
fair value resulting from a hypothetical 1.0% decrease in interest rates, was
approximately $3.7 million as of December 31, 1998.
Foreign Currency
Raider Industries, a division of TAG Manufacturing, has a manufacturing
plant in Canada, which generated revenues of approximately $16.0 million during
the year ended December 31, 1998. The functional currency of Raider Industries
is the local currency (Canadian dollar). Management does not currently employ
risk management techniques to manage this potential exposure to foreign currency
fluctuations, however, the vast majority of goods manufactured in Canada are
imported and sold to customers in the United States. Therefore, a weakening of
the United States dollar in relation to the Canadian dollar may have the effect
of decreasing Raider Industries' gross margin, assuming that the United States
sales price remains unchanged.
In addition, Morgan purchases certain raw materials from a supplier in
the United Kingdom, which approximated $6.6 million during the year ended
December 31, 1998. The result of a uniform 25% weakening in the value of the
United States dollar from December 31, 1998 levels relative to the British
Sterling would result in an estimated increase in cost of goods sold of
approximately $1.3 million for the year ended December 31, 1999 before
considering any risk reduction instruments. However, Morgan manages its exposure
to changes in foreign currency exchange rates by entering into foreign currency
exchange contracts. Morgan's risk management objective is to reduce its exposure
to the effects of changes in exchange rates between the firm purchase commitment
date and the settlement of the purchased inventory item. As of December 31,
1998, the Company had foreign currency exchange contracts with a notional amount
of approximately $1.1 million outstanding and a fair value of less than $5,000.
29
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Forward-looking statements in this report, including without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties, including without limitation, the following: (1) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (2) any sale of a business unit is
subject to many factors including terms considered satisfactory to the
management of the Company; and (3) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements: Page
Report of Independent Auditors ................................ 31
Consolidated Balance Sheets as of December 31, 1998 and 1997... 32
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... 33
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... 34
Consolidated Statements of Stockholder's Deficit for the years ended
December 31, 1998, 1997 and 1996.......................... 35
Notes to Consolidated Financial Statements..................... 36
30
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
J.B. Poindexter & Co., Inc.
We have audited the accompanying consolidated balance sheets of J.B. Poindexter
& Co., Inc. and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholder's deficit and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated 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, 1998 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
March 29, 1999
31
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
December 31,
1998 1997
-------- ---------
Current assets
Restricted cash ..................................... $ 2,194 $ 3,191
Accounts receivable, net of allowance for doubtful
accounts of $710 and $1,426, respectively ......... 26,289 28,401
Inventories, net .................................... 31,094 29,960
Deferred income taxes ............................... 3,071 2,277
Prepaid expenses and other .......................... 559 1,048
-------- --------
Total current assets ....................... 63,207 64,877
Property, plant and equipment, net ....................... 38,198 41,085
Net assets of discontinued operations .................... 8,844 28,744
Goodwill, net ............................................ 14,517 15,405
Deferred income taxes .................................... 4,465 5,259
Other assets ............................................. 4,744 5,829
-------- --------
Total assets ............................................. $133,975 $161,199
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Short-term debt .................................. $ -- $ 428
Current portion of long-term debt ................ 1,019 1,173
Borrowings under the revolving credit facility ... 16,813 38,154
Accounts payable ................................. 17,771 9,948
Accrued compensation and benefits ................ 4,648 4,175
Accrued income taxes ............................. 483 --
Other accrued liabilities ........................ 7,471 8,718
-------- --------
Total current liabilities ............... 48,205 62,596
-------- --------
Noncurrent liabilities
Long-term debt, less current portion ............. 100,386 101,404
Employee benefit obligations and other ........... 2,583 1,940
-------- --------
Total noncurrent liabilities ............ 102,969 103,344
-------- --------
Commitments and contingencies
Stockholder's deficit
Common stock and paid-in capital ................. 16,486 16,486
Cumulative other comprehensive income ............ (491) (186)
Accumulated deficit .............................. (33,194) (21,041)
-------- --------
Total stockholder's deficit ............. (17,199) (4,741)
-------- --------
Total liabilities and stockholder's deficit $133,975 $161,199
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
32
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
Year Ended December 31,
1998 1997 1996
---- ---- ----
Net sales .................................. $365,327 $338,559 $310,924
Cost of sales .............................. 310,094 280,193 257,065
-------- -------- --------
Gross profit ............................... 55,233 58,366 53,859
Selling, general and administrative expense 47,651 48,455 44,833
Closed and excess facility costs ........... 335 1,364 1,001
Other (income) expense, net ................ (431) (405) 53
-------- -------- --------
Operating income ........................... 7,678 8,952 7,972
Interest expense ........................... 15,648 15,775 14,484
-------- -------- --------
Loss from continuing operations before income
taxes and extraordinary loss ............ (7,970) (6,823) (6,512)
Income tax provision (benefit) ............. 744 947 (991)
-------- -------- --------
Loss from continuing operations before
extraordinary loss ..................... (8,714) (7,770) (5,521)
Income (loss) from discontinued operations,
net of applicable taxes ........... (3,439) 224 (633)
Extraordinary loss on early extinguishment of
debt, net of income tax benefit of $135 -- -- (260)
-------- -------- --------
Net loss ................................... $(12,153) $ (7,546) $ (6,414)
======== ======== ========
Basic and diluted loss per share:
Loss from continuing operations before
extraordinary loss .................... $ (2,849) $ (2,540) $ (1,805)
Income (loss) from discontinued operations,
net of applicable taxes ............... (1,124) 73 (207)
Extraordinary loss, net of applicable taxes . -- -- (85)
-------- -------- --------
Net loss ................................... $ (3,973) $ (2,467) $ (2,097)
======== ======== ========
Weighted average shares outstanding ........... 3,059 3,059 3,059
======= ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
33
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
1998 1997 1996
Net loss ........................................................................... $(12,153) $ (7,546) $ (6,414)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization .................................................... 11,535 12,382 11,862
Provision for write-down of assets of
discontinued operations ..................................................... 5,505 -- --
Gain on sale of discontinued operations .......................................... (6,529) -- --
Extraordinary loss on early extinguishment of debt,
net of tax ................................................................... -- -- 260
Closed and excess facility costs ................................................. 47 1,834 --
(Gain) loss on sale of facilities and equipment .................................. 23 (2,545) 19
Deferred federal income tax provision (benefit) .................................. -- 226 (1,725)
Other ............................................................................ (801) 347 303
Increase (decrease) in assets and liabilities net
of the effect ofacquisitions:
Accounts receivable .............................................................. 2,093 (4,903) 2,590
Inventories ...................................................................... 1,206 (1,077) 3,325
Prepaid expenses and other ....................................................... -- 485 160
Accounts payable ................................................................. 7,765 (151) 798
Accrued income taxes ............................................................. 297 (378) 9
Other accrued liabilities ........................................................ 2,757 (1,189) (500)
-------- -------- --------
Net cash provided by (used in) operating activities .......................... 11,745 (2,515) 10,687
-------- -------- --------
Cash flows provided by (used in) investing activities:
Purchase of businesses, net of cash acquired ..................................... -- (2,700) --
Proceeds from disposition of business, facilities
and equipment ................................................................ 16,164 3,674 416
Acquisition of property, plant and equipment ..................................... (6,226) (7,262) (8,091)
Other ............................................................................ 397 (145) 178
-------- -------- --------
Net cash provided by (used in) investing activities .......................... 10,335 (6,433) (7,497)
-------- -------- --------
Cash flows provided by (used in) financing activities:
Net (payments) proceeds of revolving lines of
credit and short term debt ................................................... (21,758) 11,037 683
Payments of long-term debt and capital leases .................................... (1,319) (1,298) (2,228)
Debt issuance costs .............................................................. -- (207) (752)
-------- -------- --------
Net cash provided (used in) financing activities ............................. (23,077) 9,532 (2,297)
-------- -------- --------
Increase (decrease) in restricted cash .................................. (997) 584 893
Restricted cash beginning of period ................................................ 3,191 2,607 1,714
-------- -------- --------
Restricted cash end of period ...................................................... $ 2,194 $ 3,191 $ 2,607
======== ======== ========
Supplemental information:
Cash paid for income taxes ....................................................... $ 633 $ 1,526 $ 1,010
======== ======== ========
Cash paid for interest cost ...................................................... $ 15,615 $ 15,029 $ 16,211
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
34
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 and 1998
(Dollars in thousands, except share amounts)
Shares of Common Retained Other
Common Stock and Earnings Comprehensive
Stock Paid-in (Deficit) Income Total
Capital
December 31, 1995 ......... 3,059 $ 16,486 $ (7,081) $ 46 $ 9,451
--------
Net loss .............. -- -- (6,414) -- (6,414)
Translation adjustment -- -- -- (7) (7)
--------
Comprehensive income . -- -- -- -- (6,421)
-------- -------- -------- -------- --------
December 31, 1996 ......... 3,059 16,486 (13,495) 39 3,030
-------- -------- -------- -------- --------
Net loss ............. -- -- (7,546) -- (7,546)
Translation adjustment -- -- -- (225) (225)
--------
Comprehensive income . -- -- -- -- (7,771)
-------- -------- -------- -------- --------
December 31, 1997 ......... 3,059 16,486 (21,041) (186) (4,741)
--------
Net loss ............. -- -- (12,153) -- (12,153)
Translation adjustment -- -- -- (305) (305)
--------
Comprehensive income . -- -- -- -- (12,458)
-------- -------- -------- -------- --------
December 31, 1998 ......... 3,059 $ 16,486 $(33,194) $ (491) $(17,199)
======== ======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
35
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.
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.
Effective July 1,1997, Morgan acquired the assets of Gem Top
Manufacturing, Inc. ("Gem Top") from the Truck Accessories Group, Inc. Gem Top
manufactures and distributes light truck caps primarily to commercial customers
and was originally acquired on March 16, 1993. Since both companies are under
common control the acquisition was accounted for in a manner similar to a
pooling of interests.
Truck Accessories Group, Inc. ("TAG") Acquired on August 14, 1987, TAG is
a manufacturer 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. TAG operations are organized into two separate
and distinct operating divisions: TAG Manufacturing and TAG Distribution (See
Note 13).
TAG Manufacturing includes Leer, which was acquired on August 14, 1987,
20th Century Fiberglass (Century), which was acquired June 29, 1995, and Raider
Industries Inc. (Raider), a Saskatchewan, Canada corporation that acquired the
cap manufacturing businesses of Raider and LoRider on June 30, 1995.
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.
MIC Group ("MIC Group") Acquired on June 19, 1992, MIC Group is a
manufacturer, investment caster and assembler of precision metal parts for use
in the worldwide oil and gas exploration, aerospace and general industries.
Discontinued Operations
The following operations have been presented as discontinued in the
accompanying consolidated financial statements. See a further discussion at Note
13.
Truck Accessories Group Distribution Division Acquired on August 14,
1987, as part of the TAG acquisition, TAG Distribution operates as a retail and
wholesale distributor of products manufactured by TAG Manufacturing and other
suppliers. Management has committed to a plan to dispose of TAG Distribution.
36
TAG Distribution includes Radco Industries, Inc., ("Radco") which was
acquired on December 28, 1994, Century Distributing which was acquired June 29,
1995, and Midwest Truck After Market ("MTA") which was acquired October 31,
1997.
Lowy Group, Inc. ("Lowy Group") Acquired August 30, 1991, Lowy Group
operates in the floor covering business serving all or a portion of twelve
Midwestern states through six company operated facilities. Management has
committed to a plan to dispose of Lowy. Lowy Group included the Blue
Ridge/Courier division, which was a carpet manufacturing and dyeing operation,
and was sold effective August 31, 1998.
2. Summary of Significant Accounting Policies:
Principles of Consolidation. 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, 1998 and 1997, substantially all of the
Company's cash is restricted pursuant to the terms of the revolving credit
facility (See Note 7).
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, 1998, 1997 and 1996,
the Company charged to expense, $242,000, $696,000, and $552,000, respectively,
as a provision for doubtful accounts and deducted from the allowance $958,000,
$694,000 and $1,124,000, respectively, for write-offs of bad debts.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
Property, Plant and 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. Morgan provides product warranties for periods up to ten years.
TAG provides a warranty period, exclusive to the original truck owner, which 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.
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
37
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 include 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.
Foreign Exchange Currency Contracts. Morgan uses foreign exchange
currency contracts to hedge the foreign currency risk associated with British
Sterling inventory purchases. Any such gains or losses on these contracts, which
qualify as accounting hedges, are deferred and recognized when the underlying
inventory is sold.
Recently Issued Accounting Standards. In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in fiscal
years beginning after June 15, 1999. Because of the Company's limited use of
derivatives to manage its exposure to fluctuations in foreign exchange rates,
management does not anticipate that the adoption of the new statement will have
a significant effect on earnings or the financial position of the Company.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement provides
guidance on accounting for the costs of software developed or obtained for
internal use and is effective for fiscal years beginning after December 15,
1998. The Company will adopt this standard in the first quarter of 1999.
Management does not believe its adoption will have a significant effect on the
Company's financial statements, as the Company's policies are consistent with
this standard.
3. Segment Data:
The Company operates and manages its subsidiaries individually and
considers each subsidiary a separate business segment. The Company evaluates
performance and allocates resources based on the operating income of each
subsidiary. The accounting policies of the reportable business segments are the
same as those described in the summary of significant accounting policies. Other
than sales between TAG Manufacturing and TAG Distribution, there are no
significant inter-segment sales. For a description of each business segment, see
Note 1. The following is a summary of the business segment data for the years
ended December 31, 1998, 1997 and 1996 (dollars in thousands):
38
Net Sales ...................... 1998 1997 1996
Morgan ......................... $201,126 $181,652 $152,073
TAG Manufacturing .............. 99,357 95,391 101,927
EFP ............................ 37,986 32,954 31,444
MIC Group ...................... 26,858 28,562 25,480
-------- -------- --------
Net Sales ...................... $365,327 $338,559 $310,924
======== ======== ========
Operating Income (Loss)
Morgan ......................... $ 2,781 $ 8,531 $ 6,312
TAG Manufacturing .............. 2,165 (4,559) (3,340)
EFP ............................ 3,971 3,031 2,737
MIC Group ...................... 1,542 4,732 4,799
JBPCO (Corporate) .............. (2,781) (2,783) (2,536)
-------- -------- --------
Operating Income ............... $ 7,678 $ 8,952 $ 7,972
======== ======== ========
Depreciation and Amortization Expense
Morgan.......................... $ 2,326 $ 2,424 $ 2,335
TAG Manufacturing............... 4,312 4,279 3,674
EFP............................. 1,684 1,853 1,928
MIC Group....................... 944 1,230 1,440
JBPCO (Corporate)............... 1,039 945 675
Discontinued operations......... 1,230 1,651 1,810
--------- --------- -------
Depreciation and Amortization Expense $11,535 $12,382 $11,862
======= ======= =======
Total Assets
Morgan............................... $ 60,454 $ 65,205 $ 58,399
TAG Manufacturing.................... 35,656 37,142 37,680
EFP.................................. 16,233 14,253 14,930
MIC Group............................ 9,078 10,500 10,144
JBPCO (Corporate).................... 3,710 5,355 9,364
Net assets of discontinued operations 8,844 28,744 32,999
---------- ---------- ---------
Identifiable Assets.................. $133,975 $161,199 $163,516
======== ======== ========
Capital Expenditures
Morgan............................... $ 2,646 $ 3,071 $ 2,448
TAG Manufacturing.................... 1,820 2,392 3,283
EFP.................................. 510 478 523
MIC Group............................. 392 750 1,141
JBPCO (Corporate)..................... 27 101 32
Discontinued operations............... 831 470 664
--------- --------- ---------
Capital Expenditures.................. $ 6,226 $ 7,262 $ 8,091
======= ======= =======
Net sales include $14,497,000, $15,630,000 and $17,025,000, respectively,
from intercompany sales to TAG Distribution, which has been classified as a
discontinued operation. As a result, operating income included approximately
$2,900,000, $3,100,000 and $3,400,000, respectively, related to profits on these
39
sales. Since TAG Distribution's results of operations are classified as
discontinued, the intercompany sales do not eliminate on a line item basis in
the accompanying consolidated statement of operations. However, on a
consolidated basis, such intercompany transactions are eliminated in the
accompanying consolidated statement of operations for each period presented.
Under the current plan of disposition for TAG Distribution, a substantial
portion of these sales may not continue subsequent to the disposition.
During 1998, MIC Group closed a facility and incurred charges of $335,000,
which was included in operating income for the period. TAG Manufacturing's
operating income included $805,000 and $1,001,000 of charges, during the years
ended December 31, 1997 and 1996, respectively, associated with the closure or
write-down in carrying value of certain excess facilities. During 1997, Morgan
wrote down the carrying value of its facility in Mexico by $559,000, which was
included in operating income for the period.
Morgan has two customers (truck leasing and rental companies) that
accounted for, on a combined basis, approximately 40-45% of Morgan's net sales
during 1998, 1997 and 1996, respectively. EFP has three customers in the
electronics industry that accounted for approximately 37%, 28% and 25% of EFP's
net sales in 1998, 1997 and 1996, respectively. MIC Group has an industry
concentration, pertaining to international oil field service companies, with one
customer in 1998, three customers in 1997 and four customers in 1996 that
accounted for approximately 57%, 53% and 69% of MIC Group's net sales,
respectively.
The Company's operations are located principally in the United States.
However, Raider Industries, Inc., a subsidiary of TAG manufacturing, is located
in Canada and Acero-Tec, S.A. de C.V., a subsidiary of Morgan, is located in
Mexico. The following information pertains to these foreign subsidiaries as of
December 31. (dollars in thousands):
1998 1997
---- ----
Long lived assets............ $5,296 $5,839
====== ======
Consolidated net sales include $11,118,000, $11,084,000 and $8,458,000
in 1998, 1997 and 1996, respectively, for sales to customers outside the United
States.
40
4. Inventories:
Consolidated net inventories consist of the following (dollars in thousands):
December 31,
1998 1997
---------- ----------
FIFO Basis Inventory:
Raw Materials...................... $19,549 $14,398
Work in Process.................... 4,296 6,103
Finished Goods..................... 7,249 9,459
--------- ---------
Total Inventory............................ $31,094 $29,960
======= =======
Inventories are stated net of an allowance for excess and obsolete
inventory of $1,214,000 and $852,000 at December 31, 1998 and 1997,
respectively. During the years ended December 31, 1998, 1997 and 1996, the
Company charged to expense $1,176,000, $923,000 and $2,052,000, respectively, as
a provision for excess and obsolete inventory and deducted from the allowance
$814,000, $1,635,000 and $1,389,000, respectively, for write-offs of excess and
obsolete inventory.
5. Long Lived Assets
Property, plant and equipment, as of December 31, 1998 and 1997,
consisted of the following (dollars in thousands):
Range of Useful Lives 1998 1997
--------------------- ------- -------
Land................................ -- $ 3,598 $ 3,636
Buildings and improvements.......... 5-32 19,330 19,433
Machinery and equipment............. 3-10 51,516 50,037
Furniture and fixtures.............. 2-10 8,623 6,770
Transportation equipment............ 2-10 3,337 3,480
Leasehold improvements.............. 3-10 3,884 3,631
Construction in progress............ -- 2,541 2,795
-------- --------
92,829 89,782
-------- --------
Accumulated depreciation and amortization (54,631) (48,697)
Property, plant and equipment, net.. $ 38,198 $ 41,085
========= =========
Depreciation expense was $8,122,000, $8,550,000 and $8,000,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
41
Other assets and goodwill as of December 31, 1998 and 1997, consist of
the following (dollars in thousands):
1998 1997
--------------------------------- -------------------------------------
Amortization Accumulated Net Book Accumulated Net Book
Period Amortization Value Amortization Value
Other Assets:
Cash surrender value of
life insurance............ - $ - $ 1,123 $ - $ 1,009
Agreements not-to-compete 3-6 1,244 531 888 888
Debt issuance costs and other 3-10 3,022 3,090 2,216 3,932
------- ------- ------- ----------
Total......................... $4,266 $ 4,744 $3,104 $ 5,829
======= ======== ======== =========
Goodwill...................... 25-40 $7,937 $14,517 $7,049 $15,405
======= ======== ======== =========
Goodwill is being amortized on a straight-line basis over forty years for
Morgan and twenty-five years for TAG Manufacturing.
In accordance with FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets may be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. During the twelve months ended December 31, 1998, 1997
and 1996, the Leer division of TAG Manufacturing incurred operating losses of
approximately $1,036,000, $7,462,000 and $4,546,000, respectively. Even though
the operating performance of the Leer division of TAG Manufacturing indicated
that approximately $13,082,000 of assets of certain of its operations may be
impaired, an estimate of the future undiscounted cashflows from the Leer
division of TAG Manufacturing indicated that the carrying values of the assets
would be expected to be recovered over the useful life of the assets. However,
it is possible that the estimate of undiscounted future cashflows could change
in the future requiring recognition of an impairment loss.
During 1998, MIC Group closed its Houston machining facility resulting
in a charge of $335,000 included in Closed and Excess Facility Costs in the
accompanying consolidated statements of operations. Of these charges, $47,000
was non-cash expenses related to the write-down of assets. At December 31, 1998,
accrued expenses included $234,000 with respect to lease obligations that run
through December 1999.
During 1997, Morgan committed to a plan to dispose of its idle facility
in Mexico. Accordingly, Morgan began marketing the property and, based on an
estimate of the fair value less the cost to sell the property, wrote down the
carrying value by $559,000 which was included in Closed and Excess Facility
Costs in the accompanying consolidated statement of operations for the year
ended December 31, 1997. The Mexico facility has a net book value of
approximately $1,200,000 at December 31, 1998 and 1997, which is included in
Property, Plant and Equipment.
In 1996, TAG Manufacturing closed its plant in the Southwestern United
States, resulting in a charge of $1,001,000 for the year ended December 31,
1996. Additional expenses of $805,000 were incurred during 1997, with respect to
these facilities. Both such charges are included in Closed and Excess Facility
42
Costs in the accompanying consolidated statements of operations. Of these
charges, $476,000 in 1997 and $453,000 in 1996 were non-cash expenses related to
the write-down or disposal of assets during those years. At December 31, 1998,
accrued expenses included $162,000 with respect to lease obligations, which run
through September 1999.
6. Short-term debt:
Short-term debt as of December 31, 1998 and 1997, consists of the following
(dollars in thousands): 1998 1997
---- ----
Morgan: Bankers' acceptances generally 180 day terms
with interest rates ranging from 4.9% to 7.7%... $ - $428
===== ====
7. Revolving Credit Agreements:
Amounts outstanding under the Revolving Credit Agreement as of December 31,
1998 and 1997 were (in thousands):
1998 1997
---- ----
Revolving loan due June 2000........................ $16,813 $ 38,154
======= ========
On June 28, 1996, the Company entered into a three-year senior secured
revolving loan agreement (Revolving Loan Agreement) providing for borrowing by
its Subsidiaries of up to $50,000,000, which was subsequently increased to
$55,000,000, effective May 13, 1998. At the conclusion of the initial three
years (June 1999), the agreement provides for borrowings on a year to year
basis, unless sooner terminated by the Company or lender provided that the
lender may, at its option, extend the renewal date of the agreement to four
years from the original inception of the agreement. On March 29, 1999, the
Company was notified by the lender, in writing, that it is exercising this
option and thus extending the agreement to June 2000.
The Revolving Loan Agreement 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 $55,000,000 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% and 85% for receivables and between 40% and 60%
for inventory. The Revolving Loan Agreement provides for borrowing at variable
rates of interest, based on either LIBOR (London Interbank Offered Rate, 5.0% at
December 31, 1998) or U.S. prime rate (7.75% at December 31, 1998). Interest is
payable monthly including a fee of one-half of one 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, 1998, the Company had total borrowings of $16,813,000, and letters
of credit and foreign exchange accommodations of $3,742,000 outstanding pursuant
to the Revolving Loan Agreement. At December 31, 1998, the Company's unused
available borrowing under the Revolving Loan Agreement totaled approximately
$22,745,000.
During the year ended December 31, 1996, the Company wrote off certain
43
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 current liabilities. 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, 1998, the Company was in
compliance with all covenants of the Revolving Loan Agreement. At December 31,
1998, 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. Effective February 12, 1999,
the Company obtained a waiver from the lender permitting the Company to
repurchase up to $10,000,000 of its 12 1/2% Senior notes (See Note 8), subject
to certain conditions.
Radco is a non-guarantor of the Company's Senior Notes (See Note 8) and
is not a Subsidiary Guarantor under the terms of the Company's Revolving Loan
Agreement. Concurrent with the acquisition of substantially all the assets of
MTA, Radco entered into a three-year revolving credit agreement providing for
borrowings of up to the lesser of $5,000,000 or an amount based on advance rates
applied to the total amounts of eligible accounts receivable and inventories of
Radco and MTA. At December 31, 1998, Radco had total borrowings of $1,629,000,
and unused available borrowing capacity totaling approximately $0.2 million.
Radco is part of TAG Distribution and it is anticipated that the remaining
balance outstanding under the Radco facility will be repaid from proceeds
derived from the disposal of MTA. Accordingly, the borrowings, under the Radco
revolving loan agreement, are included in "Net Assets of Discontinued
Operations." Effective January 29, 1999, the assets and operations of Radco
(excluding MTA) were sold and proceeds of approximately $1,200,000 were used to
repay borrowings under the Radco facility.
8. Long-term debt and Note Offering:
Long-term debt as of December 31, 1998 and 1997 consists of the following
(dollars in the table in thousands):
1998 1997
JBPCO: ---- ----
12 1/2% Senior Notes due 2004.............. $100,000 $100,000
-------- --------
TAG Manufacturing:
Note payable, due June 15, 2000, monthly principal
payment of $26,666 plus interest at U.S. prime,
(7.75% at December 31, 1998)...................... 480 800
Obligations under various non-compete agreements.. 629 984
Obligations under capital leases.............. 82 196
--------- ---------
1,191 1,980
--------- ---------
Morgan:
Capital lease obligation due in monthly installments
of $17,704 including interest at 8.2%,
through May 10, 1998............................ - 90
--------- ---------
44
EFP:
Various equipment notes, due in monthly or annual
installments, interest from 8.12% to 10%, with
maturities from May 1997 to September 1999,
each collateralized by specific assets........... 214 478
-------- ---------
MIC Group:
Covenant not-to-compete........................... - 29
--------- ---------
Total long-term debt.......................... 101,405 102,577
Less current portion ..................... 1,019 1,173
--------- ---------
Long-term debt, less current portion.......... $100,386 $101,404
========= =========
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, 1998, the
Company was in compliance with all covenants of the Senior Notes Indenture.
Under the terms of the Senior Notes Indenture, proceeds in excess of $2,000,000
from the sale of assets, including the stock of the Company's subsidiaries, are
required to be used to repay borrowings under the Revolving Loan Agreement.
Proceeds in excess of amounts outstanding under the Revolving Loan Agreement may
be re-invested in assets of the Company within one year of the asset sale. At
December 31, 1998, 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.
The Company's non-guarantor subsidiaries are Radco Industries (acquired
by TAG in December 1994 and include MTA acquired in October 1997), Tile by
Design (acquired by Lowy in November 1994), and Acero-Tec, S.A. de C.V.
(Morgan's Mexico subsidiary). The net assets and operating results of Radco and
Tile by Design are included in discontinued operations. Effective January 29,
1999, the assets and operations of Radco were sold. The Company believes that
separate financial statements or other disclosures of the guarantors are not
material to the investors. Acero-Tec, S.A. de C.V., is the only non-guarantor
subsidiary not classified as a discontinued operation and for which the net
assets and operating results have been segregated in the accompanying financial
statements. Acero-Tec, S.A. de C.V. has total assets of approximately $1,200,000
at December 31, 1998, and the results of its operations were not significant
during the three years then ended.
The Company estimates the fair value of the 12 1/2% Senior Notes at
December 31, 1998 to be $94,000,000 based on their publicly traded value at that
date compared to a recorded amount of $100,000,000 as of December 31, 1998.
45
Subsequently to December 31, 1998, the Company purchased $8,000,000 of
its 2004 12 1/2% Senior Notes for an aggregate purchase price of approximately
$7,700,000. The Company will record an extraordinary gain on the purchase of the
Senior Notes of approximately $300,000 in 1999. The Company's decision to
purchase and hold the Senior Notes or to sell the Senior Notes will be dependent
upon the interest rate arbitrage between the Senior Notes and borrowings under
the Revolving Loan Agreement and market conditions. The purchases were made in
the open market, the company does not intend to cancel or redeem the Senior
Notes and may re-sell the Senior Notes in the open market at a future date.
Maturities. Aggregate principal payments on long-term debt for the next
five years subsequent to December 31, 1998, are as follows (dollars in
thousands):
1999 ................................................. $ 1,019
2000 ................................................. 386
2001 ................................................. --
2002 ................................................. --
2003 ................................................. --
2004 ................................................. 100,000
--------
$101,405
========
9. 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,
1998 are as follows (dollars in thousands):
1999 .................................................. $ 5,994
2000 .................................................. 4,514
2001 .................................................. 3,283
2002 .................................................. 1,754
2003 .................................................. 952
-------
$16,497
=======
Total rental expense included in continuing operations under all
operating leases was $4,852,000, $5,453,000 and $4,929,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
46
10. Income Taxes:
The income tax provision (benefit) consists of the following for the years
ended December 31, 1998, 1997 and 1996 (dollars in thousands):
1998 1997 1996
---- ---- ----
Current:
Federal ........................... $-- $-- $--
State ............................. 248 721 734
Foreign ........................... 496 -- --
Deferred:
Federal ........................... - 525 (1,799)
State ............................. - (299) 74
Foreign ........................... - -- --
- ------ ------
Income tax provision (benefit)..... $ 744 $ 947 $(991)
======= ======= ======
The following table reconciles the differences between the statutory
Federal income tax rate and the effective tax rate for the years ended December
31, 1998, 1997 and 1996 (Dollars in thousands):
1998 1997 1996
------------- ------------ ----------------
Amount % Amount % Amount %
Tax provision (benefit) at statutory
federal income tax rate........... $(2,710) 34% $ (2,320) 34% $ (2,214) 34%
Valuation allowance.................... 2,397 (30) 1,277 (19) -
Goodwill amortization.................. 234 (2) 239 (4) 335 (5)
Non deductible expenses................ 86 (1) 196 (3) -
Expiration of ITC...................... - 663 (10) -
State income taxes, net of federal
income tax benefit................ 167 (2) 268 (4) 301 (5)
Intangible asset write-down............ 317 (3) - -
Foreign income and withholding
taxes, net of federal benefit..... 346 (4) 173 (2) 368 (6)
Other.................................. (93) (1) 451 (6) 219 (3)
------- ----- ------- ----- ------- -----
Provision (benefit) for income
Taxes and effective tax rates..... $ 744 (9%) $ 947 (14%) $ (991) 15%
======= ===== ======= ===== ======= =====
47
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, 1998 and 1997 are comprised of the
following (dollars in thousands):
1998 1997
---- ----
Current deferred tax (assets):
Allowance for doubtful accounts .................... $ (579) $ (994)
Employee benefit accruals and reserves ............. (853) (1,031)
Warranty liabilities ............................... (215) --
Excess facility costs .............................. (1,242) (252)
Other .............................................. (182) --
------- -------
Total current deferred tax (assets).............. (3,071) (2,277)
------- --------
Long term deferred tax (assets):
Tax benefit carryforwards .................... (12,720) (10,635)
Warranty liabilities ......................... (1,109) (1,235)
Non-compete agreements ....................... -- (579)
Other ........................................ (670) (198)
Intangible write-off ......................... (1,181) --
Valuation allowance .......................... 5,236 2,312
------- -------
Total long term deferred tax (asset)....... (10,444) (10,335)
Long term deferred tax liabilities:
Depreciation and amortization................. 4,161 3,645
Other......................................... 1,818 1,431
--------- ---------
Total long term deferred tax liability........ 5,979 5,076
--------- ---------
Net long term deferred tax (asset)......... (4,465) (5,259)
---------- ----------
Net deferred tax assets............ $ (7,536) $ (7,536)
========== ==========
Tax Carryforwards. The Company has investment tax credit carryforwards of
approximately $189,000 for U.S. federal income tax purposes, which will expire
between 1999 and 2001 if not previously utilized. The company has recorded a
valuation allowance of $189,000 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 $817,000 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
$34.0 million for U.S. federal income tax purposes at December 31, 1998, which
if not utilized, will begin to expire in 2002. The Company has recorded a
valuation allowance of $5.0 million and $2.1 million, during the years ended
December 31, 1998 and 1997, respectively, 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 $7.5 million of benefits attributable to such tax planning
48
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.
11. Common Stock:
As of December 31, 1998 and 1997, 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.
12. Employee Benefit Plans:
Defined Contribution Plans
JBPCO 401(k) Plan. The JBPCO-sponsored 401(k) savings plan allows
participating employees to contribute through salary deductions up to 15% of
gross pay and provides for Company matching contributions up to two percent of
gross pay as well the opportunity for an annual discretionary contribution.
Vesting in the Company matching contribution is 20% per year over the first five
years. The Company incurred expenses of $1,250,000, $1,355,000 and $1,426,000
during the years ended December 31, 1998, 1997 and 1996, respectively, including
administrative fees of approximately $75,000 in each year.
Defined Benefit Plans
Morgan, EFP and Lowy had defined benefit plans as discussed below. The
other Subsidiaries do not have any defined benefit plans.
Morgan. Morgan assumed future sponsorship of the NSSC (Morgan was
merged into NSSC during 1993) pension plan and continues to make contributions
to the plan in accordance with the funding requirements of the Internal Revenue
Service. 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 approximately $193,000.
Gem Top, a division of Morgan, had a defined benefit plan covering
hourly employees working at least 1,000 hours per year. The plan was frozen
effective March 31, 1996, and at December 31, 1998 and 1997 plan assets
approximated projected benefit obligations.
EFP. EFP had a defined benefit plan covering substantially all
full-time employees of one of its divisions. This plan was terminated effective
April 15, 1996 and the assets distributed effective October 10, 1996. The
Company realized a gain, during the year ended December 31, 1996, of
approximately $200,000 upon termination of the plan.
Lowy Group. Lowy Group has an unfunded executive defined benefit plan
whereby deferred compensation agreements provide a fixed amount of retirement
benefits to key corporate and sales employees. The accumulated benefit
obligation related to this plan were approximately $926,000 and $1,800,000 at
December 31, 1998 and 1997, respectively. 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
49
plan obligations and accumulate cash surrender values. The cash surrender value
of life insurance policies, of which Lowy Group was beneficiary, totaled
$1,015,000 and $1,647,000 at December 31, 1998 and 1997, respectively, and is
included in "Net assets of discontinued operations" in the accompanying
consolidated balance sheets. Payments made to retired individuals in the plan
were $522,000, $142,000 and $136,000 in 1998, 1997 and 1996, respectively. The
benefits are based on the employee's age at retirement and the fixed monthly
benefit amount specified in each individual deferred compensation agreement.
Lowy Group sold the assets with Blue Ridge/Courier division effective August 31,
1998. The accumulated benefit obligation assumed by the acquirer of the assets
was $421,000 as of August 31, 1998.
The following table sets forth the funded status and amounts recognized
in the Company's consolidated balance sheets as of December 31, 1998 and 1997,
and the significant assumptions used in accounting for the defined benefit
plans. The Company's funding policy for all plans is to make the minimum annual
contributions required by applicable regulations. (dollars in thousands):
1998 1997
---- ----
Change in benefit obligation
Benefit obligation at beginning of year......... $5,284 $5,143
Service cost.................................... 147 235
Interest cost................................... 252 249
Actuarial losses................................ 288 80
Benefits paid................................... (773) (423)
Benefits assumed by acquirer.................... (421) -
--------- -----------
Benefit obligation at end of year............... $4,777 $5,284
------ ----------
Change in plan assets
Fair value of plan assets at beginning of year.. $3,943 $3,512
Actual return on plan assets.................... 800 699
Company contributions........................... 33 15
Expenses........................................ (30) (2)
Benefits paid................................... (251) (281)
--------- ----------
Fair value of plan assets at end of year........ 4,495 3,943
--------- ----------
Funded status of the plans (underfunded)........ (282) (1,341)
Unrecognized net gains.......................... (518) (359)
--------- ----------
Accrued benefit cost............................ $ (800) $(1,700)
========= ========
The Lowy Group plan is the only underfunded plan included in the above
table. Lowy Group maintains life insurance policies with cash surrender values
of $963,000 and $1,647,000 at December 31, 1998 and 1997, respectively, to fund
plan obligations of $968,000 and $1,766,000 as of December 31, 1998 and 1997,
respectively.
50
1998 1997
-------- --------
Weighted-average assumptions
as of December 31:
Discount rate................................ 6.8% 7.5%
Expected return on plan assets............... 8.0% 8.0%
1998 1997 1996
------- ------- --------
Components of net periodic
benefit cost
Service cost............................ $ 66 $ 67 $ 75
Interest cost........................... 385 373 342
Expected return on plan assets.......... (274) (341) (338)
Recognized net actuarial (gains)/losses. (57) 44 (216)
------- ------ ------
Net periodic benefit cost............... $121 $143 $(137)
======= ====== ======
13. Discontinued Operations
Truck Accessories Group (TAG Distribution Division). TAG comprises two
operating divisions: TAG Manufacturing and TAG Distribution. Effective April 2,
1998, the Company committed to a formal plan to sell principally all the assets
less certain liabilities of TAG. However, based upon improved operating
performance, the Company decided, during the third quarter of 1998 to retain TAG
Manufacturing and continue with the disposal of TAG Distribution.
TAG Manufacturing produces pickup truck caps and tonneau covers, while
TAG Distribution distributes accessories and pickup truck caps for light trucks
through retail outlets and distribution centers. TAG Distribution's results of
operations have been reported as discontinued operations in the consolidated
financial statements for all periods presented. In addition, the net assets and
liabilities of TAG Distribution, which are expected to be disposed of, have been
segregated within the accompanying consolidated balance sheets as "net assets of
discontinued operations." The plan of disposal is expected to be substantially
complete by the end of the third quarter of 1999.
As of March 19, 1999, the Company has sold one wholesale location and
13 retail locations, including the eight stores, which were part of Radco. Two
wholesale locations and two retail locations have been closed. Effective January
29, 1999, the Company sold the business and assets of Radco, and realized
proceeds of approximately $1.2 million in line with the Company's estimate. The
proceeds were used to repay borrowings under the revolving credit agreement
entered into by Radco during 1997.
51
Condensed financial information related to TAG Distribution at December 31,
1998 and 1997 is as follows (in thousands):
December 31, December 31,
1998 1997
---------------- --------------
Net assets of discontinued operations:
Current assets.................... $9,438 $11,809
Property, net..................... 2,137 2,394
Intangible assets................. 466 6,319
---------- ---------
Total Assets....................... 12,041 20,522
Less current liabilities........... 7,946 5,483
Less long-term liabilities......... 800 697
--------- ----------
Net Assets.............................. $ 3,295 $14,342
======= =======
TAG Distribution revenues were $58,446,000, $54,884,000 and $67,125,000 for
the twelve months ended December 31, 1998, 1997 and 1996, respectively. As of
December 31, 1998, the Company had recorded an estimated loss on disposal of TAG
Distribution of approximately $10,811,000, net of applicable income taxes, which
included a provision for estimated operating losses through the disposal date of
$2,849,000. The estimated loss on disposal of TAG Distribution included the
write-down of the related goodwill of $5,505,000. At December 31, 1998, accrued
expenses included $3,925,000 with respect to severance costs and lease
obligations, which run through October 2005. Substantially all of this accrual
will be paid in 1999. The income (loss) from discontinued operations related to
TAG Distribution, during the twelve months ended December 31, 1998, 1997 and
1996, were as follows (in thousands):
For the Twelve Months
Ended
1998 1997 1996
---- ---- ----
Loss from TAG Distribution's operations less
applicable income taxes of
$-0-, $-0- and $(1,060), respectively......$ (1,180) $(5,857) $ 2,373
Loss on disposal of TAG, including provision of
$2,849 for estimated operating losses through
disposal date, less applicable income
taxes of $-0-.............................. (10,811) - -
-------- -------- --------
$(11,991) $(5,857) $ 2,373
========= ======== ========
Losses from operations of TAG Distribution include interest expense of
$717,000, $495,000 and $603,000 related to the borrowings of TAG Distribution
under the Revolving Loan Agreement for the twelve months ended December 31,
1998, 1997 and 1996, respectively. The borrowings are anticipated to be repaid
using the proceeds from the sale of TAG Distribution.
In 1997, TAG Distribution closed eight unprofitable stores and its
administrative office. The closure of these excess facilities resulted in a
charge of $945,000 for the year ended December 31, 1997. In 1996, TAG
Distribution closed four unprofitable stores resulting in a charge of $298,000
for the year ended December 31, 1996. Of these charges, approximately $579,000
in 1997 and $182,000 in 1996 were non-cash expenses related to the write-down or
disposal of assets during those years. At December 31, 1997, accrued expenses
52
included $100,000 with respect to severance costs and lease obligations, which
run through September 1999.
Lowy Group. Lowy comprised two operating divisions: Blue Ridge/Courier
and Lowy Distribution. Effective June 8, 1998, the Company signed a letter of
intent to sell certain assets and liabilities of Blue Ridge/Courier, which
transaction closed on August 31, 1998. The Company realized net cash proceeds of
approximately $15.8 million and recognized a pre-tax gain of approximately $6.5
million on the disposal. Additionally, the Company committed to a formal plan to
dispose of the remaining division of Lowy, Lowy Distribution, on August 24,
1998. The Company expects to realize proceeds from the planned sale of Lowy
Distribution equal to the related assets and liabilities carrying value, and
also has estimated that the division's results of operations will at least break
even through the disposal date.
Blue Ridge/Courier and Lowy Distribution divisions together constituted
the Company's Floor Covering segment, which designed, manufactured and marketed
commercial and residential floor covering. Accordingly, such results of
operations have been reported as discontinued operations in the consolidated
financial statements for the periods presented. In addition, the net assets and
liabilities, which are expected to be disposed of, have been segregated within
the consolidated balance sheets as "net assets of discontinued operations."
Condensed financial information related to Lowy at December 31, 1997
(consisting of both the Blue Ridge/Courier and Lowy Distribution divisions) and
Lowy Distribution at December 31, 1998, is as follows (in thousands):
December 31, December 31,
1998 1997
-------------- --------------
Current assets................... $ 7,517 $ 17,240
Property, net.................... 473 2,849
Long-term assets................. 1,498 2,748
--------- ----------
Total assets..................... 9,488 22,837
Less current liabilities......... 2,659 6,036
Less long-term liabilities....... 1,280 2,399
--------- ----------
Net assets........................ $ 5,549 $ 14,402
========= ==========
Lowy revenues were $56,891,000, $69,724,000 and $71,343,000 for the
twelve months ended December 31, 1998, 1997 and 1996, respectively. The income
from discontinued operations was as follows related to Lowy (in thousands):
For the Twelve Months
Ended
1998 1997 1996
---- ---- ----
Net income from operations of Lowy, less
applicable income taxes of $262,
$446 and $1,060, respectively............ $2,052 $6,081 $1,740
Gain on disposal of assets of the Blue Ridge/
Courier division, less applicable taxes
of $-0-.................................. 6,500 - -
------ ------ ------
$8,552 $6,081 $1,740
====== ====== ======
53
Net income of Lowy includes interest expense of $218,000, $624,000 and
$1,127,000 related to the borrowings of Lowy under the Revolving Loan Agreement
for the twelve months ended December 31, 1998, 1997 and 1996, respectively. The
related borrowings were repaid using the proceeds from the sale of the Blue
Ridge/Courier division. Net income of Lowy for the twelve months ended December
31, 1997, includes a gain on the sale of certain real estate of $3,000,000.
14. Acquisitions:
Effective October 31, 1997 Radco, a subsidiary of TAG, acquired
substantially all of the assets of MTA in a purchase business combination. MTA,
based in Tulsa, Oklahoma, was a wholesale distributor of light truck and vehicle
accessories. Radco paid approximately $2.5 million of which $2.1 million was
paid in cash and $0.5 million evidenced by a 9% promissory note payable in 20
consecutive quarterly installments of principal and interest. Radco also assumed
$100,000 in closing costs.
Concurrently with the acquisition, Radco entered into a five year
non-compete agreement and a six month consulting agreement with the owner of MTA
pursuant to which the owner will be compensated for providing continuing
services to, and not competing with, Radco. Radco will pay the owner an
aggregate of $100,000 each year under the terms of the non-compete agreement.
During 1998, the company's management committed to a plan to dispose of
TAG Distribution, which includes MTA. Accordingly, the results of operations of
MTA, subsequent to the date of acquisition, are included in the Loss from
Discontinued Operations. The inclusion of the results of operations of MTA as
though MTA had been acquired January 1, 1996 for all periods presented, would
not materially change the Consolidated Results of Operations.
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.
EFP is subject to a lawsuit concerning the supply of natural gas to one
of its manufacturing plants. The utility company has alleged that EFP was
under-billed by approximately $500,000 over a four-year period as a result of
errors made by the utility company. The Company is aggressively defending the
suit and believes that it will not have a material adverse effect on the
Company.
Letters of Credit and Other Commitments. The Company had $3,541,000 and
$3,950,000 in standby letters of credit outstanding at December 31, 1998 and
1997, respectively, primarily securing the Company's insurance programs.
Foreign Currency Exchange Contracts. The Company purchases foreign
exchange currency contracts that enable it to hedge certain British Sterling
denomination inventory purchases. As of December 31, 1998 and 1997, Morgan had
outstanding foreign exchange currency contracts with a notional amount of
$1,078,000 and $2,100,000, respectively, and a fair value of less than $5,000
for each of the periods. The gains or losses on such activity during each of the
years ended December 31, 1998, 1997 and 1996 was not material.
54
Environmental Matters. Morgan has been named as a potentially
responsible party ("PRP") with respect to the generation of hazardous materials
alleged to have been handled or disposed of at two Federal Superfund sites in
Pennsylvania and one in Kansas. Although a precise estimate of liability cannot
currently be made with respect to these sites, based upon information known to
Morgan, the Company currently believes that it'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.
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 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, none was paid in 1998, 1997 or 1996. The Company and Subsidiaries
use certain facilities provided by Southwestern for meetings and conferences.
The Company did not use the facilities during 1998, 1997 or 1996. The Company
paid Southwestern approximately $619,000, $613,000 and $600,000 during 1998,
1997 and 1996, respectively. Radco, 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 $85,000 and $60,000 during
1998 and 1997, respectively, for certain services.
Mr. Poindexter and Mr. Magee are officers of JBPCO and are partners in a
partnership that leases to Morgan certain real property in Georgia. Morgan paid
$222,000 in rent to the partnership in 1998 and 1997 and $200,000 during 1996
pursuant to such lease.
TAG Manufacturing leases certain real estate in Canada from an entity
controlled by an executive vice president of TAG. Total lease expense for that
facility was $108,000, $117,000 and $114,000 in 1998, 1997and 1996,
respectively.
55
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure as discussed in Form
8K filed on October 11, 1996.
None.
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 54 Chairman of the Board, President and
Chief Executive Officer
W.J. Bowen 77 Director
Stephen P. Magee 51 Director, Executive Vice President,
Chief Financial Officer and Treasurer
M. James Levine 44 Senior Vice President
R.S. Whatley 47 Vice President, Controller
L.T. Wolfe 50 Vice President Administration
John B. Poindexter has served as Chairman of the Board and Director of
the Company since 1988 and Chief Executive Officer since 1994. From 1985 through
1996, Mr. Poindexter was 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 a Director of the Company
since the Company was formed in 1988 and Chief Financial Officer since 1994.
M. James Levine has served as Senior Vice President since April 1998.
Previously, Mr. Levine held senior positions at Norton, a manufacturer of
engineered abrasive products.
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.
R.S. Whatley has served as Vice President, Controller since June 1994.
Previously Mr. Whatley held senior financial positions with Vinmar, Inc., a
chemical trading company and Weatherford International, an oilfield services
company.
Larry T. Wolfe has served as Vice President of Administration since May of
1995. Previously Mr. Wolfe was Vice President of Human Resources and
Administrative Services of Transco Energy Company.
56
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
Martin Brown 43 President of TAG Manufacturing
Nelson Byman 52 President of MIC Group
James R. Chandler 63 President of EFP
Peter K. Hunt 52 President of Morgan
Martin Brown was named President of TAG Manufacturing in March 1998.
Mr. Brown was the previous owner of Raider and LoRider, acquired by the Company
in June 1995. He has served as President of Raider Industries since June 1995.
Nelson Byman has 24 years of engineering and management experience and
was most recently Vice President/General Manager of a domestic division of
Weatherford/Enterra, a manufacturer of oilfield related equipment.
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.
Peter K. Hunt has served as President of Morgan since April 1998. Mr.
Hunt has 28 years of engineering and management experience and was most recently
Senior Vice President and General Manager of the Industrial Products Group of
Greenfield Industries.
57
Item 11. Executive Compensation
The following table sets forth certain information regarding the
compensation paid to the Company's Chief Executive Officer and the other
executive officers whose total annual salary and bonus are anticipated to exceed
$100,000 for the fiscal years ended December 31, 1998, 1997 and 1996:
Summary Compensation Table
Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- ------ ----- ------------
John B. Poindexter 1998 $ (a) $ - $ -
Chairman of the Board and 1997 (a)
Chief Executive Officer 1996 (a)
Stephen P. Magee 1998 $ (a) $ (b) $ -
Chief Financial Officer 1997 (a)
1996 (a)
M. James Levine 1998 $156,218 $77,393(c)
R.S. Whatley Controller 1998 $115,000 $ - $
1997 $105,000 $ - $ -
L.T. Wolfe Vice President
Administration 1998 $168,000 $ - $ -
1997 $165,000 $ - $ -
(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."
(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.
(c) Other compensation includes moving expenses of $77,393 and the related tax
of $31,648.
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 and Magee are covered by the
various insurance programs 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
58
discretionary annual bonus to Southwestern for the provision of Mr. Poindexter's
and Mr. Magee'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.
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 15 to the Consolidated Financial Statements for the Company.
Compensation Committee Interlocks and Insider Participation
The Company does not have a compensation committee. Instead, executive
compensation review decisions are made by the entire board of directors.
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 (6 persons) 3,059 100%
Mr. Poindexter has sole voting and investment power with respect to
all shares that he beneficially owns.
59
Item 13. Certain Relationships and Related Transactions
Messrs. Poindexter and Magee are members of a partnership ("Bartow")
that leases certain real property in Georgia to Morgan. During each of 1998,
1997 and 1996, 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. The Company and Subsidiaries use
certain facilities provided by Southwestern for meetings and conferences. For
all services and facility use, the Company paid Southwestern approximately
$619,000, $613,000 and $600,000 during 1998, 1997 and 1996, respectively.
The Company believes that the amounts paid by it to Southwestern for
the use of these facilities is a market rate. Radco, 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
$85,0000, $60,000 and $-0- during 1998, 1997 and 1996, respectively for certain
services.
TAG Manufacturing leases certain real estate in Canada from an entity
controlled by an executive vice president of TAG Manufacturing. Total lease
expenses was $108,000 and $117,000 in 1998 and 1997, respectively, the Company
considers this to be a market rate for the property.
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
10.1.5(h)Loan and Security Agreement by and among Congress Financial
Corporation and J.B. Poindexter & Co., Inc., dated June 28,
1996.
10.1.6(j)Amendment No. 1 to Loan and Security Agreement by and among
Congress Financial Corporation and J.B. Poindexter & Co.,
Inc., dated May 13, 1998.
60
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
10.24(a) Form of Salary Continuance Agreement for director level employees of
Morgan Trailer Mfg. Co.
10.25(a) Form of Salary Continuance Agreement for officers of Morgan Trailer
Mfg. Co.
10.26(a) Form of Incentive Plan for certain employees of the Subsidiaries
10.27(a) Morgan Trailer Mfg. Co. Long-Term Management Equity Appreciation
Program
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
10.86(e) Management Services Agreement dated as of May 23, 1994, between J.B.
Poindexter & Co., Inc. and Southwestern Holdings, Inc.
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
61
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
10.111(i)Loan and Security Agreement by and between Congress Financial
Corporation and Radco Industries Inc., dated October 31,1997
10.112(i)Asset Purchase Agreement by and among Radco Industries Inc. and
Midwest TruckAfter Market and William J. Avery, Sr. and Sarah A. Avery,
dated October 31.1997.
10.113 Asset Purchase Agreement by and among Lowy Group, Inc., J.B. Poindexter &
Co., Inc. and Blue Ridge Acquisition Company, LLC, dated August 31, 1998.
21.1 Subsidiaries of the Registrant
27.1 Financial data schedule
27.2 Restated financial data schedule for the years 1997 and 1996
(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.
(i) Incorporated by reference to the Company's Annual Report of Form 10-K for
the year ended December 31, 1997, as filed with the Commission of March 30,
1998.
(j) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998, as filed with the Commission on August
14, 1998.
- ---------------
(b) Reports of Form 8-K. The Company filed the following reports on Form 8-K
during the year:
None
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.
62
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 29, 1999 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 29, 1999 John B. Poindexter
------------------
John B. Poindexter
Chairman and Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 29, 1999 Stephen P. Magee
----------------
Stephen P. Magee
Chief Financial Officer and Director
(Principal Financial Officer)
Date: March 29, 1999 W.J. Bowen
-----------
W.J. Bowen
Director
Date: March 29, 1999 Robert S. Whatley
-----------------
Robert S. Whatley
Chief Accounting Officer
(Principal Accounting Officer)
63