Item 1. Business.
(a) General Development of Business-
Vulcan International Corporation is a Delaware holding company which is the owner of 100% of the common stock of Vulcan Corporation, a manufacturer of the products described below.
(b) Financial Information About Industry Segments-
The sales, operating profit and identifiable assets attributable to each of the Registrant's industry segments for the three years ended December 31, 1996, are set forth in Note 12 of the Notes to Consolidated Financial Statements included under Part IV, Item 14(a)1 of this Form 10-K.
(c) Narrative Description of Business-
SHOE PRODUCTS
Vulcan Corporation manufactures shoe lasts, which it sells to the footwear manufacturing industry in the United States, and rubber heels and rubber soling material, which is produced primarily for military orders. Vulcan's shoe products are sold through its own sales force, manufacturers' agents and distributors. During 1996, rubber heels and rubber soling material was primarily produced for military orders. The Registrant had previously produced rubber heels and rubber soling material for the footwear manufacturing industry in the United States.
RUBBER PRODUCTS-
Vulcan has a 272,000 square foot building in Clarksville, Tennessee, devoted entirely to the manufacture of rubber components and rubber sheet products. This factory's main products are rubber sheet stock used as soling material for the shoe industry. It also produces rubber flooring for sports facilities, rubber backing for automobile mats and miscellaneous rubber products.
LASTS-
Vulcan produces lasts in a well equipped factory at Walnut Ridge, Arkansas. A shoe last is the form over which non-rubber shoes are manufactured and which determines the shoe style, fit and shape. Demand for lasts varies according to the rapidity of change in shoe fashion.
BOWLING PRODUCTS
Vulcan Corporation has attained a substantial position in the bowling pin industry as a result of developing a Surlyn-coated bowling pin which enabled Vulcan to manufacture a superior product known as the Vultex II pin.
On June 9, 1990, the Company entered into an agreement with Brunswick Bowling and Billiards Corporation by the terms of which Vulcan and Brunswick formed a joint venture for the manufacture of bowling pins using Vulcan's Surlyn coating process. The Joint Venture, which is equally owned by the two companies, is located at the site of Vulcan Corporation's former Antigo, Wisconsin, bowling pin manufacturing facility. This manufacturing Joint Venture is named the Vulcan-Brunswick Bowling Pin Company. The Company accounts for its investment in the Joint Venture under the equity method of accounting.
PART I (Continued)
Item 1. Business. (Continued)
Vulcan sells and services its bowling pins through its own sales force as well as manufacturers' representatives in the United States and through distributors in foreign countries.
Raw materials used in shoe products and bowling products consist of the following: hard maple, which is commercially available from countless sawmills; Surlyn is available from Dupont; high density polyethylene plastic resin is available from Phillips, Quantum, Gulf, A. Schulman, Inc. and numerous other producers; nylon is available from Allied; synthetic rubbers are available from Ameripol Synpol, Goodyear, Polysar, Goldsmith & Eggleston, Inc. and a number of other concerns; fillers for rubber products such as clay are available from W.R. Grace & Co., J.M. Huber and others; and pigments are available from Uniroyal Chemical, Akrochem Corp., Monsanto and others.
Sales to one unaffiliated major shoe products customer amounted to $3,492,000 in 1996. These sales represented 29% of the total shoe product sales. Sales to one unaffiliated major bowling pin customer amounted to $748,000 in 1996. This represents 38% of the total bowling pin sales.
Patents, trademarks, licenses, franchises and concessions are not material factors in the business. Vulcan owns an American Bowling Congress permit to label its Surlyn plastic-coated bowling pins as "ABC approved".
No major expenditures for pollution controls are anticipated in 1997. Expenditures thereafter should not be in excess of 5% of normal capital expenditures in any one year. This rate of expenditure should not have a significant effect on either the earnings or the competitive position of the Registrant or any of its subsidiaries. See Item 3 - Legal Proceedings.
At December 31, 1996, the Registrant employed 177 people, down from 288 at the end of 1995. The reduction in the Registrant's work force was in accordance with a previously announced plan to reduce the rubber products work force.
The Company has commitments for capital expenditures of $62,000 at December 31, 1996.
(d) Financial Information About Foreign and Domestic Operations and Export Sales-
The Registrant's entire operations are within the United States. Export sales of all products are handled by ACI International, Inc., a domestic international sales corporation (DISC). During 1996, sales were $1,899,000; net income was $110,700; and assets were $1,260,700.
PART I (Continued)
Item 2.
Item 2. Properties.
The following schedule summarizes certain information regarding buildings owned or leased by the Registrant:
Type of Square Location Ownership Footage
Clarksville, Tennessee Owned 272,000 Administrative offices and manufacturing of rubber soling and other rubber products.
Walnut Ridge, Arkansas Leased 37,900 Administrative offices and manufacturing of shoe lasts.
Blanchester, Ohio Leased 6,000 Sales and style office and warehouse space.
Cincinnati, Ohio Owned 92,000 Corporate offices and leasing of office space.
The age of the buildings ranges from approximately 34 to 73 years. The structures are of steel, brick and concrete construction and are generally in good condition. All but one plant is sprinklered. Excellent transportation facilities are available for all factories. Most are located on rail sidings.
For more information regarding leased property, reference is made to Note 6 of the Notes to Consolidated Financial Statements included under Part IV, Item 14(a)1 of this Form 10-K.
Item 3.
Item 3. Legal Proceedings.
The Registrant has been advised that it is a potentially responsible party, together with 18 other parties, with regard to the Resolve, Inc. Superfund Site, located in North Dartmouth, Massachusetts, with potential joint and several liability of $5.7 million. The Resolve site was a waste chemical reclamation facility. The environmental problem at the site involves soil contamination including, particularly, PCB contaminants. The Registrant is contesting all liability. It is the understanding of Registrant that clean-up at the site involves treatment of contaminated soil and ground water. There may be other potential clean-up liability at other sites of which the Registrant has no specific knowledge.
The Registrant and its subsidiaries are involved in other litigation matters and claims which are normal in the course of operations.
It is impossible to state with any certainty whether the Resolve site and other matters referred to in this item will have a material impact on the Company.
PART I (Continued)
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of the year ended December 31, 1996, that require disclosure under this item.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of Vulcan International Corporation is listed and traded on the American Stock Exchange. There were approximately 651 shareholders of record as of December 31, 1996. The high and low sales price and the dividends paid for each quarterly period within the two most recent years were as follows:
Item 6.
Item 6. Selected Financial Data.
The information required by this item is set forth below:
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" effective January 1, 1994. The adoption of SFAS No. 115 resulted in an increase in shareholders' equity of $12,765,774 at December 31, 1994. In 1992, the Company adopted SFAS No. 109, "Accounting for Income Taxes," which resulted in a cumulative effect of decreasing income taxes $281,400.
PART II (Continued)
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information required by this item is incorporated by reference to the 1996 Annual Report to Shareholders.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements required by this item are included under Part IV, Item 14(a)1 of this Form 10-K.
Other information required by this item is set forth below:
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART II (Continued)
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors-
The information required by this item is incorporated herein by reference to the Registrant's Proxy Statement dated March 27, 1997, in connection with its Annual Meeting to be held May 1, 1997.
PART III
(b) Identification of Executive Officers-
NAME AGE POSITION AND TIME IN OFFICE
Benjamin Gettler 71 President since November 1989; Chairman of The Board since June 1990; Director since 1960.
Vernon E. Bachman 59 Vice President and Treasurer since November 1991; Secretary since 1973.
There are no family relationships among the officers listed and there are no arrangements or understandings pursuant to which any of them were elected as officers.
The officers are elected annually and serve at the pleasure of the Board of Directors. There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the past five years.
Item 11.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the Registrant's proxy statement dated March 27, 1997, in connection with its annual meeting to be held May 1, 1997.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Any person after acquiring directly or indirectly the beneficial ownership of more than 5 percent of the Registrant's common stock is required to send to the Registrant at its principal executive office, by registered or certified mail, and to each exchange where the stock is traded and filed with the SEC, a statement containing information required by Schedule 13D or 13G, as appropriate. If any material change occurs in the facts set forth in the statement filed, the shareholder is required to file an appropriate amendment with each party with whom the original schedules were filed.
Other information required by this item is incorporated herein by reference to the Registrant's proxy statement dated March 27, 1997, in connection with its annual meeting to be held May 1, 1997.
Item 13.
Item 13. Certain Relationships and Related Transactions.
There were no significant items to report under this caption other than those reported in the Registrant's Proxy Statement dated March 27, 1997, in connection with its Annual Meeting to be held May 1, 1997, which is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
The following Consolidated Financial Statements of Vulcan International Corporation and subsidiaries are included under this item (see attached shareholders report and proxy statement): Page
Independent Auditors' Report. 18
Consolidated Balance Sheets at December 31, 1996, and 1995. 19-20
Consolidated Statements of Income for Each of the Three Years in the Period Ended December 31, 1996. 21
Consolidated Statements of Shareholders' Equity for Each of the Three Years in the Period Ended December 31, 1996. 22-25
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 1996. 26
Notes to the Consolidated Financial Statements for the Three Years Ended December 31, 1996. 27-40
2. Financial Statement Schedule.
Independent Auditors' Report on Schedule. 55
Schedule II - Valuation and Qualifying Accounts. 56
All other schedules are omitted because they are not applicable, not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.
Separate financial statements of the Registrant or summarized financial information concerning subsidiaries are not required.
PART IV (Continued)
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued)
3. Financial Statements.
The following financial statements of Vulcan International Corporation's 50% owned Joint Venture, Vulcan-Brunswick Bowling Pin Company, are included under this item:
Page
Independent Auditors' Report 58 Balance Sheets at December 31, 1996 and 1995 59 Statements of Income for the years ended December 31, 1996 and 1995 60 Statements of Partners' Capital for the years ended December 31, 1996 and 1995 61 Statements of Cash Flows for the years ended December 31, 1996 and 1995 62 Notes to the financial statements for the years ended December 31, 1996 and 1995 63-67
4. Exhibits.
3. Registrant's Articles of Incorporation and By-Laws are incorporated herein by reference. 11. Statement regarding computation of per share earnings is incorporated herein by reference to Registrant's 1996 Annual Report to Shareholders 40 13. Registrant's 1996 Annual Report to Shareholders is incorporated herein by reference. 11-40 20. Proxy Statement dated March 27, 1997, is incorporated herein by reference. 44-53 21. Subsidiaries of the Registrant. 54 27. Financial Data Schedule 99.1 Independent Auditors' Report on Schedule 55 99.2 Valuation and Qualifying accounts 56 99.3 Vulcan-Brunswick Bowling Pin Company financial statements 57-67
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the three months ended December 31, 1996.
EXHIBIT 13
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 1996
J.D. CLOUD & CO. P.L.L. CERTIFIED PUBLIC ACCOUNTANTS CINCINNATI, OHIO
VULCAN INTERNATIONAL CORPORATION Executive Officers
BENJAMIN GETTLER VERNON E BACHMAN Chairman of the Board Vice President and and President Secretary-Treasurer
Directors
BENJAMIN GETTLER DENNIS J. BUCKLEY THOMAS D. GETTLER LEONARD ACONSKY WILLIAM T. CRUTCHFIELD JAMES K. LEWIS STANLEY I. RAFALO, O.D.
VULCAN CORPORATION (Operating Subsidiary)
Executive Officers
BENJAMIN GETTLER VERNON E. BACHMAN CONNIE F. ARMSTRONG Chairman of the Board Vice President Secretary and Controller
Operating Officers
VITO J. MANGIARACINA RICARDO M. DeFELICE Vice President, Vice President, Shoe Products Division Bowling Pin Sales Division EDWARD A. RITTER General Manager Rubber Products Division
MICHAEL NEWTON CHARLES SMITH General Manager Plant Manager, Vulcan-Brunswick Bowling Pin Company Walnut Ridge, Arkansas
TO OUR SHAREHOLDERS:
The Company experienced a significant turn-around in 1996. Net income was $1,958,352 compared to a loss of $88,023 in 1995. Net income per common share outstanding was $1.63 compared to a loss of $.07 per share in 1995. These results occurred despite a reduction in total revenues from $18,112,150 in 1995 to $17,087,469 in 1996.
The turn-around was the result of implementation of the decision made in early 1996 to discontinue the manufacture of civilian heels, soles and unit soles in the Company's rubber division located in Clarksville, Tennessee. Those items were being sold to domestic shoe manufacturers and shoe manufacturing in the United States has declined precipitously as a result of foreign competition. The discontinued items were more labor-intensive and, therefore, more susceptible to that competition. Sales of discontinued items were approximately $4 million in 1995. Development of new products and successful sales efforts in remaining products substantially cushioned the sales volume loss resulting from the downsizing. At the same time, cost reduction measures resulted in cost savings substantially greater than the reduction in sales.
The Company's rubber division is now concentrating on the manufacture and sale of rubber sheet stock and high density foam materials for the shoe industry, as well as rubber products and rubber batch material for prime manufacturers in various industries while also continuing to manufacture heels and soles for military footwear. In 1996, the Company purchased a new machinery line for the manufacture of high-density foam products and has been developing products for that line. The Company's last and other plastic products, real estate and other investments performed well in 1996. The Company's bowling pin division showed a slight decline.
All of Vulcan's employees, particularly those at Clarksville, are to be commended for making the extraordinary effort required to turn that plant around and permit its continued operation.
BENJAMIN GETTLER Chairman of the Board and President
DESCRIPTION OF BUSINESS
Vulcan International Corporation is a Delaware holding company which is the owner of 100% of the common stock of Vulcan Corporation, a manufacturer of the products described below:
SHOE PRODUCTS
Vulcan has two separate plants which manufacture components used by manufacturers of footwear. One of those components is a shoe last. The shoe last is the form over which shoes are manufactured and which determines the shoe style, fit and shape. Demand for lasts varies according to the rapidity in change of shoe fashion. Vulcan produces lasts in a 42,000 sq. ft. very modern, well-equipped factory in Walnut Ridge, Arkansas.
Vulcan manufactures rubber components primarily for footwear manufacturers in a 272,000 sq. ft. building located in Clarksville, Tennessee. Demand for those products varies according to the volume of shoes manufactured in the United States. That volume has declined precipitously since 1980 with the result that less than 8% of non-rubber shoes sold in the United States were manufactured in the U.S. in 1996. Approximately 40% of the products manufactured at Clarksville in 1995 were heels, soles and unit soles for civilian footwear manufacture. Effective April 1, 1996, the Company discontinued the manufacture of those products. The Clarksville plant now primarily manufactures rubber sheet stock and high density foam materials for the shoe industry, as well as rubber products and rubber batch material for prime manufacturers in various industries while also continuing to manufacture heels and soles for military footwear.
BOWLING PINS
The Company is a 50% owner of a Joint Venture which manufactures bowling pins in Antigo, Wisconsin. The pins are manufactured from hard maple and coated with Surlyn. Vulcan sells pins in the United States and worldwide under the name of Vultex II, as well as various private label names.
REAL ESTATE
On August 12, 1993, Vulcan purchased a majority interest in the upper seven floors of the ten-story Cincinnati Club Building in downtown Cincinnati, Ohio, and contracted to manage that space. Those floors contain approximately 60,000 square feet of finished office space and approximately 32,000 square feet of unfinished and common area space. Vulcan occupies a substantial portion of the tenth floor of the building. The first three floors consist of public rooms owned by a company which uses the space for public functions and a catering service. Vulcan provided the financing for that company's purchase of those three lower floors. There is direct access into the building from an eight-story parking garage immediately adjacent to the Cincinnati Club Building owned and operated by the City of Cincinnati. A picture of the building appears on the bottom of page 11 of this report.
MANAGEMENT ANALYSIS OF RECENT YEARS
1996 COMPARED TO 1995 - --------------------- Sales of shoe products (including rubber products) decreased from $13,115,811 in 1995 to $12,104,816 in 1996. On April 1, 1996 the Company downsized its rubber division by discontinuing the production of civilian heels and soles. Those items were more labor intensive and, therefore, more susceptible to foreign competition. The result of that decision was to reduce the workforce in the rubber division from a high in 1995 of 256 to approximately 85 by the end of 1996. During the year, the Company purchased a new machinery line for the manufacture of foam products and has been developing products for that line. Operating losses from sales (before taxes and interest) decreased from $3,210,723 in 1995 to a loss of $30,498 in 1996. The reduction in losses was a direct result of the downsizing of the rubber products division, the elimination of all rubber heel and sole production except for military orders and the cost reduction measures put into place after the downsizing.
Sales of the bowling pin segment of the business decreased from $3,117,971 in 1995 to $2,954,726 in 1996. As a result, operating profits from the bowling pin sales and Vulcan's 50% interest in the Vulcan-Brunswick bowling pin manufacturing joint venture decreased from $695,289 to $675,691 before taxes and interest.
Gross gains on the sale or disposal of assets were $793,855 in 1996 compared to $856,260 in 1995. In 1996 the gains were mainly from the sale of assets from the rubber division after the downsizing and sale of timber from the Company's Michigan timber tracts. In 1995 the gains were from the sale of the Company's Blanchester, Ohio property, the continued sale of timber from the Michigan timber tracts and the sale of marketable securities. Dividends and interest income were $1,627,923 compared to $1,595,046 in 1995.
1995 COMPARED TO 1994 - --------------------- Sales of shoe products (including rubber products) increased from $11,925,658 in 1994 to $13,115,811 in 1995. Operating loss from sales (before taxes and interest) increased from $1,520,822 in 1994 to a loss of $3,210,723 in 1995 as a direct result of the loss in the rubber products division. That increased loss was caused by three factors: In 1995 there was an increase of approximately 31% in the price of raw materials used in the manufacture of rubber products; continued and increased foreign competition which was in excess of 90% of the U.S. market in 1995 made it impossible to pass such cost increases on to footwear manufacturing customers; and costs were incurred in product development; however, the lag time between development and significant sales of new products is between 12 and 24 months.
Sales of the bowling pin segment of the business decreased from $4,409,641 in 1994 to $3,117,971 in 1995. As a result, operating profits from the bowling pin sales and Vulcan's 50% interest in the Joint Venture decreased from $1,024,078 to $695,289 before taxes and interest.
Gross gains on the sale or disposal of assets and securities were $856,260 compared to $480,485. In 1995 the gains were from the sale of Blanchester, Ohio property, the continued sale of timber from our Michigan timber tracts and the sale of marketable securities. In 1994 the gains were from the sale of timber and marketable securities. Dividends and interest income were $1,595,046 compared to $1,523,410 in 1994.
1994 COMPARED TO 1993 - --------------------- Sales of shoe products (including rubber products) continued its decline from $14,925,488 in 1993 to $11,925,658 in 1994 primarily as a result of the continued penetration of shoe imports. Operating profit from sales (before taxes and interest) decreased from $699,988 in 1993 to a loss of $1,520,822 in 1994 as a direct result of loss of sales.
Sales of the bowling pin segment of the business increased from $3,934,359 to $4,409,641. Operating profits from those bowling pin sales and Vulcan's 50% interest in the Joint Venture increased from $829,663 to $1,024,078 before taxes and interest. The cost of hard maple continued to remain firm and the increased sales to foreign customers contributed to the Company's increased profits.
Gross gains on the sale or disposal of assets and securities were $480,485 compared to $1,317,078 in 1993. In 1994 the gains were from the sale of timber and marketable securities. In 1993 the gains were primarily from the sale of a building in Springfield, Tennessee, timber and marketable securities. Gross dividend and interest income were $1,523,410 compared to $1,378,272 in 1993.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL COMMITMENTS
The Company's cash requirements in 1996 were funded by short-term borrowings. The Company expects to continue, when necessary, to utilize short-term borrowing to meet cash requirements. Working capital increased $5,419,387 during the past year and inventories decreased $437,957. Capital expenditures were $981,721 compared to total depreciation, and amortization of $677,621.
The common stock of Vulcan International Corporation is listed on the American Stock Exchange. The high and low sale prices and the dividends paid for each quarterly period within the two most recent years were as shown.
FORM 10-K
A copy of the 1996 Vulcan International Corporation 10-K report filed with the Securities and Exchange Commission will be furnished without charge upon a shareholder's or beneficial owner as of the record date, March 17, 1997, of securities entitled to vote at the annual meeting of shareholders. Requests should be addressed to:
Vernon E. Bachman Vice President Secretary/Treasurer Vulcan International Corporation 30 Garfield Place Cincinnati, OH 45202
INDEPENDENT AUDITORS' REPORT
To the Board of Directors Vulcan International Corporation Wilmington, Delaware
We have audited the accompanying consolidated balance sheets of Vulcan International Corporation (a Delaware Corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 financial position of Vulcan International Corporation and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, the Company has been advised that it is a potentially responsible party in certain environmental matters. The amount of liability cannot be predicted at this time.
/s/ J.D. CLOUD & CO. P.L.L. Certified Public Accountants
Cincinnati, Ohio February 15, 1997
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
It is the policy of the Company to employ generally accepted accounting principles in the preparation of its financial statements. A summary of the Company's significant accounting policies follows:
ACCOUNTING 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.
BASIS OF CONSOLIDATION- The consolidated financial statements include the accounts of Vulcan International Corporation, its wholly-owned subsidiary companies and its majority-owned partnership. Intercompany accounts and transactions have been eliminated in consolidation.
MINORITY INTEREST- Cincinnati Club Building Associates (CCBA) was formed in 1993 for the purchase of certain commercial property in Cincinnati, Ohio. The Company's offices are located in a portion of the property with the remainder available for leasing. The Company's consolidated financial statements include 100% of the assets, liabilities and income, or loss, of CCBA. The minority owner's 2.5% interest in CCBA is reflected as a minority interest in partnership and a minority interest in (income) of partnership in the respective consolidated balance sheets and consolidated statements of income.
MARKETABLE SECURITIES- Marketable securities are classified as securities available-for-sale and, accordingly, are recorded at fair market value. Marketable securities available for current operations are classified as current assets while securities held for non-current uses are classified as long-term assets. Dividends and interest are recorded in income when earned. Unrealized holding gains and losses, net of deferred tax, are included as a component of shareholders' equity until realized. In computing realized gain or loss on the sale of marketable securities, the cost of securities sold is determined by the specific identification method.
INVENTORIES- Substantially all inventories are stated at cost under the last-in, first-out (LIFO) method, which is not in excess of market.
PROPERTY, PLANT AND EQUIPMENT- Property, plant and equipment are stated at cost. Lease obligations transferring substantially all of the benefits and risks incident to the ownership of property are considered capital leases and are accounted for as the acquisition of an asset and the incurrence of a long-term obligation. All other leases are accounted for as operating leases.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, PLANT AND EQUIPMENT- (Continued) The Company provides for depreciation over the estimated useful lives of the respective assets using both straight line and accelerated methods. Buildings and improvements are depreciated over 10 to 45 years, machinery and equipment over 3 to 11 years, and leasehold improvements are amortized over the lives of the leases. Timber depletion charges are based on the cost of timber cut.
INVESTMENT IN JOINT VENTURE- In June 1990 the Company formed a Joint Venture, the Vulcan Brunswick Bowling Pin Company, with Brunswick Bowling and Billiards Corporation to manufacture bowling pins. The Company has an undivided 50% interest in the Joint Venture which is accounted for under the equity method of accounting. Under this method, the Company records the investment at its original cost adjusted for 50% of the Joint Venture's income or loss since formation less any distributions received from the Joint Venture.
INCOME TAXES- Income tax expense (benefit) includes the tax effects of all revenue and expense transactions included in the determination of pretax accounting income. Deferred income tax results from temporary differences in the financial statement basis and tax basis of assets and liabilities. These temporary differences apply principally to depreciation expense, allowance for doubtful accounts, compensated absences, prepaid pension expense and unrealized holding gains on marketable securities. Tax credits are recognized by a reduction of income tax expense in the periods the credits arise for tax purposes.
RETIREMENT PLANS- The Company maintains a noncontributory defined benefit pension plan for certain eligible salaried and hourly employees. Pension benefits are determined annually by consulting actuaries and are based on average compensation and years of service. Past service cost is amortized over periods not exceeding 30 years.
The Company also maintains a noncontributory defined contribution pension plan for certain eligible union employees. Contributions to the plan are based upon a participant's hours of service.
The qualified plans are funded annually to meet the minimum funding requirements of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.
ADVERTISING COSTS- Advertising costs are generally expensed as incurred.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH EQUIVALENTS- For purposes of the statement of cash flows, the Company considers all time deposits, certificates of deposit and other highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
NET INCOME PER SHARE- Net income (loss) per share of common stock outstanding is computed on the basis of the weighted average number of common shares outstanding during each year after giving effect to dividends on preferred shares.
NOTE 2 - MARKETABLE SECURITIES
As of February 15, 1997, the fair value of marketable securities was approximately $56,113,000 and the net unrealized holding gain was approximately $32,824,000 net of deferred taxes of approximately $16,909,000.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 2 - MARKETABLE SECURITIES (Continued)
In 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The cumulative effect of this change is included in shareholders' equity at January 1, 1994.
NOTE 3 - INVENTORIES
As indicated in Note 1, substantially all inventories are stated at cost determined under the LIFO method. If valued at current replacement cost, inventories would have been approximately $1,290,000 and $2,211,000 greater than reported at December 31, 1996 and 1995, respectively.
In each of the years ended December 31, 1996 and 1995, inventory quantities were reduced. These reductions resulted in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of current purchases. The inventory reductions increased 1996 and 1995 net income by approximately $431,000 and $28,000, respectively, or $.36 and $.02 per common share outstanding, respectively.
NOTE 4 - JOINT VENTURE
In June 1990 the Company acquired a 50% interest in a Joint Venture, Vulcan Brunswick Bowling Pin Company (VBBPC) which manufactures bowling pins in Antigo, Wisconsin, for Brunswick and the Company.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 4 - JOINT VENTURE (Continued)
The Company's investment in the Joint Venture including accumulated income, less distributions, since acquisition at December 31, 1996, is $685,832. The Company's 50% interest in the net assets of VBBPC amounted to $5,028,278 at December 31, 1996. Included in the Company's retained earnings at December 31, 1996, is $413,000 of undistributed earnings from the Joint Venture. The Company is also jointly and severally liable under VBBPC's revolving loan agreement. There were no borrowings under the loan agreement at December 31, 1996 or 1995. The Company adjusts its investment in VBBPC through its equity in VBBPC's net income which is further adjusted to reflect inventories on the last-in, first-out method of accounting.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 4 - JOINT VENTURE (Continued)
NOTE 5 - NOTES PAYABLE
The Company maintains a revolving credit agreement with its bank that provides for borrowings of up to $4,500,000 through August 1, 1997. Interest is payable monthly at the federal funds rate plus 1.75%. Borrowings under the agreement are secured by certain marketable equity securities. At December 31, 1995, borrowings under the agreement amounted to $2,175,000. There were no borrowings, under the agreement, at December 31, 1996. The weighted average interest rate was 7.16% and 7.65% for the respective years ended December 31, 1996 and 1995. Marketable securities pledged as collateral under the agreement had a market value of approximately $19,255,000 at December 31, 1996.
The Company also maintains a revolving credit agreement with its bank that provides for additional short-term borrowings of up to $5,000,000 at the prime rate secured by certain real and personal property of the Company.
NOTE 6 - LEASES
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 6 - LEASES (Continued)
The Company incurred rental expense under operating leases for the years ended December 31, 1996, 1995, and 1994 of approximately $12,000, $12,000 and $18,000, respectively.
NOTE 7 - EMPLOYEE BENEFIT PLANS
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 7 - EMPLOYEE BENEFIT PLANS (Continued)
Pension plan assets are invested primarily in U.S. Government guaranteed debt securities and publicly-traded stocks and bonds. The vested actuarial present value of benefit obligations is based upon the participant's expected date of separation or retirement.
Company contributions to union sponsored multi-employer pension plans amounted to $12,000 in 1996, $13,400 in 1995 and $12,900 in 1994. The Company's relative position and undertaking in regard to these plans is not readily determinable. Company contributions to its defined contribution plan were $24,200 in 1996, $39,900 in 1995 and $33,700 in 1994.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 7 - EMPLOYEE BENEFIT PLANS (Continued)
The Company maintains a stock option plan that provides for the granting of options to certain key employees to purchase shares of treasury stock at such price as may be determined by the Board of Directors. If the employee voluntarily leaves the Company within two years of exercising a stock option, for reasons other than death or disability, the Company may, at its option, reacquire the employee's stock at the original exercise price within three months of the employee's termination.
In 1993, the Company's Stock Option Committee granted options, under the plan, to purchase not more than 50,000 shares of treasury stock at $19.75 per share. There were 46,000 options outstanding which were exercised in 1996. In 1995, the Company's Stock Option Committee granted options, under the plan, to purchase not more than 25,000 shares of treasury stock at $20 per share. During 1996, all of the outstanding stock options were exercised. The Company recognized approximately $162,000 additional compensation expense related to the exercise of the options.
Additionally, in 1995, the Company's Board of Directors adopted a resolution making treasury shares available for purchase by the directors at the closing market price on the date of exercise up to a maximum of 25,000 shares per year. Shares purchased under this policy may not be transferred for a period of six months to anyone other than the Company, another director, or in the event of the death of the director, to the director's estate. The resolution provided for said policy to continue until rescinded by the Board of Directors.
NOTE 8 - CONTINGENCIES
The Company has been advised that it is a potentially responsible party, together with 18 other parties, with regard to the Resolve, Inc. Superfund Site, located in North Dartmouth, Massachusetts with potential joint and several liability of $5.7 million. The Company is contesting any liability for this site. The Company's liability cannot be estimated at this time. There may be other potential clean-up liability at other sites of which the Company has no specific knowledge.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 8 - CONTINGENCIES (Continued)
The Company is involved in litigation matters and other claims which are normal in the course of operations. Management believes that the resolution of these matters will not have a material effect on the Company's business or financial condition.
NOTE 9 - REDEEMABLE PREFERRED STOCK
Upon liquidation or redemption, the holders of the $4.50 Cumulative Preferred stock are entitled to receive $100.00 per share together with all unpaid cumulative dividends in lieu of the stated value of $55.00 per share. Redemption of this stock as well as the $3.00 Prior Preferred is not mandatory and, therefore, is redeemable solely at the Company's option he aggregate of the preference upon liquidation or redemption in excess of stated value amounted to approximately $31,000 at December 31, 1996 and 1995.
NOTE 10 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Alternative minimum tax credits may be carried forward indefinitely. In accordance with SFAS No. 109, a deferred tax liability of $158,000 is not recognized for undistributed earnings of a subsidiary arising before 1993. These earnings will be subject to tax when distributed.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 10 - INCOME TAXES (Continued)
NOTE 11 - FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, notes receivable with interest rates similar to rates offered on other instruments with similar maturities and terms, and current liabilities approximate fair value. The fair value of marketable securities was determined based on quoted market prices.
Financial instruments which potentially subject the Company to concentrations of credit risk are cash investments and a note receivable. The Company places its cash investments with high-credit-quality financial institutions. The note receivable is secured by a mortgage on certain real estate in Cincinnati, Ohio. The Company believes no significant concentration of credit risk exists with respect to these financial instruments.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 12 - BUSINESS SEGMENTS
The Company operates principally in two industries, Shoe Products and Bowling Pins. The operations in the Shoe Products Division involve the production of shoe heels, soles and lasts for the shoe industry and other rubber products. Total revenue by industry includes both sales to unaffiliated customers, as reported in the Company's consolidated income statement, and intersegment sales which are accounted for generally at current market prices.
The company sells its products principally within the United States. Sales in various foreign countries totaled $1,899,000 in 1996. The Company does not have assets located outside the United States.
Operating profit is total revenue less operating expenses. In computing operating profit, the following items have not been added or deducted: general corporate expenses, interest expense, federal and state income taxes, dividend and interest income and gains or losses realized on the disposal of property and equipment and the sale of marketable securities.
Identifiable assets by industry are those assets that are used in the Company's operations in each industry. Corporate assets consist principally of cash, marketable securities and notes receivable. To reconcile industry information with consolidated amounts, intersegment sales of $136,100 in 1996, $40,200 in 1995 and $56,700 in 1994 have been eliminated.
More than ten percent of aggregate revenues of the segments were derived each year from certain customers. The shoe products segment had sales to a single customer amounting to $3,492,000 in 1996, $2,223,000 in 1995 and $1,448,000 in 1994. The bowling pin segment had sales to a single customer amounting to $748,000 in 1996, $823,000 in 1995 and $808,000 in 1994.
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
NOTE 12 - BUSINESS SEGMENTS (Continued)
VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1996 (Continued)
IN MEMORY Dr. S. Sumner Rockwern 1910 - 1997
Dr. S. Sumner Rockwern, a long-time member of the Board of Directors of Vulcan International Corporation, died on February 16, 1997 at the age of 86. Dr. Rockwern served continuously on the Board of Directors since 1967 and on the Executive Committee of the Board since 1974. In addition to his business and investment interests, Dr. Rockwern was a highly respected physician in Cincinnati for many years. Dr. Rockwern was a valued, respected, contributing director for his entire thirty years of service to the Company. He will be missed.
VULCAN INTERNATIONAL CORPORATION Executive Office 300 Delaware Avenue, Suite 1704 Wilmington, Delaware 19801
VULCAN CORPORATION Office and Manufacturing Plan Accounting Offices 1151 College Street 30 Garfield Place Clarksville, Tennessee Cincinnati, Ohio 45202
OTHER MANUFACTURING PLANTS Antigo, Wisconsin Walnut Ridge, Arkansas
SALES OFFICES Blanchester, Ohio Cincinnati, Ohio Clarksville, Tennessee Walnut Ridge, Arkansas
STOCK TRANSFER AND REGISTRAR Chase Mellon Shareholders Services
AUDITORS J.D. Cloud & Co. P.L.L. Cincinnati, Ohio
Exhibit 20
PROXY STATEMENT
VULCAN INTERNATIONAL CORPORATION 300 Delaware Avenue Wilmington, Delaware 19801
Notice of Annual Meeting of Shareholders To Be Held May 1, 1997
The Annual Meeting of Shareholders of Vulcan International Corporation will be held at the Metropolitan Club, Salon 2, 19th Floor, 50 East RiverCenter Boulevard, Covington, Kentucky on Thursday, May 1, 1997 at 1:45 p.m. for the following purposes:
1. To elect Directors.
2. To transact such other business as may properly come before the meeting or any adjournment thereof.
The Board of Directors has established the close of business on March 17 as the record date for determining those shareholders who will be entitled to vote at the meeting.
Wilmington, Delaware BY ORDER OF THE BOARD OF DIRECTORS
March 27, 1997 VERNON E. BACHMAN, SECRETARY
PLEASE READ THE PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. YOU CAN SPARE YOUR COMPANY THE EXPENSE OF FURTHER PROXY SOLICITATION BY RETURNING YOUR PROXY CARD PROMPTLY.
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of and at the cost of Vulcan International Corporation (the "Company"). Under the Delaware statutes, any shareholder may revoke a proxy by voting in person at the meeting or by delivering a later dated proxy or other writing revoking the proxy before it is voted at the meeting.
The Board of Directors has established as the record date for determining shareholders entitled to notice and to vote at the meeting, the close of business March 17, 1997.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Company, as of March 17, 1997 had outstanding 1,254,344 shares of common capital stock, each of which is entitled to one vote. There are no other voting or equity securities outstanding. There is set forth below information with respect to the stock ownership of any person who is known to be the beneficial owner of more than 5% of the Company's common stock and the stock ownership of management as of March 17, 1997.
HOLDERS OF 5% OR MORE
Name and Address Amount and Nature Percent of Class of Beneficial Owner of Beneficial Ownership - ------------------------------------------------------------------------------
Dimensional Fund Advisors, Inc. Directly Owned: 43,948 1299 Ocean Avenue Indirectly Owned: 23,851 (1) Santa Monica, CA 90401 Total Owned: 67,799 5.4%
(2) Benjamin Gettler Directly Owned: 331,915 9200 Old Indian Hill Rd. Indirectly Owned: 10,449 Cincinnati, OH 45243 Total Owned: 342,364 27.3%
SECURITY OWNERSHIP OF MANAGEMENT
The total number of equity securities of the Company owned by all directors and officers of the Company as a group (8) as of March 17, 1997 is set forth below:
Amount and Nature of Beneficial Ownership Percent of Class -----------------------------------------------------------------------------
Directly Owned: 421,843 Indirectly Owned: 33,602 Total Owned: 455,445 36.3%
The share ownership of each of the directors and nominees is set forth below under the heading Election of Directors. _______________
(1) Owned by advisory clients with respect to which Dimensional Fund Advisors, Inc. advises that it has shared voting power.
(2) Does not include 17,051 common shares held by Stanley I. Rafalo as a Trustee of various trusts for the benefit of persons related to Benjamin Gettler. If those shares were included, the total shares directly and indirectly owned would be 359,415 which is 28.7% of the common shares of the Company.
____________________________________________________________________________
ELECTION OF DIRECTORS
The shares represented by the proxies will be voted for the election of the seven (7) nominees listed below, each of whom is presently a Director. If any such nominee shall be unable to serve (which is not now contemplated) discretionary authority may be exercised to vote for a substitute. The terms of all of the present Directors expire upon the election of their successors in 1997. The following information is given with respect to the seven (7) nominees based upon the records of the Company and information furnished by each nominee as of March 17, 1997.
EXECUTIVE COMPENSATION
The following table shows the compensation and stock option awards for the last three fiscal years, and other annual compensation and all other compensation for 1996, to the Chief Executive Officer and for each person who was an executive officer and whose compensation exceeded $100,000.
STOCK OPTION PLAN
The Vulcan International Corporation Stock Option Plan (the "Plan") was adopted by the Board of Directors of the Company at its September 5, 1991 meeting. The purpose of the Plan is to provide additional incentives in order that the Company may retain key personnel. The plan provides for the granting of options to purchase totaling not more than 300,000 shares of common stock from the Company's treasury shares of which 177,000 have not previously been granted. The Plan is administered by a Stock Option Committee consisting of not less than three (3) Directors of the Corporation who are not eligible to receive options under the Plan. The current Committee consists of Directors Crutchfield, Rafalo and Aconsky. The Committee determines the key employees to whom the options are granted, the term of the option and the number of shares of each grant subject to the option. The option price is such price as may be determined by the Board of Directors. Each option continues for the period determined by the Committee, which shall be not less than one (1) year or more than three (3) years from the date of its grant. The Plan provides that each key employee to whom an option is granted shall as a condition of his right to exercise such option, agree to remain in the continuous employment of the Company for a period of at least two years from the date of exercise of the option, unless he is prevented from doing so by death or disability. Under the Plan, the Company has the option to repurchase shares from an optionee who terminates employment prior to the expiration of the two-year period.
OPTION GRANTS IN LAST FISCAL YEAR
None
PENSIONS
Under the terms of the Company's retirement Plan for salaried employees, salaried personnel are entitled to retire at age 65 with benefits computed on the basis of salary and length of service. The maximum length of service which can be taken into account is 30 years. The method of computing benefits under the retirement plan is: the number of years of employment multiplied by the sum of 1.0% of average monthly salary and .65% of such salary in excess of Social Security covered compensation (all based on the highest 60 consecutive monthly salaries). The aggregate contribution made for the 1995-1996 Plan year was $-0-. For purposes of the Plan, annual compensation means a participant's W-2 earnings for federal income tax purposes, excluding commissions and taxable fringe benefits, with a maximum of $150,000 for 1996. Mr. Gettler has reached normal retirement age and has more than 30 years of service. He is, therefore, entitled to retire at any time with current annual benefits of $147,262, based upon the selection of a joint and survivor benefit.
COMPANIES COMPRISING THE PEER GROUP
The peer group used in constructing the graph in the Proxy Statement showing the yearly percentage change in cumulative total return consists of the complete list of suppliers to the shoe industry provided by the Footwear Industries of America, the industry association:
Georgia Bonded Fibres Goodyear Tire & Rubber Co. Jaclyn Inc. Katy Inc. Lydall Inc. Vista Resources Inc. Vulcan International Corporation
DIRECTORS' MEETINGS, COMMITTEE INFORMATION, FEES AND OTHER DIRECTOR TRANSACTIONS
There were five (5) meetings of the Board of Directors in 1996. All Directors attended at least 75% of the total number of Directors' meetings and all Directors attended at least 75% of Committee meetings held by committees on which they served.
The Board of Directors has established two standing committees, namely, an Executive Committee and an Audit and Compensation Committee. The Executive Committee currently consists of Directors Crutchfield, B. Gettler, Rafalo and Buckley and has, in the interim between meetings of the Board of Directors, all of the powers of the Board subject to certain limitations. There were ten (10) formal meetings of the Executive Committee in 1996.
The Audit and Compensation Committee currently consists of Messrs. Lewis, and Rafalo. The Audit and Compensation Committee reviews the adequacy and sufficiency of the Company's accounting procedures, reviews a report from the independent CPAs prior to the publication of the audited financial statements and considers and recommends to the Board of Directors the selection of the independent CPAs to examine the consolidated financial statements of the Company for the next year. The Committee also reviews and recommends salaries and bonuses of Company executive officers. The Audit and Compensation Committee had two meetings in 1996.
The Company pays each of its Directors $7,000 per year as a director fee. In addition, the members of the Executive Committee are paid $5,000 per year for serving on that Committee. The members of the Audit and Compensation Committee are paid $300 per meeting attended.
There is in effect a Resolution of the Board of Directors pursuant to which any Director may purchase up to 25,000 treasury shares of company stock at the closing bid on the American Stock Exchange on the date of the exercise of such election to purchase. In 1996, pursuant to this Resolution, Mr. Aconsky purchased 1,000 shares at a price of $25.75 per share.
During the year 1996, the Company and its subsidiary companies accrued a total of $113,588 to the law firm of Gettler & Buckley for all legal services to those companies and to Vulcan-Brunswick, a joint venture owned 50% by the Company. Directors Benjamin Gettler and Dennis J. Buckley are members of Gettler & Buckley.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Committee's Compensation Policy
It is the policy of the Compensation Committee that the Company's Executive Officers should be compensated in accordance with the responsibilities of their position, and their performance in office. Included among the factors considered by the Compensation Committee in carrying out such compensation policies are the historical compensation paid officers of this Company and the compensation paid to executives in similar positions in other companies as well as the Company performance in the fiscal year in question compared to prior fiscal years. The Compensation Committee reviews all relevant factors relating to such performance, including the general economic climate and the climate of the particular industries in which this Company is involved.
In carrying out the foregoing policies, the Compensation Committee also used the factors and criteria set forth hereinafter in determining the annual compensation of the Chief Executive Officer and President of the Company for 1996 and his salary for 1997. The position of Chief Executive Officer and President is held by a single individual, Mr. Benjamin Gettler.
The Company currently has only one officer who is paid over $100,000 per year compared to three such officers prior to Mr. Gettler assuming the position of Chief Executive Officer and President following the death of then C.E.O. Lloyd Miller in April, 1990. In the year preceding his death, Mr. Miller and Mr. Gettler were paid a total of $497,000. The two offices were combined and Mr. Gettler has carried out all of the duties of both offices.
The Company had a net loss in 1995. A number of strategic decisions were made in early 1996 under the leadership of Mr. Gettler. As a result of those strategic decisions and the follow-up required to execute those decisions, the Company had experienced a significant turnaround, resulting in earnings of over $1,500,000 through the first ten months of 1996.
Mr. Gettler has advised the Committee that he does not want an increase in his total annual compensation above that paid in 1995.
Based on all the foregoing, it is the determination of the Committee that the cash bonus for the C.E.O. and President for 1996 should be the same amount as in 1995, namely, $64,500. It is further the decision of the Committee that his annual salary for 1997 shall be $275,000.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The principal accountant of the Company is J. D. Cloud & Co. P.L.L., certified public accountants. That firm has acted as the principal accountant of the Company since 1956. At the meeting of the Board of Directors following the May, 1996 meeting, the Board again selected that firm to continue to serve as the Company's principal independent public accountants. The practice of the Board of Directors in making a selection at such meeting has been followed by the Company since 1956. The same practice will be followed after the May, 1997 Annual Meeting of Shareholders. Management is not aware of any intended change of principal independent public accountants. Representatives of J. D. Cloud & Co. P.L.L. are not expected to attend the Annual Meeting.
PROPOSALS OF SECURITY HOLDERS
No shareholder proposals will be considered at this year's annual meeting.
In the event that any security holder intends to present a proposal at the 1998 Annual Meeting of the Company and such security holder desires that the proposal be included in the Company's proxy statement and form of proxy relating to that meeting, such proposal must be received by the Company by no later than 4:30 P.M. December 1, 1997.
GENERAL
The Company, as of March 17, 1997 had outstanding 1,254,344 shares of capital stock, each of which is entitled to one vote. The record date for determining shareholders entitled to notice and to vote at the meeting is close of business March 17, 1997.
The management knows of no other business to be brought before the meeting for action by the shareholders. If any other matters properly come before the meeting, the proxies in the enclosed form, unless otherwise specified, will be voted on such matters in accordance with the judgment of the Proxy Committee.
BENJAMIN GETTLER
Chairman of the Board and President
Exhibit 21
VULCAN INTERNATIONAL CORPORATION
SUBSIDIARIES OF THE REGISTRANT
At December 31, 1996
STATE OF PERCENTAGE NAME OF CORPORATION INCORPORATION OF OWNERSHIP - ------------------- ------------- ------------
Vulcan International Corporation Delaware Parent Vulcan Corporation Tennessee 100% Vulcan Blanchester Realty Co. Ohio 100% Southern Heel Company Tennessee 100% ACI International, Inc. Delaware 100% Vulcan Bowling Pin Company Tennessee 100% Cincinnati Club Building Associates (Partnership) Ohio 97.51%
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors Vulcan International Corporation Wilmington, Delaware
We have audited the Consolidated Financial Statements of Vulcan International Corporation and subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated February 15, 1997; such Consolidated Financial Statements and report are included in Part IV, Item 14(a)1 of this Form 10-K and the 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audit also included the financial statement schedule of Vulcan International Corporation and subsidiaries listed in Part IV, Item 14(a)2. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information therein set forth.
/s/ J.D. CLOUD & CO. P.L.L. Certified Public Accountants
Cincinnati, Ohio February 15, 1997
EXHIBIT 99.2 Schedule II VULCAN INTERNATIONAL CORPORATION AND SUBSIDIARIES
EXHIBIT 99.3
VULCAN-BRUNSWICK BOWLING PIN COMPANY
FINANCIAL STATEMENTS
For the year ended December 31, 1996
J.D. CLOUD & CO. P.L.L. CERTIFIED PUBLIC ACCOUNTANTS CINCINNATI, OHIO
INDEPENDENT AUDITORS' REPORT
To the Partners Vulcan-Brunswick Bowling Pin Company Antigo, Wisconsin
We have audited the accompanying balance sheets of Vulcan-Brunswick Bowling Pin Company as of December 31, 1996 and 1995, and the related statements of income, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Joint Venture's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vulcan-Brunswick Bowling Pin Company at December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
/s/ J.D. CLOUD & CO. P.L.L. Certified Public Accountants
Cincinnati, Ohio February 5, 1997
VULCAN-BRUNSWICK BOWLING PIN COMPANY
VULCAN-BRUNSWICK BOWLING PIN COMPANY
VULCAN-BRUNSWICK BOWLING PIN COMPANY
VULCAN-BRUNSWICK BOWLING PIN COMPANY
VULCAN-BRUNSWICK BOWLING PIN COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Joint Venture is a Delaware general partnership formed for the purpose of manufacturing bowling pins for its partners.
It is the policy of the Joint Venture to employ generally accepted accounting principles in the preparation of its financial statements. A summary of the Joint Venture's significant accounting policies follows:
ACCOUNTING 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.
JOINT VENTURE- In June 1990, Vulcan Corporation (Vulcan) and Brunswick Bowling and Billiards Corporation (Brunswick) entered into an agreement to manufacture all the bowling pins sold by each of the partners. Under the agreement, Vulcan contributed bowling pin manufacturing assets and Brunswick contributed cash and certain of its bowling pin manufacturing assets to the Joint Venture. Each partner received an undivided 50% interest in the Joint Venture's assets, liabilities, revenues and expenses in exchange for their capital contribution.
INVENTORIES- Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT- Property, plant and equipment are stated at cost. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated useful lives using straight-line and accelerated methods as follows:
Buildings and improvements 15 to 39 years Machinery and equipment 3 to 7 years
INTANGIBLES- Product development costs and other intangible assets consist principally of manufacturing technology and represent the fair market value assigned to such assets on the date the Joint Venture was formed. Intangible assets are amortized over 40 years on a straight-line basis.
VULCAN-BRUNSWICK BOWLING PIN COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES- No provision for federal or state income tax is provided in the accompanying financial statements since the partners are required to report their proportionate share of the Joint Venture's income or loss on their respective tax returns in accordance with the Internal Revenue Code and applicable state law.
RETIREMENT PLAN- The Joint Venture maintains a defined benefit pension plan covering substantially all union employees. Pension benefits are determined annually by consulting actuaries and are generally based on a fixed amount for each year of service. The qualified plan is funded in accordance with the collective bargaining agreement and to meet the funding requirements of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.
CASH EQUIVALENTS- For purposes of the statement of cash flows, the Joint Venture considers all time deposits, certificates of deposit and other highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
NOTE 2 - INVENTORIES
NOTE 3 - NOTE PAYABLE
The Joint Venture maintains a revolving credit agreement with its bank that provides for borrowings of up to $1,500,000 at the prime rate. Borrowings under the credit agreement are guaranteed by the Joint Venture's partners and are secured by a pledge of the general assets of the Joint Venture. There were no borrowings at December 31, 1996 and 1995.
VULCAN-BRUNSWICK BOWLING PIN COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Continued)
NOTE 4 - RETIREMENT PLAN
VULCAN-BRUNSWICK BOWLING PIN COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Continued)
NOTE 4 - RETIREMENT PLAN (Continued)
NOTE 5 - RELATED PARTY TRANSACTIONS
The Joint Venture had 1996 and 1995 sales to Vulcan of approximately $2,851,000 and $2,921,000, respectively, and 1996 and 1995 sales to Brunswick of approximately $10,522,000 and $12,690,000, respectively.
The Joint Venture purchased raw materials from Vulcan for approximately $315,000 in 1996 and $427,000 in 1995. The Joint Venture also paid accounting and administrative fees of $30,000 to Vulcan in 1996 and 1995.
Accounts receivable from Brunswick amounted to $616,000 and $175,000 at December 31, 1996 and 1995, respectively. Accounts receivable from Vulcan at December 31, 1996, amounted to $232,000. Accounts payable to Vulcan amounted to $35,000 and $67,000 at December 31, 1996 and 1995, respectively.
NOTE 6 - RISKS AND UNCERTAINTIES
The Joint Venture is involved in various claims and legal proceedings involving matters incidental to its business. Management believes that the resolution of these matters will not have a material effect on the Joint Venture's business or financial condition.
VULCAN-BRUNSWICK BOWLING PIN COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Continued)
NOTE 6 - RISKS AND UNCERTAINTIES (Continued)
The Joint Venture currently purchases all its bowling pin bases from Vulcan. Any disruption in the supply of the bowling pin bases could cause a delay in manufacturing which could negatively affect operating results.
In 1995, the Joint Venture recorded a receivable of $75,479 from Vulcan Corporation for bowling pin bottoms, manufactured by Vulcan, which were replaced during 1995 by Brunswick. Vulcan, at that time, denied liability for the replaced pin bottoms. Vulcan has advised that, while denying liability, it will not contest the receivable.
Financial instruments which potentially subject the Joint Venture to concentrations of credit risk are cash investments. The Joint Venture places its cash investments with high-quality financial institutions. The Joint Venture believes no significant concentration of credit risk exists with respect to these cash investments.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Vulcan International Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VULCAN INTERNATIONAL CORPORATION
/s/ Benjamin Gettler ------------------------------ By: Benjamin Gettler Chairman of the Board, President and Chief Executive Officer
/s/ Vernon E. Bachman ------------------------------ By: Vernon E. Bachman Vice President, Secretary-Treasurer Principal Accounting Officer
Date: March 25, 1997
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:
/s/ Benjamin Gettler /s/ Dennis J. Buckley - -------------------------- ------------------------------- By: Benjamin Gettler By: Dennis J. Buckley (Director) (Director)
/s/ Stanley I. Rafalo - -------------------------- By: Stanley I. Rafalo (Director)
/s/ William T. Crutchfield - -------------------------- By: William T. Crutchfield (Director)