ITEM 1 -- BUSINESS
As used in this Annual Report, unless the context otherwise requires, the ''Company'' or ''Cambridge'' refers to Cambridge Industries, Inc. and its wholly-owned subsidiaries, including the co-registrant, CE Automotive Trim Systems, Inc. (''CE''). The Company is a wholly-owned subsidiary of Cambridge Industries Holdings, Inc. (''Holdings'').
GENERAL
The Company is a leading Tier 1 supplier of plastic components and composite systems with a 31% share of the total automotive composite market. Customers include GM, Ford, DaimlerChrysler, Toyota, Honda, Mazda, Nissan, Volkswagen, Freightliner, PACCAR, Mack Truck and Volvo Heavy Truck. As a Tier 1 supplier, the Company is increasingly responsible for the design, engineering, validation testing, manufacturing and quality control of parts and pre-assembled components for original equipment manufacturers (''OEMs''). Within the transportation OEM market for plastic products there are three distinct types of applications, all of which the Company can provide: exterior, structural/functional/powertrain and interior. The Company manufactures components, modules and systems for exterior and structural/functional/powertrain applications and components and modules for interior applications. In addition to products supplied to its automotive and commercial truck OEM customers, the Company also manufactures a number of products for non-automotive customers. The Company's production utilizes a wide range of processes, including compression, injection, extrusion and blow molding, and prime top coat painting capabilities at OEM Class A standards.
The Company has experienced rapid growth since 1991 due to increased plastic usage by OEMs, five major acquisitions and significant new product introductions. Additionally, the Company's average content per vehicle (automobile, light truck and commercial truck) produced in North America has increased from approximately $0.86 in 1991 to approximately $36.12 in 1999.
At February 29, 2000, the Company employed approximately 4,740 people.
DESCRIPTION OF BUSINESS BY OPERATING SEGMENT
Cambridge's businesses are organized, managed, and internally reported as three operating segments. The operating segments, which are based on differences in customers and products, technologies and services, are as follows:
Operating Segment Principal Products - ----------------- ------------------
Automotive and Light Truck Molded engineered plastic components primarily for automotive original equipment manufacturers
Commercial Truck Molded engineered plastic components primarily for the commercial transportation industry, class 4 through class 8 commercial trucks
Industrial and Non-automotive Various plastic components for the agricultural, appliance, commercial construction, and recreational transportation industries
Segment financial data for the years 1997 through 1999, including financial information about export sales, is included in Note 18 of Notes to Consolidated Financial Statements. Cambridge's three operating segments bridge together common or related technologies, enhancing the development of innovative products and services and providing for efficient sharing of business resources. Various corporate assets and overhead expenses are not assigned to the segments.
AUTOMOBILE AND LIGHT TRUCK COMPONENTS INDUSTRY
As automobile and light truck manufacturers have faced increased competitive pressures, they have sought to significantly reduce costs, improve quality, reduce weight, and shorten the development time required for new vehicle platforms. These changes have altered the OEM/supplier relationship and benefited larger suppliers, such as the Company, strong product engineering and development capabilities, superior quality and the ability to deliver products on a timely basis. The Company believes the following to be the primary trends in the automotive and light truck components industry:
Increased Use of Plastics
The combined pressures of cost reduction, increased durability requirements and rising fuel economy standards have caused OEMs to concentrate on developing and employing lower cost, more durable and lighter weight materials. As a result, the average plastic weight per passenger vehicle has increased by 71%, from approximately 150 pounds in 1988 to approximately 257 pounds in 1999. Total automotive composite usage is projected to increase by 55% between 1999 and 2009. While plastics historically have been used for many interior trim components, they are now being used more extensively in such structural components as grille opening reinforcements, floor panels, bumpers and support beams, as well as in such nonstructural components as exterior trim panels, grilles, duct systems, tail lights, fluid reservoirs, intake manifolds, valve covers and drive train components. These trends toward the increased use of plastics in exterior and structural/functional/powertrain components have been driven by innovations in material, molding and painting technologies, which have improved the performance and appearance of molded plastic components as well as lowering their costs. Plastic's design freedom is also key to its increased use. Not only does plastic allow for the manufacture of products that cannot be manufactured with other materials, plastic makes it possible to combine several parts, saving weight and cost. Additionally, recently introduced plastics that can withstand the hot, corrosive environment of the engine compartment are becoming more prevalent. For example, the Company has developed plastic rocker arm covers for use on the high production volume Ford 3.0L and 4.6L engines. Furthermore, according to industry sources, plastics usage in engine and mechanical components is expected to increase by more than 38% from 1998 to 2009. Now light truck is converting pick-up boxes traditionally done in metal composites.
Historically, plastic has generally had an advantage over steel in low volume production runs due to lower upfront tooling costs. With its lower tooling costs, the Company benefits from the increase in niche vehicles (such as the DaimlerChrysler Viper and the GM Corvette), "mass customization" of high volume vehicles such as the Ford Focus and the addition of flare fenders to the Ford Ranger and Ford pick-ups and the use of optional accessories (such as step-assists on certain sport utility vehicles such as GM's GMT800, and DaimlerChrysler's Jeep Wrangler hard-top). For higher volume production runs where tooling costs may be amortized over a larger number of units, steel generally has an advantage, because it is usually a less expensive raw material with lower finishing costs.
Increased Outsourcing by Domestic OEMs
In an effort to reduce costs, accelerate product design and simplify manufacturing, domestic OEMs have outsourced the manufacture of many components, systems and modules which were previously manufactured internally. Independent suppliers generally are able to design, manufacture and deliver components at a lower cost than the OEMs due to: (i) their significantly lower direct labor, fringe benefit and overhead costs; (ii) the ability to spread R&D and engineering costs over products provided to multiple OEMs; and (iii) the economies of scale inherent in product specialization. The domestic OEMs have benefited because outsourcing has allowed them to reduce costs and to focus on overall vehicle design and consumer marketing.
Suppliers, such as the Company, have benefited from outsourcing because the aggregate number and value of components which they manufacture have increased dramatically. In addition, the outsourcing trend has increased the complexity of components which are manufactured by independent suppliers and this has favored low cost, full service, high quality suppliers, such as the Company, which can develop modules and systems that OEMs can easily install.
Consolidation of Supplier Base by OEMs
The OEMs have significantly consolidated their supplier bases in an effort to reduce their procurement related costs and accelerate new platform development. Many suppliers have either been eliminated or tiered (i.e., they supply other suppliers) in order to minimize the number of direct supplier contacts the OEM must maintain.
This consolidation has altered the typical structure of supplier contracts. In the past, OEMs generally outsourced relatively simple parts under annual contracts primarily on the basis of cost, and suppliers generally functioned as contract manufacturers, with the OEM performing all development, design and engineering related tasks. With the trend towards the outsourcing of increasingly complex multicomponent systems, the basis of competition among suppliers has shifted to one encompassing a broad range of additional criteria including design capabilities, speed of development, materials and manufacturing process expertise, consistency of quality and reliability of delivery. In many cases, sole-source supply contracts cover the life of a vehicle or platform. Suppliers benefit because this enables them to devote the resources necessary for proprietary product development with the knowledge that they will have the opportunity to earn an adequate return on such investment over the multiyear life of a contract. In turn, the OEMs benefit because they share in the manufacturing cost savings attributable to multiyear production runs at high capacity utilization levels. As a result, smaller, poorly capitalized suppliers with limited product lines, engineering and design capabilities have been and will continue to be eliminated and lose market share. Larger suppliers, such as the Company, with broad product lines, in-house design and engineering capabilities and the ability to effectively manage their own supplier bases, have increased their market share.
COMMERCIAL TRUCK COMPONENTS INDUSTRY
The commercial truck components industry has also experienced increased use of plastics. Continuing consolidation of the domestic OEM's coupled with on-going consolidation of the supplier base have served to increase levels of manufacturing in North America. The increased use of plastics is particularly pronounced in the commercial truck industry. Plastics allow for significant weight savings and improved fuel economy relative to steel. For example, the Company believes that a composite truck hood assembly made by the Company weighs approximately 30% less than a comparable steel assembly. In addition, because of low annual volumes of commercial truck production, lower up front tooling costs give plastic an advantage over steel. Finally, in contrast to the automotive and light truck component industry, the commercial truck industry historically has not manufactured its own components, but rather has relied heavily on suppliers for their design, engineering and manufacturing of components. These industry characteristics favor suppliers like the Company, that have broad design and engineering capabilities and extensive commercial truck component manufacturing experience. The Company is a key supplier to Freightliner, Kenworth, GM, Volvo, Sterling, Ford and Mack Truck.
INDUSTRIAL AND NON-AUTOMOTIVE COMPONENTS INDUSTRY
The industrial and non-automotive markets for the Company's manufacturing processes include recreation, agriculture, transportation, construction, marine and military industries. A substantial portion of the reinforced plastic products supplied to these markets comes from sheet molded compound (''SMC''), much of which is captively molded by companies such as General Electric, White Westinghouse, Therma-Tru, Kohler, Rubbermaid, Xerox and RCA. The development of business in this market typically comes from two areas of opportunity: conversion from alternate materials and conversion from alternate composite processes due to increased volume requirements.
BACKGROUND, ACQUISITION AND EXPANSION HISTORY
The Company has grown rapidly since its inception by capitalizing on both the consolidation of the industry and the increase in plastic content per vehicle. It has responded to the industry consolidation by building or acquiring full- service design, engineering and manufacturing capabilities. The Company's ability to offer a comprehensive range of processes and materials has given it a strong competitive position among full-service OEM suppliers.
Since its initial formative acquisitions in 1988 and 1990, the Company's management has consummated five major and four minor acquisitions over the past nine years, implementing a focused strategy to enhance profitability and reposition the acquired entities for growth. This strategy has included one or more of the following steps designed to reduce costs, simplify manufacturing and increase profitability: (i) placing strong managers in key positions in the newly acquired company to implement changes; (ii) rationalizing raw materials and components purchasing (the Company's largest single cost component) to reduce costs of goods sold; (iii) redesigning manufacturing and material flow to eliminate indirect costs,
reduce inventories and shorten production cycle times; (iv) reducing headcount; and (v) reducing overall administrative costs, including insurance, benefit plans, and professional fees.
The following summarizes the Company's acquisition history:
1988 Nortec Precision Plastics
Precision functional parts manufacturer. Principal customer was DaimlerChrysler.
1990 Wolf Engineering Corporation (''Wolf'')
Enhanced functional parts capabilities and added tool building capability. Added GM as customer. Management improved manufacturing material flow, improved labor productivity and reduced SG&A.
1993 Voplex Corporation (including Voplex Canada) (collectively, ''Voplex'')
Entered interior plastic trim market. Added blow-molding, compression-molded fiber processing, extrusion, co-extrusion, paint and large press capabilities. Added Canadian manufacturing facilities. Management reduced manufacturing and supervisory headcount, improved labor productivity, closed two facilities, increased raw material yields and substantially increased sales to GM.
1993 Troy Products
Added larger tonnage press capacity and structural foam technology.
1994 Rockwell Plastics ("Rockwell")
Added thermoset and compression molding technology. Enhanced functional parts market position and added structural parts capabilities. Added Honda, Mazda, Nissan and Suzuki to customer base as well as significant Ford business. Added commercial truck OEMs as customers. Management consolidated sales forces, renegotiated insurance and benefit policies and reduced plant level administration head-count.
1996 GenCorp RPD ("GenCorp RPD")
Substantially increased SMC capabilities, making the Company the leading manufacturer of SMC. Added Volvo Heavy Truck and Kenworth to customer base as well as significantly increased business with GM. To date, management has re-negotiated insurance and benefit policies and significantly reduced intercompany charges related to corporate level administration.
1997 APX--PMC Division ("APX")
Added resin transfer molding ("RTM") technology and paint priming. The acquisition also added in-house RTM tooling and prototype capabilities and strengthened the Company's relationship with DaimlerChrysler.
1997 Eagle-Picher--Plastics Division ("Eagle-Picher")
Improved painting capabilities by adding top coat painting which meets OEM Class A standards. Added non-automotive product lines and strengthen Transplant relationships. Added additional large tonnage presses and open plant capacity and ability to consolidate SMC production with other Company plants.
1997 Goodyear-Jackson--Engineered Composites Business ("Goodyear-Jackson")
Strengthened the Company's position as the leading SMC supplier to medium and heavy truck OEMs and enhanced its relationship with Ford and Freightliner. Added new products (grill opening panels & retainers, air brake pistons) and manufacturing processes (SMC injection molding). Increased SMC production capacity with the addition of compression and injection molding presses.
1997 Owens-Corning Brazil--Brazilian Molded Plastic and Pultrusion Operations ("Brazil")
Added ability to manufacture components for Brazil-based customers and Brazilian subsidiaries of North American OEMs.
1998 Livingston, Inc. ("Livingston")
Enhanced the Company's relationship with PACCAR (Kenworth) and provided the Company with a Class 8 commercial truck component assembly facility on the west coast of the United States.
MEXICAN FACILITY
The Company has recently completed formation under Mexican law, of Cambridge Operations Mexico, S.A. a subsidiary owned one percent (1%) by Holdings and 99% by the Company ("Cambridge Mexico"). Cambridge Mexico was formed to lease and operate a production facility in Mexico to support the Ford (H-215) and GM (GM250) programs. The manufacturing facility is anticipated to be approximately 70,000 square feet and commence operations during the fourth quarter of 2000. The Mexico facility will position Cambridge Industries to take advantage of the emerging requirements for resident Mexico plastic suppliers to the automotive and commercial truck OEMs.
SENIOR SUBORDINATED NOTES DUE 2007
On July 10, 1997, the Company issued (the ''Offering'') its Senior Subordinated Notes due 2007, Series A (the ''Series A Notes'') in the principal amount of $100.0 million. On January 14, 1998, the Company completed an exchange offer (the ''Exchange Offer'') pursuant to which $98.0 million principal amount of Series A Notes were exchanged for the Company's Senior Subordinated Notes due 2007, Series B (the ''Series B Notes,'' together with the Series A Notes, the ''Notes''). The Notes bear interest at a rate of 10 1/4 % per annum, payable on each January 15 and July 15, commencing January 15, 1998. The Notes will mature on July 15, 2007. The Company may redeem the Notes on or after July 15, 2002.
The Notes are general unsecured obligations of the Company. The Notes are guaranteed on a senior subordinated basis by the Company's only existing U.S. subsidiary, CE, and all of the Company's future U.S. subsidiaries (the ''Guarantors''). The Guarantees are general unsecured obligations of the Guarantors. The proceeds of the Offering, together with financing under the Credit Agreement (as defined below), were used, in part, to finance the Eagle- Picher and Goodyear-Jackson transactions.
As a result of the Exchange Offer, Section 13 of the Exchange Act required that the Company file certain reports, including this Annual Report. However, pursuant to Exchange Act Rule 15d-6, the Company filed a Form 15 with the Securities and Exchange Commission before January 30, 1998, which suspended the Company's duty to file Section 13 reports.
In connection with the issuance of the Notes, the Company agreed with Note purchasers to prepare and distribute the reports specified by Section 13 to Note holders and to submit those reports to the Securities and Exchange Commission for filing under the Exchange Act. While the Company intends to comply with its contractual obligations, the filing of Section 13 reports is no longer required by the Exchange Act.
As a result of the Company's intention to sell its business to a qualified buyer, announced previously by the Board of Directors described below, there can be no assurance, if the buyer does not assume the Notes, that such sales process will generate sufficient proceeds after payment of senior secured obligations of the Company and transaction costs to pay the Notes in full. See, Management Discussion and Analysis - Liquidity and Capital Resources.
CREDIT AGREEMENT
On July 10, 1997, the Company entered into a credit agreement with Bankers Trust Company as agent (''Agent'') and other institutions (the "Banks") providing loans up to $280.0 million, consisting of: $70.0 million in aggregate principal amount of A Term Loans; $135.0 million in aggregate principal amount of B Term Loans; and $75.0 million revolving credit
facility. The Company used the A Term Loans and the B Term Loans to repay term loans under a previous credit agreement. As of March 30, 2000, the Company had drawn $65.0 million of the revolving credit facility.
The Credit Agreement contains restrictive covenants which, among other things, limit the incurrence of additional indebtedness, dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, prepayments of other indebtedness, liens and encumbrances, capital expenditures and other matters customarily restricted in such agreements. The covenants also require the Company to meet minimum levels of EBITDA (earnings before interest, income taxes, depreciation and amortization) and interest coverage, and establish a maximum leverage ratio.
In September 1998, the Company entered into a Second Waiver and Amendment and in January 1999 the Company entered into a Third Waiver and Amendment pursuant to which certain restrictive covenants contained in the credit agreement were waived and amended. On February 23, 1999, the Company entered into a Fourth Waiver and Amendment to the credit agreement (together with the Second, Third, and Fourth Waivers and Amendments, the "Credit Agreement") with the Agent and other institutions, which is effective as of December 31, 1998 through and including March 31, 2000, whereby the aggregate outstanding principal amount of the revolving credit facility shall not at any time exceed $65 million, and shall not exceed $50 million on the last day of any month. In addition, certain restrictive covenants were waived and amended. Letters of Credit outstanding under the Credit Agreement are limited to $5.3 million.
The amended Credit Agreement eliminated covenant requirements at December 31, 1998, and amended the covenants for periods through March 31, 2000.
In July 1999, the company entered into a Fifth Waiver and Amendment and in December 1999, the Company entered into a Sixth Waiver and Amendment, pursuant to which certain restrictive covenants contained in the Credit Agreement were waived and amended. With respect to the Sixth Waiver and Amendment, the Company's authority to pay the employment compensation or management fees (but not reasonable out of pocket expenses) of certain affiliates was restricted. Any such unpaid compensation or management fees continue to accrue. In addition, with respect to the Sixth Waiver and Amendment, the Company agreed to cooperate with and pay reasonable costs, fees and disbursements of the Banks legal counsel and consultants to such legal counsel in connection with certain reporting and analytical activity under the Credit Agreement related to the Company's business operations and financial results therefrom.
As an inducement to the Banks agreeing to the Sixth Waiver and Amendment, Holdings and the Company agreed to engage Morgan Stanley Dean Witter & Co. ("MSDW") for purposes of assisting Holdings and the Company with the sale of all or a portion of the company's business or assets, to cooperate with MSDW in connection with such sales activity, provided that such activity did not materially reduce the value of any business or assets sold, and to pay certain amendment fees to the Banks related to the outstanding balances of all borrowings under the Credit Agreement.
Subsequent to the Company's 1999 year-end, in March 2000, the Company entered into the Seventh Waiver and Amendment and the Eighth Waiver and Amendment. In the Seventh Waiver and Amendment, the Banks eliminated for the month of February 2000, the requirement imposed in the Fourth Waiver and Amendment that the outstanding principal amount of the Company's revolving credit facility under the Credit Agreement not exceed $50 million on the last day of any month. In the Eighth Waiver and Amendment the Company and the Banks agreed to several waivers, revisions and amendments to certain restrictive covenants under the Credit Agreement, including extending the date by which the Company's outstanding principal amount of its revolving credit facility could not exceed $65 million, and deferral of the Company's obligations relating to certain mandatory prepayments of principal. As a condition to the Eighth Waiver and Amendment becoming effective, the Company agreed to negotiate for and enter into with its OEM customers certain agreements (the "Customer Agreements") whereby the OEMs agree as long as the Company is in compliance with the Customer Agreements (i) to provide accelerated payments of their accounts payable to the Company, (ii) not to resource the production of the company's products, programs or projects, and (iii) to waive set-off or payment abatement rights on certain of the OEMs' accounts payable to the Company.
The Company has entered into such Customer Agreements as the Banks required. In order to induce the Banks to enter into the Eighth Waiver and Amendment, the Company (i) reaffirmed its commitment to the sale process contemplated by the Sixth Waiver and Amendment for which MSDW was engaged, (ii) agreed to the payment to the Banks of certain additional amendment fees related to the outstanding principal balances of all borrowings under the Credit Agreement, and (iii) agreed, along with Holdings and the Guarantor of the Credit
Agreement, to release the Banks and their agents under and pursuant to the Credit Agreement, from any and all claims, causes of action, or liabilities which are in any manner related to it's Credit Agreement and any documents or enforcement activities related thereto.
As a condition of entering into the Customer Agreements, the OEMs required that the Company negotiate for and obtain standby financing commitments for debtor-in-possession financing in the event of a Chapter 11 insolvency proceeding involving the Company. The Company has obtained commitments for such debtor-in-possession financing from the Banks who are signatories to its Credit Agreement (the "DIP Financing").
BUSINESS STRATEGY
The Company's historic business strategy has been to capitalize on its perceived competitive strengths (see ''Competition'') in order to enhance its leadership position in the industry through a series of acquisitions of complimentary manufacturers.
This strategy was designed to capitalize on increased plastic usage for exterior and structural/functional components. The Company continues to seek opportunities to increase plastic content per vehicle through the design, development and manufacture of plastic components and systems which have been historically fabricated in metal. For example, the Company generates significant revenue from several products which were not historically fabricated in plastic, such as the plastic rocker arm covers, the cross car beam and the step-assist. The Company is now actively marketing these technologies to other OEMs for use in other platforms. The Company has been awarded contracts from GM for a composite pick-up truck bed that weighs less and has increased durability compared to steelbeds currently in use. The Company expects plastic content per vehicle for exterior and structural/functional/powertrain components to continue to increase during the next several years.
SALE OF COMPANY OR ITS BUSINESS
Subsequent to the Company's 1999 year-end, the Company announced that for various strategic reasons its board of directors had approved a decision to solicit buyers for the Company. The demand for the Company's technology and manufacturing abilities has resulted in the Company's being selected by its customers for programs and projects that are critical to these customers' future success. To satisfy such customer needs for assured performance and for the Company to perform its obligations with respect to the increase in the Company's business, the Company requires significant funding for new equipment and facilities. These needs can best be met by the Company through the sale of certain of its on-going business operations or, if the right opportunity presents itself, all of the Company's assets and business operations to a qualified buyer. To assist Management and the Board of Directors in achieving a timely and competitive execution of this sales plan, the Company has engaged MSDW as its investment banking firm and Wasserstein Perrella & Co., Inc., as its financial advisor.
The Company anticipates that it will have substantially accomplished its strategic goal of identifying a qualified buyer or buyers for its business investments by the end of the first half of the year ending December 31, 2000. The Company believes that as part of the sales process a buyer may require that a Chapter 11 proceeding be commenced to facilitate such sale.
EXISTING JOINT VENTURES AND LICENSING ARRANGEMENTS
In order to leverage its competitive position to the greatest extent and penetrate new markets, the Company has attempted to access new technologies through joint ventures and licensing arrangements. The Company seeks to exploit joint ventures, strategic alliances and licensing arrangements to develop new products, materials and processing technologies that provide opportunities for growth while limiting its investment risk. The Company currently has a strategic alliance agreement with Menzolit Fibron, and a joint venture agreement with Mexican Industries in Michigan, Inc. ("Mexican Industries") and a technical licensing agreement with Moya.
The Company has established joint ventures and alliances in the United States and in Europe to gain access to new materials, new processing technologies and to open new markets. The forming of these joint ventures provide considerable advantages to the Company over its traditional competitors.
The Menzolit Fibron strategic alliance was established to give the Company direct access to the European automakers and provide a mechanism to establish a manufacturing presence while limiting capital spending. The Company believes that Menzolit Fibron is one of Europe's largest SMC's suppliers. The Company also has access to their material and processing technologies. This joint alliance has resulted in the job award of a bumper beam support system from Mercedes.
In May 1998, the Company entered into a joint venture with Mexican Industries to assist domestic OEMs in meeting their minority content goals by supplying, through the joint venture, interior trim products to the OEMs and industry suppliers. The joint venture takes the form of a Michigan limited liability company with the name Mexican and Cambridge, L.L.C., doing business as Dos Manos Technologies ("Dos Manos"). In connection with the formation and operation of the joint venture, Mexican Industries built a manufacturing and assembly facility in Detroit, Michigan, which is being leased by Dos Manos. The facility commenced operations in December 1998.
As a part of this announced business strategy, Management recently commenced negotiations with Mexican Industries with a view to having Mexican Industries acquire all of the Company's interest in Dos Manos for the present fair market value of such interest.
Customers
The Company has a diverse customer base, including, among others, Ford, GM, DaimlerChrysler, Honda, Mazda, Nissan, Volkswagen, Freightliner, PACCAR, Mack Truck and Volvo Heavy Truck. The Company has close ties to the automobile manufacturing industry and has integral components in some of the industry's most popular vehicles. The Company currently has products in numerous high volume vehicles, including long-lasting models sold in the United States such as the Ford Explorer, Ranger, Taurus and truck, the GM Suburban and Astro Minivan and the Honda Accord. The following chart highlights vehicles which use products produced by the Company:
1999 VEHICLE NAMEPLATES--AND SELECTED NON-AUTOMOTIVE CUSTOMERS
Mitsubishi............ Eclipse Eagle
CUSTOMER Models - ---------------------- --------------------------------------- Commercial Trucks: Freightliner GM Ford Volvo Heavy Truck Mack Truck
Kenworth Peterbilt
INDUSTRIAL AND NON-AUTOMOTIVE: Caradon............... Residential door skins
Pease................. Residential door skins
Premedoor............. Residential door skins
AM General............ Hummer Humvee
John Deere............ Tractors Combines
Kawasaki.............. Personal watercraft
Ford New Holland...... Tractors
U.S. Military......... Tank set
Polaris............... Personal watercraft
Toyota................ Lift Trucks
Mercury Marine........ Marine outboard engines
Xerox................. Toner bottles
PRODUCTS
The Company's principal products include the exterior, structural/functional/powertrain interior trim and industrial parts listed below. The products manufactured by the Company are made from a variety of powertrain and thermoplastic materials. The Company's product diversity illustrated by the table below, positions the Company as a versatile source to the automotive, truck and non-automotive industries.
SEGMENTS
EXTERIOR Automotive and Light Truck Commercial Truck Industrial and Non -------------------------- ---------------- ------------------ Automotive ----------
Hoods and hood assemblies Hoods and hood assemblies Liftgates and doors Liftgates and doors Roof and roof moldings Roof and roof moldings Fenders Fenders Bodyside moldings/rubstrips Fairings Windshield surrounds Grill opening retainers Deck lids Grill opening panels Hatches Storage doors Spoilers Grill opening retainers Grill opening panels End gates Truck pick-up boxes
STRUCTURAL/FUNCTIONAL/POWERTRAIN
Headlamp carriers Bumper beams Engine shields/covers Battery trays Structural beams Plenums (firewalls) Bumper beams Air spring pistons Structural component carriers Load floors Fuel tank shields Seat pans Fluid systems linkages Rocker arm covers Fan shrouds Radiator support beams Bearing cages Steering yokes Battery trays Gears Fuel valves Plenums (firewalls)
INTERIOR Windshield cowls Cross car beam Cross members Steering column bezels Garnish molding systems Glove box door and assemblies Sleeper bunk Instrument panel trim components Door modular system Liftgate trim panels Head Liners Door trim panels Engine Covers Rear shelf panels "A" Pillars Consoles/overhead Seat backs/bases Shift knobs Garnish molding systems Handles/assists straps Electrical carriers Sunshades Knee bolsters Door modular system Rear package tray system
Segments
MANUFACTURING PROCESSES
The Company has a full range of equipment, including compression molding presses from 50 to 4,400 tons, injection molding presses from 28 to 2,500 tons, single and twin screw extrusion and co-extrusion machines and 7 to 90 ton blow- molding machines. These capabilities allow the various operating divisions of the Company extensive manufacturing flexibility. The Company is capable of processing both thermosets and thermoplastics. Thermosets are glass reinforced plastics that when heated and pressurized undergo a chemical change and generally provide superior impact strength, dimensional stability and heat resistance, as compared to other plastics. Thermoplastics are heated into a liquid state and then formed through injection, blow-molding, extrusion or compression processing techniques. Thermoplastics can be recycled to be used again in conjunction with virgin materials.
The Company is a leading molder of a wide range of composites and a manufacturer of Sheet Molding Compound (SMC), a thermoset material from which large complex shaped automotive and commercial truck panels are manufactured. SMC is experiencing extensive growth for automotive and commercial truck applications. In 1999, 16 manufacturers used SMC for over 400 components on over 100 global passenger car and truck lines. The Company's Shelbyville, Indiana facility is the newest State-of-the-Art facility producing SMC parts in the industry. The use of SMC in the automotive and truck industry has increased from 147 million pounds in 1992, to 257 million pounds in 1999. Projections for the continued growth of SMC are for it to exceed 312 million pounds in the year 2009, all for applications in automotive and commercial truck industry. SMC is particularly well suited for exterior and structural/functional/powertrain components because it offers lower upfront tooling investment to customers and weight savings over steel, and allows design and styling flexibility . Management believes the Company is the leading manufacturer of SMC automotive and commercial truck products in North America.
The Eagle-Picher transaction resulted in the Company's acquisition of 48 additional compression molding presses ranging up to 4,400 tons and also related additional SMC production capacity. Further, the Eagle-Picher acquisition added top coat paint lines, providing a capability to top coat paint automotive components to Class A standards, which the Company did not previously have. In 1999, Cambridge re-opened the Huntington, Indiana facility (formerly Eagle- Picher) to support the production of SRIM pickup boxes for a MYO1 General Motors program.
The Company's automated paint systems acquired in the Eagle-Picher transaction have high volume capabilities. The conveyor lines have adjustable speeds and can handle parts in a variety of sizes (up to ten feet in length by five feet wide and three feet in-depth). Related systems include prime and topcoat bake ovens with high discharge rates; multi-stage power washers; and numerous waterfall spray booths connected to prime and top coat bake ovens by conveyors.
The Goodyear-Jackson transaction resulted in the Company's acquisition of 16 compression molding presses ranging from 250 to 3,000 tons and 10 thermoset/thermoplastic injection molding presses ranging from 500 to 2,200 tons and also related additional SMC-making production capacity.
Quality throughout the manufacturing process is maintained through the implementation of statistical process control (''SPC'') techniques. Typical characteristics measured and controlled through SPC methods include material properties such as viscosity, gel time, sheen or gloss color and other quantifiable physical and appearance properties for exterior and interior components. Characteristics for structural/functional/powertrain parts including physical properties and dimensional stability at both the component and systems level are monitored. SPC data provide the production operator with trend information on the process, which allows for proactive measures to be implemented to assure product specifications are maintained and to minimize variation.
RAW MATERIALS AND SUPPLIERS
The Company's primary raw materials include thermoplastic resins (ABS, Polypropylene, Nylon, ABS/PC, TPO, Nylon, HDPE, Polyster and other engineered products) and thermoset resins (acrylic and polyester). Additionally, the Company manufactures all of its own SMC. The Company's principal suppliers include Bayer, Dow Chemical, A. Schulman and Prime Source Polymers for thermoplastic resins. Ashland Chemical, Reichold and Alpha Owens Corning provide SMC resins and Vetrotex, Owens Corning and PPG provide glass fibers for the SMC and bulk molding composite ("BMC") process. Omnova, Siebert, and Sherwin Williams provide coatings and paint. Ashland Chemical and Lord Adhesive provide adhesive products. Historically, the vast majority of the Company's raw materials have been available, and no serious shortages or delivery delays have been encountered. Certain of the Company's suppliers must be pre-qualified by the Company's customers. Management has devoted significant attention to its relationships with its principal suppliers as a result of the announcement of the decision to sell the Company's business and believes that such relationships are stable. The Company has never experienced major disruptions in its flow of raw materials or finished goods. The Company works with its strategic suppliers to obtain long-term corporate contracts, shared technologies, resources and cooperative working relationships.
ENGINEERING/RESEARCH AND DEVELOPMENT
The Company has the ability to design and engineer its products to meet its customers' specific applications and needs through its dedicated engineering and research and development staff of professionals. The Company utilizes advanced quality planning techniques by coordinating manufacturing and engineering personnel in development/launch teams that produce the most efficient, cost competitive design for the customer using advanced techniques including integrated CAD/CAM design systems. The Company has further extended its product engineering and design capabilities by supporting each division with dedicated expertise and equipment to address customer needs.
COMPETITION
The Company operates in a highly competitive environment. As a result of the more demanding service requirements placed on suppliers by the OEMs, and the resulting rationalization of the OEM supplier base, the automotive plastic parts industry has consolidated many small entities into fewer, much larger entities. In the automotive and light truck industry, the Company's major competitors in the exterior and structural/functional/powertrain market segments include Budd, Venture Holdings Trust and Core Materials Corp. The interior business is largely consolidated around such suppliers as Magna International, Textron Automotive Division, JCI, and Lear Corporation. Although the exterior and structural/functional markets are still fragmented, the Company expects them to consolidate along the lines of the interior markets.
The Company competes on the basis of cost, product quality, timely delivery, design support, customer service, product mix and new product innovation. The Company competes for new business both at the beginning of new model development and upon the redesign of existing models by its major customers. New model development generally begins two to five years prior to the marketing of such models to the public. Once a supplier has been designated to supply parts to a new program, an OEM will usually continue to purchase those parts from the designated supplier for the life of the program, and generally the supplier has an advantage in obtaining replacement business as the incumbent supplier.
The Company has significantly increased its size and enhanced its strategic position, which to a considerable degree led to the Company's need to sell its business in order to assure that adequate funding is available to meet customer demands and expectations for the Company's products. Subsequent to 1999 year- end, in March 2000, the Company entered into
Customer Agreements with certain of its OEM customers to provide adequate working capital and funds during the sale process for the Company's planned capital expenditures related to specific product programs with such OEM customers. While there can be no assurance that such Customer Agreements will meet all of the Company's needs, Management believes that such needs are substantially satisfied by reason of the Customer Agreements.
Management believes that the following are the Company's primary competitive strengths:
TIER 1 STATUS AND STRONG RELATIONSHIPS WITH OEMS
The Company has established a position as a leading Tier 1 supplier of plastic components and systems to Ford, General Motors, DaimlerChrysler, Toyota, Honda, Mazda, Nissan, Volkswagen, Volvo Heavy Truck, Mack Truck, Kenworth and Freightliner. Tier 1 status and strong customer relationships are important elements in achieving continued profitable growth because as OEMs narrow their supplier bases, well-regarded existing suppliers have an advantage in gaining new contracts. The evolution of OEM relationships into strategic partnerships provides a significant advantage to Tier 1 suppliers with systems integration capabilities (such as the Company) in retaining existing contracts as well as in participating during the design phase for new vehicles, which is integral to becoming a supplier to such new platforms.
DIVERSE PROCESS AND MATERIAL MANUFACTURING CAPABILITIES
The Company utilizes a broad range of manufacturing processes including compression molding, injection molding, blow molding, extrusion, pultrusion, SRIM spray-up molding and RTM and is able to use a wide variety of materials including SMC, BMC, glass mat thermoplastic (''GMT''), structural foam, glass reinforced urethane, polyethylene, polypropylene, polyvinyl chloride, Azdel and resinated natural fibers. The Company has secondary finishing capabilities including painting, in-mold coating, ultrasonic and vibration welding, bonding with urethane and epoxy adhesives and top coat painting capabilities sufficient to meet OEM Class A standards. These capabilities give the Company the ability to select a cost effective combination of materials and manufacturing methods for a given component and to deliver a finished component which is ready for installation. They also allow the Company to change its manufacturing techniques as technological innovation allows in order to reduce costs and improve product performance. Many competitors are dependent on fewer manufacturing processes and are at a competitive disadvantage to the Company when changes in manufacturing specifications by the OEM, or new technologies or materials emerge that favor one raw material or manufacturing method over another. The Company believes its diverse capabilities enhance its relationship with OEMs and further solidifies its role as a Tier 1 supplier.
HIGH QUALITY MANUFACTURING POSITION
Management believes OEMs prefer stable suppliers who can generate productivity gains that can be shared to reduce OEM costs. The Company's controls are closely integrated with its high quality manufacturing operations, thereby allowing it to deliver high quality, easy to install and competitively priced components on a just-in-time basis. The Company has received numerous quality and performance awards including Ford's Q1, General Motors' Targets of Excellence award, GM Supplier of the Year (1995, 1996 and 1997), DaimlerChrysler's QE designation, Honda's Quality, Plant & Delivery Award, and Mazda's Total Quality Excellence award. Quality levels are currently being standardized across OEMs through the QS 9000 program. The Company has achieved QS 9000 certification in its Lenoir, NC, Newton, NC, Centralia, IL, Lapeer, MI, Canandaigua, NY, Dearborn, MI, Grabill, IN, Woodstock, Ontario, Canada, Shelbyville, IN, Rushville, IN, Brazil and Madison Heights, MI facilities. The Company has achieved ISO 9000 certification in its Jackson, OH facility. The Company is in the process of obtaining QS 9000 certification in the remainder of its facilities. The Company has achieved Ford Q1 certification status at its Lenoir, NC, Newton, NC, Grabill, IN, Dearborn, MI, Lapeer, MI and Jackson, OH facilities.
STRONG DESIGN AND ENGINEERING EXPERTISE
The Company has an engineering and research and development staff that develops new products, materials and processing technologies through computer- aided design techniques. The Company works directly with OEM designers to create innovative solutions that simplify vehicle assembly. For example, the Company designed and is producing the tri-door for Ford's 2000 Excursion SUV in its Centralia, IL facility. This unique door system weighs 15% less than sheet metal doors
and tooling costs are 75% less than for steel doors. The Company also designed, engineered and now produces the cross car beam, a structural component for the Ford Ranger/Explorer platform on which all of the instrument panel components are mounted. This cross car beam eliminates approximately 20 separate metal and plastic parts, weighs less and reduces noise and vibration by approximately 33% compared to the steel structure it replaced. The Company is currently supplying the step-assist on GM's GMT800 sport utility vehicle. The Company's step-assist allowed design flexibility not possible with steel, and is 20% lighter than a functionally similar steel step-assist. In addition, Cambridge will be producing pick-up box components for the GMT800 truck to be launched in July, 2000. The Company recently won a program on GM's H-car for a front-end system (headlamp carrier) that, in comparison to traditional methods, consolidated five separate parts into one, and reduced the weight of the system by 40%. The Company is recognized as a leading designer of components for the commercial truck industry as evidenced by completion of total design responsibility and finite element validation for the Freightliner Century Program, Mack Vision 2000 Program and the Ford H-215 program.
In January 2000, the Company began supplying fenders for Ford's new SuperCrew pickup truck. Cambridge is also in the process of facilitizing to produce components for the GMT805 and GMT250/257 programs. Original plans to produce these parts in Mexico are on hold, although Cambridge continues to support GMT program timing.
EMPLOYEES
As of February 29, 2000, the Company had approximately 4,740 employees, of whom 695 are salaried employees. Approximately 4,045 employees are hourly and approximately 2,232 are union members. The Company is a party to collective bargaining agreements with respect to hourly employees at its Centralia, Lapeer, Woodstock, Dearborn, Jackson, Stephenson Highway and Rio Claro facilities. Labor contract expiration dates are as follows: Lapeer (UAW) expires Feb., 2005; Dearborn (UAW) expires Sept., 2003; Centralia (UAW) expires Oct., 2003; Jackson (USW) expires April, 2004; Stephenson Highway (UAW) expires Sept., 2004 and Woodstock (CAW) expires March, 2000. (Woodstock negotiations are in process; there are no significant issues which would prevent a mutually acceptable agreement prior to expiration).
The industry wide agreement at Rio Claro is negotiated each year with the current agreement expiring on November 30, 2000. There do not appear to be any significant issues which would prevent an adoption of a mutually acceptable agreement in November, 2000. In November, 1999, the UAW was elected as the bargaining representative of the production and maintenance employees at our Canandaigua, New York facility. The collective bargaining process began in February, 2000. Preliminary discussions indicate no major obstacles to reaching an acceptable agreement.
Management believes its relationship with its employees is generally good. In fact, the Company has received UAW and Steelworker cooperation and support for its lean manufacturing/continuous improvement process. The Company has not experienced significant work interruptions nor are there any current serious labor disputes with its employees.
Subsequent to the Company's 1999 year-end, and in conjunction with the Board of Directors decision to seek a qualified buyer for the Company's business, or parts thereof, the Board of Directors adopted a program designed to retain key employees during the sale process. The program has identified 46 of the Company's key operations' , sales and management employees in its three primary business units or lines of business and provided for both retention and severance payments to them under various circumstances (the "Retention Bonus and Severance Program"). The Retention Bonus and Severance Program is designed to retain the identified key employees during the duration of the announced sales process so as to maximize value of the Company's business units, lines of business and assets and to minimize potential disruptions to such related operations, sales and management activities by providing protection to these key employees in the event that their employment is terminated as a result of the sale of a business unit, line of business or all of the Company's business and assets. Acquirers of the Company's business, or parts thereof, will be obligated to assume the terms and obligations of the Retention Bonus and Severence Program with respect to employees in the business unit, line of business or the Company's business acquired for a period of at least six (6) months after such an acquisition. The program does not require any payments to an employee who refuses the offer of comparable employment by an acquirer or buyer of the Company, or part of its business. The Retention Bonus and Severence Program replaced the Company's then existing bonus program and severence guidelines. The cost of the severence portion of the new program is potentially approximately $900,000 greater than the potential cost under the Company's previously existing severance guidelines and practices.
Management believes that the Retention Bonus and Severance Program is an adequate and appropriate safeguard to the Company with respect to its announced sales plan.
PATENTS
The Company owns various patents which aid in maintaining its competitive position, some of which remain in force over the next 17 to 20 years. The expiration of any of the Company's patents is not expected to have a material adverse effect on the Company's operations.
ENVIRONMENTAL MATTERS
Like similar companies, the Company's operations and properties are subject to extensive federal, state, local and foreign regulation under environmental laws and regulations concerning, among other things, emissions into the air, discharges into the water, the remediation of contaminated soil and groundwater, and the generation, handling, storage, transportation, treatment and disposal of waste and other materials (collectively, ''Environmental Laws''). Inherent in manufacturing operations and the Company's real estate ownership and occupance activities is the risk of environmental liabilities as a result of both current and past operations, which cannot be predicted with certainty. The Company has incurred and will continue to incur costs associated with Environmental Laws in its business. As is the case with manufacturers in general, if a release of hazardous materials occurs on the Company's properties or at any off-site disposal location utilized by the Company or its predecessors, the Company may be held strictly, jointly and severally liable for response costs and natural resource damages under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and similar state and foreign laws (collectively, ''Superfund''). While the Company devotes resources to ensuring that its operations are conducted in a manner which reduces such risks, the amount of such liability could be material.
The soil and groundwater at the Company's Brickyard Road facility, located in Canandaigua, New York, contain hazardous materials in excess of applicable state cleanup standards. The Company completed remediation of this impact and obtained a "letter of closure" from the NYSDEC (State Environmental Regulatory Agency) in 1999. The cost of this activity is $25,000.
The soil and groundwater at the Company's 111 North Street facility, located in Canandaigua, New York, contain hazardous materials in excess of applicable state cleanup standards. The Company is currently remediating the facility pursuant to a consent order entered into with the State of New York. The Company has spent approximately $0.3 million to date and currently estimates that remediation costs over the next four or five years should not exceed an additional $0.3 million.
Each of these preliminary cost estimates is based upon currently available information. The actual cost of further investigation or remediation could differ materially from these projections.
Under the terms of the Company's acquisition of Rockwell Plastics, Rockwell has indemnified the Company for past environmental liabilities (the ''Rockwell Environmental Indemnity''), subject to a maximum aggregate contribution by the Company of $0.6 million and to the survival period of Rockwell's environmental representations and warranties, which expire July 2004. Since the time of the Rockwell Plastics acquisition, Rockwell, pursuant to the Rockwell Environmental Indemnity, has performed additional investigation and analyses of the facilities acquired in that acquisition. These assessments verified some of the Company's findings but disagreed with others. Rockwell has subsequently remediated certain areas of the facilities. Rockwell and the Company are currently discussing the remaining unremediated areas. Notwithstanding the Rockwell Environmental Indemnity, the Company could be pursued in the first instance by governmental authorities or third parties with respect to such matters, subject to its right to seek indemnification from Rockwell. If Rockwell fails to honor its obligations under the Rockwell Environmental Indemnity, the Company would be required to bear the cost of bringing the former Rockwell facilities into substantial compliance in which event the Company's total exposure could be material. However, the Company has no reason to believe that Rockwell will not honor its remediation commitments.
With respect to the facilities acquired in the Company's acquisition of GenCorp RPD, the Company identified a number of permitting, contamination, off- site liability, recordkeeping, reporting and hazardous waste regulation non- compliance issues. Since that acquisition, the Company believes it has brought the former GenCorp facilities into substantial compliance with applicable Environmental Laws. Under the terms of the transaction, the Company did not assume any liabilities arising from pre-existing violations of Environmental Laws, pre-existing contamination at GenCorp RPD facilities or off-site disposal of waste materials under Superfund. The Company is completely indemnified for these non-assumed liabilities (the
''GenCorp Indemnity''). Notwithstanding the GenCorp Indemnity, the Company could be pursued in the first instance by governmental authorities or third parties with respect to such matters, subject to its right to seek indemnification from GenCorp, Inc. If GenCorp, Inc. fails to honor the GenCorp Indemnity, the Company's total exposure for environmental matters arising from its acquisition of GenCorp RPD could be material. However, the Company has no reason to believe that GenCorp, Inc. will not honor the GenCorp Indemnity.
With respect to the facilities acquired in the acquisition of Eagle-Picher, the Company identified a number of permitting, contamination, off-site liability, recordkeeping, reporting and hazardous waste regulation non- compliance issues. The Company has brought the Eagle-Picher facilities into substantial compliance with applicable Environmental Laws as soon as possible. Under the terms of the transaction, the Company did not assume any liabilities arising from off-site disposal of waste materials under Superfund, and the Company is completely indemnified for this potential Superfund liability by Eagle-Picher. In addition, the Company is indemnified by Eagle-Picher against any fines or penalties arising out of any pre-existing violations of Environmental Laws. Subject to a maximum indemnification limit of $53.3 million, the Company is also indemnified for any unidentified on-site contamination at, on, under or about the former Eagle-Picher facilities and unidentified non- compliance issues, provided the Company asserts an indemnification claim within four years of the Eagle-Picher Acquisition. Finally, and in addition to its indemnity obligations, Eagle-Picher covenanted to remediate identified contamination as presently in place or as materially changed prior to 2003, (subject to certain financial limitations in the event of change in clean-up standards) at the former Eagle-Picher facilities pursuant to and in accordance with applicable state industrial standards. Notwithstanding these Eagle-Picher covenants and indemnification obligations, the Company could be pursued in the first instance by governmental authorities or third parties with respect to such matters, subject to its right to seek indemnification from Eagle-Picher. If Eagle-Picher fails to honor those indemnities or covenants provided to the Company, the Company's total exposure for environmental matters arising from the Eagle-Picher transaction could be material. However the Company has no reason to believe that Eagle-Picher will not honor the covenants or indemnities provided to the Company in the Eagle-Picher transaction.
With respect to the facility acquired in the Goodyear-Jackson transaction, the Company identified a number of contamination, off-site liability, recordkeeping, hazardous waste regulation, underground storage tank, wastewater discharge and permitting non-compliance issues. The Company has brought the Goodyear-Jackson facility into substantial compliance with Environmental Laws as soon as possible. Under the terms of the acquisition, the Company is indemnified for the costs associated with rectifying identified violations of Environmental Laws. The Company did not assume any liabilities arising from off-site disposal of waste materials under Superfund, and the Company is fully indemnified for any potential Superfund liability by Goodyear. In addition, the Company is indemnified by Goodyear, subject to a maximum indemnification limit of $2.5 million and after bearing the first $0.3 million of claims and a cost-sharing formula thereafter, against any unidentified pre-existing compliance issues under Environmental Laws and any unidentified on-site contamination at, on, under or about the former Goodyear-Jackson facility, provided the Company asserts an indemnification claim within three years of the Goodyear-Jackson Acquisition. In addition to its indemnity obligations, Goodyear covenanted to remediate identified contamination in excess of applicable regulatory limits and to make reasonable efforts to obtain a covenant not to sue under applicable state laws. Before remediating, Goodyear agreed to reimburse the Company, up to a maximum of $1.0 million, to investigate and repair the causes or sources of the identified contamination. Notwithstanding these Goodyear covenants and indemnification obligations, the Company could be pursued in the first instance by governmental authorities or third parties with respect to such matters, subject to its right to seek indemnification from Goodyear. If Goodyear refuses to honor the indemnities or covenants provided to the Company, the Company's total exposure for environmental matters arising from the Goodyear-Jackson transaction could be material. However, the Company has no reason to believe that Goodyear will not honor the covenants or indemnities provided to the Company in connection with the Goodyear-Jackson transaction.
With respect to the facilities leased as a result of the Livingston transaction, the Company did not assume any of the liabilities for violation of environmental laws with respect to solid waste or hazardous materials transported by or on behalf of Livingston for off-site disposal or any liabilities of Livingston for the violation of environmental laws arising from the operation of Livingston prior to the closing date, including, any fine or penalty arising from any permit violation. Under the terms of the Livingston Acquisition, Livingston must indemnify the Company for all liabilities not assumed by the Company. However, Livingston's liability for all indemnity claims (environmental and non-environmental) is capped at approximately $1.7 million.
A number of the Company's facilities are likely to be required to comply with the provisions of the Federal Clean Air Act (''CAA''), including Titles III and V of the CAA. Title III of the CAA includes provisions requiring the implementation of Maximum Achievable Control Technology (''MACT'') to reduce emissions of certain hazardous air pollutants, including
styrene, at certain manufacturing facilities emitting designated quantities of such pollutants. Air pollution controls to address styrene emissions could cost approximately $1.0 million per facility and, if MACT is ultimately required in connection with both the manufacture and use of this compound, may be required at three to five of the Company's facilities. It is possible that the cost of complying with the CAA could be material and the Company's failure to comply with the CAA in the future would likely have a material adverse effect on the Company.
Based upon the Company's experience to date, as well as the existence of certain remediation and indemnification agreements obtained in connection with those acquisitions described above, the Company believes that the future cost of compliance with existing Environmental Laws (with the possible exception of the cost of CAA compliance described above) and liability for identified environmental claims will not have a material adverse effect on the Company's business, results of operations or financial position. However, future events, such as new information, more vigorous enforcement policies of regulatory agencies, stricter or different interpretations of existing Environmental Laws, changes in existing Environmental Laws or their interpretation, or the failure of indemnitors to fulfill their contractual obligations, may give rise to additional costs or claims that could have a material adverse effect on the Company's business, results of operations, cash flows or financial condition.
The Company's accounting policy is to accrue for environmental claims which it considers probable and reasonably estimable and to disclose a range of reasonably possible claims. See Note 1 to the Company's consolidated financial statements contained in Item 8 of this Annual Report.
ITEM 2
ITEM 2 - -PROPERTIES
The Company's executive offices are located in approximately 24,000 square feet of owned space at 555 Horace Brown Drive, Madison Heights, Michigan. The Company has 23 operating facilities with a total of approximately 2.9 million square feet of space. Molding operations are located at all of its operating facilities other than Rushville, Indiana, which is an assembly and warehouse facility. The Company believes that substantially all of its property and equipment are in good condition and that, together with the facility scheduled to open in Mexico, described below, has sufficient capacity to meet its current and projected manufacturing and distribution needs through the 2000 model year. The following sets forth certain information concerning the Company's operating facilities:
The Company's Mexican subsidiary, Cambridge Operations Mexico, S.A. is anticipated to be 70,000 square feet when it opens in the fourth quarter of 2000.
The Company also owned property and improvements in Vassar, Michigan which has been sold and Pittsford Township, New York, which was sold in October 1998, and Dearborn, Michigan was sold in November 1999.
In addition, a 100,000 square foot facility is leased by Dos Manos Technologies, a joint venture between the Company and Mexican Industries in Michigan, Inc., in which the Company owns a 48% interest.
ITEM 3
ITEM 3 - -LEGAL PROCEEDINGS
From time to time the Company is engaged in routine litigation arising in the ordinary course of business; however, the Company is not party to any lawsuit or proceeding which, individually or in the aggregate, in the opinion of management, is likely to have a material adverse effect on the financial condition, results of operations or cash flows of the Company.
Eagle-Picher, but not the Company, is a defendant in litigation commenced in May 1997 by Caradon Doors and Windows Inc. (''Caradon''), in the U.S. District Court, Northern District of Georgia. Caradon alleges that Eagle-Picher induced it to buy door skins from Eagle-Picher, causing Caradon to infringe upon a patent held by Therma-Tru Corporation, contrary to Eagle-Picher's representations. The complaint alleges claims for damages exceeding $10 million. Eagle-Picher intends to vigorously defend the claims in the complaint. The Company does not anticipate being named as a defendant in the litigation.
The litigation commenced in September 1997 by Therma-Tru Corporation against the Company and Pease Industries, Inc. alleging patent infringement under 35 U.S.C. (S) 271 and related claims, based upon substantially the same facts as in the Caradon case described above was settled in June 1999 at no cost to the Company other than its own costs of defense.
ITEM 4
ITEM 4 - -SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In lieu of a special meeting of the shareholders of Holdings, by written consent dated April 15, 1999, the holders of 97% of the voting securities of Holdings approved an amendment to Holding's and the Company's Bylaws each providing that a quorum to hold a meeting of the Boards of Directors requires the presence of at least five of the six directors and that all actions require the affirmative vote of at least five directors.
PART II
ITEM 5
ITEM 5 - -MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's or Holdings' common stock.
The number of holders of each class of common equity of Holdings' is as follows:
Class A Common: 14 Class L Common: 15 Class P Common: 1 Preference: 1
There were no cash dividends paid during the two most recent fiscal years. The Credit Agreement imposes certain restrictions on the payment of dividends, and the indenture governing the Notes prohibits the declaration of dividends. The Company has no intention to pay cash dividends in the foreseeable future.
Seven key employees hold an aggregate of 1,454.55 shares of Holdings' Class A Common Stock and 363.92 shares of Holdings' Class L Common Stock, purchased as of December 31, 1997, payable pursuant to promissory notes with an aggregate original principal amount of approximately $.48 million. As and when such notes are paid, the proceeds from the notes are used for general working capital purposes. To date, an aggregate of $0.15 million has been paid on such notes.
ITEM 6
ITEM 6 - -SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the Financial Statements included elsewhere in this Form 10-K. See ''Management's Discussion and Analysis of Financial Condition and Results of Operations.'' The selected consolidated balance sheet and statement of operations data presented below, as of December 31, 1999 and 1998, and for the years ended December 31, 1999, 1998 and 1997, are derived from the Company's audited consolidated financial statements included elsewhere in this Form 10-K. The selected balance sheet data and the selected statement of operations data as of December 31, 1997, 1996 and 1995 and for the years ended December 31, 1996 and 1995, were derived from audited financial statements, not presented herein.
- -------------- (1) In March 1996, the Company acquired GenCorp RPD for a purchase price of $32 million. The operating results of GenCorp RPD are included in the consolidated operating results from March 1, 1996. (2) In February 1997, the Company acquired APX for a purchase price of $2.4 million. The operating results of APX are included in the Company's consolidating operating results from February 1, 1997. In July 1997, the Company completed the Goodyear-Jackson Acquisition and the Eagle-Picher Acquisition. The results of acquired Eagle-Picher and Goodyear-Jackson operations are included in the Company's consolidated operating results from July 1, 1997. (3) In January 1998, the Company acquired Livingston for a purchase price of $2.15 million plus the assumption of certain debt instruments. The operating results of Livingston are included in the Company's consolidated operating results from January 1, 1998. (4) As part of the refinancing which occurred in 1995, a prepayment premium of $3.7 million was incurred, and approximately $3.4 million in deferred financing costs were charged against operations, net of certain tax benefits of $2.7 million. The extraordinary item for 1997 reflects the write-off of existing financing costs, remaining original issue discount and expense on early extinguishment of debt, net of tax, in connection with the Offering and borrowings under the Credit Agreement, and application of the proceeds thereof.
ITEM 7
ITEM 7 - -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading designer, developer, and manufacturer of plastic components and systems to original equipment manufacturers ("OEM's") of passenger cars, light trucks, and heavy (commercial) trucks. The Company also operates to a lesser extent, in the industrial and non-automotive components industry. As such, the Company's businesses are organized, managed, and internally reported as three segments. The segments, which are based on differences in customers and products, technologies and services, are Automotive and Light Truck, Commercial Truck, and Industrial and Non-Automotive. The Automotive and Light Truck Segment produces molded engineered plastic components for automotive original equipment manufacturers. This segment primarily supplies components for automotive interiors, exteriors, and structural support and power train systems. The Commercial Truck Segment produces molded- engineered plastics for the commercial transportation industry. The segment primarily supplies external body panel components for Class 4 through Class 8 commercial trucks. The Industrial and Non-Automotive Segment produces various plastic components for the agricultural, appliance, commercial construction, and recreational transportation industries. The Company's segment operating results are discussed in the Segment Review and Note 18 of Notes to Consolidated Financial Statements.
Net loss of the Company was $30.3 million and $18.4 million in fiscal 1999 and 1998, respectively.
The Company's Financial Statements and Notes to Consolidated Financial Statements on pages through should be read as an integral part of this discussion and analysis.
RESULTS OF OPERATIONS (AS A PERCENT OF SALES)
SALES REVENUE - 1999 VERSUS 1998
Sales increased by $53.9 million, or 11.1% to $541.1 million in 1999, compared to $487.2 million in 1998. The increase in sales primarily reflects new product launches during the year, which contributed approximately $50.4 million in additional sales. The Company also benefited from strong demand in the commercial truck market as the industry achieved historical highs for unit sales during 1999. In addition, the increase in sales in 1999 over 1998 reflects the unfavorable impact on 1998 of a General Motors work stoppage that affected the United States, Canada and Mexico. These increases were partially offset by programs that were built out in 1999.
OPERATING PERFORMANCE - 1999 VERSUS 1998
Gross profit increased by $1.9 million or 3.6%, to $56.4 million for 1999, compared to $54.5 million for 1998. Gross margin as a percent of sales decreased to 10.4% in 1999 from 11.2% in 1998. The increase in gross profit reflects higher sales volumes associated with new product launches and increased commercial truck sales. The favorable volume impact was partially offset by increased production costs incurred during the year to support the new program launches and production inefficiencies associated with capacity constraints resulting from increased commercial truck sales.
Selling, general and administrative expenses (''SG&A'') increased by 9.2% to $44.5 million, or 8.2% of sales for 1999, compared to $40.8 million, or 8.4% of sales for 1998. The increase in SG&A expenses was due to the Company's continuing expenditures required to manage future awarded business.
The Company recorded a net loss of $30.3 million in 1999, compared to a net loss of $18.4 million in 1998. This decrease was the result of the items mentioned above, an increase in interest expense of $3.7 million, the Company's portion of a start-up loss incurred at its joint venture of $2.2 million, and $4.5 million valuation allowance recorded against a deferred tax asset. The increase in interest expense for 1999 was primarily attributable to higher borrowings on revolving debt and slightly higher interest rates throughout the year. The valuation allowance was recorded against the deferred tax asset due to the uncertainty of realizing the deferred tax asset.
SALES REVENUE - 1998 VERSUS 1997
Sales increased by $61.1 million, or 14.3% to $487.2 million in 1998, compared to $426.1 million in 1997. The increase in sales was primarily the result of the acquisitions of Goodyear-Jackson and Eagle-Picher in July 1997, Owens- Corning Brazil in September 1997 and Livingston in January 1998 (collectively the "Acquisitions"). The Acquisitions added incremental sales in 1998 of approximately $82.1 million. Sales at the existing Company's operations decreased $21.0 million, or 5.9%, due in part to the adverse impact of the General Motors work stoppages in the United States, Canada, and Mexico, and changes in product mix.
OPERATING PERFORMANCE - 1998 VERSUS 1997
Gross profit decreased by $4.6 million or 7.8%, to $54.5 million for 1998, compared to $59.1 million for 1997. The decrease was due in part to the Acquisitions whose gross profit decreased $1.4 million, or 14.9%, to $8.2 million, compared to $9.6 million for 1997. The decrease in acquisitions gross profit primarily reflects $1.6 million in mothball costs for the Huntington facility. Gross profit at the existing Company's facilities decreased $3.2 million or 6.4%, to $46.3 million compared to $49.5 million for 1997. Gross margin decreased from 13.9% in 1997 to 11.2% in 1998. The decline in gross margin resulted primarily from the following: the adverse impact of the General Motors work stoppages in the United States, Canada and Mexico, costs associated with realignment of products among the Company's divisions, costs associated with plant consolidations and certain changes in the Company's product mix.
Selling, general and administrative expenses (''SG&A'') increased 28.5% to $40.8 million, or 8.4% of sales for 1998, compared to $31.7 million, or 7.4% of sales for 1997. The increase in SG&A of $9.0 million reflects the full year impact of the Acquisitions, which added incremental SG&A costs of $3.6 million. The remaining increase in SG&A expenses is primarily due to the continuing investment in program management necessary to manage newly awarded programs.
The Company recorded a net loss of $18.4 million in 1998, compared to a net loss, before extraordinary item, of $0.4 million in 1997. This decrease was the result of the items mentioned above, an increase in interest expense of $3.9 million and the recognition of a $5.5 million valuation allowance due to the uncertainty of realizing certain deferred income tax assets. The increase in interest expense for 1998 was primarily attributable to higher borrowings on revolving debt and a full year of expense on debt outstanding related to the Goodyear-Jackson, Eagle-Picher, APX, Owens-Corning Brazil, and Livingston acquisitions.
* Operating income includes unallocated corporate overhead expenses. ** Earnings before interest, income taxes, depreciation, and amortization expense.
1999 COMPARED TO 1998
AUTOMOTIVE AND LIGHT TRUCK revenues increased $43.8 million, or 17.3%, to $296.2 million, compared to $252.4 in 1998. The increase reflects incremental sales from products launched during 1999, a full year impact of products launched in 1998, strong demand in the automotive and light duty truck segments and reduced volumes in 1998 due to the General Motors strike. These increases were partially offset by sales volume decreases due to product line build outs. The significant product launches in 1999 included the new Monte Carlo, Impala and Suburban/Tahoe platforms. The Company also launched new products with higher plastic content for the Aurora, LeSabre and Bonneville that replaced products on these platforms that were built out during the year. In addition, the Company benefited from a full year of sales on the Voyager/Caravan spoilers as well as 4.6/5.4 liter engine covers that were launched in 1998.
Operating income was unchanged at $19.5 million. Operating income was favorably impacted by sales volume increases that were substantially offset by product launch costs, lower tooling profits and unfavorable product mix. The mix change reflects the build out of higher margin programs such as the Mustang and Lumina spoilers, Grand Cherokee louver and the Windstar cargo panels, which balanced out during 1999, lower volumes on higher margin programs such as the Taurus/Sable wagon load floors and Blazer/Jimmy interior straps, as well as the higher volumes on low margin programs such as the Aurora and LeSabre platforms, all of which negatively impacted operating income. Higher volumes on such programs as Dodge Viper and higher application rates on the Cambridge fenders offered as an option on the Ford F-series pick-up partially offset the negative impact on operating income.
EBITDA decreased $.9 million, or 2.7%, to $34.3 million, compared to $33.4 million in 1998. EBITDA margin decreased from 13.2% in 1998 to 11.6% in 1997.
COMMERCIAL TRUCK revenues increased $20.4 million, or 10.1%, to $223.5 million in 1999, compared to $203.1 million in 1998. The increase in revenues resulted from a full year production of the Freightliner HN80 platform and strong demand in the commercial truck market leading to increased sales to all of the Company's significant commercial truck customers.
Operating income increased $2.1 million, or 21.3%, to $11.7 million, compared to $9.7 million in 1998. Operating income as a percent of sales increased from 4.8% in 1998 to 5.3% in 1999. The increase in operating income resulted from increased volume as discussed above, improved product mix and lower depreciation expense compared to 1998. The favorable volume impact was partially offset by increased production costs incurred during the year to support the new program launches and production inefficiencies associated with capacity constraints resulting from increased commercial truck sales.
EBITDA increased $1.9 million, or 8.5%, to $23.8 million, compared to $21.9 million in 1998. EBITDA margin decreased from 10.8% in 1998 to 10.6% in 1999.
INDUSTRIAL AND NON-AUTOMOTIVE revenues decreased $10.3 million, or 32.4%, to $21.5 million, compared to $31.7 million in 1998. Lower volumes are primarily due to weakness in the agricultural market and softness in the Brazilian economy. Additionally, certain automotive platforms were transferred from Industrial facilities to automotive facilities.
Operating income decreased $2.5 million to a loss of $2.8 million, compared to a 1998 operating loss of $0.3 million. The decrease in operating income primarily reflects lower sales volumes as addressed above, partially offset by headcount and other cost reductions implemented during the year at the industrial and Non- Automotive facilities.
1999 EBITDA decreased $2.4 million to an EBITDA loss of $1.3 million compared to 1998 EBITDA of $1.0 million. 1999 EBITDA margin decreased to (6.3%) compared to 3.2% for 1998.
1998 COMPARED TO 1997
AUTOMOTIVE AND LIGHT TRUCK revenues increased $4.0 million, or 1.6%, to $252.4 million, compared to $248.4 in 1997. The increase was due in part due to the acquisition of Eagle-Picher in July 1997, which added one plant to the automotive segment and incremental sales in 1998 of approximately $37.0 million including higher volumes related to the Dodge Ram
and Voyager, GMT600, and Chrysler Neon. Sales at the Company's existing operations decreased $33.1 million, due in part to the adverse impact of the General Motors work stoppages in the United States, Canada and Mexico and changes in product mix: the build out of such programs as Mazda and Honda Accord bumpers and Ford Aerostar liftgates, partially offset by full year volumes of GMX 130, and Cadillac S5S, which were launched in late 1997, and lower volumes on the Dodge Viper and Jeep Grand Cherokee, Volkswagen Golf, and Ford Taurus/Sable wagon load floors. These decreases were offset, in part, by increases in volumes on GM (strike adjusted) C-5 Corvette and GMX 170, Ford Ranger and Mustang, as well as higher engine cover volumes.
Operating income decreased $10.7 million, or 35.5%, to $19.5 million (7.7% of sales), compared to $30.3 million (12.2% of sales) in 1997. Operating income for the automotive acquisition above decreased as a percent of sales from 6.7% in 1997 to 4.8% in 1998. Operating income at the Company's existing operations decreased as a percent of sales from 12.6% in 1997 to 8.5% in 1998. The decline in operating income resulted primarily from the following: the adverse impact of the General Motors work stoppages in the United States, Canada and Mexico, costs associated with realignment of products among the Company's divisions, increases in allocated corporate expenses relating to sales and program management, and certain changes in the Company's product mix. The mix change includes the build out of higher margin programs such as Mazda and Honda bumpers and Ford Aerostar liftgates, which balanced out in 1997, lower volumes on higher margin programs such as the Taurus/Sable wagon load floors, DaimlerChrysler Jeep louver, Dodge Viper, Volkswagen Golf, as well as the higher volumes on low margin programs such as the GMX 130 and 170, GMT 600, and Cadillac S5S, all of which negatively impacted operating income. Higher volumes on such programs as GM Corvette C-5, Ford Ranger and Mustang, Dodge Voyager (launched in 1998), and Chrysler Neon, partially offset the negative impact on operating income.
EBITDA decreased $9.2 million, or 21.6%, to $33.4 million, compared to $42.6 million in 1997. EBITDA Margin decreased from 13.2% in 1998 to 11.6% in 1999.
COMMERCIAL TRUCK revenues increased $39.4 million, or 24.1%, to $203.1 million in 1998, compared to $163.6 million in 1997. The increase in sales was primarily the result of the acquisitions of Goodyear-Jackson and Eagle-Picher in July 1997, which added one plant to the Commercial Truck segment, and Livingston in January 1998. These acquisitions added incremental sales in 1998 of approximately $27.3 million. Sales at the Company's existing facilities increased $12.1 million due to higher volumes for Kenworth, Freightliner, Volvo, and service parts.
Operating income decreased $3.1 million, or 24.5%, to $9.7 million (4.8% of sales), compared to $12.8 million (7.8% of sales) in 1997. Operating income for the acquisitions above decreased as a percent of sales from 18.1% in 1997 to 3.1% in 1998. This decrease was due in part to the impact of plant consolidations, unrealized plant synergies after the Livingston acquisition, and low volumes due to a delayed launch of the Ford H215 program. Operating income at the Company's existing operations, before allocation of corporate expenses, increased as a percent of sales from 6.5% in 1997 to 8.2% in 1998. Allocated expenses increased $1.1 million due to investments in sales support and program management.
EBITDA decreased $1.5 million, or 6.4%, to $21.9 million, compared to $23.4 million in 1997. The significant factors attributable to the decrease have been discussed in the preceding paragraphs.
INDUSTRIAL AND NON-AUTOMOTIVE revenues increased $17.7 million, or 126.4%, to $31.7 million, compared to $14.0 million in 1997. The increase in sales was primarily the result the of the acquisitions of Eagle-Picher in July 1997, which added one plant to the Industrial segment, and Owens-Corning Brazil in September 1997. These acquisitions added incremental sales of approximately $17.7 million.
Operating income decreased $1.8 million to a loss of $0.3 million, compared to income of $1.5 million in 1997. The decrease was due in part to reduced volumes and launch delays of many of Brazilian products, and increases in allocated expenses related to sales support and program management.
EBITDA decreased $0.8 million, or 45.0%, to $1.0 million, compared to $1.8 million in 1997. The primary reasons for the decrease have been discussed in the preceding paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs historically have been for operating expenses, working capital and capital expenditures. Acquisitions have been financed through debt facilities collateralized by the Company's assets and cash flows.
Management expects future cash will be required for capital expenditures and to fund working capital as the Company continues to expand its operations. Management expects capital expenditures to be approximately $64.7 million in 2000.
Due to the Company's current liquidity position and capital expenditure requirements the Company's shareholders have decided to sell the Company. In order to provide sufficient liquidity to conclude the sale process, management completed a financial arrangement with its banks and selected customers. Under the terms of the arrangement, selected customers will provide additional funding through advanced trade payments and the bank syndicate that is party to the Company's current credit agreement will provide additional liquidity by deferring the required principal payment due in March 2000 until the sale of the Company is consummated.
Pursuant to the terms of the Company's current credit agreement, as amended, the Company has $233.8 million in revolving credit facility, A Term and B Term Loans. The A Term Loans and B Term Loans mature in June 2002 and June 2005, respectively, and will require annual principal payments (payable in quarterly installments) totaling approximately $16.4 million in 2000, $21.4 million in 2001, $34.0 million in 2002, $35.0 million in 2003, $40.0 million in 2004 and $37.1 million in 2005. The revolving credit portion of the credit agreement matures in June 2002. The interest rate under the credit agreement is based on the Eurodollar rate plus the applicable Eurodollar margin. Amortization payments were suspended until June 30, 2000.
In September 1998, the Company entered into a Second Waiver and Amendment and in January 1999 the Company entered into a Third Waiver and Amendment pursuant to which certain restrictive covenants contained in the credit agreement were waived and amended. On February 23, 1999, the Company entered into a Fourth Waiver and Amendment to the credit agreement (together with the Second, Third, and Fourth Waivers and Amendments, the "Credit Agreement") with the Agent and other institutions, which is effective as of December 31, 1998 through and including March 31, 2000, whereby the aggregate outstanding principal amount of the revolving credit facility shall not at any time exceed $65 million, and shall not exceed $50 million on the last day of any month. In addition, certain restrictive covenants were waived and amended. Letters of Credit outstanding under the Credit Agreement are limited to $5.3 million.
The amended Credit Agreement eliminated covenant requirements at December 31, 1998, and amended the covenants for periods through March 31, 2000.
In July 1999, the Company entered into a Fifth Waiver and Amendment and in December 1999, the Company entered into a Sixth Waiver and Amendment, pursuant to which certain restrictive covenants contained in the Credit Agreement were waived and amended. With respect to the Sixth Waiver and Amendment, the Company's authority to pay, but not the accrual of the obligation, without consent pursuant to the Credit Agreement, employment compensation or management fees (but not reasonable out of pocket expenses) of certain affiliates was restricted. In addition, with respect to the Sixth Waiver and Amendment, the Company agreed to cooperate with and pay reasonable costs, fees and disbursements of the Banks legal counsel and consultants to such legal counsel in connection with certain reporting and analytical activity under the Credit Agreement related to the Company's business operations and financial results therefrom.
As an inducement to the Banks agreeing to the Sixth Waiver and Amendment, Holdings and the Company agreed to engage Morgan Stanley Dean Witter & Co. ("MSDW") for purposes of assisting Holdings and the Company with the sale of all or a portion of the company's business or assets, to cooperate with MSDW in connection with such sales activity, provided that such activity did not materially reduce the value of any business or assets sold, and to pay certain amendment fees to the Banks related to the outstanding balances of all borrowings under the Credit Agreement.
Subsequent to the Company's 1999 year-end, in March 2000, the Company entered into the Seventh Waiver and Amendment and the Eighth Waiver and Amendment. In the Seventh Waiver and Amendment, the Banks eliminated, for the month of February 2000, the requirement imposed in the Fourth Waiver and Amendment that the outstanding principal amount of the Company's revolving credit facility under the Credit Agreement not exceed $50 million on the last day of any month. In the Eighth Waiver and Amendment the Company and the Banks agreed to several waivers, revisions and amendments to certain restrictive covenants under the Credit Agreement, including extending the date by which the Company's outstanding principal amount of its revolving credit facility could not exceed $65,000,000, and deferral of the Company's obligations relating to certain mandatory prepayments of principal. As a condition to the Eighth Waiver and Amendment becoming effective, the Company agreed to negotiate for and enter into with its OEM customers certain agreements (the "Customer Agreements") whereby the OEMs agree as long as the Company is in compliance with the
Customer Agreements (i) to provide accelerated payments of their accounts payable to the Company, (ii) not to resource the production of the company's products, programs or projects, and (iii) to waive set-off or payment abatement rights on certain of the OEMs' accounts payable to the Company.
The Company has entered into such Customer Agreements as the Banks required. In order to induce the Banks to enter into the Eighth Waiver and Amendment, the Company, (i) re-affirmed its commitment to the sale process contemplated by the Sixth Waiver and Amendment for which MSDW has been engaged, (ii) agreed to the payment to the Banks of cerain additional amendment fees related to the outstanding principal balances of all borrowings under the Credit Agreement, and (iii) agreed, along with Holdings and the Guarantor of the Credit Agreement, to release the Banks and their agents under and pursuant to the Credit Agreement, from any and all claims, causes of action, or liabilities which are in any manner related to it's Credit Agreement and any documents or enforcement activities related thereto.
As a condition of entering into the Customer Agreements, the OEMs required that the Company negotiate for and obtain standby financing commitments for debtor-in-possession financing which the Company did and has obtained from the Banks who are signatories to its Credit Agreement (the "DIP Financing").
The Company believes that, based on current levels of operations and anticipated growth, its cash from operations together with other available sources of liquidity, including borrowings under the Credit Agreement and its arrangements with OEMs under the Customer Agreements, will be sufficient to permit anticipated capital expenditures and fund working capital requirements while the Company attempts to complete the announced sales process in a timely fashion. In the event that such payment arrangements, cash from operations, and borrowing availabilities are not sufficient to meet the Company's liquidity needs, the Company would expect to seek the protection of Chapter 11 of the United States Bankruptcy Code and to utilize the Company's DIP financing to assist in the completion of its strategic sales plan.
Net cash provided by operating activities for 1999 was $30.1 million, comprising net loss of $30.3 million with non-cash items such as depreciation and amortization of $30.9 million, charges of $3.1 million and $2.2 million to income for postretirement benefits and equity losses in joint venture, respectively and a deferred income tax provision of $5.5 million. Changes in working capital components generated $18.6 million, primarily as a result of completing several major tooling programs for Ford and General Motors during the year.
The Company repaid $13.9 million of long-term debt obligations in fiscal 1999 under the Company's Credit Agreement.
Net cash provided by operating activities for 1998 was $19.6 million, comprising net loss of $18.4 million with non-cash items such as depreciation and amortization of $28.0 million, a charge of $2.8 million to income for postretirement benefits and a deferred income tax benefit of $2.9 million. Changes in working capital components generated $10.0 million, primarily as a result of timing of collections on trade accounts receivable, and the payment of trade payables and accrued liabilities.
The Company repaid $9.1 million of long-term debt obligations in fiscal 1998 under the Company's Credit Agreement.
Net cash provided by operating activities for 1997 was $15.8 million, comprising net loss before extraordinary item for 1997 of $0.4 million with non- cash adjustments of $23.2 million. The non-cash items consisted of depreciation and amortization of $24.1 million, a non-cash charge to income for postretirement benefits of $2.2 million and deferred income tax benefit of $3.1 million. Changes in working capital components used $6.9 million, primarily as a result of timing of collections on trade accounts receivable, including billed reimbursable tooling.
The Company had capital expenditures of approximately $29.7 million in 1999, in comparison to approximately $21.9 million in 1998. Expenditures in 1999 relate primarily to the GMT-800 Step Assist, the GMT-800 Truck Box Program, the GMT-805 Mid-Gate and End-Gate program, the Ford P225 Fender program, and the Ford U-137 Dutch Door Program.
Cash used for acquisitions of $0.3 million in 1998 relates to Livingston Molded Products; acquisitions of $72.4 million in 1997 relates to Goodyear- Jackson, Eagle-Picher, APX and Owens Corning-Brazil.
QUARTERLY FINANCIAL DATA The following table sets forth a summary of the quarterly results of operations for the years ended December 31, 1999 and 1998 (dollars in thousands).
During the fourth quarter of 1998, the Company recorded significant adjustments that impacted reported results for the first three quarters. These adjustments corrected the treatment of amounts applied against purchase accounting reserves and charged them against operating expenses. The effect of these adjustments was to reduce gross profit by $1.3 million, $.2 million and $1.2 million and increase net loss by $1.2 million, $.1 million and $.7 million for the quarters ended March 31, June 30 and September 30, respectively. The data above for 1998 reflect the impact of those adjustments.
YEAR 2000 COMPLIANCE
General
The "Year 2000 Issue" is the result of computer programs that were written using two digits rather than four to define the applicable year. If the Company's computer programs with date-sensitive functions are not Year 2000 compliant, they may recognize a date using "00" as the Year 1900 rather than the Year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business acitivities.
During 1998 and 1999, the company and each of its operating subsidiaries implemented Year 2000 readiness programs with the objective of having all of their significant business systems, including those that affect facilities and manufacturing activities, funcitoning properly with respect to the Year 2000 Issue before December 31, 1999.
The Company's transition into the year 2000 has, to date, been considered uneventful and successful and did not result in any noteworthy events with the Company or its suppliers. However, the potential for future disruptions resulting from Year 2000 issues exists. Accordingly, the company will continue to monitor its operations.
Prior to January 1, 2000, the Company completed extensive programs to assess and address any "Year 2000" problems relating to its computer systems. This activity covered manufacturing, applications software, production systems, barcoding systems, plant floor equipment operations, financial and manufacturing reporting systems, building and utility systems and systems of the Company's material suppliers.
All remediation expenditures totalling approximately $1.4 million ($0.8 million of which was expended in 1999) were funded through normal operating cash flows.
The company has not experienced nor does it anticipate experiencing any material failures or disruptions with regard to any of the company's computer systems or the systems of any material supplier to the company.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). The statement is effective for fiscal years beginning after June 15, 2000. The Company will adopt FAS 133 at the beginning of 2001. The Company is completing an analysis of FAS 133 which is not expected to have a material impact on the Company's results of operations.
In September 1999, the Emerging Issues Task Force issued ("EITF") Issue No. 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements". EITF Issue No. 99-5 will require company to expense design and development costs related to long term supply arrangements as incurred unless the customer contractually guarantees reimbursement and capitalize molds, tools and dies for which title is held by the supplier, subject to an impairment test. Additionally, molds, tools and dies for which title is held by the customer are to be expensed as incurred unless the long term supply arrangement explicitly provides the suppler with the non-cancelable right to use such molds, tools and dies during the course of the supply arrangement. This pronouncement is effective on a prospective basis for costs incurred after December 31, 1999. The Company is completing an analysis of the issue which is not expected to have a material impact on the Company's results of operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as a part of its ongoing business operations. Primary exposures include fluctuations in the value of foreign currency investments in subsidiaries, volatility in the translation of foreign currency earnings to U.S. Dollars and movements in Federal Funds rates and the London Interbank Offered Rate ("LIBOR"). The Company uses derivative financial instruments, where appropriate, to manage these risks. The Company, as a matter of policy, does not engage in trading or speculative transactions.
CERTAIN RISK FACTORS
All forward-looking statements contained in this Annual Report reflect the Company's current views with respect to future events and financial performance, but are subject to many uncertainties and factors relating to the Company's operations and business environment, specifically including but not limited to the following important factors, all of which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements.
In addition to the factors described below, the Company faces the liquidity risk that the arrangements and agreements, described above, that it has with its vendors, suppliers and OEM customers in order to operate in the ordinary course during the sales process, if not performed by such parties as agreed or contemplated, could prevent the Company from having sufficient working capital and other required funding for the operations of the Company. In such event, the Company has in place its standby DIP Financing that it can use in a Chapter 11 proceeding to support its operations while attempting to complete the sales process.
INDUSTRY CONDITIONS
The Company's business is tied to the North American vehicle industry which is highly cyclical and dependent on consumer spending and general economic conditions in North America. There can be no assurance that North American automotive production will not decline in the future or that the Company will be able to utilize any additional capacity it adds in the future. Economic factors adversely affecting automotive sales and production and consumer spending could adversely impact the Company's sales and it operating results. See ''Business-- Automotive and Light Truck Components Industry.'' In addition, the growing trend among OEMs to reduce their supplier base and to reduce costs while increasing quality control places great pressure on suppliers such as the Company.
Many OEMs and their suppliers have unionized work forces. Work stoppages or slow-downs experienced by OEMs or their suppliers could result in slow-downs or closures of assembly plants where the Company's products are included in assembled vehicles. These events could have a material adverse effect on the Company's results of operations.
INDUSTRY CONSOLIDATION
The automotive plastic component supply industry has undergone, and is likely to continue to experience, consolidation. See ''Business--Automotive and Light Truck Components Industry--Consolidation of Supplier Base by OEMs.'' As part of its announced business strategy, Management believes that it is necessary to find a qualified buyer or buyers for the Company's business to obtain the necessary capital to support the Company's new business. There can be no assurance, however, that it will be successful in consummating such sale without adversely affecting the Company's financial position or results of operations.
COMPETITION
The Company's industry is highly competitive. A large number of actual or potential competitors exist, including the internal component operations of the OEMs as well as independent suppliers, some of which are larger than the Company and have substantially greater resources. There can be no assurance that the Company's business will not be adversely affected by increased competition in the market in which it currently operates or in markets in which it will operate in the future, or that the Company will be able to improve or maintain its profit margins on sales to OEMs. In addition, the Company principally competes for new business both at the beginning of the development of new models and upon the redesign of existing models by its major customers. New model development generally begins two to five years prior to the marketing of such models to the public. Although the Company has been successful in obtaining significant new business on new models, there can be no assurance that the Company or any buyer of the Company or its assets will continue to be able to obtain such new business. Certain of the Company's competitors are larger, have greater operating flexibility and have greater financial resources than the Company. See ''Business--Competition.''
RELIANCE ON MAJOR CUSTOMERS
For the year ended December 31, 1999, approximately 25% of the Company's sales were to General Motors, approximately 25% of the Company's sales were to Ford, approximately 8% of the Company's sales were to DaimlerChrysler, and approximately 12% of the Company's sales were to Freightliner. Sales to these customers consist of a
large number of different parts, tooling and other services, which are sold to separate divisions and operating groups within each customer's organization. Although the Company believes that its overall relations with customers are good, there can be no assurance that such customers will continue to purchase the Company's products, continue with a particular vehicle program or purchase the Company's products for any successor vehicle program. The loss of any one of such customers, or a significant decrease in demand for certain models or a group of related models sold by any of its major customers, could have a material adverse effect on the Company. The failure of the Company to obtain new business for new models or to retain or increase business on redesigned existing models could have a material adverse effect on the Company. A decline in the production of new North American vehicles, due to reductions in North American vehicle demand or an increase in the share of the North American vehicle market by foreign OEMs manufacturing in their home countries, could have a material adverse effect on the Company. Moreover, because sales are typically secured during the two to five year vehicle model development period prior to marketing to the public, there can be no assurance that efforts to replace any lost sales, if successful, would yield cash revenues in time to prevent a material adverse effect on the Company. See ''Business--Customers.''
Automotive suppliers are under constant pressure to reduce product prices. General Motors, Ford and DaimlerChrysler have established policies which do not permit price increases, even though underlying material or other costs may have increased due to circumstances beyond a supplier's control. Most of the Company's products are manufactured using petroleum-based plastic resins. The price of petroleum, while relatively stable in recent years, increased significantly over the past six months. In the short-term, the Company's material costs have remained stable due to contracts with suppliers which for the material prices over certain time frames. However, over time significant increases in the price of petroleum could result in increased cost of the Company's principal raw materials which, if not recoverable from the Company's customers, could have a material adverse effect on the Company's results of operations.
At the same time, OEMs continue to pressure suppliers, such as the Company, to reduce costs, increase quality control and, in some cases, share cost savings with them through a reduction of parts prices. Although the Company believes that its prices will remain competitive, there can be no assurance that it will be able to improve or maintain its profit margins on sales to OEMs.
ITEM 8
ITEM 8 - -FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
ITEM 9
ITEM 9 - -CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PREVIOUS INDEPENDENT ACCOUNTANTS
On October 16, 1997, the Company dismissed Deloitte & Touche LLP as its independent accountants. The reports of Deloitte & Touche LLP on the Company's financial statements for the years ended December 31, 1996 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. The Company's Board of Directors participated in and approved the decision to change independent accountants. In connection with its audit for the most recent fiscal year and through October 16, 1997, there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Deloitte & Touche LLP would have caused them to make reference thereto in their report on the financial statements for such years.
During the year ended December 31, 1996 and through October 16, 1997, there were no reportable events (as defined in Regulations S-K Item 304(a)(l)(v)).
NEW INDEPENDENT ACCOUNTANTS
The Company engaged PricewaterhouseCoopers LLP as its new independent accountants as of October 17, 1997. During the most recent fiscal year prior to and through October 17, 1997, the Company has not consulted with PricewaterhouseCoopers LLP regarding either (i) the application of accounting principles to a specific transaction either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, and either a written report was provided to the Company or oral advice was provided that PricewaterhouseCoopers LLP concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(l)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(l)(v) of Regulation S-K.
PART III
ITEM 10
ITEM 10 - -DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages as of March 1, 1999 and a brief account of the business experience of each person who is a director, executive officer or other significant employee of the Company or Holdings.
RICHARD S. CRAWFORD founded a predecessor of the Company in 1988. Mr. Crawford was President, Chief Executive Officer and director of the Company, Holdings and its predecessors from their inception to March 1996 when he became Chief Executive Officer and Chairman of the Board of the Company and Holdings. In 1999 upon the election of Lawrence Kazanowski, Mr. Crawford became Chairman of the Board. Prior to founding the Company, Mr. Crawford founded a real estate, construction and marketing firm, the Lakeside Investment Company. He has also been active as a real estate developer, financial investor and merger and acquisition specialist.
LAWRENCE KAZANOWSKI was named Chief Executive Officer and President of Cambridge Industries in April, 1999. Mr. Kazanowski spent 34 years as a Ford executive, where he was Director of Corporate Strategy, Vice President of International Business and Development, Manager of Exterior Systems and General Manager of Plastics. Most recently, he served at Ford as Vice President of Business Strategy at Visteon Automotive Systems. Mr. Kazanowski graduated from Massachusetts Institute of Technology (MIT) with a B.S. in Engineering and received his MBA from Stanford University.
DONALD C. CAMPION joined Cambridge Industries as Chief Financial Officer in May, 1999. Prior to that, he served as Senior Vice President and Chief Financial Officer at Oxford Automotive. From 1996-97 he was Senior Vice President and Chief Financial Officer at Delco Electronics Corp. Mr. Campion spent more than 30 years with General Motors Corporation where he helped create New United Motor Manufacturing (NUMMI), a joint venture between GM and Toyota. He also spent three years overseas as a member of Isuzu's Board of Directors and as Executive Vice President of GM-Japan. He was later promoted to Finance Director at the automaker's North American headquarters and subsequently as Finance Director at the company's Service Parts Operations. Mr. Campion graduated from the University of Michigan with B.S. in Applied Mathematics and an MBA.
KEVIN J. ALDER joined the Company in November 1996. Mr. Alder possesses 17 years of industrial experience varying from Engineering to Operations Management. From 1993 until joining the Company, Mr. Alder was the Vice President Operations & Sales at Magna Interior Systems Group. In addition, he held the position of Vice President Operations at Textron, President and Chief Operating Officer at US Farathane Corporation and Vice President Operations (General Plants Manager) at Johnson Controls and Engineer/Quality Engineer at John Deere.
DONALD B. HUTCHINS assumed the responsibilities of Controller of the Company in July 1999. Mr. Hutchins is also currently the President of Paradigm Management, Inc. - a management consulting company which he founded in 1992. Previously Mr. Hutchins was the Vice President and Controller of Computer Land. Prior to Computer Land, Mr. Hutchins spent 10 years with the Firestone Tire and Rubber Company in various Senior Financial Executive positions, including its Corporate Controller. Mr. Hutchins also served as an Audit Manager with Coopers & Lybrand. Mr. Hutchins is a graduate of the University of Michigan with a BA and an MBA.
ALAN M. SWIECH joined the Company in August, 1996. Prior to joining the company Mr. Swiech served as Employee & Industrial Relations Manager at United Technologies Automotive since 1993. He was previously with Pratt & Whitney Aircraft (United Technologies Corporation), an aerospace manufacturer, from May, 1982 until July, 1993 where he held various management positions within the human resources organization. Mr. Swiech has over 18 years experience in the area of labor relations and human resource management.
DONALD MAKIE joined the company in September, 1998 as Executive Vice President Continuous Improvement and Lean Manufacturing. Mr. Makie was previously the Vice President Compass (Lean Manufacturing System) at Lear Corporation responsible for 175 manufacturing facilities in 28 countries. Prior to that, he was with Colgate Palmolive and Freudenburg where he held appointments in manufacturing and quality assurance. Don is a graduate of the University of Massachusetts Dartmouth where he received his degree in engineering.
RICHARD H. FRANK joined the Company in 1994 upon the consummation of the Company's acquisition of Rockwell Plastics, where he had been employed for 18 years. Prior to joining Rockwell, Mr. Frank was employed for 18 years in various positions by General Motors. Mr. Frank is a member of the Industrial Development Research Council, the Society of Plastic Engineers and the Project Management Institute.
IRA J. JAFFE has been a director of the Company and Holdings since February 27, 1996. Mr. Jaffe has been a member of the law firm of Jaffe, Raitt, Heuer & Weiss, Professional Corporation since 1968, which provides legal services to Holdings and the Company.
ROBERT C. GAY became a director of the Company and Holdings on November 17, 1995. Mr. Gay has been a Managing Director of Bain Capital, Inc. since April 1993 and has been a general partner of Bain Venture Capital since 1989. Mr. Gay is a director of IHF Capital, Inc., parent of ICON Health and Fitness, Inc., Physio-Control International Corporation, GT Bicycles, Inc., GS Technologies Operating Co., Inc. and American Pad & Paper Company.
EDWARD W. CONARD became a director of the Company and Holdings on November 17, 1995. Mr. Conard has been a Managing Director of Bain Capital, Inc. since April 1993. From 1990 to 1993, Mr. Conard was a director of Wasserstein Perella, an investment banking firm that specializes in mergers and acquisitions. Previously, he was a Vice President at Bain & Company, where he headed the firm's operations practice area. Mr. Conard is a director of Waters Corporation and Medical Specialties Group, Inc.
RONALD P. MIKA became a director of the Company and Holdings in March 1996. Mr. Mika has been a Managing Director of Bain Capital, Inc. since January 1997 and, prior to that time, had been a principal of Bain Capital, Inc. since December 1992. Mr. Mika is a director of IHF Capital, Inc., parent of ICON Health and Fitness, Inc.
DIRECTORS' COMPENSATION POLICY
Directors currently receive no directors' compensation.
ITEM 11
ITEM 11 - -EXECUTIVE COMPENSATION
The following information is set forth concerning the compensation for Mr. Crawford, the Company's Chairman and the four other most highly compensated executive officers in each year presented.
(1) In connection with the 1995 Transaction, Holdings purchased Mr. Warnick's 20% interest in Holdings (actually held by R&C Warnick, L.L.C., a limited liability company owned by Mr. Warnick and his wife (the ''Warnick LLC''), for $10 million, pursuant to a Stock Purchase Agreement dated as of November 17, 1995 in which the Warnick LLC and Mr. Warnick agreed to a five-year covenant not to compete. Simultaneously, Mr. Warnick and the Company entered into an Employment Agreement pursuant to which Mr. Warnick agreed to provide transitional assistance to the Company for a period of two years. Under the Employment Agreement, Mr. Warnick received an annual salary of $218,750 in 1997. (2) Effective December 4, 1996, the employment of Donald Holton as President and a Director of the Company was terminated by mutual agreement of the Company and Mr. Holton. The Company and Mr. Holton have negotiated terms
of an agreement, but a written agreement has not yet been concluded. The negotiated terms include: (i) the purchase by Mr. Holton of shares of Class A and Class L Common Stock of Holdings for an aggregate purchase price of approximately $1 million to be paid by application of approximately $350,000 of salary and bonus earned by Mr. Holton during 1996, a promissory note from Mr. Holton in the amount of $500,000 and approximately $150,000 in cash; (ii) full vesting of 2,000 Tranche 1 option shares of Holdings previously granted to Mr. Holton; (iii) payments of severance benefits of approximately $42,000; (iv) continuation of Mr. Holton's non-solicitation agreement until no later than December 31, 1998; and (v) Mr. Holton's agreement not to sue Holdings and the Company. There can be no assurance that an agreement with Mr. Holton will be concluded or that if concluded, it will include these terms. (3) Total prerequisites and other personal benefits for each of the named executive officers do not exceed the threshold amounts specified in the regulations promulgated by the Securities and Exchange Commission. (4) As of December 1, 1997, certain key employees purchased shares of Holdings Class A Common Stock and shares of Holdings Class L Common Stock and certain key employees and were issued options to purchase Holdings Class A Common Stock. The Company believes all stock purchased by such key employees during 1997 was purchased at fair market value. The Company also believes that the options for Holdings Class A Common Stock are exercisable at fair market value as of the date of grant and that current values of shares subject to options are at or below exercise prices. See ''Stock Option Grants in Last Fiscal Year'' table, ''Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values'' table and ''Business--Stock Purchase and Stock Option Agreements'' below.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES*
* Table summarizes Holdings options. (1) Consists of 7,922.54 at $3.30/sh, 3,961.27 at $312.13/sh, and 3,961.27 at $642.13/sh.
EMPLOYMENT AGREEMENTS
In connection with the 1995 Transaction, Mr. Crawford entered into an employment agreement with the Company, pursuant to which Mr. Crawford receives an annual base salary in the amount of $475,000 and an annual performance based bonus for an amount not to exceed 50% of his base salary. In addition, Mr. Crawford was paid a $412,500 consulting fee in connection with the Company's acquisition of GenCorp RPD. A December 31, 1997 amendment to Mr. Crawford's employment agreement provides that at the closing of each acquisition of an additional business the Company will pay Mr. Crawford a fee in the amount of three quarters of one percent (0.75%). Mr. Crawford's employment agreement also provides for a severance payment equal to three months of his base salary in the event his employment is terminated for any reason other than resignation. The employment agreement provides that Mr. Crawford will not directly or indirectly compete with the Company for two years following termination of his employment with the Company.
In connection with the Company's employment of Mr. Kazanowski as President and Chief Executive Officer, Mr. Kazanowski entered into an employment agreement with the Company as of April 15, 1999. Pursuant to the agreement, Mr. Kazanowski receives an annual base salary of $350,000. In addition, Mr. Kazanowski is entitled to certain bonuses if the Company achieves certain performance targets. No bonuses were paid to Mr. Kazanowski in 1999. Pursuant to the terms of the employment agreement, Mr. Kazanowski also received options for 6,606.53 shares of Holding's Class A Common Stock
exercisable for $3.30 per share, which options vest over five years. Mr. Kazanowski's employment agreement also provides for a three-year noncompete and 12-month severance following termination of employment with the Company.
In connection with the employment of Mr. Campion as Executive Vice President and Chief Financial Officer, Secretary and Treasurer of the Company, Mr. Campion entered into an employment agreement with the Company as of May 18, 1999, pursuant to which Mr. Campion receives an annual base salary $250,000. Additionally, Mr. Campion was entitled to receive a guaranteed bonus of $50,000 for 1999, which was paid by the Company, and has the potential for future bonuses if certain performance targets are met. Pursuant to the terms of the employment agreement, Mr. Campion received options for 1,000 shares of Holdings Class A Common stock exercisable at $3.30 per share and he was also granted his choice of (x) the purchase of an aggregate of 380 shares of Class A and Class L Common Stock for an aggregate purchase price of $100,000 and options for 310 shares of Class A Common Stock at $642.13 per share and 310 shares of Class A Common Stock at $972.13 per share, or (y) the award of only options for 500 shares of Class A Common Stock at $642.13 per share and 500 shares of Class A Common Stock at $972.13 per share. Mr. Campion elected the options only alternative. The options vest over five years. Mr. Campion's employment agreement also contains a 12-month noncompete and 12-month severance following termination of employment with the Company.
In addition, pursuant to the Retention Bonus and Severence Program, Messrs. Kazanowski and Campion are eligible for certain bonus payments equal to one year's base salary for each, which payments are timed to be made at the closing of significant sales transactions depending upon whether the Company's business is sold in one transaction or a series of transactions for business unit.
STOCK PURCHASE AND STOCK OPTION AGREEMENTS
In addition to Messrs. Crawford, Kazanowski and Campion, the Company has outstanding Stock Purchase and Stock Option Agreements with 7 of its key employees. Pursuant to those agreements, each such employee purchased shares of Holdings' Class A Common Stock and Holdings' Class L Common Stock (the ''Purchased Shares''), at a per share price of $3.30 and $1,306.80, respectively, and some Holdings' employees were granted options (the ''Options'') to purchase additional shares of Holdings' Class A Common Stock (the ''Option Shares'', and together with the Purchased Shares, the ''Shares'').
The consideration for the Purchased Shares was paid as follows: (i) at least fifty percent in cash or pursuant to a short-term 8.5% full recourse promissory note, to be repaid out of the employee's bonuses for 1997 and 1998, with any remaining balance originally being due on May 1, 1999; (the due date for this payment was extended when Management determined not to pay employee bonuses for fiscal year 1998). and (ii) the balance in the form of a five-year 8.5% full recourse promissory note, with interest-only payments being required on an annual basis. Both notes were secured by a pledge of the Purchased Shares.
So long as the employee remains employed by the Company, the Purchased Shares vest over a five year period, beginning on the later of November 17, 1995 or the date the employee first became employed by the Company.
The Options also vest over the same five year period, so long as the employee remains employed by the Company, although the occurrence of certain ''acceleration events'' may cause the Options to become fully vested.
In order to exercise the Options, the employee must so notify the Company within thirty days after the earlier of the termination of the employee's employment with the Company or the end of the fifth year after the date the Option first became exercisable. Fifty percent of an employee's Options are exercisable at a price of $3.30 per share, twenty-five percent are exercisable at a price of $642.13 per share, and the balance are exercisable at a price of $972.13 per share.
The employee may not transfer any of the Shares, except to a charitable remainder trust or certain family members, or under other, limited circumstances.
On termination of the employee's employment with the Company, Holdings and its shareholders may purchase all or a portion of the Shares. The purchase price for vested Shares will be their fair market value, if the employee's employment was terminated for any reason other than cause. In all other circumstances, the repurchase price for the Shares, vested or unvested, will be the lower of fair market value or the original purchase price paid for the Shares. Holdings must exercise the repurchase right within one year following termination of the employee's employment, unless Holdings is legally or
contractually prohibited from exercising such right during such period, in which case Holdings shall be entitled to defer such purchase until all such restrictions have been removed.
Several employee stockholders have left the employment of the Company. Pursuant to the terms of their respective Stock Purchase and Stock Option Agreements, Holdings has repurchased their respective shares of the Holdings' Common Stock for the original purchase price.
Each employee is subject to non-compete, non-solicitation and confidentiality provisions which are set forth in the agreements.
The following employee, named in the preceding compensation tables, purchased shares of Holdings' Class A Common Stock and Holdings' Class L Common Stock and were granted options for Class A Common Stock, which stock and options remain outstanding:
ITEM 12
ITEM 12 - -SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Cambridge Industries Holdings, Inc. (''Holdings''). The capital stock of Holdings consists of preference stock, par value $.01 per share (''Preference Stock''), Class A common stock, par value $0.01 per share (''Class A Common''), Class L common stock, par value $0.01 per share (''Class L Common''), and Class P common stock, par value $0.01 per share (''Class P Common'' and collectively with the Class A Common and Class L Common, ''Common Stock''). The Preference Stock is senior in right of payment to the Common Stock; the Class L Common is senior in right of payment to the Class A Common and Class P Common; and the Class P Common is senior in right of payment to the Class A Common. All of the issued and outstanding shares of Preference Stock are owned by Crawford Investment Group L.L.C. (''Crawford LLC''). Holders of Preference Stock have no voting rights except as required by law. The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders of Holdings, including the election of directors. The Bain Funds and Crawford LLC, own approximately 57% and 44%, respectively, of the voting stock and are parties to a stockholder agreement regarding the ownership (including the voting) of such stock. By virtue of such stock ownership and agreement, the Bain Funds and Crawford LLC will have the power to control all matters submitted to a vote of stockholders, including election of directors of Holdings and, indirectly, to elect all directors of the Company.
The following tables set forth certain information as of January 13, 2000 regarding the beneficial ownership of (i) voting common stock by each person (other than directors and executive officers of the Company) known to the Company to own more than 5% of the outstanding voting common stock of Holdings and (ii) voting and non-voting common stock by each director of the Company, each named executive officer and all of the Company's directors and executive officers as a group. To the knowledge of the Company, each of such stockholders has sole voting and investment power as to the shares shown unless otherwise noted.
(1) Amounts shown represent the aggregate number of shares of Class A Common (including warrants to obtain Class A Common) and Class L Common (including warrants to obtain Class L Common) held by Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates, BCIP Trust Associates, L.P. and Bain Capital V Mezzanine Fund, L.P. (collectively, the ''Bain Funds''). Messrs. Gay, Conard and Mika are directors of the Company and Holdings and are managing directors of Bain Capital Investors, Inc. (''BCI'') and Bain Capital Investors V, Inc. (''BCI-V''). BCI is the general partner of Bain Capital Partners IV (''BCP- IV''), BCI-V is the general partner of Bain Capital Partners V (''BCP-V'') and Bain Capital V Mezzanine Partners, L.P. (''BCMP-V''). Messrs. Gay and Conard are also limited partners of BCP-IV and BCP-V and Mr. Mika is a limited partner of BCP-V. BCP-IV is the general partner of Bain Capital Fund IV, L.P. and Bain Capital Fund IV-B, L.P. BCP-V is the general partner of Bain Capital Fund V, L.P. and Bain Capital Fund V-B, L.P. BCMP-V is the general partner of Bain Capital V Mezzanine Fund, L.P. Messrs. Gay, Conard and Mika are general partners of BCIP Associates and BCIP Trust Associates, L.P. Accordingly, Messrs. Gay, Conard and Mika may be deemed to beneficially own shares owned by the Bain Funds; although Messrs. Gay, Conard and Mika disclaim beneficial ownership of any such shares.
(2) Includes 45,000 shares of Class P Common and 11,250 shares of Class L Common and 1,000 shares of Preferred Stock beneficially owned by Richard S. Crawford through Crawford Investment Group LLC, formerly known as 22708-12 Harper L.L.C., owned 45% by Mr. Crawford, 45% by the 1994 Richard Crawford Qualified Annuity Trust u/a/d December 22, 1994, 5% by Elizabeth T. Crawford, his wife, and 5% by the 1994 Elizabeth T. Crawford Qualified Annuity Trust u/a/d December 23, 1994.
(3) Comprised of 7,922.54 shares of Class A Common issueable upon the exercise of options exerciseable currently or within 60 days from January 13, 2000.
(4) Comprised of 757.58 shares of Class A Common currently held, by Mr. Alder and 1500 shares of Class A Common issueable upon the exercise of options excerciseable currently or within 60 days from January 13, 2000.
(5) Comprised of 13,612.50 shares of Class L Common currently held by Bain Funds and 1720.82 shares of Class L Common issueable upon the exercise of warrants currently or within 60 days from January 13, 2000.
ITEM 13
ITEM 13 - -CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE 1995 TRANSACTION
In November 1995, Holdings was recapitalized (the ''1995 Transaction''), the terms of which included: (i) the purchase of Holdings' common stock for approximately $18 million by the Bain Funds; (ii) the repurchase by Holdings of shares of its common stock (the ''Redeemed Shares'') (a) from Crawford LLC for $23.25 million, (b) from an affiliate of Richard E. Warnick for $10.0 million, (c) from an affiliate of John D. Craft, an officer and former director of the Company and a former principal stockholder of Holdings, for $16 million and (d) from DLJ Merchant Banking, Inc. for $21.3 million; and (iii) the exchange of shares of Holdings' common stock (the ''Exchanged Shares'') held by Crawford LLC for newly issued shares of Holdings' capital stock. The Exchanged Shares and the Redeemed Shares represented all of the outstanding stock of Holdings prior to the 1995 Transaction. As a result, the newly issued capital stock of Holdings referred to above represents all of the capital stock of Holdings. See ''Security Ownership.''
STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
Pursuant to a stockholders agreement which was last amended as of April 15, 1999 (the ''Stockholders Agreement''), Holdings, Crawford LLC, the Bain Funds and certain other investors have agreed that until certain designated events occur, such parties will vote for three of Bain's nominees and two of Crawford LLC's nominees to the Company's and Holdings' boards of directors. The Stockholders Agreement and both the Company's and Holdings' By-Laws require that five of the six Directors be present in person or by proxy to constitute a quorum for voting purposes; the affirmative vote of five of the six Directors is required to approve a proposal voted upon. The Stockholders Agreement also contains restrictions (with certain exceptions) on the transfer of the common stock by a party thereto, including rights of first offer of Holdings and other stockholders of Holdings and establishes drag-along and preemptive rights in certain events. The parties to the Stockholders Agreement have also entered into a registration rights agreement providing certain registration rights relating to their shares of Common Stock.
STOCK OPTION AGREEMENT
At the time of the 1995 Transaction, Holdings entered into a stock option agreement with Mr. Crawford (the ''Stock Option Agreement'') which grants him options to acquire 15,845.08 shares of Class A Common in the following tranches: (i) a three year straight-line vested option to purchase up to 7,922.54 shares of Class A Common for $3.30 per share; and (ii) options to purchase up to 3,961.27 shares of Class A Common at an exercise price of $312.13 per share and up to 3,961.27 shares of Class A Common at $642.13 per share, exercisable after the Company has achieved earnings before interest and taxes of at least $32 million. All three tranches expire on the earlier of the November 17, 2005, the termination of Mr. Crawford's employment by the Company or Holdings or the occurrence of certain transactions resulting in Holdings becoming a public company or otherwise undergoing a change of control. The Stock Option Agreement also includes restrictions on transfer and the right of Holdings to repurchase the options or shares upon termination of Mr. Crawford's employment with Holdings and the Company. Holdings may in the future enter into additional stock option agreements with other members of management.
MANAGEMENT SERVICES AGREEMENT
The Company is party to a five year management services agreement with Bain Capital, Inc. (''Bain''), dated as of November 17, 1995, amended as of March 1, 1996, and further amended as of December 31, 1997, pursuant to which the Company is obligated to pay Bain (i) at the closing of each acquisition of an additional business an amount equal to three-quarters of one percent (.75%) of the transaction value of such acquisition and (ii) an annual fee of $950,000 per year, plus out-of-pocket expenses. Pursuant to the management services agreement, the Company paid Bain fees of approximately $937,000 during 1996 and fees of $950,000 in 1998 and $655,000 of its accrued $950,000 in 1999.
AIRCRAFT LEASE
As of March 27, 1998, Mack Aviation acquired a Westwind 2 aircraft, a larger plane than the Lear 35A, which it previously had leased to the Company. The new lease, together with a services agreement (collectively, the "Current Aircraft Lease"), both entered into by Mack Aviation, L.L.C. and the Company as of January 1, 1999, provide that the Company will use the Westwind 2 aircraft a minimum of 200 hours per year at a cost of $1,950 per hour, which includes the cost of the pilots, fuel, insurance, maintenance and taxes, but does not include the costs of catering, landing fees or special needs. While the Company believes that the Current Aircraft Lease reflects currently available market terms and rates for similar aircraft, the Company has advised Mack Aviation that it intends to renegotiate arrangements for the use of the Westwind 2. There can be no assurance that this renegotiation will be successful.
HOLDINGS SERVICES AGREEMENT
The Company and Holdings have entered into a ten year services agreement dated as of July 1, 1997, pursuant to which Holdings provides the Company with management services and personnel necessary to perform such services. Under such agreement, the Company must reimburse Holdings for: (i) reasonable out-of-pocket expenses actually paid to unaffiliated third parties in connection with such services; and (ii) other expenses of Holdings of up to $500,000 per year incurred in connection with such services.
LEGAL SERVICES
Ira J. Jaffe, a director of the Company, practices law with, and is a shareholder of, the law firm of Jaffe, Raitt, Heuer & Weiss, Professional Corporation (''JRH&W''). JRH&W has served as general counsel to Holdings and the Company since their inceptions and has represented them in a variety of legal matters, including the 1995 Transaction, the acquisitions of GenCorp RPD, APX, Eagle-Picher, the Goodyear-Jackson, Brazil and Livingston. The Company and Holdings paid JRH&W legal fees of approximately $0.7 million and $1.0 million, respectively, for the years ending December 31, 1999 and 1998.
SUBORDINATED NOTES AND WARRANT AGREEMENTS
In connection with the 1995 Transaction, the Company obtained a bridge loan in the aggregate principal amount of $11.9 million from Bankers Trust. On December 14, 1995, the notes evidencing this bridge loan were repurchased from Bankers Trust by the Company using, inter alia, the proceeds received from issuance of the Company's senior subordinated notes to two of the Bain Funds, Bain Capital V Mezzanine Fund, L.P. and BCIP Trust Associates, L.P. (collectively the ''Bain MezFunds''). These notes were paid in full in connection with the Company's July 10, 1997 credit agreement.
In connection with the issuance of the Company's senior subordinated notes, Holdings entered into a warrant agreement with the Bain MezFunds pursuant to which the Bain MezFunds purchased warrants exercisable for an aggregate of 4,723.01 shares of Class A Common at an exercise price of $3.30 per share and 1,180.75 shares of Class L Common at an exercise price of $1,306.80 per share. The warrants are exercisable immediately, provide for anti-dilution rights upon the occurrence of certain events and are entitled to all dividends distributed by Holdings on an as if exercised basis.
In connection with the Company's acquisition of GenCorp RPD, Holdings issued the Holdings' Junior Subordinated Notes in the aggregate principal amount of $5.1 million to the Bain MezFunds and Crawford LLC. Crawford LLC subsequently sold its notes to the Bain MezFunds. The terms of these notes are substantially similar to the terms of those issued under the Company's senior subordinated notes, but they are subordinated to indebtedness under the Credit Agreement, Holdings' senior subordinated notes and the Company's senior subordinated notes.
In connection with the issuance of Holdings' junior subordinated notes, Holdings entered into a warrant agreement with the Bain MezFunds and Crawford LLC pursuant to which the Bain MezFunds and Crawford LLC purchased warrants exercisable for an aggregate of 2,160.27 shares of Class A Common at an exercise price of $3.30 per share and 540.07 shares of Class L Common at an exercise price of $1,306.80 per share. The warrants are exercisable immediately, provide for anti-dilution rights upon the occurrence of certain events and are entitled to all dividends distributed by Holdings on an as if exercised basis. Crawford LLC subsequently sold its warrants to the Bain MezFunds in connection with the sale of its Holdings' Junior Subordinated Notes to the Bain MezFunds. In 1998, the Baine MezFunds excercised the warrants for all 6,883.28 shares of Class A Common for an approximate aggregate purchase price of $22,700.
ITEM 14
ITEM 14 - -EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report.
1. Financial Statements referred to in Item 8.
2. Financial Statement Schedules referred to in Item 8.
3. The exhibits listed on the ''Index to Exhibits'' on pages I-1 and I-2 are filed with this Annual Report or incorporated by reference as set forth below.
(b) The following reports on Form 8-K were filed during the quarter ended December 31, 1998.
None.
(c) The exhibits listed on the ''Index to Exhibits'' on pages I-1 and I-2 are filed with this Annual Report or incorporated by reference as set forth below.
(d) Additional Financial Statement Schedules.
None.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Cambridge Industries, Inc.:
In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of changes in stockholder's deficit present fairly, in all material respects, the financial position of Cambridge Industries, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. 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 did not audit the financial statements of Mexican and Cambridge, L.L.C. (doing business as Dos Manos Technologies), an entity 48% owned by the Company, which financial statements reflect a loss of $4,366,672 for the year ended December 31, 1999. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the 1999 loss from equity investment of $2,199,000 included for Dos Manos Technologies, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has been unable to arrange sufficient long- term financing to meet its operating needs, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP Detroit, Michigan March 30, 2000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors Mexican and Cambridge, L.L.C. d/b/a Dos Manos Technologies Detroit, Michigan
We have audited the accompanying balance sheet of MEXICAN AND CAMBRIDGE, L.L.C. D/B/A DOS MANOS TECHNOLOGIES as of December 31, 1999, and the related statements of operations and member's deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of MEXICAN AND CAMBRIDGE, L.L.C. D/B/A DOS MANOS at December 31, 1999 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information, has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
PERRIN, FORDREE & COMPANY, P.C. Troy, Michigan February 4, 2000
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
See notes to consolidated financial statements.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS)
See notes to consolidated financial statements.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS)
See notes to consolidated financial statements.
CAMBRIDGE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (DOLLARS IN THOUSANDS)
See notes to consolidated financial statements.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Cambridge Industries, Inc. and its subsidiaries (collectively, the Company) are engaged primarily in the manufacture of plastic molded systems and subassemblies for the North American transportation industry. The Company operates facilities in the United States, Canada and Brazil. The Company is wholly-owned by Cambridge Industries Holdings, Inc. (Holdings), which has no significant assets other than its investment in the Company.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts and balances of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company's investment in Dos Manos Technologies, a 48% owned joint venture in the United States, is accounted for under the equity method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term, highly-liquid investments with original maturities of 90 days or less when purchased.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been translated in accordance with Statement of Financial Accounting Standards (SFAS) No. 52. Current rates of exchange are used to translate the balance sheets of these entities, while the average exchange rate of each fiscal year is used for the translation of income and expense accounts. The resulting unrealized gains and losses are recorded as a component of other comprehensive income.
REVENUE AND ACCOUNTS RECEIVABLE
Sales, net of estimated returns and allowances, and costs of sales are recorded upon shipment of product to customers and transfer of title under standard commercial terms.
All of the Company's accounts receivable are due from a limited number of customers in the automotive and truck manufacturing industry. Consistent with industry practice, such receivables are not collateralized.
CONCENTRATION OF CREDIT RISK
The Company manufactures plastic components and composite systems for the North American transportation industry. Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition and limits the amount of credit extended when deemed necessary but generally requires no collateral. The allowance for uncollectible accounts receivable is based on the expected collectibility of all accounts receivable.
INVENTORIES
Inventories are stated at standard cost, which approximates the lower of cost or market, as determined under the first-in, first-out method.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REIMBURSABLE TOOLING COSTS
Reimbursable tooling costs are stated at amounts which management expects to recover under customer agreements. Unrecoverable tooling costs are charged to cost of sales when estimated aggregate costs exceed amounts considered collectible. Excess reimbursements on tooling projects are recognized as income when the tooling project is substantially complete.
PROPERTY AND EQUIPMENT
Property, plant and equipment is stated at cost and is depreciated under the straight-line method over the estimated useful lives of such assets. Estimated service lives are as follows:
Leasehold improvements 5-13 years Buildings 5-40 years Machinery and equipment 3-11 years Company-owned tooling 3-5 years Furniture and fixtures 2-11 years
Significant renewals and betterments are capitalized, while maintenance and repair expenditures are charged against operations as incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company recognizes goodwill on purchase business combinations for the amount by which the purchase price exceeds the fair value of the assets acquired and liabilities assumed. Goodwill is amortized on a straight-line basis over 15- 25 years.
Debt issuance costs of $10,713 and $11,655, net of accumulated amortization at December 31, 1999 and 1998, respectively, are amortized over the terms of the loan agreements. Debt issue cost amortization of $2,347, $1,955 and $978 for 1999, 1998 and 1997, respectively, has been included in interest expense.
IMPAIRMENT OF ASSETS
The Company evaluates the potential impairment of goodwill on an ongoing basis and reviews property, plant, equipment, and certain identified intangibles for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. In performing the review for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. Any impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. As of December 31, 1999 and 1998, no significant impairment exists.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (dollars in thousands, except per share data)
ACCRUED COMMITMENTS UNDER LOSS CONTRACTS
Accrued commitments under loss contracts are recorded based on management's estimate of the future profitability of sales contracts. The Company evaluates the profitability of its sales contracts on a vehicle platform basis. A vehicle platform represents one or more vehicles produced by one manufacturer utilizing common basic engineering and design features and common components. The Company records a reserve for loss contracts when management's estimate of expected costs exceeds the related estimated revenues. During 1999, the Company recorded a provision of $1,100 pursuant to this policy.
WORKERS' COMPENSATION
The Company was self-insured for workers' compensation claims for periods ending before April 1, 1998. The Company recorded as workers' compensation expense the estimated cost, not reimbursable under insurance contracts, of settling such claims. Accruals for workers' compensation claims for which the Company was self-insured were estimated from historical claims experience using computations of the estimated ultimate settlement cost, including claims incurred but not reported. During the fourth quarter of 1998, the Company entered into a contract to fully insure all workers' compensation claims incurred in periods prior to April 1, 1998. For all periods subsequent to March 31, 1998, the Company utilizes third party insurance for workers' compensation claims.
INCOME TAXES
The Company provides deferred taxes on temporary differences between the book and tax bases of assets and liabilities. The Company assesses the realizability of deferred tax assets and records a valuation allowance when realization of deferred tax assets is not considered more likely than not. Income tax expense includes United States, foreign and state income taxes, exclusive of taxes on the undistributed income of foreign subsidiaries where it is the intention of the Company to have those subsidiaries reinvest the income locally.
FINANCIAL INSTRUMENTS
The Company carries its financial instruments, which include accounts receivable, accounts payable, indebtedness and an interest rate swap agreement, at cost which approximates fair value, except for certain indebtedness and the interest rate swap. The estimated gain on the swap contract at December 31, 1999 approximated $209 based upon estimated cash flows using December 31, 1999 interest rate information. The estimated fair value of the Company's senior subordinated notes at December 31, 1999 approximated $38,000, based on quoted market prices.
ENVIRONMENTAL CLAIMS
The Company periodically evaluates the existence of contingent obligations related to environmental claims and clean-up costs, including claims related to Superfund sites where it may be identified as a potentially responsible party. Accruals are established whenever such obligations are considered probable, which would normally occur when a specific claim is asserted and a preliminary investigation is performed. The Company's accruals for environmental claims were not significant at December 31, 1999 and 1998.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation expense using the intrinsic value method of APB No. 25, ''Accounting for Stock Issued to Employees.'' The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, ''Accounting for Stock-Based Compensation,'' which defines a fair value method of accounting for stock options and other equity instruments. In determining the fair value of stock options issued, the Company uses a risk-free rate, which approximates the rate on U.S. Treasury obligations with similar duration, and expected lives based on the provisions of the option agreements. As Holdings' stock currently does not include a dividend, dividend payments are not included in fair value determinations.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes costs associated with the development and implementation of software obtained or developed for internal use. Capitalized costs include internal payroll and payroll-related costs for employees who are directly associated with implementation programs and related external costs. Upon project completion, capitalized costs are amortized over a three-year useful life.
BUSINESS PROCESS REENGINEERING COSTS
In November 1997, the Company changed its accounting for business process reengineering costs, as required by the consensus of the Emerging Issues Task Force on issue 97-13. During 1997, the Company recorded a pre-tax charge of $483 to write-off previously capitalized reengineering costs to recognize the cumulative effect of this change in accounting principle. The Company has included this charge in selling, general and administrative expenses.
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.
SUPPLEMENTAL CASH FLOW DISCLOSURES
Income taxes paid totaled $280 and $1,340, in 1998 and 1997, respectively; interest payments totaled $33,557, $33,419 and $20,113 in 1999, 1998 and 1997, respectively. There were no taxes paid in 1999.
In 1997, the Company entered into a capital lease covering certain computer equipment and assumed capital lease obligations in conjunction with an acquisition. These obligations totaled $898. The Company also issued a note payable of $5,400 to the sellers in connection with its purchase of OC-Brazil (as defined). In 1998, the Company issued notes payable of $3,643 to insurance companies to fully insure all workers' compensation claims incurred in periods before April 1, 1998. The Company also issued a note payable of $1,550 to the seller in connection with its purchase of Livingston, Inc. in 1998.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to 1999 presentation in the consolidated financial statements.
CHANGE IN ACCOUNTING PRINCIPLE
The Company's adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities", in the first quarter of 1999. This statement requires companies to expense all previously captialized start-up costs upon adoption and requires all future start-up costs to be treated as period costs. In accordance with the provisions of the statement in the first quarter of 1999 the Company wrote off $311 of start-up costs associated with its Dos Manos Technologies joint venture.
2. GOING CONCERN
The Company's consolidated financial statements for the year ended December 31, 1999 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has been unable to comply with its debt covenants and has been unable to secure sufficient long-term financing to meet its operating needs. At December 31, 1999, current liabilities exceeded current assets by $208,832. The aforementioned conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Board of Directors of the Company has engaged advisors to facilitate the sale of the Company to a qualified buyer. Preliminary indications of interest have been obtained and prospective buyer due diligence activities are in progress. The Company's lenders have extended credit on a temporary basis to facilitate the sale process. Management is uncertain if proceeds from the expected sale of the Company will be sufficient to pay all creditors. The Company currently contemplates that if a Chapter 11 proceeding has not commenced prior to such sale, a buyer may require that a Chapter 11 proceeding be commenced to facilitate such sale. See Note 10 for additional information regarding the status of the Company's long-term debt and other matters at December 31, 1999.
3. INVESTMENT IN DOS MANOS TECHNOLOGIES
At December 31, 1999, the Company's investments included a 48% ownership in Mexican and Cambridge, L.L.C. (doing business as Dos Manos Technologies ("Dos Manos")), a minority business enterprise which produces interior trim parts for automotive OEMs. The Company accounts for its investment on the equity method. The Company's original investment in Dos Manos was $48. During 1999, the Company paid approximately $2,700 of costs on behalf of Dos Manos and recorded its share of operating losses of $2,199. The original investment and advances, net of the Company's share of operating losses recognized, is included in other long-term assets.
Dos Manos began operations in late 1998. The table below sets forth summarized financial information for Dos Manos:
December 31, 1999 ----------------- Current assets $10,247 Noncurrent assets 2,763 Current liabilities 10,065 Noncurrent liabilities 7,660
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31, 1999 ----------------------------
Net sales $ 21,570 Operating loss (3,430) Net loss (4,367)
At December 31, 1999, the Company had trade receivables due from Dos Manos of approximately $870 and trade payables due to Dos Manos of $500. In addition, the Company recorded $415 of management fee income relating to Dos Manos during 1999.
The Company has leased equipment under an operating lease with a seven year term expiring in 2005 with annual payments approximating $555. The equipment is being used by Dos Manos. In addition, the Company has provided a guarantee with respect to $245 of Dos Manos bank debt.
4. ACQUISITIONS
Effective January 1, 1998, the Company acquired substantially all of the operating assets of Livingston, Inc. (Livingston) for $2,150 and the assumption of certain debt of $1,554. The Company accounted for this acquisition under the purchase method. The Company's operating results include Livingston from January 1, 1998. The acquired assets and operating results of Livingston are not material to the accompanying consolidated financial statements.
Effective July 1, 1997, the Company acquired certain net assets of the engineered composite business (Goodyear-Jackson) of The Goodyear Tire & Rubber Company, and certain net assets of the plastics division (Eagle-Picher) of Eagle-Picher Industries, Inc., for $38,219 and $32,035, respectively, including acquisition costs. The Company accounted for these acquisitions under the purchase method. The Company's operating results include Goodyear-Jackson and Eagle-Picher from July 1, 1997.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (dollars in thousands, except per share data)
A summary of the Company's purchase price allocation for the Goodyear-Jackson and Eagle-Picher acquisitions follows:
During 1997, the Company also completed acquisitions of certain net assets of the production molded composites division of Aero-Detroit, Inc. (PMC), and the molded plastics and pultrusion operations of a Brazilian subsidiary of Owens- Corning (OC-Brazil), for aggregate purchase price of approximately $8,000, including acquisition costs. The Company accounted for these acquisitions using the purchase method. The operating results and acquired assets of PMC and OC- Brazil are not material.
The following unaudited pro forma information presents certain operating data calculated to give pro forma effect to the acquisitions of PMC, Goodyear- Jackson, Eagle-Picher, and OC-Brazil, as if the acquisitions had taken place at the beginning of such period. The proforma impact of Livingston has been excluded as it is not significant.
Such pro forma data do not purport to represent what actual operating results would have been if the acquisitions had been consummated on the dates indicated or what such results will be for any future period.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. RECEIVABLES
A summary of receivables at December 31 follows:
6. INVENTORIES
A summary of inventories at December 31 follows:
7. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31 follows:
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. OTHER ASSETS
A summary of other assets at December 31 follows:
9. ACCRUED LIABILITIES
A summary of accrued liabilities at December 31 follows:
10. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
On July 10, 1997, the Company retired all previously outstanding debt with the proceeds from the issuance of $100,000 in senior subordinated notes (the "Notes") and borrowings under a new credit agreement, comprising $205,000 in term loans and $2,500 in draws under a revolving line of credit. As a result of the refinancing, the Company recorded an extraordinary item of $9,788 (net of tax), reflecting the write-off of deferred financing costs, unamortized discount and other costs upon early extinguishment of debt.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The original July 10, 1997 credit agreement provided for maximum borrowings of $280,000, consisting of $205,000 in two term loans (in principal amounts of $70,000 and $135,000) and $75,000 under a revolving credit facility. The term loans mature on the fifth and eighth anniversaries of the credit agreement, respectively, and the revolving credit facility matures on the fifth anniversary of the credit agreement. Interest on borrowings under the credit agreement are calculated at an increment over a defined base rate. At December 31, 1999, the interest rate on $70,000 of the term debt was 9.75%; 10.25% on $135,000 of the term debt and a weighted average of 9.95% on the revolving line of credit. The line of credit includes a commitment fee on the average unused balance, which varies based on the Company's leverage ratio. The original July 10, 1997 credit agreement with Bankers Trust Company as the Agent and other institutions, together with subsequent amendments one through eight constitute the "Credit Agreement".
Indebtedness under the Credit Agreement is collateralized by substantially all assets of the Company, a pledge of intercompany notes and a pledge of certain stock of the Company's subsidiaries.
The Credit Agreement includes restrictive covenants which, among other things, require the Company to maintain (i) minimum levels of consolidated EBITDA (earnings before interest, taxes, depreciation and amortization), (ii) minimum interest coverage ratios, and (iii) maximum leverage ratios. The Credit Agreement also contains covenants limiting capital expenditures, additional indebtedness, dividends, transactions with affiliates, acquisitions and asset sales, prepayments of indebtedness, letters of credit amounts and liens.
In September 1998, the Company entered into a Second Waiver and Amendment and in January 1999 the Company entered into a Third Waiver and Amendment pursuant to which certain restrictive covenants contained in the Credit Agreement were waived and amended. On February 23, 1999, the Company entered into a Fourth Waiver and Amendment to the Credit Agreement ("Fourth Amendment"). The Fourth Amendment provided for borrowings under the revolving line of credit of up to $65,000 throughout each month, with a maximum of $50,000 at any month end. The Fourth Amendment also limited letters of credit to $5,300 from the effective date of the amendment. The Fourth Amendment waived restrictive covenants as of December 31, 1998 and amended the covenants for periods through March 31, 2000. At various times during 1999, the Company entered into the Fifth and Sixth Waivers and Amendments to the Credit Agreement pursuant to which certain restrictive covenants contained in the Credit Agreement were waived and amended. As an inducement to the banks agreeing to the Sixth Waiver and Amendment, Holdings and the Company agreed to engage Morgan Stanley Dean Witter & Co. ("MSDW") for purposes of assisting Holdings and the Company with the sale of all or a portion of the Company's business or assets and to pay certain amendment fees related to the outstanding balances of all borrowings under the Credit Agreement. During March 2000, the Company entered into the Seventh Waiver and Amendment pursuant to which the Fourth Amendment requirement to reduce the month end revolving line of credit balance to $50,000 was waived for the month of February 2000.
Also during March 2000, the Company entered into the Eighth Waiver and Amendment to the Credit Agreement ("Eighth Amendment") pursuant to which the Company and the Banks agreed to several waivers, revisions and amendments to certain restrictive covenants under the Credit Agreement, including the deferral of the Company's mandatory prepayments of principal. Certain restrictive covenants contained in the Credit Agreement were waived and amended through June 30,2000. As a condition to the Eighth Amendment becoming effective, the Company agreed to negotiate for and enter into agreements with certain of its OEM customers (the "Customer Agreements") whereby the OEMs agree as long as the Company is in compliance with the Customer Agreements (i) to provide accelerated payments of their accounts payable to the Company, (ii) not to resource the production of the Company's programs (iii) to waive set-off or payment abatement rights on certain of the OEM's accounts payable to the Company. The Company has entered into such Customer Agreements as required by the Banks. As a condition to entering into the Customer Agreement, the OEMs required the Company to obtain a standby financing commitment for debtor-in-possession financing in the event of a Chapter 11 insolvency proceeding involving the Company.
In addition, to induce the Banks to enter into the Eighth Amendment, the Company (i) agreed to additional fees for the waiver (ii)reaffirmed its commitment to the sale process contemplated by the Sixth Amendment, and (iii) agreed, along with Holdings and the Guarantor of the Credit Agreement, to release the Banks and their agents under and pursuant to the Credit Agreement, from any and all claims, causes of action, or liabilities which are in any manner related to the Credit Agreement and any documents or enforcement activities related thereto.
It is probable that the Company will be unable to meet the restrictive covenants subsequent to the waiver period, and accordingly, the outstanding debt under the Credit Agreement has been classified as current in the accompanying consolidated balance sheet at December 31, 1999. At February 29, 2000, the Company had drawn $65,000 under the revolving credit facility.
The Notes are guaranteed by the Company's parent and the Company's domestic subsidiaries (see Note 19). The Notes are subordinated to the Company's obligations under the Credit Agreement. The Notes contain provisions such that a default in the Credit Agreement which is caused by a failure to pay amounts due at their stated maturity date or which results in the debt holders causing such amounts to be due prior to its final maturity, if not waived, would allow the Notes to be callable. The Notes bear interest at 10.25% and mature in 2007. They are required to be repurchased in the event of a change in control, as defined in the Notes agreement.
Notes payable for acquisitions at December 31, 1999 represent amounts due to former owners of OC-Brazil and Livingston. A substantial portion of the notes payable due to OC-Brazil bear interest at a variable rate (LIBOR plus 3%) and is payable in installments that are calculated based on the earnings of OC-Brazil. The remaining notes outstanding are non-interest bearing and are payable in equal amounts each quarter through September 2000. The Company did not make all scheduled principal payments with respect to these notes during 1999, which accelerated the due date with respect to approximately $600 at December 31, 1999. The total amount outstanding with respect to these agreements, net of unamortized discount of approximately $700 at December 31, 1999, is $3,400.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The notes payable to insurance companies represent amounts due from contracts entered into during 1998 to fully insure all workers' compensation claims incurred in periods before April 1, 1998. The notes are unsecured obligations of the Company. The notes bear interest at 8.25% and mature in July 2000. The terms of the notes require monthly principal and interest payments of $217.
The Company entered into a three year interest rate swap agreement in accordance with the terms described in the Credit Agreement. At December 31, 1999, the Company had an interest rate swap with a notional amount of $50 million. Under the swap agreement, the Company will pay the counter-party interest at a rate of 5.75% and the counter-party will pay the Company interest at the three month LIBOR adjusted quarterly. If the three-month LIBOR equals or exceeds 6.75%, the Company will pay the counter-party at the three-month LIBOR. The maximum rate of interest the Company can pay under this agreement is 9.0%.
The annual maturities of long-term debt, including principal payments on capital leases, at December 31, 1999 are as follows:
11. OTHER LIABILITIES
A summary of other liabilities at December 31 follows:
12. EMPLOYEE RETIREMENT BENEFITS
Employee Retirement Plan
The Company has two noncontributory defined benefit pension plans covering eligible employees at two of its plants. Pension benefits are based on participants' years of credited service. The Company's policy is to fund the minimum required annual contribution to the plans.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (dollars in thousands, except per share data)
POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides postretirement healthcare and prescription drug benefits to a limited number of current retirees. Certain active hourly employees and their covered dependents may become eligible for these benefits, although the Company does not necessarily have a legal obligation to provide benefits to all such participants. The Company recognizes the estimated cost of providing such benefits over the service lives of the covered employees. Postretirement benefits provided by the Company are funded as claims are incurred.
EMPLOYEE RETIREMENT BENEFIT EXPENSE
The Company's expense for pensions and postretirement health care was as follows:
In connection with the recognition of the minimum liability as required by SFAS No. 87, "Employer's Accounting for Pensions", during 1998 the Company has recorded an intangible asset of $1,642 included in Other Assets in the accompanying balance sheet, a $1,881 additional minimum liability included in Other Liabilities, and an equity reduction of $148 (net of related tax benefit of $91). Such amounts were not required at December 31, 1999.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A one percentage point increase each year in the assumed healthcare cost trend rate would increase the accumulated postretirement obligation at December 31, 1999 by 13.1% and the service and interest cost components of net periodic postretirement benefit cost for 1999 by 13.7%.
DEFINED CONTRIBUTION PLAN
The Company sponsors 401(k) retirement plans for substantially all of its employees, which allow employees to contribute up to a specified percentage of their compensation into tax deferred accounts. The Company recorded expense for its contributions to these plans of $1,772, $780, and $932 in 1999, 1998, and 1997, respectively.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. INCOME TAXES
The income tax provision (benefit) for 1999, 1998 and 1997 consists of the following components:
1999 1998 1997 ---------- ----------- ----------- Current provision (benefit)....... $(1,008) $ 3,484 $ 2,910 Deferred provision (benefit)...... 5,460 (2,859) (3,148) ------- ------- ------- Income tax expense (benefit)...... $ 4,452 $ 625 $ (238) ======= ======= =======
A reconciliation of the Company's statutory and effective income tax rates follows:
The components of the Company's deferred tax assets and liabilities at December 31 are as follows:
The Company has net operating loss carryforwards with potential future tax benefits of $ 24,839 for federal income tax purposes and $ 2,462 for state income tax purposes at December 31, 1999. The federal net operating losses expire during the years 2012 through 2019 and the state net operating losses expire during the years 2013 through 2019. In addition, the Company has alternative minimum tax credit carryforwards aggregating $2,739 at December 31, 1999, which can be carried forward indefinitely. The Company also has $690 of foreign tax credit carryforwards. A valuation allowance has been established due to the uncertainty of realizing deferred income tax assets.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
If the Company experiences a change in ownership within the meaning of Section 382 of the Internal Revenue Code, an annual limitation could be placed upon the Company's ability to realize the benefits of its net operating loss carryforwards.
14. STOCKHOLDER'S DEFICIT
Each of the 1,000 shares of the Company's outstanding common stock is owned by Holdings. The following summarizes the rights of the various classes of the Holdings' preference and common stock.
PREFERENCE STOCK
Preference stock, which is nonvoting, contains a liquidation premium equal to $18,150 per share, plus a yield equal to 9.1% per year of such liquidation amount, measured from December 1995. Such liquidation amount is payable upon liquidation, sale of the Company, or upon the completion of an initial public offering of Holdings' common stock. There were 1,000 shares of preference stock outstanding at December 31, 1999 and 1998.
CLASS P COMMON STOCK
Class P common stock is voting stock, which includes a liquidation preference equal to $250 per share, if the Company's net sales exceed $505,000 for any previous year or $125 per share, if the Company's net sales exceed $405,000 for any previous year. Class P common stock has no liquidation preference if neither of these conditions is achieved. There were 45,000 shares of Class P common stock outstanding at December 31, 1999 and 1998.
CLASS L COMMON STOCK
Class L common stock is voting stock, which includes a liquidation preference equal to $1,307 per share plus a 10% yield per year on such liquidation amount measured from December 1995. There were 25,439 shares and 25,591 shares of Class L common stock issued and outstanding at December 31, 1999 and 1998, respectively.
CLASS A COMMON STOCK
Class A common stock is voting stock, but contains no liquidation preference. There were 63,640 and 64,247 shares of Class A common stock issued and outstanding at December 31, 1999 and 1998, respectively.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The rights and obligations of the holders of these classes of stock are governed by a stockholders' agreement, which provides for the election of directors and officers, a right of first refusal in the sales of shares, and other provisions which allow particular groups of shareholders to require a sale of the Company after March 31, 1998.
During 1997, Holdings entered into agreements with certain officers and key employees of the Company pursuant to which the employees purchased 2,667 shares and 667 shares of Class A and Class L common stock, respectively, for an aggregate purchase price of $880. The employees executed full recourse promissory notes for the purchase price of the stock. Shares purchased under these agreements vest in 20% increments annually. Upon termination of employment, the Company, at its option, may repurchase vested shares for fair value and unvested shares for the lower of original cost or fair value.
In 1996, warrants were issued to certain shareholders and lenders to acquire 2,160 shares of Holdings' Class A common stock at $3.30 per share and 540 shares of Holdings' Class L common stock at $1,307 per share. The warrants are exercisable through November 2005. The fair value of the warrants was recorded as an increase to additional paid-in capital during 1996.
ACCUMULATED OTHER COMPREHENSIVE INCOME
A summary of components of accumulated other comprehensive income follows:
15. STOCK-BASED COMPENSATION
Holdings is authorized to grant options to the Company's executive officers at the discretion of the Board of Directors up to the authorized number of shares for Holdings. The exercise price, vesting schedule and maximum term of options granted are set by the Board of Directors. The Company recognizes compensation cost (if any) for options and other stock-based compensation granted by Holdings to the Company's employees. The Company's compensation cost with respect to grants under the stock-based compensation program was not significant; compensation cost calculated in accordance with SFAS 123 is also not material.
For purposes of SFAS 123 disclosures, the Company estimates the fair value of each option grant on the date of grant using the minimum value option-pricing method with the following weighted-average assumptions used for grants in 1999 and 1998: zero volatility, dividend yield rate of zero, as Holdings does not pay dividends on its common stock, risk-free interest rates of approximately 6.0%, representing rates on U.S. Treasury obligations with similar duration, and an expected life of 5 years. Options granted in 1999 had exercise prices in excess of market value at the date of grant.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of option activity for 1999, 1998 and 1997, follows:
The following table summarizes information about stock options outstanding at December 31, 1999:
16. RELATED PARTY TRANSACTIONS
Management and advisory services are provided by an affiliate of certain shareholders of Holdings, under an agreement which requires an annual fee of $950, plus certain other contingent fees. Total fees charged to the Company by such affiliate during 1999, 1998, and 1997 were approximately $1,173, $1,015 and $6,475 respectively. As of December 31, 1999 and 1998 the Company owed $295 and $249, respectively to such affiliate. The Company also leases certain equipment from an affiliate of Holdings; total fees charged to the Company by such affiliate were approximately $393, $386 and $250 in 1999, 1998 and 1997, respectively. The Company has a $250 minimum commitment for such services in 2000. Another affiliate of Holdings was paid $20 in 1999 for various services.
Certain legal services were provided by an affiliate of a director of the Company. Total fees charged to the Company by such affiliate were approximately $729, $1,175 and $1,900 in 1999, 1998 and 1997, respectively. As of December 31, 1999 and 1998 the Company owed $75 and $670 , respectively.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
17. COMMITMENTS AND CONTINGENCIES
During 1999 and 1998, the Company entered into equipment leases which are classified as capital leases. Assets under capital leases at December 31, 1999 are as follows:
The Company leases certain equipment and plant facilities under noncancellable operating leases. Rental expense for the Company totaled approximately, $6,905, $5,965 and $4,383 during 1999, 1998 and 1997, respectively.
Minimum payments for operating leases having initial or remaining noncancellable lease terms in excess of one year at December 31, 1999 are summarized below:
YEAR ENDING ----------- DECEMBER 31 ----------- 2000................................ $ 5,630 2001................................ 4,515 2002................................ 2,966 2003................................ 2,214 2004................................ 2,065 Thereafter.......................... 1,834 ------- Total............................ $19,224 -------
The Company has letters of credit outstanding of $4,650 at December 31, 1999.
The Company is also subject to other lawsuits and claims pending or asserted with respect to matters arising in the ordinary course of business. Management does not believe that the outcome of these uncertainties will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
18. BUSINESS SEGMENTS
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 establishes new standards for segment reporting which are based on the way management organizes segments within a company for making operating decisions and assessing performance. Prior period amounts have been restated to conform to the requirements of this statement.
The Company's businesses are organized, managed, and internally reported as three segments. The segments, which are based on differences in customers and products, technologies and services, as determined by the primary product of the related facility, are Automotive and Light Truck, Commercial Truck, and Industrial and Non-Automotive. The Automotive and Light Truck Industry Segment produces molded engineered plastic components for automotive original equipment manufacturers. This segment primarily supplies components for automotive interiors, exteriors, and power trains. The Commercial Truck Industry Segment produces molded-engineered plastics for the commercial transportation industry. The segment primarily supplies external body panel components for class 4 through class 8 commercial trucks. The Industrial and Non-Automotive Segment produces various plastic components for the agricultural, appliance, commercial construction, and recreational transportation industries. Net sales by segment exclude inter-segment sales. Operating income consists of net sales less applicable operating costs and expenses related to those sales. The Company's general corporate expenses are excluded from segment operating income. Earnings before interest, taxes, depreciation and amortization ("EBITDA") by segment consists of operating income, other expense (income) net, adjusted for interest, taxes, depreciation, and amortization. Identifiable assets by segment are those assets that are used in the operations of each segment. General corporate assets are those not identifiable with the operations of a segment. The Company is not dependent on any single product or market.
The Company's major customers include automotive and commercial truck original equipment manufacturers. The percentage of sales of each of these major customers to total consolidated sales for the three year periods 1999, 1998, and 1997, respectively, are as follows: Ford, 25.4%, 25.9%, and 27.2%; General Motors, 25.3%, 21.9% and 21.7%, DaimlerChrysler, 11.8%, 10.0% and 11.2%; and Freightliner, 13.1%, 8.8 % and 9.8%.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BUSINESS SEGMENT INFORMATION
*Operating income includes unallocated corporate overhead expenses.
** EBITDA includes operating income, other expense (income) net, adjusted for interest, taxes, depreciation, and amortization.
***Segment assets primarily include accounts receivable; inventory, property, plant and equipment - net, goodwill and other miscellaneous assets. Assets included in Corporate and Unallocated principally are cash and cash equivalents, deferred financing costs, deferred income taxes, unallocated goodwill, certain investments, other assets, and certain unallocated property, plant and equipment, net of unapplied accounts receivable credits.
The following table reconciles EBITDA to pretax loss:
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
GEOGRAPHIC AREAS
Export sales and certain income and expense items are reported within the geographic area where the final sales to customers are made.
19. CONDENSED CONSOLIDATING INFORMATION
The Notes are guaranteed by CE Automotive Trim Systems, Inc. (CE), a wholly- owned consolidated subsidiary of the Company, but are not guaranteed by the Company's other consolidated subsidiaries, Voplex of Canada and the Brazilian subsidiary. The guarantee of the Notes by CE is full and unconditional. The following condensed consolidated financial information presents the financial position, results of operations and cash flows of (i) the Company, as parent, as if it accounted for its subsidiaries on the equity method; (ii) CE, the guarantor subsidiary, and (iii) Voplex of Canada and the Brazilian subsidiary, as non-guarantor subsidiaries. The financial position and operating results of the non-guarantor subsidiaries do not include any allocation of overhead or other similar charges.
Separate financial statements of CE are not presented herein, as management does not believe that such statements would be material. CE was formed in 1994 as a joint venture with an unrelated entity. The Company accounted for its 50% interest in CE as an equity investment as of December 31, 1996; the Company's equity investment in CE at that date was $0. In 1997, the Company purchased the other entity's interest in CE for an immaterial amount, and CE became a consolidated subsidiary of the Company. CE had no revenues or operations during the periods presented.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholder of Cambridge Industries, Inc.
Our audits of the consolidated financial statements of Cambridge Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 referred to in our report dated March 30, 2000 appearing on page of this Annual Report on Form 10-K also included an audit of the accompanying financial statement schedule. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 when read in conjunction with the related consolidated financial statements.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has been unable to arrange sufficient long- term financing to meet its operating needs, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP Detroit, Michigan March 30, 2000
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CAMBRIDGE INDUSTRIES, INC. and CE AUTOMOTIVE TRIM SYSTEMS, INC. have duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Madison Heights, State of Michigan, on March 30, 2000.
Cambridge Industries, Inc.
/s/ Lawrence M. Kazanowski By: LAWRENCE M. KAZANOWSKI President and Chief Executive Officer
March 30, 2000
CE Automotive Trim Systems, Inc.
/s/ Lawrence M. Kazanowski By: LAWRENCE M. KAZANOWSKI President
March 30, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS ANNUAL REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
CAMBRIDGE INDUSTRIES, INC.
Signature ---------- Title ------ Date -----
/s/ Lawrence M. Kazanowski
LAWRENCE M. KAZANOWSKI
President and Chief Executive Officer (Principal Executive Officer)
March 30, 2000
/s/ Donald C. Campion
DONALD C. CAMPION
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
March 30, 2000
CAMBRIDGE INDUSTRIES, INC.
Directors Signatures --------------------
/s/ Edward W. Conard
EDWARD W. CONARD
Director
March 29, 2000
/s/ Richard S. Crawford
RICHARD S. CRAWFORD
Director
March 30, 2000
/s/ Robert C. Gay
ROBERT C. GAY
Director
March 29, 2000
/s/ Ira J. Jaffe
IRA J. JAFFE
Director
March 30, 2000
/s/ Lawrence M. Kazanowski
LAWRENCE M. KAZANOWSKI
Director
March 30, 2000
/s/ Ronald P. Mika
RONALD P. MIKA
Director
March 29, 2000
CE AUTOMOTIVE TRIM SYSTEMS, INC.
Directors Signatures --------------------
/s/ Richard S. Crawford
RICHARD S. CRAWFORD
Chairman of the Board and Director
March 30, 2000
/s/ Lawrence M. Kazanowski
LAWRENCE M. KAZANOWSKI
President and Director
March 30, 2000
/s/ Donald C. Campion
DONALD C. CAMPION
Chief Financial Officer (Principal Financial and Accounting Officer)
March 30, 2000
INDEX TO EXHIBITS
Exhibit Number Exhibit - ---------- ------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of Cambridge Industries, Inc.* 3.2 Amended and Restated Bylaws of Cambridge Industries, Inc.* 3.3 Articles of Incorporation of CE Automotive Trim Systems, Inc.* 3.4 Bylaws of CE Automotive Trim System, Inc.* 10.1 Employment Agreement, dated as of November 17, 1995, between Richard S. Crawford and Cambridge Industries, Inc.*/ 10.2 Amendment to Employment Agreement, dated as of March 1, 1996, between Richard S. Crawford and Cambridge Industries, Inc.*/ 10.3 Employment Agreement, dated as of November 17, 1995, between Richard E. Warnick and Cambridge Industries, Inc.* 10.4 Employment Agreement, dated as of November 17, 1995, between John D. Craft and Cambridge Industries, Inc.*/ 10.5 Management Services Agreement, dated as of November 17, 1995 and amended as of March 1, 1996, between Cambridge Industries, Inc. and Bain Capital, Inc.*/ 10.6 Warrant Agreement dated as of November 17, 1995 between Cambridge Industries Holdings, Inc. and Bankers Trust Company.*/ 10.7 Amendment to Warrant Agreement between Cambridge Industries Holdings, Inc. and Bankers Trust Company, dated as of December 12, 1995.*/ 10.8 Warrant Agreement dated as of December 14, 1995 among Bain Capital V Mezzanine Fund, L.P., BCIP Trust Associates, L.P. and Cambridge Industries Holdings, Inc.*/ 10.9 Class A Warrant Certificate No. W-A1, Date of Issuance: December 14, 1995.* 10.10 Class A Warrant Certificate No. W-A2, Date of Issuance: December 14, 1995.* 10.11 Class L Warrant Certificate No. W-L1, Date of Issuance: December 14, 1995.* 10.12 Class L Warrant Certificate No. W-L2, Date of Issuance: December 14, 1995.* 10.13 Warrant Agreement, dated as of March 1, 1996, among Cambridge Holdings Industries, Inc., Bein Capital V Mezzeine Fund, L.P., BCIP Trust Associates, L.P. and Crawford Investment Group, L.L.C.* 10.14 Class A Warrant Certificate No. W-A3, Date of Issuance: March 1, 1996.* 10.15 Class A Warrant Certificate No. W-A4, Date of Issuance: March 1, 1996.* 10.16 Class A Warrant Certificate No. W-A5, Date of Issuance: March 1, 1996.* 10.17 Class A Warrant Certificate No. W-A6, Date of Issuance: March 1, 1996.* 10.18 Class A Warrant Certificate No. W-A7, Date of Issuance: March 1, 1996.* 10.19 Class A Warrant Certificate No. W-L3, Date of Issuance: March 1, 1996.* 10.20 Class A Warrant Certificate No. W-L4, Date of Issuance: March 1, 1996.* 10.21 Class A Warrant Certificate No. W-L5, Date of Issuance: March 1, 1996.* 10.22 Class A Warrant Certificate No. W-L6, Date of Issuance: March 1, 1996.* 10.23 Class A Warrant Certificate No. W-L7, Date of Issuance: March 1, 1996.* 10.24 Asset Purchase Agreement, dated as of March 1, 1996, among GenCorp. Inc., Cambridge Industries Holdings, Inc. and Cambridge Industries, Inc.* 10.25 Management Agreement with Donald I. Holton, dated as of October 15, 1996.*/ 10.26 Holdings Services Agreement, dated as of July 1, 1997, between Cambridge Industries, Inc. and Cambridge Industries Holdings, Inc.* 10.27 Credit Agreement, dated as of July 10, 1997, among Cambridge Industries Holdings, Inc., Cambridge Industries, Inc., various lending institutions, and Bankers Trust Company, as Agent.* 10.28 Subsidiary Guaranty, dated as of July 10, 1997.* 10.29 Pledge Agreement, dated as of July 10, 1997, among Cambridge Industries Holdings, Inc., Cambridge Industries, Inc., various lending institutions, and Bankers Trust Company, as Agent.*
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EXHIBIT NUMBER EXHIBIT - ---------- ---------------------------------------------------------------
10.30 Security Agreement, dated as of July 10, 1997, among Cambridge Industries Holdings, Inc., Cambridge Industries, Inc., various lending institutions, and Bankers Trust Company, as Agent.* 10.31 Asset Purchase Agreement, dated as of July 9, effective as of June 30, 1997, between Eagle-Picher Industries, Inc. and Cambridge Industries, Inc.* 10.32 Agreement, dated as of July 8, 1997, between Cambridge Industries, Inc. and the Goodyear Tire & Rubber Company.* 10.33 Stock Purchase Agreement, dated as of April 25, 1997 between Erpe Ernst Pelz Vertriebs GmbH and Cambridge Industries, Inc.* 10.34 Joint Venture Agreement, dated as of March 4, 1994, among Cambridge Industries, Inc., Empe Ernst Pelz GmbH & Co. and Erpe Ernst Pelz Vertriebs GmbH (the ''Empe-Erpe JV Agreement'').* 10.35 Purchase Election, dated as of March 13, 1997 by Cambridge Industries, Inc. in relation to the Empe-Erpe JV Agreement.* 10.36 Acceptance of Empe-Erpe JV Agreement Purchase Election, dated as of March 28, 1997.* 10.37 Election to Terminate the Empe-Erpe JV Agreement, dated as of February 6, 1997.* 10.38 Amendment to Stockholders Agreement, dated December 31, 1997, among Holdings, Richard S. Crawford, certain individual members of the Bain Group, Bankers Trust Company and each other Bank Holder which becomes a party to the Stockholders Agreement./** 10.39 Second Amendment to Employment Agreement, dated December 31, 1997, effective January 1, 1998, between the Company and Richard S. Crawford./** 10.40 Second Amendment to Management Services Agreement, dated December 31, 1997, effective January 1, 1998, between the Company and Bain Capital, Inc./** 10.41 Aircraft Lease, dated January 1, 1998, between Mack L.L.C. and the Company.** 10.42 Aircraft Lease, dated January 1, 1998, between the Company and Richard S. Crawford.** 10.43 Asset Purchase Agreement, dated as of January 1, 1999, between Livingston, Inc. and Cambridge Industries, Inc. 10.44 Second, Third and Fourth Amendments to the Credit Agreement among Cambridge Holdings, Inc., Cambridge Industries, Inc., various lending institutions, and Bankers Trust Company, as Agent 10.45 Aircraft lease, dated January 1, 1999, between Mack L.L.C. and the Company 10.46 Fifth, Sixth, Seventh and Eighth Waiver and Amendments to the Credit Agreement among Cambridge Industries Holdings, Inc., Cambridge Industries, Inc., Various lending institutions, and Bankers Trust Company, as Agent 10.47 Accomodation Agreement dated March 22, 2000 (under separate cover). 10.48 Access Agreement dated March 22, 2000 (under separate cover). 16.1 Letter regarding Change in Independent Accountants.* 21.1 List of All Subsidiaries.* 27.1 Financial Data Schedule//
* Incorporated by reference to the Company's Registration Statement on Form S-4 effective as of December 10, 1997. ** Previously filed with the Company's Annual Report on Form 10-K on March 31, 1998. / Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report.
// This exhibit was the subject of a Form 12b-25 and is included herein.
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