ITEM 1. BUSINESS
Reeves Industries, Inc., incorporated in Delaware in 1982 ("Reeves" or "the Company"), a wholly-owned subsidiary of Hart Holding Company Incorporated ("Hart Holding"), is a holding company whose principal asset is the common stock of its wholly-owned subsidiary, Reeves Brothers, Inc. ("Reeves Brothers"). The Company was acquired by Hart Holding on May 6, 1986. Reeves is a diversified industrial company with operations in two principal business segments, industrial coated fabrics, conducted through its Industrial Coated Fabrics Group ("ICF"), and apparel textiles, conducted through its Apparel Textile Group ("ATG").
Effective October 25, 1993, HHCI, Inc., a newly formed, wholly-owned subsidiary of Hart Holding, merged with and into the Company with the Company surviving the merger. HHCI, Inc. was formed as a shell corporation (no operations). As a result of this merger, Hart Holding obtained ownership of 100% of the outstanding shares of the common stock of the Company. See Footnote 10, Stockholder's Equity, of the Notes to Consolidated Financial Statements of Reeves.
INDUSTRY SEGMENTS
Reeves is a diversified industrial company with operations in two principal business segments, industrial coated fabrics, conducted through its Industrial Coated Fabrics Group, and apparel textiles, conducted through its Apparel Textile Group. In 1993, ICF contributed approximately 49.6% of the Company's net sales and approximately 71.7% of its operating income, and ATG contributed approximately 50.4% of the Company's net sales and approximately 28.3% of its operating income (in each case, excluding corporate expenses, goodwill amortization and facility restructuring charges). Throughout its businesses, the Company emphasizes specialty products, product quality, technological innovation and rapid responses to the changing needs of its customers.
ICF specializes in the coating of various substrate fabrics with a variety of products such as synthetic rubber, vinyl, neoprene, urethane and other elastomers, to produce a diverse line of products for industrial applications. ICF's principal products include: (1) a complete line of printing blankets used in offset lithography, (2) coated automotive airbag materials, (3) specialty coated fabrics and (4) coated fabrics used in industrial coverings.
The Company believes that ICF is one of the world's leading producers of offset printing blankets and that ICF has the leading share of the domestic market for coated automotive airbag materials. The Company also believes that ICF is a leading domestic producer of specialty coated fabrics used for a broad range of industrial applications. ICF's products generally involve significant amounts of technological expertise and precise production tolerances. The Company believes that ICF's product development, formulation and production methods are among the most sophisticated in the coated fabrics industry.
ATG manufactures, processes and sells specialty textile fabrics to apparel and other manufacturers. Through its Greige Goods Division, ATG processes raw materials into greige goods (i.e., undyed woven fabrics). Through its Finished Goods Division, ATG functions as a converter and commission finisher, purchasing greige goods (from the Greige Goods Division and others) and contracting to have the goods dyed and finished or dyeing and finishing the goods itself. The dyed and finished goods are then sold for use in a variety of end-products.
The Company believes that ATG has developed strong positions in niche markets in the apparel textile industry by offering unique, custom-designed fabrics to leading apparel and specialty garment manufacturers. ATG emphasizes "short-run" product orders and targets market segments in which its manufacturing flexibility, rapid response time, superior service and quality and the ability to supply exclusive blends are key competitive factors.
The Company's business strategy has focused on the sale of higher-margin niche products and the establishment of leading positions in its principal markets. The Company believes that this strategy, combined with its diverse product and customer base, the development of new products and substantial capital investment, has helped the Company increase its sales and profitability in spite of adverse economic conditions in its U.S. and European markets during 1990-1993.
The following table shows the amount of total revenue contributed by product lines which accounted for 10% or more of the Company's consolidated revenues in any of the last three fiscal years (in thousands).
Year Ended December 31, ---------------------------- 1991 1992 1993 -------- -------- -------- Industrial Coated Fabrics Group: Specialty Materials $ 55,581 $ 61,684 $ 78,151 Graphic Arts 65,683 64,892 62,584 -------- -------- -------- $121,264 $126,576 $140,735 ======== ======== ========
Apparel Textile Group: Finished Goods and Dyeing and Finishing $ 74,893 $ 72,977 $ 77,416 Greige Goods 73,402 71,551 65,502 -------- -------- -------- $148,295 $144,528 $142,918 ======== ======== ========
Reeves does not hold any patents, trademarks, licenses and/or franchises the loss of which would have a material adverse affect on any of its industry segments.
Additional information about industry segments of Reeves is contained in Footnote 14, Financial Information About Industry Segments, of the Notes to Consolidated Financial Statements of Reeves.
INDUSTRIAL COATED FABRICS GROUP
The Industrial Coated Fabrics Group specializes in the coating of various substrate fabrics with a variety of products, such as synthetic rubber, vinyl, neoprene, urethane, and other elastomers, to produce a diverse line of products for industrial applications.
ICF's products comprise four categories: (1) a complete line of printing blankets used in offset lithography, (2) coated automotive airbag materials, (3) specialty coated fabrics, including fluid control diaphragm materials, tank seals, ducting materials and coated fabric materials used for military and commercial life rafts and vests, aircraft escape slides, flexible fuel tanks and general aviation products, and (4) coated fabrics used in industrial coverings, including fabrics coated with rubber and vinyl which are used to make tarpaulins, loading dock shelters and other industrial products.
ICF's products require significant amounts of technological expertise and the Company believes that ICF's product development, formulation and production methods are among the most sophisticated in the coated fabrics industry. Since 1990, ICF has been awarded six patents with respect to polyurethane coatings and has nine pending patent applications relating to printing blankets, airbag fabric and specialty coatings. Approximately eight other patent applications are in process.
ICF generally manufactures specialty coated fabrics according to a production backlog. ICF's products, other than printing blankets and coated automotive airbag material, involve relatively short runs and custom manufacturing. Printing blankets are sold primarily to distributors and dealers. ICF's other products are sold directly to end users and fabricators by its direct sales force.
Printing Blankets
The Company believes that ICF is one of the world's leading producers of printing blankets used in offset lithography, the predominant printing process for the commercial, financial, publication and industrial printing markets.
Offset printing blankets are used in the printing process to transfer a printed image from a metal printing plate onto paper or other printing material. ICF markets a complete line of conventional, compressible and sticky-back blankets under the VULCAN (registered trademark) name. The Company's line includes the 714 (registered trademark), the first compressible printing blanket, the 2,000 (registered trademark) PLUS, an advanced general purpose blanket, the VISION SR (trademark), a premium blanket targeted at the sheet-fed market, and the MARATHON (registered trademark), a blanket targeted to the high-speed web press market. Each blanket in the product line is designed for a specific printing need and ICF sells an appropriate blanket for most types of commercial, financial, publication and industrial printing applications.
The Company believes that ICF's blankets consistently offer high performance and quality. This performance is due to a number of proprietary features of the blankets, many of which are the subject of pending patent applications. Distinctive characteristics of ICF's blankets include unique printing surface compounds, improved composition and placement of compressible layers, surface buffing and water and solvent-resistant back plies.
Purchasers of ICF's blankets include commercial, financial and industrial printers and publishers of newspapers and magazines. ICF's blankets are sold to over 10,000 U.S. printers and more than 15,000 foreign printers, in 64 countries worldwide.
ICF has established a network of over 60 distributors and 125 dealers in the United States, Canada and Latin America to market its printing blankets. In addition, ICF is represented by a distributor in most of the other countries in which it does business. The Company's distributors typically purchase rolls of uncut blankets from ICF and then cut, finish and package the blankets prior to delivery to dealers or end-users. Internationally, ICF's relationships with distributors tend to be long-standing and exclusive, with most distributors dealing only in ICF's printing blankets and ICF selling only to such distributors in their respective territories. Domestic distributors tend to carry printing blankets from a number of manufacturers. Dealers generally purchase finished blankets from distributors for resale. ICF services all of its customers, and its direct sales force actively markets and promotes ICF's printing blankets.
Automotive Airbag Materials
Reeves believes that ICF has the leading share of the domestic market for coated automotive airbag materials. ICF is a significant supplier of such material to TRW, Inc. ("TRW") and the Safety Restraints Division of Allied-Signal, Inc. ("Allied-Signal"). Allied-Signal supplies Morton International ("Morton") with airbag components. TRW and Morton are two of four major domestic manufacturers of airbag systems and, together with Allied-Signal, supply all of the domestic automobile manufacturers and many of the European and Japanese automobile manufacturers. The Company believes that TRW and Morton account for in excess of 50% of the worldwide market for airbag systems.
National Highway Traffic Safety Administration regulations currently mandate the use of both driver-side and passenger-side airbags for all 1998 model year passenger cars and 1999 model year light trucks, vans and multipurpose vehicles ("LTVs"). A phase-in schedule establishes that at least 95% of a manufacturer's passenger cars built on or after September 1, 1996 for sale in the United States, must be equipped with an airbag at the driver's and the right front passenger's seating positions. All LTVs built after September 1, 1997, must have some form of automatic occupant protection, and at least 80% must have either driver-side or driver-side and passenger-side airbags.
Due to market demand for airbag-equipped vehicles, automobile manufacturers have been installing airbags (primarily driver-side) more extensively than required by the foregoing regulations. The Company expects sales of airbag systems and coated airbag fabric to increase substantially in future years and believes that ICF is well-positioned to benefit from such growth.
Following the lead of the U.S. automobile manufacturers, European and Asian automobile manufacturers have begun installation of automobile airbags. No legislation or regulation presently requires the installation of airbags outside of the United States market. Reeves' Italian subsidiary, Reeves S.p.A., has sufficient capacity for production of coated airbag material if demand develops outside of the United States for such products.
Company participation in the airbag market to date has been through the use of coated airbag fabric in driver-side applications where coated airbag fabric offers certain advantages such as greater thermal insulation to withstand the rapid inflation of the airbag by means of hot gases and impermeability to prevent the escape of gases. Side-impact airbags (presently offered on certain models of Volvo and Mercedes Benz) are expected to use coated airbag fabric.
Most passenger-side airbags are currently designed to use uncoated fabrics. Passenger-side airbags deploy more slowly than driver-side airbags. Consequently, they can be manufactured at a lower cost using uncoated fabric. The Company does not presently produce an uncoated airbag fabric. Although there can be no assurance that it will be able to do so, the Company plans to participate in the growth of passenger-side applications through an expansion program capitalizing on its textile expertise and research and development efforts. As part of this program, the Company is constructing an approximately 100,000 square foot facility in Spartanburg, South Carolina for weaving both coated and uncoated airbag fabric. The facility is expected to be operational by the end of 1994.
Through its research and development activities, the Company is continuously working to develop new proprietary fabric technologies and procedures for the next generation of driver-side and passenger-side airbags. Airbag fabrics must meet rigorous specifications, testing and certification requirements and airbag fabric contracts tend to be awarded several years in advance. These factors may deter the entry of other manufacturers into this business.
Specialty Coated Fabrics
The Company believes that ICF is a leading domestic producer of specialty coated fabrics used for a broad range of industrial applications. ICF's specialty coated fabrics business is largely customer or "job shop" oriented. In 1993, more than 90% of ICF's sales of specialty coated fabrics were derived from fabrics manufactured to meet particular customer's specifications.
Specialty coated fabrics generally consist of a fabric base, or substrate layer, and an elastomer coating (i.e., coating consisting of an elastic substance, such as rubber) which is applied to the fabric base. The Company believes that ICF's line of elastomer-fabric combinations is the most comprehensive in the industry, enabling it to design products to satisfy its customers' needs. Fabric bases used in ICF's specialty coated fabrics include polyester, nylon, cotton, fiberglass and silk. ICF's elastomers include natural rubber, nitrile, THIOKOL (registered trademark), NEOPRENE (registered trademark), silicone, HYPALON (registered trademark), VITON (registered trademark) and polyurethane.
ICF sells its specialty coated fabrics under the registered trademark REEVECOTE (registered trademark). The Company believes that ICF has established a reputation for quality and product innovation in specialty coated fabrics by virtue of ICF's technological capability, advanced plant and equipment, research and development facilities and specialized chemists and engineers.
ICF's specialty coated fabrics are separated into five product lines:
General purpose goods. This product line includes air cells, tank seals, gaskets, compressor valves, aerosol seals and washers and coated fabrics used by other manufacturers in the production of insulation materials, soundproofing and inflatable "lifting bags" used to jack up automobiles or trucks.
Gas meter diaphragms. ICF manufactures a line of rubber diaphragm material for use in gas meters which are the primary mechanisms in gas meters for controlling gas flow. ICF's products are sold to most of the major manufacturers of gas meters.
Synthetic diaphragms. The Company's synthetic diaphragms are used in carburetors, controls, meters, compressors, fuel pumps and other applications.
Specialty products. ICF manufactures a large number of miscellaneous specialty coated products, including v-cups for oil rig drills, expansion joints and urethane specialty items, such as fuel containers, commercial diaphragms and desiccant bags.
Military, marine and aerospace products. ICF produces coated fabrics used in truck and equipment covers, waterproof duffel bags, pneumatic air mattresses, collapsible tanks for fuel and water storage, temporary shelters, rafts, inflatable boats, various types of safety devices, pneumatic and electrical plane de-icers, specialty molded aircraft parts, aerospace fuel cells, aircraft evacuation slides, helicopter floats, surveillance balloons and miscellaneous items. A portion of ICF's work in this area is performed as a subcontractor on United States government contracts.
ICF's direct sales force sells primarily to fabricators who use ICF's specialty coated fabrics in products sold to end-users.
Industrial Coverings Fabrics
ICF sells coated fabrics to customers that produce a wide variety of industrial coverings, including truck tarpaulins, trailer covers, cargo covers, agricultural covers, hangar curtains, industrial curtains, boat covers, athletic field covers, temporary shelters, semi-bulk containers and specialized flotation devices used for the containment of oil spills and other environmental pollutants. ICF's industrial coverings fabrics are produced by the same methods as its specialty coated fabrics and are sold under the COVERLIGHT registered trademark.
The industrial coverings fabrics business also includes coated fabric for loading dock shelters, which are pads or bumpers placed around the exterior of a loading dock door for weathersealing. ICF sells to manufacturers of loading dock shelter systems and believes it is the leading supplier of loading dock shelter material produced with rubber and other special elastomers.
ICF's sales force sells primarily to fabricators of industrial coverings who in turn sell to end-users. Sales personnel concentrate on the largest producers of industrial coverings and loading dock shelter systems in the United States.
Principal Customers
ICF did not have a customer accounting for more than 10% of consolidated Reeves' sales during the years 1991, 1992 or 1993.
Competition
ICF's competitive environment varies by product line. For graphic arts products, the Company's principal competitors are Day International and W. R. Grace. To a lesser extent, the Company also competes with a number of other firms, including David M, Kinyo, Zippy, Sumitomo, DYC and Meiji. The specialty materials product line, except for airbag materials, competes in a number of highly fragmented market segments where competition varies by product. In the United States, competition comes from Chemprene, Archer Rubber, Seaman Corp., Cooley, Fairprene and selected foreign suppliers. Airbag products compete against those of Milliken and Highland Industries as well as several other small manufacturers. Quality, compliance with exacting product specifications, delivery terms and price are important factors in competing effectively in ICF's markets.
APPAREL TEXTILE GROUP
The Apparel Textile Group consists of two divisions, Greige Goods and Finished Goods. ATG concentrates on segments of the market where its manufacturing flexibility, rapid response time, superior service, quality and the ability to supply customers with exclusive blends are key competitive factors.
ATG's Greige Goods Division processes raw materials into undyed woven fabrics known as greige goods. The Greige Goods Division manufactures greige goods of synthetic fibers, wool, silk, flax and various combinations of these fibers. Products of the Greige Goods Division are primarily utilized for apparel and the Greige Goods Division's most significant customers are outside converters and, to a lesser extent, ATG's Finished Goods Division.
The Company believes that the Greige Goods Division is distinguished from its competitors by its ability to efficiently manufacture small yardage runs, its rapid response time, the high quality of its products and its ability to produce samples rapidly on demand. ATG's greige goods plants engage principally in short production runs producing specialty fabrics requiring a variety of blends and textures. Fabrics are produced by the Greige Goods Division according to an order backlog and are typically "sold ahead" three to four months in advance. Most of the Greige Goods Division's sales are sold under firm contracts. In comparison to manufacturers of large volume commodity fabrics such as print cloth, corduroy and denim, the Greige Goods Division has been less adversely affected in recent years by foreign imports because of its position as a small quantity, specialty fabric producer.
ATG's Finished Goods Division functions as a converter and commission finisher. The Finished Goods Division purchases greige goods from the Greige Goods Division and other greige suppliers and either contracts to have such goods converted into finished fabrics of varying weights, colors, designs and finishes or converts them itself. The dyed and finished fabrics are used in various end-products and sold primarily to apparel manufacturers in the women's wear, rainwear/outerwear, men's/boys' wear and career apparel markets.
The Company believes that ATG's Finished Goods Division is one of the most flexible operations of its kind in the United States due to the variety of products it can finish and the broad range of dyeing processes and finishes it is able to offer. The Finished Goods Division focuses on high value-added fabrics with unique colors and specialty finishes. The Finished Goods Division's fabrics are currently being used by a number of the leading men's and women's sportswear manufacturers and its dyeing and finishing services are sold to major domestic converters.
A wide variety of fabrics can be woven at the Greige Goods Division's two weaving plants. The dyeing and finishing plant of the Finished Goods Division is equipped to do a variety of piece dyeing, as well as to provide specialty finishings. This manufacturing flexibility increases ATG's ability to respond rapidly to changes in market demand.
Substantially all of the Apparel Textile Group's products are sold directly to customers through its own sales force. The balance is sold through brokers and agents.
Principal Customers
ATG markets its fabrics to a wide range of customers including H.I.S., the THOMPSON (registered trademark) men's pants division of Salant Corporation, Eddie Haggar Ltd. and V.F. Corporation. ATG also markets its fabrics to major retailers, including J.C. Penney, which specify the Company's fabrics. ATG is a direct supplier of rainwear fabric to Londontown Corporation, the maker of LONDON FOG (registered trademark), and also markets its fabrics to specialty catalogue houses such as Patagonia, L.L. Bean and Eddie Bauer.
ATG did not have a customer accounting for more than 10% of consolidated Reeves sales during the years 1991, 1992 or 1993.
Competition
The textile industry is highly competitive. While there are a number of integrated textile companies, many larger than ATG, no single company dominates the United States market. Competition from imported fabrics and garments continues to be a significant factor adversely affecting much of the domestic textile industry. Because of the nature of ATG's markets, the Company believes it is less susceptible to foreign imports than the industry as a whole and is more insulated from the risk of foreign imports than high-volume commodity producers. The most important factors in competing effectively in ATG's product markets are service, price, quality, styling, texture, pattern design and color. ATG seeks to maintain its market position in the industry through a high degree of manufacturing flexibility, product quality and competitive pricing policies.
The Greige Goods Division distinguishes itself from its competitors by its ability to manufacture runs as small as 40,000 square yards, its rapid response time and the high quality of the products manufactured. The Greige Goods Division has extensive proprietary technical knowledge in the structure of its spinning and weaving operations, which the Company believes represents a significant competitive advantage.
The Finished Goods Division is capable of finishing a wide variety of products and offers a broad range of dyeing processes and finishes. This manufacturing flexibility increases the Finished Goods Division's ability to respond rapidly to changes in market demand, which the Company believes enhances its competitive position.
RAW MATERIALS, MANUFACTURERS AND SUPPLIERS
The principal raw materials used by ICF include polymeric resins, natural and synthetic elastomers, organic and inorganic pigments, aromatic and aliphatic solvents, polyurethanes, polyaramids and calendered fabrics. ATG principally utilizes wool, flax, specialty yarn, man-made fibers, including acrylics, polyesters, acetates, rayon and nylon and a wide variety of dyes and chemicals. Such raw materials are largely purchased in domestic markets and are available from a variety of sources. The Company is not presently experiencing any difficulty in obtaining raw materials. However, the Company has from time to time experienced difficulty in obtaining the substrate fabric that it uses to produce coated automotive airbag materials. The Company anticipates that the completion of its new weaving facility in Spartanburg, South Carolina may reduce the risk of such supply shortages. Airbag fabric produced by the new facility will be subject to rigorous testing and certification before it will be available for production.
FOREIGN OPERATIONS
All of Reeves' foreign operations are conducted through Reeves S.p.A., a wholly-owned subsidiary located in Lodi Vecchio, Italy. Reeves S.p.A. forms a part of Reeves' ICF Group. The financial data of Reeves S.p.A. is as follows (in thousands):
1991 1992 1993 -------- -------- -------- Sales $ 35,437 $ 38,444 $ 36,932
Net income 6,808 9,165 7,446
Assets 33,011 31,608 33,092
The financial results of Reeves S.p.A. do not include any allocations of corporate expenses or consolidated interest expense.
BACKLOG
The following is a comparison of open order backlogs at December 31 of each year presented (in thousands):
1991 1992 1993 -------- -------- -------- Industrial Coated Fabrics Group $ 16,942 $ 16,824 $ 17,072 Apparel Textile Group 47,129 32,994 39,390 -------- -------- -------- Totals $ 64,071 $ 49,818 $ 56,462 ======== ======== ========
The increase in ICF's backlog from 1992 to 1993 is due to growth in the coated automotive airbag materials business. The decrease in the Apparel Textile Group backlog from 1991 to 1992 was the result of a decrease in government business and reduced orders due to market uncertainty. The increase in the ATG backlog from 1992 to 1993 is due to the addition of several new customers in the Finished Goods Division.
The December 31, 1993 backlogs for the Industrial Coated Fabrics Group and the Apparel Textile Group are reasonably expected to be filled in 1994. Under certain circumstances, orders may be canceled at the Company's discretion prior to the commencement of manufacturing. Any significant decrease in backlog resulting from lost customers could adversely affect future operations if these customers are not replaced in a timely manner.
ENVIRONMENTAL MATTERS
The Company is subject to a number of federal, state and local laws and regulations pertaining to air emissions, water discharges, waste handling and disposal, workplace exposure and release of chemicals. During 1993, expenditures in connection with the Company's compliance with federal, state and local environmental laws and regulations did not have a material adverse effect on its earnings, capital expenditures or competitive position. Although the Company cannot predict what laws, regulations and policies may be adopted in the future, based on current regulatory standards, the Company does not expect such expenditures to have a material adverse effect on its operations.
EMPLOYEES
On February 1, 1994, the Company employed approximately 2,289 people, of whom 1,855 were in production, 183 were in general and administrative functions, 52 were in sales and 199 were at Reeves S.p.A. At such date, ICF had approximately 639 employees and ATG had approximately 1,398 employees, with the remainder of the Company's employees in general and administrative positions.
ITEM 2.


ITEM 2. PROPERTIES
The Company's principal facilities, their primary functions and their locations as of March 31, 1994 are as follows:
Size (Sq. Ft.) --------------- Location Function Owned Leased
Manufacturing Facilities
Industrial Coated Fabrics Group Rutherfordton, NC Specialty Materials 215,000 Spartanburg, SC Graphic Arts 308,364 Lodi Vecchio, Italy Graphic Arts and Specialty Materials 160,000 4,900 --------- ------- Subtotal 683,364 4,900 --------- ------- Apparel Textile Group Woodruff, SC Greige Goods 368,587 Chesnee, SC Greige Goods 303,100 Bessemer City, NC Greige Goods 218,992 Bishopville, SC Finished Goods 226,684 2,400 Bishopville, SC Warehouse 72,650 --------- ------- Subtotal 1,117,363 75,050 --------- ------- Total Manufacturing Facilities 1,800,727 79,950 --------- -------
Non-Manufacturing Facilities
New York, NY Administrative & Sales 12,000 Spartanburg, SC Administrative & Sales 43,000 Darien, CT Administrative 6,800 --------- ------- Total Non-Manufacturing Facilities 43,000 18,800 --------- ------- TOTAL 1,843,727 98,750 ========= =======
The Company is a party to leases with terms ranging from month-to-month to fifteen years, with rental expense aggregating $1.5 million for the twelve months ended December 31, 1993. The Company believes that all of its facilities are suitable and adequate for the current conduct of its operations.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company believes that there are no legal proceedings, other than ordinary routine litigation incidental to the business of the Company, to which the Company or any of its subsidiaries is a party. Management is of the opinion that the ultimate outcome of existing legal proceedings would not have a material adverse effect on the Company's consolidated financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 8, 1993, James W. Hart was re-elected as a director of Reeves.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 31, 1994, 100% or 35,021,666 shares of Reeves' Common Stock was held by Hart Holding. There is no established public trading market for the Common Stock.
Reeves' debt instruments restrict Reeves from declaring or paying any dividends or making any distributions in respect of its capital stock (other than dividends payable solely in shares of common stock), except under certain conditions as defined therein. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, and Footnote 7, Long-Term Debt, of the Notes to Consolidated Financial Statements of Reeves.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The historical operations and balance sheet data included in the selected financial data set forth below are derived from the consolidated financial statements of Reeves (in thousands except per share data and ratios).
December 31, ------------------------------------------------ 1989 1990 1991 1992 1993 ---- ---- ---- ---- ---- Statement of Operations Data (1):
Net sales Industrial Coated Fabrics Group $114,313 $119,749 $121,264 $126,576 $140,735 Apparel Textile Group 143,035 138,110 148,295 144,528 142,918 -------- -------- -------- -------- -------- Total net sales $257,348 $257,859 $269,559 $271,104 $283,653 ======== ======== ======== ======== ========
Operating income Industrial Coated Fabrics Group $ 24,715 $ 23,250 $ 23,940 $ 24,732 $ 29,287 Apparel Textile Group 11,513 10,059 10,121 10,693 11,583 Corporate expenses (5,278) (7,503) (7,278) (8,318) (10,433) Goodwill amortization (1,140) (1,140) (1,157) (1,340) (1,340) Facility restructuring charges (1,003) -------- -------- -------- -------- -------- Total operating income $ 29,810 $ 24,666 $ 25,626 $ 25,767 $ 28,094 ======== ======== ======== ======== ========
Income from continuing operations $ 6,100 $ 5,757 $ 4,544 $ 5,976 $ 7,857 ======== ======== ======== ======== ======== Interest expense and amortization of financing costs and debt discount $ 22,590 $ 19,935 $ 21,777 $ 17,633 $ 16,394 ======== ======== ======== ======== ======== Income from continuing operations per share $ .32 $ .30 $ .23 $ .16 $ .22
Supplemental earnings per share data - income from continuing operations (2) .17 .16 .12
Ratio of earnings to fixed charges (3) 1.6x 1.3x 1.2x 1.5x 1.7x ==== ==== ==== ==== ====
Earnings (loss) per common share
Primary and Fully Diluted: Income from continuing operations $ .32 $ .30 $ .23 $ .16 $ .22 Income (loss) before extraordinary item 1.19 (1.78) .39 .16 .22 Dividends paid Net income (loss) 1.09 (1.78) .39 .08 .22
Weighted average number of shares Primary 17,471 17,938 18,118 36,724 34,978 Fully diluted 17,500 17,883 18,118 36,724 34,978
Operating Data:
Depreciation and goodwill amortization expense $ 6,230 $ 6,637 $ 7,108 $ 8,116 $ 8,544 Capital expenditures 6,718 7,007 11,015 15,788 16,506
Balance Sheet Data:
Total assets (4) $246,910 $228,256 $214,987 $192,931 $203,025
Long-term debt (including current portion) 149,863 148,837 148,960 132,576 132,677
Stockholder's equity (5) 40,890 13,195 20,477 15,565 21,411
Footnotes to Statement of Operations and Balance Sheet Data:
(1) The fiscal year ended December 31, 1989 has been restated to reflect the exclusion of the discontinued operations of the ARA Automotive Group. See Footnote 3, Discontinued Operations and Facility Restructuring Charges, of the Notes to Consolidated Financial Statements of Reeves.
(2) Effective December 31, 1991, Reeves' Board of Directors approved the exchange of all of its outstanding Series I Preferred Stock, $1.00 par value, valued in the aggregate at $9,410,000, for 18,820,000 shares of Reeves' Common Stock, $.01 par value, valued at $.50 per share. The supplemental earnings per share data is presented for each period as if the exchange occurred on January 1, 1989.
(3) For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes, plus fixed charges. Fixed charges consist of interest on all indebtedness, which includes amortization of financing costs and debt discounts, and one-third of all rentals, which is considered representative of the interest portion included therein, after adjustments for amounts related to discontinued operations.
(4) Total assets include the assets of discontinued operations prior to disposal. In 1990, Reeves discontinued the operations of Reeves' ARA Automotive Group.
(5) The decline in stockholder's equity from 1989 to 1990 includes the recognition of a net loss of $34,594,000 from the disposal of the remaining operations of Reeves' ARA Automotive Group. The decline in stockholder's equity from 1991 to 1992 primarily reflects translation adjustments of $6,626,000 caused by foreign currency fluctuations.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (1991-1993)
SALES
Consolidated sales increased from $269.6 million in 1991 to $283.7 million in 1993 (5.2%) due to increased sales of the Industrial Coated Fabrics Group (16.0%) related primarily to growth in coated automotive airbag materials, partially offset by a decline in sales of the Apparel Textile Group (3.6%) due to a shift to basic, lower margin products, price competition, adverse recessionary influences affecting domestic textile markets and the cessation of ATG's weaving operations at its Woodruff, South Carolina facility in 1993.
Industrial Coated Fabrics Group. ICF's sales were $121.3 million, $126.6 million and $140.7 million in 1991, 1992 and 1993, respectively. The 16.0% increase during the period was due to increased sales of specialty coated fabrics, primarily coated automotive airbag materials, partially offset by a decline in offset printing blanket volume. The increase in coated automotive airbag materials sales was due to an increase in unit volume caused by the increased use of driver-side airbags primarily in cars manufactured in the United States. The decline in domestic printing blanket sales was primarily due to reduced demand as a result of the slowdown in the printing industry. Sales of Reeves Brothers' Italian subsidiary ("Reeves S.p.A.") fluctuated during the period primarily due to movements in foreign currency exchange rates.
Apparel Textile Group. ATG's sales were $148.3 million, $144.5 million and $142.9 million in 1991, 1992 and 1993, respectively. The 2.6% sales decline in 1992 as compared to 1991 was evenly distributed between ATG's greige and finishing divisions. The decline in each division was primarily due to unusually strong sales in 1991 to the U.S. military as a result of Operation Desert Storm and, to a lesser extent, the economic recession in the United States in 1992. ATG's products experienced both a decline in unit volume as well as a shift to more basic, lower margin products in 1992 as compared to 1991. The 1.1% decline experienced in 1993 as compared to 1992 resulted from a decrease in greige goods sales as a result of the cessation of weaving operations at the Woodruff, South Carolina facility due to declining sales to the U.S. military, offset partially by the increased sales of finished goods due to greater demand for higher quality and more varied product offerings and styles.
OPERATING INCOME
Consolidated operating income was $25.6 million, $25.8 million and $28.1 million in 1991, 1992 and 1993, respectively. The 9.8% increase between 1991 and 1993 resulted primarily from increased profits contributed by ICF's specialty materials products (predominantly coated automotive airbag materials) and to a lesser extent, increased profits contributed by ATG (in spite of reduced sales volume) as a result of cost reductions and productivity gains achieved during the period related to its capital investment program. The operating income increase experienced during the period was partially offset by increased corporate expenses and, in 1993, by facility restructuring charges of $1.0 million. Operating income, as a percentage of sales, increased from 9.5% in 1991 and 1992 to 9.9% in 1993.
Industrial Coated Fabrics Group. ICF's operating income was $23.9 million, $24.7 million and $29.3 million in 1991, 1992 and 1993, respectively, and represented 19.7%, 19.5% and 20.8% of ICF's sales in such years. Operating income growth in 1992 as compared to 1991 was due primarily to increased sales of coated automotive airbag materials and, to a lesser extent, the elimination of certain lower-margin specialty coated fabric products. The 18.6% increase in operating income in 1993 as compared to 1992 was primarily due to the benefits of economies of scale realized in connection with increased sales of coated automotive airbag materials. Operating income from printing blankets declined in 1992 and 1993 reflecting the worldwide slowdown in the printing industry partially offset by efficiencies experienced by Reeves S.p.A. primarily related to increased material yields.
Apparel Textile Group. ATG's operating income was $10.1 million, $10.7 million and $11.6 million in 1991, 1992 and 1993, respectively, and represented 6.8%, 7.4% and 8.1% of ATG's sales in such years. The operating income and margin improvement experienced during the period was achieved in spite of an overall 3.6% sales decline reflecting the benefits of cost reductions and productivity improvements realized from ATG's capacity modernization program initiated at its Chesnee and Bishopville, South Carolina facilities.
Corporate Expenses. Corporate expenses were $7.3 million, $8.3 million and $10.4 million in 1991, 1992 and 1993, respectively, and represented 2.7%, 3.1% and 3.7% of consolidated sales in such years. The increase in corporate expenses during the period related primarily to increased staffing and compensation expense necessary to support corporate development activities. In 1993, corporate expenses included a provision for costs related to the Company's discontinued Buena Vista, Virginia facility of $.5 million.
Goodwill Amortization and Facility Restructuring Charges. The Company recorded provisions for goodwill amortization of $1.2 million in 1991 and $1.3 million in 1992 and 1993. In 1993, Reeves also recorded facility restructuring charges of $1.0 million. The one-time charges related primarily to the cessation of weaving activities at the Company's Woodruff, South Carolina facility due to declining sales to the U.S. military, the conversion of that facility into a captive yarn mill and consolidation of weaving capacity at ATG's remaining facilities.
INTEREST EXPENSE, NET
Interest expense, net consists of consolidated interest expense plus amortization of financing costs and debt discounts less interest income on investments. Interest expense, net was $20.7 million, $17.2 million and $16.2 million in 1991, 1992 and 1993, respectively. Included in such net amounts are provisions for the amortization of financing costs and debt discounts totaling $1.3 million, $1.0 million and $.7 million in 1991, 1992 and 1993, respectively. The decline in interest expense, net during the period resulted primarily from the repayment of bank debt, the refinancing of Reeves' long-term debt in 1992 with proceeds from the sale of the 11% Senior Notes and the repurchase of a portion of the 13 3/4% Subordinated Debentures.
INCOME TAXES
The Company's effective income tax rate on income from continuing operations before income taxes for 1991, 1992 and 1993 was 7.6%, 30.3% and 33.7%, respectively. The effective income tax rate on income from continuing operations for 1991 and 1992 differed from the federal statutory rate of 34% primarily due to the impact of goodwill amortization and Reeves S.p.A.'s lower effective tax rate. The higher effective income tax rate in 1992 as compared to 1991 was primarily due to an increase in domestic taxable income which is taxed at a higher rate than income earned at Reeves S.p.A., a new Italian tax affecting Reeves S.p.A.'s tax liability and the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109").
During 1993, Reeves established a $.8 million valuation reserve against the Company's deferred tax assets reflecting estimated utilization of foreign tax credits. The Company has foreign tax credit carryforwards of $1.9 million of which $1.7 million expire in 1994 and $.2 million expire at varying dates through 1997. The valuation reserve was established based on the Company's estimate of foreign source taxable income expected to be received from Reeves S.p.A. during the foreign tax credit carryover period.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations was $4.5 million, $6.0 million and $7.9 million in 1991, 1992 and 1993, respectively. Income from continuing operations excluded (i) a gain on disposal of discontinued operations, net of taxes, aggregating $2.8 million in 1991, (ii) an extraordinary loss of $6.1 million in 1992 from the write-off of financing costs and debt discounts related to the early extinguishment of long-term debt in the Company's 1992 refinancing and (iii) a gain of $3.2 million in 1992 related to the cumulative effect of adopting a change in accounting principle (FAS 109).
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures
Commmencing in 1991, the Company began significantly increasing its levels of capital investment in its businesses in order to modernize and expand capacity, reduce its overall cost structure, increase productivity and enhance its competitive position. Between 1991 and 1993, the Company invested approximately $52.1 million in aggregate ($11.0 million in 1991, $15.8 million in 1992, and $16.5 million in 1993 and $8.8 million, representing the cost of manufacturing equipment leased under operating leases, in 1992 and 1993).
Between 1991 and 1993, the Company invested approximately $13 million in ICF's domestic facilities in order to purchase new production equipment, to increase productivity and expand capacity in its traditional lines of business as well as to enter the coated automotive airbag materials market. In addition, ICF spent approximately $12 million in its Reeves S.p.A. facilities to construct an 80,000 square foot addition and purchase related equipment. Such investment increased capacity to manufacture offset printing blankets and installed coated fabrics capacity in Europe to meet anticipated demand for sophisticated specialty materials. Between 1991 and 1993, the Company invested approximately $24.2 million in ATG's facilities at Chesnee and Bishopville, South Carolina to increase productivity and manufacturing flexibility, expand capacity for more sophisticated fabrics and allow more rapid response to market demand and a broader product offering. Of such $24.2 million, approximately $8.8 million represents the cost of manufacturing equipment leased under operating leases.
The Company intends to substantially increase its capital investment in its existing businesses during the 1994-1997 period. The Company currently anticipates in excess of $40 million of capital expenditures in 1994 and in excess of $100 million of aggregate spending between 1995 and 1997. In 1994, the Company anticipates spending approximately $17 million to construct, furnish and equip a state-of-the-art plant in Spartanburg, South Carolina to weave automotive airbag materials, approximately $5 million to complete the capacity expansion of ATG's Chesnee, South Carolina plant and approximately $16 million to expand the capacity of and improve productivity at ICF's worldwide coated fabrics and offset printing blanket facilities. Projected capital expenditures beyond 1994 are expected to complete ATG's modernization and expansion of its textile capacity, expand ICF's automotive airbag materials capacity in response to anticipated domestic and international market requirements and enhance the profitability and competitive position of ICF's printing blanket and traditional coated fabrics businesses through additional spending for cost reductions and productivity improvements.
As a result of the nature of the Company's business and its substantial expenditures for capital improvements over the last several years, current and future capital expenditure requirements are flexible as to both timing and amount of capital required. In the event that cash flow proves inadequate to fund currently projected expenditures, such expenditures can be adjusted so as not to exceed available funds.
Liquidity
The Company's net cash provided by operating activities increased from $7.6 million in 1991 to $15.2 million in 1992 and $25.2 million in 1993. The improvement in net cash provided by operating activities resulted from higher levels of income from continuing operations and significant improvements in working capital management.
The Company anticipates that it will be able to meet its projected working capital, capital expenditure and debt service requirements through internally generated funds and borrowings available under its existing $35 million Bank Credit Agreement.
In August 1992, in conjunction with the refinancing of the Company's bank and institutional indebtedness, the Company entered into the Bank Credit Agreement which provides the Company with an aggregate $35 million revolving line of credit and letter of credit facility. The Bank Credit Agreement expires on December 31, 1995 and is secured by accounts receivable and inventories. As of March 31, 1994, the Company had available borrowing capacity (net of $1.3 million of outstanding letters of credit) of $28.6 million under the Bank Credit Agreement.
IMPACT OF INFLATION
The Company does not believe that its financial results have been materially impacted by the effects of inflation.
OTHER MATTERS
In February 1992, the Company received approximately $17 million from the federal government in payment of a tax refund. The refund resulted from the Company carrying back tax operating losses generated in 1991, primarily related to the disposal of the ARA Automotive Group, to offset previous years' taxable income.
In 1992, Reeves adopted FAS 109 effective as of the beginning of 1992. Under FAS 109, in the year of adoption, previously reported results of operations for the year are restated to reflect the effects of applying FAS 109, and the cumulative effect of adoption on prior years' results of operations is shown in the income statement in the year of change. The cumulative effect of this change in accounting principle increased net income by $3.2 million in 1992.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14, for index to financial statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Reeves Industries, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) present fairly, in all material respects, the financial position of Reeves Industries, Inc. and its subsidiary at December 31, 1992 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 2 and 8 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1992.
PRICE WATERHOUSE
Atlanta, Georgia February 11, 1994, except as to Note 16, which is as of March 31, 1994
REEVES INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET (in thousands except share data)
December 31, ---------------- 1992 1993 ------ ------ ASSETS Current assets Cash and cash equivalents of $3,936 and $7,222 $ 4,165 $ 12,015 Accounts receivable, less allowance for doubtful accounts of $1,570 and $1,467 38,876 45,925 Inventories (Note 4) 35,310 33,969 Deferred income taxes (Note 8) 6,477 5,442 Other current assets 9,814 3,300 Investment in discontinued operations (Note 3) 2,466 -------- -------- Total current assets 97,108 100,651 Property, plant and equipment, at cost less accumulated depreciation (Note 5) 43,526 51,415 Unamortized financing costs, less accumulated amortization of $550 and $1,177 4,390 3,946 Goodwill, less accumulated amortization of $8,091 and $9,431 44,697 43,357 Deferred income taxes (Note 8) 1,951 2,153 Other assets 603 1,503 Investment in discontinued operations (Note 3) 656 -------- -------- Total assets $192,931 $203,025 ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Accounts payable $ 15,352 $ 22,810 Accrued expenses and other liabilities (Note 6) 18,991 21,197 Liabilities related to discontinued operations (Note 3) 3,367 -------- -------- Total current liabilities 37,710 44,007 Long-term debt (Note 7) 132,576 132,677 Deferred income taxes (Note 8) 4,505 4,367 Other liabilities 563 Liabilities related to discontinued operations (Note 3) 2,575 -------- -------- Total liabilities 177,366 181,614 -------- -------- Stockholder's equity (Note 10) Common stock, $.01 par value, 50,000,000 shares authorized; 34,967,973 and 35,021,666 shares issued and outstanding 350 350 Capital in excess of par value 5,069 5,099 Retained earnings 12,107 19,964 Equity adjustments from translation (1,961) (4,002) -------- -------- Total stockholder's equity 15,565 21,411 -------- -------- Commitments and contingencies (Note 15) -------- -------- Total liabilities and stockholder's equity $192,931 $203,025 ======== ========
The accompanying notes are an integral part of these financial statements.
REEVES INDUSTRIES, INC. CONSOLIDATED STATEMENT OF INCOME (in thousands except per share data)
Year Ended December 31, ---------------------------- 1991 1992 1993 -------- -------- -------- Net sales $269,559 $271,104 $283,653 Cost of sales 216,179 216,043 222,016 -------- -------- -------- Gross profit on sales 53,380 55,061 61,637 Selling, general and administrative expenses 27,754 29,294 32,540 Facility restructuring charges (Note 3) 1,003 -------- -------- -------- Operating income 25,626 25,767 28,094 Other income (expense) Other income, net 1,068 435 158 Interest expense and amortization of financing costs and debt discounts (21,777) (17,633) (16,394) -------- -------- -------- (20,709) (17,198) (16,236) -------- -------- -------- Income from continuing operations before income taxes, extraordinary item and cumulative effect of a change in accounting principle 4,917 8,569 11,858 Income taxes (Note 8) 373 2,593 4,001 -------- -------- -------- Income from continuing operations 4,544 5,976 7,857 Discontinued operations Net gain on disposal of discontinued operations, less applicable income tax provision of $1,732 (Note 3) 2,830 -------- -------- -------- 2,830 -------- -------- -------- Income before extraordinary item and cumulative effect of a change in accounting principle 7,374 5,976 7,857 Extraordinary loss from early extinguishment of debt, less applicable income tax benefits of $3,148 (Note 7) (6,112) Cumulative effect of a change in accounting for income taxes (Note 8) 3,221 -------- -------- -------- Net income $ 7,374 $ 3,085 $ 7,857 ======== ======== ========
Earnings per common share (Note 10) Primary and fully diluted Income from continuing operations $ .23 $ .16 $ .22 Income before extraordinary item and cumulative effect of a change in accounting principle .39 .16 .22 Cumulative effect of a change in accounting for income taxes .09 Net income .39 .08 .22
Weighted average number of common shares outstanding Primary and fully diluted 18,118 36,724 34,978
The accompanying notes are an integral part of these financial statements.
REEVES INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
Year Ended December 31, ------------------------ 1991 1992 1993 ------ ------ ------ Cash flows from operating activities Net income $ 7,374 $ 3,085 $ 7,857 Adjustments to reconcile net income to net cash provided by operating activities Write-off of financing costs due to early extinguishment of debt 6,112 Cumulative effect of a change in accounting for income taxes (3,221) Net gain on disposal of discontinued operations (2,830) Depreciation and amortization 8,388 9,146 9,272 Deferred income taxes 601 (112) 694 Changes in operating assets and liabilities Decrease (increase) in accounts receivable 565 2,574 (7,049) Decrease in inventories 486 4,200 1,341 (Increase) decrease in other current assets (1,949) (9,167) 6,514 (Increase) decrease in other assets (254) 134 (900) Increase (decrease) in accounts payable 492 (546) 7,458 (Decrease) increase in accrued expenses and other liabilities (4,920) 6,451 133 Equity adjustments from translation (356) (3,450) (117) ------- -------- ------- Net cash provided by operating activities 7,597 15,206 25,203 ------- -------- ------- Cash flows from investing activities Purchases of property, plant and equipment (11,015) (15,788) (16,506) Net proceeds (payments) from disposal of discontinued operations 2,331 12,438 (536) ------- -------- ------- Net cash used by investing activities (8,684) (3,350) (17,042) ------- -------- ------- Cash flows from financing activities Principal payments of long-term debt (56) (108,726) Net payments on revolving loans (30,000) Borrowings of long-term debt 121,644 Debt issuance costs (5,115) Premium on early retirement of debt (4,876) Purchases of common stock (1,075) (270) Issuance of common stock 300 ------- -------- ------- Net cash (used) provided by financing activities (56) (28,148) 30 ------- -------- ------- Effect of exchange rate changes on cash 122 (535) (341) ------- -------- ------- (Decrease) increase in cash and cash equivalents (1,021) (16,827) 7,850 Cash and cash equivalents, beginning of year 22,013 20,992 4,165 ------- -------- ------- Cash and cash equivalents, end of year $20,992 $ 4,165 $12,015 ======= ======== =======
The accompanying notes are an integral part of these financial statements.
REEVES INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1992 AND 1993
1. BUSINESS AND ORGANIZATION
Reeves Industries, Inc. ("Reeves" or the "Company"), a wholly-owned subsidiary of Hart Holding Company Incorporated ("Hart Holding"), is a holding company whose principal asset is the common stock of its wholly-owned subsidiary, Reeves Brothers, Inc. ("Reeves Brothers"). The Company was acquired by Hart Holding on May 6, 1986. Reeves Brothers is a diversified industrial company engaged in two business segments: industrial coated fabrics and apparel textiles.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Reeves Brothers. All significant intercompany balances and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market. Cost for approximately 29% and 27% of total inventories was determined on the last-in, first-out (LIFO) method at December 31, 1992 and 1993, respectively. With respect to the remainder of the inventories, cost is determined principally on the first-in, first-out (FIFO) method. Market is determined on the basis of replacement costs or selling prices less costs of disposal. The application of Accounting Principles Board Opinion No. 16, "Business Combinations," for the acquisition of Reeves caused the inventories in the accompanying consolidated balance sheet to exceed inventories used for income tax purposes by approximately $7,320,000 as of December 31, 1993.
Property, plant and equipment
Property, plant and equipment are stated at cost. Improvements which extend the useful lives of the assets are capitalized while repairs and maintenance are charged to operations as incurred. Depreciation is provided using primarily the straight-line method for financial reporting purposes while accelerated methods are used for income tax purposes. When assets are replaced or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income.
Fair value of financial instruments
Cash, accounts receivable, accounts payable and accrued expenses and other liabilities are reflected in the financial statements at fair value because of the short-term maturity of these instruments. The fair value of the Company's debt instruments is determined based upon a recent market price quote and is disclosed in Note 7. The fair value of the foreign exchange contracts (used for hedging purposes) is estimated using quoted exchange rates and is disclosed in Note 11.
Foreign currency exchange and translation
For Reeves Brothers' wholly-owned foreign subsidiary, the local currency of the country of operation is used as the functional currency for purposes of translating the local currency asset and liability accounts at current exchange rates into the reporting currency. The resulting translation adjustments are accumulated as a separate component of stockholder's equity reflected in the equity adjustments from translation account in the accompanying consolidated financial statements. Gains and losses resulting from translating asset and liability accounts that are denominated in currencies other than the functional currency are included in income.
Amortization policy
The Company is amortizing goodwill on a straight-line basis over forty years. Financing costs and debt discounts are being amortized by the interest method over the life of the respective debt securities. Pre-operating costs associated with the start-up of significant new operations are deferred and amortized over five years.
Revenue recognition
Sales are generally recorded when the goods are shipped. At the customer's request, shipment of the completed product is sometimes delayed. In such instances, revenues are recognized when the customer acknowledges transfer of title and accepts the related billing.
Income taxes
The Company is a member of an affiliated group of which Hart Holding is the common parent. Pursuant to a tax allocation agreement with Hart Holding, the Company files a consolidated federal income tax return with Hart Holding. Under the agreement, the Company's tax liability is determined on a separate return basis and any taxes payable are remitted to Hart Holding.
During 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Income tax accounting information is disclosed in Note 8 to the consolidated financial statements.
For the years ended December 31, 1992 and 1993, the provision for income taxes was based on reported earnings before income taxes, and includes appropriate provisions for deferred income taxes resulting from the tax effect of the differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Prior to January 1, 1992, deferred income taxes arose from the reporting of certain expenses, principally depreciation, pension costs and other expenses, differently for financial reporting purposes than for income tax reporting purposes.
At December 31, 1993, unremitted earnings of Reeves Brothers' foreign subsidiary were approximately $19,500,000. United States income taxes have not been provided on these unremitted earnings as it is the Company's intention to indefinitely reinvest these earnings. However, Reeves Brothers' foreign subsidiary has, in previous years, remitted a portion of its current year earnings as dividends and expects to continue this practice in the future.
Pension plans
The Company has noncontributory pension plans covering all eligible domestic employees (Note 9).
Earnings per share
Earnings per share are computed based on the weighted average number of common and common equivalent shares, where dilutive, outstanding during each period. A deduction has been made for cumulative preferred dividends earned during such periods the preferred stock was outstanding even though such dividends were not declared or paid. Fully diluted earnings per share are computed assuming that outstanding warrants, where dilutive, were exercised at the beginning of the period or date of issuance, if later. Supplemental earnings per share data is provided giving effect to the exchange of preferred stock for common stock as discussed in Note 10.
Statement of cash flows
For purposes of the statement of cash flows, cash equivalents are defined as highly liquid investment securities with an original maturity of three months or less.
3. DISCONTINUED OPERATIONS AND FACILITY RESTRUCTURING CHARGES
During 1990 the Company elected to dispose of the operations of its ARA Automotive Group. The Company has realized all of the significant assets and continues to settle remaining estimated liabilities related to the discontinued operation. The remaining estimated amounts to settle such liabilities have been included in accrued expenses and other liabilities as of December 31, 1993.
During 1993, a facility restructuring plan was implemented to reduce the Company's overall cost structure and to improve productivity. The Consolidated Statement of Income includes a charge of approximately $1,003,000 related to this plan. The plan included the cessation of weaving activities at one location and conversion of that facility into a captive yarn mill, consolidating weaving capacity at remaining facilities and implementing cost saving/state-of-the-art finishing technology.
4. INVENTORIES
Inventories at December 31, 1992 and 1993, are comprised of the following (in thousands):
1992 1993
Raw materials $ 7,084 $ 6,815 Work in process 8,777 8,792 Manufactured and finished goods 19,449 18,362 -------- -------- $ 35,310 $ 33,969 ======== ========
If inventories had been calculated on a current cost basis, they would have been valued higher by approximately $2,933,000 and $2,038,000 at December 31, 1992 and 1993, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
The principal categories of property, plant and equipment at December 31, 1992 and 1993, are as follows (in thousands):
1992 1993
Land and land improvements $ 794 $ 797 Buildings and improvements 14,355 16,654 Machinery and equipment 56,801 65,400 -------- -------- 71,950 82,851 Less - Accumulated depreciation and amortization (28,424) (31,436) -------- -------- $ 43,526 $ 51,415 ======== ========
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31, 1992 and 1993, are comprised of the following (in thousands):
1992 1993
Accrued salaries, wages and incentives $ 3,013 $ 3,145 Product claims reserve 1,277 1,237 Interest payable 6,493 6,512 Income taxes payable 530 548 Deferred compensation 1,322 1,187 Accrued costs related to discontinued operations 145 1,390 Italian severance pay program 2,405 2,391 Other 3,806 4,787 -------- -------- $ 18,991 $ 21,197 ======== ========
7. LONG-TERM DEBT
Long-term debt at December 31, 1992 and 1993, consists of the following (in thousands):
1992 1993
11% Senior Notes due July 15, 2002, net of unamortized discount of $835 and $747 $121,665 $121,753 13 3/4% Subordinated Debentures due May 1, 2000, net of unamortized discount of $89 and $76 10,911 10,924 -------- -------- $132,576 $132,677 ======== ========
In June 1992, the Company completed a public offering of $122,500,000 of 11% Senior Notes due 2002 (the "Senior Notes"). Proceeds of the offering were used to redeem all of the Company's then outstanding 12 1/2% Senior Notes and 13% Senior Subordinated Debentures and to pay and terminate the revolving loan outstanding under a prior loan agreement.
In connection with the liquidation of the 12 1/2% Senior Notes, the 13% Senior Subordinated Debentures and the prior revolving loan, the Company paid early payment premiums of $4,601,000 and wrote off related debt issuance costs and debt discounts of $3,016,000. In addition, during 1992, the Company purchased $5,000,000 face value of its 13 3/4% Subordinated Debentures for $5,275,000. As a result of these transactions, the Company recognized an extraordinary loss of $5,775,000 ($.16 per share), net of applicable income tax benefits of $2,974,000.
The Company is required to make sinking fund payments with respect to the remaining 13 3/4% Subordinated Debentures of $6,000,000 on May 1, 1999 and $5,000,000 on May 1, 2000.
On August 7, 1992, the Company and Reeves Brothers entered into the Bank Credit Agreement with a group of banks, which was amended in 1993, and which provides the Company and Reeves Brothers with an aggregate $35,000,000 revolving line of credit (the "Revolving Loan") and letter of credit facility. The Revolving Loan bears interest at the Alternate Base Rate (defined below) plus 1 1/2% or Eurodollar Rate plus 2 1/2%, at the election of the borrower. The Alternate Base Rate is defined as the higher of the Prime Rate (6% at December 31, 1993), Base CD Rate plus 1%, or the Federal Funds Effective Rate plus 1/2%. The applicable rates above the Alternate Base Rate and Eurodollar Rate decline based on a ratio of earnings to fixed charges, as defined. The Revolving Loan is due December 31, 1995. The Revolving Loan is secured by Reeves Brothers' accounts receivable and inventories. As of December 31, 1993, the Company and Reeves Brothers had available borrowings, net of $1,415,000 of outstanding letters of credit, of $33,585,000. A commitment fee of 1/2% per annum is required on the unused portion of the Revolving Loan.
The Senior Notes, Revolving Loan, and 13 3/4% Subordinated Debentures contain certain restrictive covenants with respect to Reeves and Reeves Brothers including, among other things, maintenance of working capital, limitations on the payments of dividends, the incurrence of additional indebtedness and certain liens, restrictions on capital expenditures, mergers or acquisitions, investments and transactions with affiliates, and require the maintenance of certain financial ratios and compliance with certain financial tests and limitations.
Interest paid amounted to $18,155,000, $12,350,000 and $15,306,000 in 1991, 1992 and 1993, respectively.
The estimated fair value of the Company's 11% Senior Notes and 13 3/4% Subordinated Debentures at December 31, 1993 is $131,075,000 and $12,980,000, respectively.
8. INCOME TAXES
During the third quarter of 1992, the Company adopted FAS 109 effective as of the beginning of 1992. Under FAS 109, in the year of adoption, previously reported results of operations for the year are restated to reflect the effects of applying FAS 109, and the cumulative effect of adoption on prior years' results of operations is shown in the income statement in the year of change. The adoption of FAS 109 did not have a material effect on the Company's 1992 income from continuing operations before income taxes.
The provision (benefit) for income taxes from continuing operations is comprised of the following (in thousands):
1991 1992 1993 Current Federal $ (2,698) $ (401) $ 1,278 Foreign 354 954 811 State 147 174 138 -------- -------- -------- (2,197) 727 2,227 -------- -------- -------- Deferred Federal 1,770 983 945 Foreign 641 826 State 800 242 3 -------- -------- -------- 2,570 1,866 1,774 -------- -------- -------- $ 373 $ 2,593 $ 4,001 ======== ======== ========
The provision (benefit) for income taxes from continuing operations differs from taxes computed using the statutory federal income tax rate as follows (in thousands):
1991 1992 1993
Consolidated computed statutory taxes $ 1,672 $ 2,914 $ 4,050 State income taxes, net of federal income tax benefit 412 275 93 Amortization of goodwill 393 456 456 Foreign tax rate less than statutory rate (2,081) (868) (1,451) Valuation reserve 800 Other, net (23) (184) 53 -------- -------- -------- $ 373 $ 2,593 $ 4,001 ======== ======== ========
In 1990, Reeves Brothers' foreign subsidiary implemented a reorganization allowed under the applicable country's income tax laws. This transaction resulted in the foreign subsidiary revaluing upward its net assets for income tax purposes. Additional depreciation and amortization relating to this revaluation is deductible in determining income tax expense for both financial and income tax reporting. The effect of this revaluation resulted in the foreign subsidiary's effective income tax rate declining from its statutory rate of approximately 46% to 5% for 1991. Due to tax rate increases, other tax law changes, and the adoption of FAS 109, the foreign subsidiary's effective income tax rate for both 1992 and 1993 is approximately 22% versus the statutory rate of 52.2%.
The provision from continuing operations for deferred federal income taxes for 1991, the year prior to the effective date of adoption of FAS 109, is comprised of timing differences related to provisions for items not deductible until incurred, principally product claims, bad debts and insurance, depreciation and amortization, compensation agreements and pension costs.
Deferred tax liabilities and assets under FAS 109 are comprised of the following temporary differences (in thousands):
1992 1993
Deferred tax liabilities Inventories $ 2,523 $ 2,584 Depreciation 1,982 1,783 ------- ------- Total deferred tax liabilities $ 4,505 $ 4,367 ======= =======
Deferred tax assets Current Tentative minimum tax credits $ 854 $ 854 Accrued expenses 3,677 3,490 Foreign tax credit carryforwards 1,946 1,898 Valuation reserve (800) ------- ------- 6,477 5,442 ------- ------- Long-term Depreciation on foreign subsidiary assets 1,951 1,219 Foreign exchange 934 ------- ------- 1,951 2,153 ------- ------- Total deferred tax assets $ 8,428 $ 7,595 ======= =======
In adopting FAS 109, the Company recorded deferred tax assets which included foreign tax credit carryovers and the benefits of future depreciation related to Reeves Brothers' foreign subsidiary. The realization of these deferred tax assets is evaluated annually based on expected future taxable income and the carryover period of the credits. During 1993, the Company established an $800,000 valuation reserve against the benefit for utilization of foreign tax credits. The Company has foreign tax credit carry forwards of $1,898,000 of which $1,680,000 expire in 1994 and $218,000 expire at varying dates through 1997. The valuation reserve was established based on the Company's estimate of foreign source taxable income expected to be received from Reeves Brothers' foreign subsidiary during the foreign tax credit carryover period.
The sources of income (loss) from continuing operations before income taxes are as follows (in thousands):
1991 1992 1993
Domestic $(2,245) $ 1,327 $ 2,774 Foreign 7,162 7,242 9,084 ------- ------- ------- $ 4,917 $ 8,569 $11,858 ======= ======= =======
Income taxes paid amounted to approximately $0, $2,406,000 and $1,686,000 in 1991, 1992 and 1993, respectively.
9. PENSION PLANS
The Company sponsors two noncontributory defined benefit pension plans covering substantially all of its domestic salaried and hourly employees. The Reeves Brothers salaried pension plan benefits are based on an employee's years of accredited service. The Reeves Brothers hourly pension plan provides benefits, exclusive of benefits related to former ARA Automotive Group retirement plan participants, of stated amounts based on years of accredited service. The Reeves Brothers hourly pension plan also provides benefits to both the ARA union and non-union employees in accordance with their separate benefit calculations. The ARA non-union plan was merged with the Reeves Brothers hourly pension plan effective December 1990; the ARA union plan was merged with the Reeves Brothers' hourly pension plan effective April 1993. The Company's funding policy is to fund at least the minimum amount required by the Employee Retirement Income Security Act of 1974.
Combined data
The following table presents the combined funded status of the Company's plans at December 31, 1992 and 1993 (in thousands):
1992 1993 Actuarial present value of accumulated benefit obligation Vested $ 13,731 $ 19,300 Nonvested 866 914 -------- -------- Accumulated benefit obligation $ 14,597 $ 20,214 ======== ========
Plan assets at fair value $ 24,148 $ 25,450 Projected benefit obligation for services rendered to date 19,129 24,553 -------- -------- Plan assets greater than projected benefit obligation 5,019 897 Unrecognized net transition obligation 2,132 1,955 Unrecognized net gain subsequent to transition (7,097) (3,696) -------- -------- Pension asset (liability) recognized in the consolidated balance sheet $ 54 $ (844) ======== ========
Plan assets consist primarily of fixed income securities, equity securities, and certificates of deposit.
Pension cost includes the following components (in thousands):
1991 1992 1993 Service cost - benefits earned during the period $ 929 $ 942 $ 936 Interest cost on projected benefit obligation 1,409 1,456 1,643 Actual return on plan assets (3,700) (2,961) (2,531) Net amortization and deferral 2,283 1,351 754 ------ ------ ------ Pension cost $ 921 $ 788 $ 802 ====== ====== ======
A weighted average discount rate of 8.5% and 7.25%, and rate of increase in future compensation of 5.5% and 5.0% were used in determining the actuarial present value of the projected benefit obligation in 1992 and 1993, respectively. The long-term expected rate of return on assets was 8.0% in both 1992 and 1993.
In December 1990, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106), which requires accrual, during an employee's active years of service, of the expected costs of providing postretirement benefits to employees and their beneficiaries and dependents. The Company adopted FAS 106 in 1992, the effect of which was not material to the consolidated financial statements.
10. STOCKHOLDER'S EQUITY
Capital stock
The capitalization of Reeves consists of one class of common stock, $.01 par value (the "Common Stock"). The previously outstanding Series I Preferred Stock, $1.00 par value with a stated value of $5,001,000 (the "Preferred Stock") was wholly- owned by Hart Holding. Effective December 31, 1991, the Company's Board of Directors approved the exchange of all the outstanding Preferred Stock held by Hart Holding for 18,820,000 shares of the Company's Common Stock. 250,000 shares of Preferred Stock remain authorized, with no Preferred Stock currently outstanding.
Supplemental earnings per share data
The following supplemental earnings per share data is presented for the year ended December 31, 1991 as if the exchange of Preferred Stock for Common Stock described above occurred on January 1, 1991:
Income from continuing operations $ .12 Income before extraordinary item and cumulative effect of a change in accounting principle .20 Net income .20
Weighted average number of common shares outstanding - primary and fully diluted (in thousands) 36,886
Settlement of litigation
In November 1992, pursuant to a court ordered settlement of a lawsuit brought by the Company against Drexel Burnham Lambert and certain of its affiliates (collectively, the "Defendants"), Reeves received 1,918,132 shares of its common stock from the Defendants which were subsequently cancelled and retired.
Merger with HHCI, Inc.
Effective October 25, 1993, HHCI, Inc., a newly formed, wholly- owned subsidiary of Hart Holding, merged with and into the Company with the Company surviving the merger. HHCI, Inc. was formed as a shell corporation (no operations) with a $300,000 capital contribution from Hart Holding. As a result of the merger, Hart Holding was issued 535,000 shares of the Company's common stock and acquired the 481,307 shares of its common stock not held by Hart Holding. These shares were subsequently cancelled and retired. As a result of this merger, Hart Holding obtained ownership of 100% of the outstanding shares of the common stock of the Company and the other stockholders of Reeves received $.56 per share in cash.
11. FOREIGN EXCHANGE
The Company enters into foreign exchange forward contracts to hedge risk of changes in foreign currency exchange rates associated with certain assets and future foreign currency transactions, primarily cash flows from accounts receivable and firm purchase commitments. The Company does not engage in speculation. While the forward contracts affect the Company's results of operations, they do so only in connection with the underlying transactions. Gains and losses on these contracts are deferred until the underlying hedged transaction is completed. The cash flows from the forward contracts are classified consistent with the cash flows from the transactions being hedged. As a result, they do not subject the Company to risk from foreign exchange rate movements, because gains and losses on these contracts offset losses and gains on the transactions being hedged.
At December 31, 1993, the Company had foreign currency hedge contracts outstanding, equivalent to $14,883,000, to exchange various currencies, including the U.S. dollar, Japanese yen, pound sterling, Deutsche mark, and French franc into Italian Lire. The contracts mature during 1994. The December 31, 1993 fair value of these foreign currency hedge contracts was $14,407,000.
12. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and markets into which the Company's products are sold, as well as their dispersion across many different geographic areas. As a result, at December 31, 1993, the Company does not consider itself to have any significant concentrations of credit risk.
13. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1991, 1992 and 1993, the Company and its subsidiary paid management fees to Hart Holding of $1,200,000, $1,910,000 and $1,804,000, respectively.
During 1992, Reeves Brothers purchased the residences of three officers of Reeves Brothers for an aggregate amount of $1,015,000. During 1993, the Company recognized a loss of approximately $161,000 on the sale of two of the properties including related expenses. The remaining residence, which has a carrying value of $244,000 at December 31, 1993, is presently being marketed for sale.
14. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company, through Reeves Brothers, operates in two principal industry segments: industrial coated fabrics and apparel textiles. The Industrial Coated Fabrics Group manufactures newspaper and graphic art printing press blankets, protective coverings, inflatable aerospace and survival equipment, diaphragms for meters, pump and tank seals and material used in automotive airbags. The Apparel Textiles Group manufactures, dyes and finishes greige goods.
The products of the Industrial Coated Fabrics Group and the Apparel Textiles Group are sold in the United States and in certain foreign countries primarily by Reeves Brothers' merchandising and sales personnel and through a network of independent distributors to a variety of customers including converters, apparel manufacturers, industrial users and contractors. Sales offices are maintained in New York, New York, Dallas, Texas, Spartanburg, South Carolina and Milan, Italy.
The following table presents certain information concerning each segment (in thousands):
1991 1992 1993 Net sales Industrial coated fabrics $121,264 $126,576 $140,735 Apparel textiles 148,295 144,528 142,918 -------- -------- -------- $269,559 $271,104 $283,653 ======== ======== ========
Operating income Industrial coated fabrics $ 23,940 $ 24,732 $ 29,287 Apparel textiles 10,121 10,693 11,583 Corporate expenses (8,435) (9,658) (11,773) Facility restructuring charges (1,003) -------- -------- -------- Operating income 25,626 25,767 28,094
Other income, net 1,068 435 158 Interest expense and amortization of financing costs (21,777) (17,633) (16,394) -------- -------- -------- Income from continuing operations before income taxes, extraordinary item and cumulative effect of a change in accounting principle $ 4,917 $ 8,569 $ 11,858 ======== ======== ========
Depreciation Industrial coated fabrics $ 2,598 $ 3,175 $ 3,632 Apparel textiles 2,983 2,913 3,465 Corporate 370 688 107 -------- -------- -------- $ 5,951 $ 6,776 $ 7,204 ======== ======== ========
Capital expenditures Industrial coated fabrics $ 7,579 $ 6,353 $ 11,459 Apparel textiles 2,994 8,623 4,693 Corporate 442 812 354 -------- -------- -------- $ 11,015 $ 15,788 $ 16,506 ======== ======== ========
Identifiable assets Industrial coated fabrics $ 68,403 $ 65,752 $ 75,625 Apparel textiles 60,410 65,111 63,822 Corporate, principally discontinued operations (in 1991 and 1992), goodwill and debt issuance costs 86,174 62,068 63,578 -------- -------- -------- $214,987 $192,931 $203,025 ======== ======== ========
Financial data of Reeves Brothers' foreign operation is as follows (in thousands):
1991 1992 1993
Sales $ 35,437 $ 38,444 $ 36,932 Net income 6,808 9,165 7,446 Assets 33,011 31,608 33,092
Intersegment sales are not material.
15. COMMITMENTS AND CONTINGENCIES
The Company leases certain operating facilities and equipment under long-term operating leases. At December 31, 1993 future minimum rentals, related to continuing operations, required by operating leases having initial or remaining noncancellable lease terms in excess of one year are as follows: 1994 - $1,853,000; 1995 - $1,811,000; 1996 - $1,800,000; 1997 - $1,800,000; 1998 - $1,800,000; thereafter - $2,945,000.
Rental expense charged to continuing operations was approxi- mately $1,187,000, $1,420,000 and $1,473,000 during the years ended December 31, 1991, 1992 and 1993, respectively.
There are various lawsuits and claims pending against the Company and its subsidiary, including those relating to commercial transactions. The outcome of these matters is not presently determinable but, in the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the results of operations and financial position of the Company.
16. SUBSEQUENT EVENTS
On January 26, 1994, the Board of Directors approved a non- qualified stock option agreement between the Company and the Chairman of the Board of Directors. The agreement grants an option to purchase up to 3,800,000 shares of common stock of the Company, par value $.01 per share, and has an expiration date of December 31, 2023. The option is exercisable at $.56 per share for 1,400,000 shares (exercisable immediately), $.75 per share for 1,400,000 shares (exercisable one year from grant date) and $1.00 per share for 1,000,000 shares (exercisable two years from grant date).
On March 9, 1994 Hart Holding organized Reeves Holdings, Inc. as a wholly-owned subsidiary (the "Issuer") through a capital contribution of $1,000. The Issuer was formed for the purpose of holding all of the outstanding common stock of the Company. On March 31, 1994 the Issuer filed a Registration Statement on Form S-1 under the Securities Act of 1933, as amended, for the purpose of offering Senior Discount Debentures due 2006 anticipated to yield proceeds of approximately $100,000,000. As of March 31, 1994 the Company's common stock has not been contributed to the Issuer.
PART III
ITEM 10.


ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS
The sole director of Reeves and Reeves Brothers is James W. Hart. The following table sets forth the name, positions with Reeves and Reeves Brothers, age and principal business experience during the past five years of each executive officer of Reeves and Reeves Brothers. Any executive officer, unless otherwise stated, holds the identical position or positions in both Reeves and Reeves Brothers.
Name Position Age
Richard W. Ball Treasurer 47
Anthony L. Cartagine Vice President; President - 59 Apparel Textile Group
David L. Dephtereos Vice President and 39 General Counsel
Jennifer H. Fray Secretary and Assistant 29 General Counsel
Douglas B. Hart Senior Vice President - 31 Operations
James W. Hart Chairman of the Board 60
James W. Hart, Jr. President, Chief Executive 40 Officer and Chief Operating Officer
Steven W. Hart Executive Vice President 37 and Chief Financial Officer
V. William Lenoci Vice President; 58 President and Chief Executive Officer - Industrial Coated Fabrics Group
Joseph P. O'Brien Vice President - Finance 53
Patrick M. Walsh Vice President - Administration 53
Mr. Ball joined Reeves and Reeves Brothers in January 1992 as Treasurer. He served as Treasurer of Hart Holding from June 1992 to December 1992. From 1990 through 1991, Mr. Ball was Corporate Treasurer for Turner Corporation, a world-wide construction and development company. From 1988 through 1989, Mr. Ball was Vice President and Chief Financial Officer of Nuclear Energy Services, Inc., an engineering services subsidiary of Penn Central Corporation.
Mr. Cartagine has been with Reeves Brothers since 1964. He was named President - Greige Goods Division of the Apparel Textile Group in 1984 and President of the Apparel Textile Group in 1986. He was named Vice President of Reeves and Reeves Brothers in 1988.
Mr. Dephtereos joined Hart Holding, Reeves and Reeves Brothers in May 1991 as Vice President, General Counsel and Secretary. He served as Vice President and Secretary of Hart Holding from 1991 to 1992 and Secretary of Reeves and Reeves Brothers from 1991 until 1992. From 1985 through May 1991, Mr. Dephtereos was Vice President, General Counsel and Secretary of Air Express International Corporation, a publicly-held, international transportation company.
Ms. Fray joined Hart Holding, Reeves and Reeves Brothers in September 1992 as Assistant General Counsel. In 1992, she was named Secretary of Hart Holding, Reeves and Reeves Brothers. From 1990 to 1992, Ms. Fray was engaged in studies leading to a Master of Laws Degree in Taxation from Boston University, from 1990 to 1991 she was employed as a Tax Associate at Coopers & Lybrand, certified public accountants, in Boston, Massachusetts and from 1987 to 1990 she was engaged in studies leading to a Juris Doctor Degree from Suffolk University.
Mr. Douglas B. Hart served as a Director of Reeves and Reeves Brothers from 1991 to 1992. He was named Vice President - Real Estate in 1989, Senior Vice President in 1991 and Senior Vice President - Operations in 1992 of Reeves and Reeves Brothers. Mr. Hart served as a Director of Hart Holding from 1991 to 1992, as Vice President - Real Estate of Hart Holding from 1989 to 1991 and as Senior Vice President of Hart Holding from 1991 to 1992. In 1992, Mr. Hart became President, Chief Executive Officer and Chief Operating Officer of Hart Investment Properties Corporation, a wholly-owned diversified corporate investment entity of Hart Holding, with current holdings in real estate. Prior to 1989, Mr. Hart was an Assistant Vice President at Sentinel Real Estate Corporation in New York, an owner/developer of malls, shopping centers, office buildings and single family residential communities throughout the United States.
Mr. James W. Hart has been a Director of Reeves and Reeves Brothers since 1986 and became Chairman of the Board in 1987. Mr. Hart served as President and Chief Executive Officer of Reeves and Reeves Brothers from 1988 until 1992. Mr. Hart has been a Director, President, Chief Executive Officer, and Chairman of the Board of Hart Holding since 1975 and became Chief Operating Officer and Chief Financial Officer of Hart Holding in 1992.
Mr. James W. Hart, Jr. served as a Director of Reeves and Reeves Brothers from 1986 to 1992. Mr. Hart became Vice President of Reeves and Reeves Brothers in 1987 and was named Senior Vice President - Operations in 1988 and Executive Vice President and Chief Operating Officer in 1989. In 1992, he was named President, Chief Executive Officer and Chief Operating Officer of Reeves and Reeves Brothers. Mr. Hart served as a Director of Hart Holding from 1984 to 1992. He served as Vice President of Hart Holding from 1984 to 1992, Senior Vice President - Operations of Hart Holding from 1988 to 1992 and as Executive Vice President and Chief Operating Officer of Hart Holding from 1989 to 1992.
Mr. Steven W. Hart served as a Director of Reeves and Reeves Brothers from 1986 to 1992. He became Vice President of Reeves and Reeves Brothers in 1987 and was named Senior Vice President and Chief Financial Officer in 1988 and Executive Vice President and Chief Financial Officer in 1989. Mr. Hart served as a Director, Treasurer and Chief Financial Officer of Hart Holding from 1984 to 1992, Vice President of Hart Holding from 1984 to 1988, Senior Vice President of Hart Holding from 1988 to 1989 and Executive Vice President of Hart Holding from 1989 to 1992. Mr. Hart joined Hart Holding in 1983 as Vice President - Strategic Planning.
Mr. Lenoci has been with Reeves since 1967. He was named President - Industrial Coated Fabrics Group in 1986 and Vice President of Reeves and Reeves Brothers in 1988. In 1990, he became Chief Executive Officer of the Industrial Coated Fabrics Group.
Mr. O'Brien joined Reeves and Reeves Brothers in 1993 as Vice President - Finance. From 1980 to 1993, Mr. O'Brien served as Vice President - Finance of Howmet Corporation, an integrated manufacturer of components for gas turbine jet engines and aircraft structural parts.
Mr. Walsh has been with Reeves since 1987, as Director of Human Resources. In 1990, he was elected Vice President - Administration of Reeves Brothers and in 1993, Vice President - Administration of Reeves.
Mr. James W. Hart is the father of Ms. Fray and Messrs. Douglas B. Hart, James W. Hart, Jr. and Steven W. Hart.
Directors of Reeves and Reeves Brothers are elected at each annual meeting of the stockholders. The term of office of each director is from the time of his election and qualification until the next annual meeting of stockholders and until his successor shall have been duly elected and qualified, unless such director shall have earlier been removed. Executive officers serve at the discretion of the Boards of Directors of Reeves and Reeves Brothers.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information concerning the cash compensation and cash equivalent remuneration paid or accrued by the Company for the years ended December 31, 1993, 1992 and 1991, for those persons who were at December 31, 1993, (i) the chief executive officer, and (ii) the other four most highly compensated executive officers of the Company.
Summary Compensation Table
Annual Compensation All ---------------------------- Other Name and Principal Position Year Salary Bonus(1) Compensation
Anthony L. Cartagine 1993 $256,357 $ 92,000 - Vice President; 1992 235,144 100,000 - President - Apparel 1991 205,430 112,500 - Textile Group
Douglas B. Hart 1993 204,500 125,000 - Senior Vice President 1992 - 100,000 - - Operations 1991 - 70,000 -
James W. Hart, Jr. 1993 398,750 380,000 - President, Chief 1992 365,000 200,000 - Executive Officer and 1991 355,000 185,000 - Chief Operating Officer
Steven W. Hart 1993 398,750 230,000 - Executive Vice 1992 365,000 200,000 $31,819 (2) President and Chief 1991 355,000 185,000 - Financial Officer
V. William Lenoci 1993 293,750 142,000 - Vice President; President 1992 240,249 105,000 - and Chief Executive 1991 204,079 87,500 19,272 (3) Officer - Industrial Coated Fabrics Group
(1) Annual bonus amounts are earned and accrued under the Management Incentive Bonus Plan during the years indicated and paid subsequent to the end of each year except for a portion of those amounts awarded and paid to the executive officers during 1993. Also, a portion of those amounts awarded during 1992 for James W. Hart, Jr., Steven W. Hart and Anthony L. Cartagine were paid in 1992.
(2) Represents reimbursement of certain moving expenses.
(3) Represents the payment of certain life insurance premiums.
EMPLOYMENT CONTRACTS
Reeves Brothers entered into employment agreements with Messrs. Cartagine and Lenoci during 1991 that provide for base compensation and participation in the Management Incentive Bonus Plan, plus certain other benefits.
DIRECTORS' COMPENSATION
Reeves and Reeves Brothers pay no remuneration to directors for serving as such.
PENSION PLANS
Annual Pension at Age 65 After Years of Service
Remuneration 15 20 25 30 35
$ 125,000 $ 21,357 $ 30,732 $ 40,107 $ 49,482 $ 58,857 150,000 26,982 38,232 49,482 60,732 71,982 175,000 32,607 45,732 58,857 71,982 85,107 200,000 38,232 53,232 68,232 83,232 98,232 225,000 43,857 60,732 77,607 94,482 111,357 250,000 49,482 68,232 86,982 105,732 118,800 300,000 60,732 83,232 105,732 118,800 118,800 350,000 71,982 98,232 118,800 118,800 118,800
Notes To Pension Plan Table
(A)(1) Compensation covered by the tax-qualified salaried employees pension plan each year is generally all compensation reported on a participant's Form W-2. The plan's formula is based on average compensation for the participant's highest five consecutive calendar years. However, except in the cases of Messrs. Cartagine and Lenoci, compensation for any year is limited by the compensation cap for that year under section 401(a)(17) of the Internal Revenue Code. For 1993, that limit is $235,840. A supplemental plan provides Messrs. Cartagine and Lenoci the benefits limited under the tax-qualified plan.
(2) Starting in 1994, the maximum annual compensation that may be taken into account is $150,000. Participants in the pension plan prior to 1994 may have accrued higher benefits than those shown in the table to the extent their average highest compensation exceeded $150,000. Those higher accrued benefits are preserved by law.
(3) For 1994, the maximum benefit under the pension plan is $118,800.
(B) Years of service for named executive officers:
Officer Years of Service
Anthony L. Cartagine 30.02 Douglas B. Hart 4.42 James W. Hart, Jr. 9.68 Steven W. Hart 10.59 V. William Lenoci 26.63
(C) Benefits are computed on the basis of a straight life annuity and are reduced by 50% of the participant's primary Social Security benefit.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Reeves' and Reeves Brothers' Boards of Directors do not have compensation committees, and all final compensation decisions are made by the respective Boards of Directors. The Reeves Brothers Salary Compensation Committee, which is comprised of Douglas B. Hart, James W. Hart, Jr., Steven W. Hart and Patrick M. Walsh, all of whom are officers of Reeves Brothers, advises Reeves Brothers' Board with respect to compensation.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Common Stock of Reeves
The following table sets forth certain information at March 31, 1994 with respect to ownership of Reeves and Hart Holding common stock by each person who is known to own beneficially, or who may be deemed to own beneficially, more than 5% of the outstanding shares of common stock, directors, the chief executive officer, the other four most highly compensated executive officers and all directors and executive officers as a group. Unless otherwise stated, common stock is directly owned.
Reeves ----------------------------- Amount and Name and Nature of Percent of address of beneficial Class beneficial owner ownership
Hart Holding Company Incorporated 35,021,666 100.0% 1120 Boston Post Road Darien, CT 06820
Anthony L. Cartagine (1) 0 0.0% 104 West 40th Street New York, NY 10018
Douglas B. Hart 0 0.0% 1120 Boston Post Road Darien, CT 06820
James W. Hart (2) 36,421,666 100.0% 1120 Boston Post Road Darien, CT 06820
James W. Hart, Jr. (3) 0 0.0% 1120 Boston Post Road Darien, CT 06820
Steven W. Hart (4) 0 0.0% 1120 Boston Post Road Darien, CT 06820
V. William Lenoci (5) 0 0.0% Highway 29 South Spartanburg, SC 29304
Directors and Executive Officers as a Group (6) 36,421,666 100.0%
(1) As of March 31, 1994, Anthony L. Cartagine is the indirect beneficial owner of 1,000 shares of Hart Holding's common stock, respresenting less than 1% of such outstanding common stock.
(2) On January 26, 1994, James W. Hart was granted an option to purchase up to 3,800,000 shares of common stock of Reeves, which has an expiration date of December 31, 2023. The option is exercisable at $.56 per share for 1,400,000 shares (exercisable immediately), $.75 per share for 1,400,000 shares (exercisable one year from grant date) and $1.00 per share for 1,000,000 shares (exercisable two years from grant date). Mr. James W. Hart and Hart Holding may be deemed to be controlling persons of Reeves.
As of March 31, 1994, James W. Hart is the beneficial owner of 13,623,507 shares of Hart Holding's commmon stock (94.6%) of which (i) 12,123,507 shares are owned directly, and (ii) 1,500,000 shares are subject to a presently exercisable option (the "Hart Holding Option") issued in November 1993. The Hart Holding Option expires on December 31, 2028 and provides for the issuance of up to 4,000,000 shares upon exercise of options as follows: 1,500,000 immediately exercisable at $2.25 per share; 1,500,000 exercisable one year from grant date at $2.50 per share; and 1,000,000 exercisable two years from grant date at $2.75 per share.
(3) As of March 31, 1994, James W. Hart, Jr. is the beneficial owner of 60,300 shares of Hart Holding common stock (representing less than 1% of such outstanding common stock), of which 300 shares are owned directly and the balance is subject to a presently exercisable option.
(4) As of March 31, 1994, Steven W. Hart is the beneficial owner of 240,300 shares of Hart Holding common stock (1.9%) of which 180,300 shares are owned directly and the balance is subject to a presently exercisable option.
(5) As of March 31, 1994, V. William Lenoci is the beneficial owner of 5,000 shares of Hart Holding common stock, representing less than 1% of such outstanding common stock.
(6) As of March 31, 1994, the directors and executive officers of Hart Holding as a group beneficially own an aggregate of 13,930,107 shares of Hart Holding common stock (96%).
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition of the Company, Hart Holding, the Company, Reeves Brothers and three subsidiaries of Reeves Brothers entered into a Tax Allocation Agreement dated as of May 1, 1986, which has been amended and restated from time to time (the "Tax Agreement"). The Tax Agreement provides that Hart Holding and its subsidiaries will file consolidated federal income tax returns as long as they remain members of the same affiliated group. Pursuant to the Tax Agreement, the Company and its subsidiaries generally will pay to Hart Holding amounts equal to the taxes that the Company and its subsidiaries would otherwise have to pay if they were to file separate federal, state or local income tax returns but for the use of tax deductible items of Hart Holding.
Hart Holding charges a management fee and allocates portions of its corporate expenses to Reeves on a monthly basis. The management fee and expense allocation aggregated $1.2 million, $1.9 million and $1.8 million for the years ended December 31, 1991, 1992 and 1993, respectively.
Effective October 25, 1993, HHCI, Inc., a newly formed, wholly-owned subsidiary of Hart Holding, merged with and into Reeves with Reeves surviving the merger. HHCI, Inc. was formed as a shell corporation (no operations) with a $300,000 capital contribution from Hart Holding. As a result of this merger, Hart Holding obtained ownership of 100% of the outstanding shares of common stock of Reeves and the other stockholders of Reeves received $.56 in cash for each share held by such stockholders.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements of Reeves Industries, Inc. and Subsidiary:
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 1992 and 1993
Consolidated Statement of Income for the years ended December 31, 1991, 1992, and 1993
Consolidated Statement of Changes in Stockholder's Equity for the years ended December 31, 1991, 1992, and 1993
Consolidated Statement of Cash Flows for the years ended December 31, 1991, 1992, and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules for the years ended December 31, 1991, 1992 and 1993
Schedule V - Property, plant and equipment
Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment
Schedule VIII - Valuation and qualifying accounts
Schedule X - Supplementary income statement information
All other schedules are omitted because they are not applicable or required information is shown in the consolidated financial statements or notes thereto.
3. Exhibits
Exhibit No. Name
3.1 @ Restated Certificate of Incorporation of Reeves Industries, Inc.
3.2 (1) Bylaws of Reeves Industries, Inc.
4.1 (2) Purchase Agreement, dated as of May 1, 1986, among Schick Acquisition Corp., A.R.A. Manufacturing Company of Delaware, Inc. and each of the Purchasers.
4.2 (2) Subordinated Debenture Indenture, dated as of May 1, 1986, between Schick Acquisition Corp. and Fleet National Bank, as Trustee (the "Subordinated Debenture Trustee").
4.3 (2) First Supplemental Indenture, dated as of May 6, 1986, between Reeves Industries, Inc. and the Subordinated Debenture Trustee.
4.4 (2) Second Supplemental Indenture, dated as of October 15, 1986, between Reeves Industries, Inc. and the Subordinated Debenture Trustee.
4.5 (3) Third Supplemental Indenture, dated as of March 24, 1988, between Reeves Industries, Inc. and the Subordinated Debenture Trustee.
4.6 (4) Fourth Supplemental Indenture, dated as of May 7, 1991, between Reeves Industries, Inc. and the Subordinated Debenture Trustee.
4.7 (1) Fifth Supplemental Indenture, dated as of June 30, 1992, between Reeves Industries, Inc. and the Subordinated Debenture Trustee.
4.8 (2) Registration Rights Agreement, dated as of May 1, 1986, among Schick Acquisition Corp. and the purchasers.
4.9 (5) Senior Note Indenture dated as of June 1, 1992, between Reeves Industries, Inc. and Chemical Bank, as Trustee.
10.01 (1) Credit Agreement, dated as of August 6, 1992 (the "Credit Agreement") among Reeves Brothers, Inc., Reeves Indus- tries, Inc., the Banks signatory thereto and Chemical Bank, as Agent.
10.02 (6) First Amendment, Waiver and Consent, dated as of October 25, 1993, to the Credit Agreement.
10.03 @ Second Amendment, dated as of December 28, 1993, to the Credit Agreement.
10.04 (7) Tax Allocation Agreement, effective as of January 1, 1992 by and among Hart Holding Company Incorporated, Reeves Industries, Inc., Reeves Brothers, Inc., Fenchurch, Inc., Turner Trucking Company, Reeves Penna, Inc., A.R.A. Manufacturing Company, Hart Investment Properties Corpo- ration and Hart Capital Corporation.
10.05 (8) * Reeves Corporate Management Incentive Bonus Plan.
10.06 (4) * Employment Agreement dated July 1, 1991, between Reeves Brothers, Inc. and Anthony L. Cartagine.
10.07 @* Employment Agreement dated November 1, 1991, and amended May 18, 1993, between Reeves Brothers, Inc. and Vito W. Lenoci.
10.08 @* Reeves Brothers, Inc. 401(a)(17) Plan, effective January 1, 1989.
10.09 @ Non-Qualified Stock Option Agreement, dated as of January 26, 1994, between Reeves Industries, Inc. and James W. Hart.
10.10 (6) Agreement and Plan of Merger, dated as of October 22, 1993, between Reeves Industries, Inc. and HHCI, Inc.
10.11 (4) Lease Agreement, dated March 28, 1991, between Springs Industries, Inc., Lessor, and Reeves Brothers, Inc., Lessee.
11 Calculation of primary and fully diluted earnings per common share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Reeves Industries, Inc.
(1) Previously filed by Reeves Industries, Inc. as an exhibit to Reeves Industries' Annual Report on Form 10-K dated March 31, 1993, which is incorporated by reference herein.
(2) Previously filed by Reeves Industries, Inc. as an exhibit to Newreeveco's Registration Statement on Form S-1, Registration No. 33-8192, dated August 21, 1986, as amended October 20, 1986, which is incorporated by reference herein.
(3) Previously filed by Reeves Industries, Inc. as an exhibit to Reeves Industries' Annual Report on Form 10-K dated April 12, 1988, which is incorporated by reference herein.
(4) Previously filed by Reeves Industries, Inc. as an exhibit to Reeves Industries' Annual Report of Form 10-K dated March 30, 1992, which is incorporated by reference herein.
(5) Previously filed by Reeves Industries, Inc. as an exhibit to Reeves Industries' Quarterly Report on Form 10-Q dated August 12, 1992, which is incorporated by reference herein.
(6) Previously filed by Reeves Industries, Inc. as an exhibit to Reeves Industries' Quarterly Report on Form 10-Q dated November 10, 1993, which is incorporated by reference herein.
(7) Previously filed by Reeves Industries, Inc. as an exhibit to Reeves Industries' Registration Statement on Form S-2, Registration No. 33-47254, dated April 16, 1992, as amended May 28, 1992, which is incorporated by reference herein.
(8) Previously filed by Reeves Industries, Inc. as an exhibit to Reeves Industries' Annual Report on Form 10-K dated March 28, 1991, which is incorporated by reference herein.
@ Available from the Company.
* Management contract or compensatory plan filed pursuant to Item 14(c) of this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the fourth quarter of 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REEVES INDUSTRIES, INC. Registrant
Date: March 31, 1994 By: /s/ Steven W. Hart ------------------ Steven W. Hart Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
(i) Principal Executive Officer:
/s/ James W. Hart, Jr. President, Chief March 31, 1994 Executive Officer and James W. Hart, Jr. Chief Operating Officer
(ii) Principal Financial Officer:
/s/ Steven W. Hart Executive Vice President, March 31, 1994 Chief Financial Officer Steven W. Hart
(iii) Principal Accounting Officer:
/s/ Joseph P. O'Brien Vice President - Finance March 31, 1994
Joseph O'Brien
(iii) A Majority of the Board of Directors:
/s/ James W. Hart Director March 31, 1994
James W. Hart
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report to security holders covering the Registrant's last fiscal year or proxy material with respect to any meeting of security holders has been sent to security holders of the Registrant.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
REEVES INDUSTRIES, INC. AND SUBSIDIARY
Column A Column B Charged to Item (1) Costs and Expenses ------------------ (In thousands)
Maintenance and repairs
Year ended December 31, 1991 $ 7,922 ========
Year ended December 31, 1992 $ 7,745 ========
Year ended December 31, 1993 $ 6,328 ========
(1) Other items are less than 1% of revenues or not applicable.
INDEX TO EXHIBITS
Exhibit No. Name
3.1 Restated Certificate of Incorporation of Reeves Industries, Inc.
10.03 Second Amendment, dated as of December 28, 1993, to the Credit Agreement.
10.07 Employment Agreement dated November 1, 1991, and amended May 18, 1993, between Reeves Brothers, Inc. and Vito W. Lenoci.
10.08 Reeves Brothers, Inc. 401(a)(17) Plan, effective January 1, 1989.
10.09 Non-Qualified Stock Option Agreement, dated as of January 26, 1994, between Reeves Industries, Inc. and James W. Hart.
11 Calculation of primary and fully diluted earnings per common share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Reeves Industries, Inc.