Item 1. Business
This document includes statements that are, or may be deemed to be, ‘‘forward-looking statements.’’ These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ‘‘believes,’’ ‘‘estimates,’’ ‘‘anticipates,’’ ‘‘expects,’’ ‘‘intends,’’ ‘‘may,’’ ‘‘will’’ or ‘‘should’’ or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which we operate.
These forward-looking statements are made based upon our expectations and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industries in which we operate may differ materially and adversely from the forward-looking statements contained in this document.
You should read carefully the items described in ‘‘Risk Factors’’ in Item 1A
Item 1A. Risk Factors
You should carefully consider the following risks in addition to the other information included in this report. Each of these risks could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our securities.
Our businesses are highly cyclical. A continuation of the present economic downturn could adversely affect our ability to generate cash and make required payments on our debt.
The success of our business depends on general economic conditions and such factors as:
· corporate profitability;
· interest rates;
· retail financing;
· fuel costs;
· consumer preferences;
· consumer spending patterns;
· sales of truck chassis and new pickup trucks; and
· levels of oil and gas exploration activity.
In addition, we sell our products to customers in inherently cyclical industries, such as the trucking industry and the energy services industry, which experience significant downturns from time to time.
Demand for our truck body products depends largely on the replacement cycle of delivery trucks.
Morgan and Morgan Olson produce and sell truck bodies for new delivery trucks, primarily in the general freight, moving and storage, parcel delivery and distribution industries. Demand for these products is driven by customers replacing older vehicles in their delivery truck fleets, and these customers often decide to postpone their purchases of new delivery trucks during economic downturns. If economic conditions or other factors, including longer useful lives of delivery trucks, cause our customers to reduce their capital expenditures and decrease investments in new delivery trucks, our sales could be materially and adversely affected. As a result, our ability to generate cash and make required payments on our debt could be negatively impacted.
The cyclicality of pickup truck sales could cause a decline in Truck Accessories’ sales.
Truck Accessories’ sales depend heavily on sales of new pickup trucks in North America. A decline in pickup truck sales would cause a decline in Truck Accessories’ sales, which could materially and adversely reduce Truck Accessories’ ability to generate cash and could reduce our ability to make required payments on our debt. Sales of pickup trucks are characterized by periodic fluctuations in demand due to, among other things, changes in general economic conditions, interest rates, fuel costs, new model introductions, consumer spending levels and consumer preferences.
We have a substantial amount of debt outstanding and we may incur more debt, which could hurt our business prospects, limit cash flow available from our operations and prevent us from fulfilling our obligations under our 8.75% Senior Notes (“8.75% Notes”) and our other debt obligations.
We are significantly leveraged and will continue to be significantly leveraged. We had $17.6 million of stockholder’s equity at December 31, 2010 and long-term debt of $203.5 million, including $199.6 million in aggregate principal amount of 8.75% Notes due 2014 and $3.9 million of capital lease obligations. We had $48.6 million of secured debt availability under our revolving credit facility.
We may not be able to compete favorably in our industries.
We experience direct competition in all of our product lines and some competitors have greater financial and other resources than we have. We face competition from existing competitors with entrenched positions and we could face competition from new ones. Changes in the nature of the industries in which we operate could produce competition from new sources. Increased competition may have a material adverse effect on our business, cash flows and ability to make required payments on our debt by reducing our sales or profit margins.
Most of our businesses rely on a small number of customers, the loss of any of which could have a material adverse effect on us.
Four of our businesses rely on a small number of customers to generate significant revenues.
· Morgan’s two largest customers together accounted for 56%, 54% and 48% of Morgan’s revenues during 2010, 2009 and 2008, respectively, and accounted for 20%, 17% and 16% of JBPCO’s consolidated revenues during 2010, 2009 and 2008, respectively.
· One customer accounted for 41%, 31% and 44% of Morgan Olson’s revenues during 2010, 2009 and 2008, respectively, and accounted for 6%, 7% and 7% of JBPCO’s consolidated revenues during 2010, 2009 and 2008, respectively.
· Two customers accounted for 44%, 39% and 42% of Specialty Manufacturing’s revenues during 2010, 2009 and 2008, respectively, and accounted for 12%, 13% and 14% of JBPCO’s consolidated revenues in 2010, 2009 and 2008, respectively.
· Our top ten customers accounted for 45%, 39% and 44% of JBPCO’s consolidated revenues in 2010, 2009 and 2008, respectively.
Because of the relative importance of large customers and the degree of concentration in the industries we serve, we are subject to additional risk. We may not be able to maintain these customer relationships or maintain our historical levels of sales to these customers. Because of the size and importance of these customers, these customers may be able to exert pressure on us to lower our prices, which may reduce our profit margins and operating cash flow. If one or more of these customers were to experience financial difficulties, our ability to collect receivables from it or generate new sales to it would be materially and adversely affected.
Future operations could be affected by interruptions of production beyond our control.
Our business, financial condition or results of operations may be adversely affected by certain events that we cannot anticipate or that are beyond our control, such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics, breakdowns or impairments of our information system or communication network, or other natural disasters or national emergencies that could curtail production at our facilities and may cause delayed deliveries and canceled orders. Even if the facilities are not directly affected by such events, we could be affected by interruptions at our suppliers. Such suppliers may be less likely to be able to quickly recover from such events and may be subject to additional risks such as financial problems that limit their ability to conduct their operations. In addition, global supply disruptions, such as those caused by political or other dislocations, could lead to shortages of materials used in our products. These could delay or increase the cost of our products and result in an adverse effect on our future profitability.
Disruptions in delivery of truck or car chassis to us could impact the profitability of our business.
If truck and car chassis manufacturers or their suppliers experience disruptions in their businesses, resulting from plant closures or other cost-cutting initiatives, lack of cash resources, bankruptcy proceedings or other potential
causes, Morgan, Morgan Olson and Specialty Vehicle Group may be unable to sell or deliver their products. Work stoppages or slowdowns experienced by the large truck and car manufacturers that supply chassis could result in delays or slowdowns in our ability to deliver products to our customers.
Environmental and health and safety liabilities and requirements could require us to incur material costs.
Our operations are subject to a variety of federal, state and local environmental and health and safety statutes and regulations, including those relating to emissions to the air, discharges to water, treatment, storage and disposal of waste, and remediation of contaminated sites. In certain cases, these requirements may limit the productive capacity of our operations. Laws, including Superfund legislation, impose strict, and under certain circumstances, joint and several, liability for costs to remediate contaminated sites upon designated responsible parties including site owners or operators and persons who dispose of wastes at, or transport wastes to, such sites.
From time to time we have received notices of noncompliance with respect to our operations which have typically been resolved by investigating the alleged noncompliance, correcting any noncompliant conditions and paying fines. We have from time to time been identified as a potentially responsible party at various Superfund sites, which, based on available information, we do not anticipate will result in any material liability. However, new environmental requirements or more aggressive enforcement of existing ones or discovery of presently unknown conditions could require material expenditures or result in liabilities which could limit expansion or otherwise have a material adverse effect on our business, financial condition, operating cash flows and our ability to make required payments on our debt.
For a description of current environmental issues, see Note 14 of Notes to Consolidated Financial Statements.
We may incur material losses and costs as a result of product liability and warranty claims that may be brought against us.
We face an inherent risk of exposure to product liability claims if the use of our products results, or is alleged to result, in personal injury and/or property damage. If we manufacture a defective product, we may experience material product liability losses and we may incur significant costs to defend product liability claims. We also could incur significant costs in correcting any defects, lose sales and suffer damage to our reputation. Our product liability insurance coverage may not be adequate for the liabilities we could incur and may not continue to be available on terms acceptable to us.
We also are subject to product warranty claims in the ordinary course of our business. If we produce poor-quality products or use defective materials, we may incur unforeseen costs in excess of what we have reserved in our financial statements. These costs could have a material adverse effect on our business, operating cash flows and ability to make required payments on our debt.
Insurance coverage may be inadequate to cover all significant risk exposures.
We may be exposed to liabilities that are unique to our products. While we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition or results of operations.
We depend on the services of key management personnel, the loss of whom would materially harm us.
Our ability to compete successfully and implement our business strategy depends on the efforts of our senior management personnel, including those of John Poindexter, our Chairman of the Board, President and Chief
Executive Officer. The loss of the services of any of these individuals could have a material adverse effect on our business. We do not maintain key-man life insurance policies on any of our executives.
We may be unable to realize our business strategy of improving operating performance and generating cost reductions.
We have either implemented or plan to implement strategic initiatives designed to improve our operating performance. The failure to achieve the goals of these initiatives could have a material adverse effect on our business. We may decide to make significant expenditures in an effort to streamline or improve our operations, including combining some of our operations at existing facilities, but we may be unable to successfully implement or realize the expected benefits of these initiatives. We also may not be able to sustain improvements made to date.
We may not be able to consummate future acquisitions or successfully integrate acquisitions into our business.
Our business strategy includes growing through strategic acquisitions of other businesses with complementary products, manufacturing capabilities or geographic markets. We may not be able to continue to identify attractive acquisition opportunities or successfully acquire identified targets. If we fail to integrate acquired businesses successfully into our existing businesses or incur unforeseen expenses in consummating acquisitions, we could incur unanticipated expenses and losses.
We must successfully integrate acquired businesses into our operations to take full advantage of projected benefits from those acquired businesses. The integration of future acquisitions into our operations could result in operating difficulties and divert management and financial resources that would otherwise be available for the development and maintenance of our existing operations. Our ability to make acquisitions may be constrained by our ability to obtain additional financing and by the provisions of the Indenture governing our outstanding 8.75% Notes dated as of March 15, 2004, as amended (the “Indenture”), and by the terms of our revolving credit facility.
Acquisitions involve a number of special risks, including:
· unexpected losses of key employees or customers of the acquired business;
· conforming the standards, processes, procedures and controls of the acquired business with those of our existing operations;
· coordinating our product and process development;
· hiring additional management and critical personnel; and
· increasing the scope, geographic diversity and complexity of our operations.
Acquisitions could result in our incurrence of additional debt and contingent liabilities, including environmental, tax, pension and other liabilities. These liabilities could have a material adverse effect on our business, our ability to generate cash and our ability to make required payments on our debt.
If we are unable to meet future capital requirements, our competitive position may be adversely affected.
As a manufacturer, we are required to expend significant amounts of capital for engineering, development, tooling and other costs. Generally, we seek to recover these costs through revenue generation, but we may be unsuccessful due to competitive pressures and other market constraints. We expect to fund capital expenditures through operating cash flows, borrowings under our revolving credit facility and other sources of borrowing such as capital leases, but we may not have adequate funds or borrowing availability to make all the necessary capital expenditures. If we are unable to make necessary capital expenditures, our business and our competitive position may be materially and adversely affected.
As a privately held company, we are subject to less stringent corporate governance requirements than a company with public equity. This provides less protection to our investors.
While we are subject to certain requirements of the Sarbanes-Oxley Act of 2002, we are not subject to many of its provisions, including rules requiring us to have independent directors or an audit committee composed of independent directors. Both of our directors, John Poindexter, our President and CEO, and Stephen Magee, the chairman of the Audit Committee of our board of directors, are not independent. We are not subject to the same corporate governance standards as a company with public equity or a company listed on a national exchange and our security holders do not have the protections provided by having independent directors or audit committee members.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
We own or lease the following manufacturing, office and sales facilities as of December 31, 2010:
*Effective December 12, 2008, these facilities were sold to and leased back from an entity owned by John Poindexter. See Note 15 of Notes to Consolidated Financial Statements.
**Effective December 17, 2010, these facilities were sold to and leased back from an entity owned by John Poindexter. See Note 15 of Notes to Consolidated Financial Statements.
We believe that our facilities are adequate for our current needs and are capable of being utilized at higher capacities to supply increased demand, if necessary. All owned properties are pledged as collateral against our revolving credit facility.
Item 3.
Item 3. Legal Proceedings
We are involved in various lawsuits, which arise in the ordinary course of business. In the opinion of management, the ultimate outcome of known lawsuits will not have a material adverse effect on us.
Item 4.
Item 4. (Removed and Reserved)
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The registrant’s common equity is privately held and not publicly traded. As of March 31, 2011, John Poindexter owned all of the registrant’s issued and outstanding common equity. The Company has never paid cash dividends.
The covenants in the Indenture and the loan agreement for the Company’s revolving credit facility both restrict the Company’s ability to pay dividends on its common equity.
The Company has no securities authorized for issuance under equity compensation plans.
Item 6.
Item 6. Selected Financial Data
The selected financial data shown below for each of the five years in the period ended December 31, 2010 has been derived from the Consolidated Financial Statements of the Company. The following data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-K.
(a) For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of net income (loss) plus income taxes and fixed charges (excluding capitalized interest). Fixed charges consist of interest expense, amortization of debt issuance costs and the estimated portion of rental expenses deemed a reasonable approximation of the interest factor.
(b) “EBITDA” is net income from continuing operations increased by the sum of interest expense, income taxes, depreciation and amortization, and other noncash items for those operations defined as restricted subsidiaries in the Indenture. EBITDA is not included herein as operating data and should not be construed as an alternative to operating income (determined in accordance with accounting principles generally accepted in the United States) as an indicator of the Company’s operating performance. The Company has included EBITDA because it is relevant for determining compliance under the Indenture and because the Company understands that it is one measure used by certain investors to analyze the Company’s operating cash flow and historical ability to service its indebtedness. The following are the components of the Company’s EBITDA:
(c) “Consolidated Coverage Ratio” is the ratio of EBITDA to interest expense. Among other things, it is used in the Indenture to limit the amount of indebtedness that the Company may incur. All the Company’s subsidiaries are restricted under the terms of the Indenture and guarantee the 8.75% Notes.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis
The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements and the related notes thereto that appear in this Annual Report on Form 10-K.
The Company has determined its reportable segments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Segment Reporting. The Company evaluates the performance of its reportable segments based on operating income, which is defined as income before interest expense, other income, net, and income taxes. Reportable segment operating income and segment operating margin (defined as segment operating income divided by segment revenues) are indicative of short-term operational performance and ongoing profitability. Management closely monitors the operating income and operating margin of each business segment to evaluate past performance and identify actions required to improve profitability.
Overview and Description of Business
J.B. Poindexter & Co., Inc. (“JBPCO”) and its subsidiaries or business units (the “Subsidiaries” or “business units” and together with JBPCO, the “Company”) operate primarily manufacturing businesses principally in North America. JBPCO is owned and controlled by John Poindexter.
The Company’s operating segments are as follows:
Morgan Truck Body, LLC (“Morgan”) manufactures truck bodies in the United States and Canada for dry freight and refrigerated trucks and vans (excluding those made for pickup trucks and tractor-trailer trucks). Morgan’s operations include our Canadian subsidiary Commercial Babcock, Inc. The truck bodies are attached to truck chassis provided by its customers. Customers include truck rental and leasing companies, truck dealers and companies that operate fleets of delivery vehicles. The principal raw materials used by Morgan include steel, aluminum, fiberglass-reinforced plywood, hardwoods and lubricants acquired from a variety of sources.
Morgan Olson, LLC (“Morgan Olson”) manufactures step van bodies for parcel, food, newspaper, uniform, linen and other delivery applications. Step vans are specialized vehicles designed for multiple-stop applications and enable the driver of the truck to easily access the cargo area. Morgan Olson manufactures the complete truck body, including the fabrication of the body, the installation of windows, doors, the instrument panel, seating and wiring, and finishing the truck with paint and decal application. The step van bodies are installed on truck chassis provided
by Morgan Olson’s customers. The principal raw materials used by Morgan Olson include steel and aluminum and a variety of automotive components.
Truck Accessories Group, LLC (“Truck Accessories”) manufactures pickup truck caps and tonneau covers, which are fabricated enclosures that fit over the open beds of pickup trucks, converting the beds into weatherproof storage areas. Truck Accessories’ brands include Leer, Century, Raider, LowRider, BoxTop and Pace Edwards, and State Wide Aluminum. The principal raw materials used by Truck Accessories are resin, fiberglass, paint, glass and manufactured components such as locks and gas struts.
Specialty Manufacturing Division (“Specialty Manufacturing”) is comprised of the Specialty Vehicle Group, MIC Group, LLC (“MIC”) and EFP, LLC (“EFP”). The Specialty Vehicle Group is comprised of Federal Coach, LLC (“Federal Coach”) and Eagle Specialty Vehicles, LLC (“Eagle Coach”). The Specialty Vehicle Group manufactures funeral coaches and limousines. The Specialty Vehicle Group purchases vehicle chassis from the major automotive manufacturers’ dealers for modification and sale to its customers. Effective December 31, 2009, Specialty Vehicle Group exited the specialized transit bus business and sold its specialized transit bus business (see Note 4). MIC is a manufacturer, investment caster and assembler of precision metal parts for use in the worldwide oil and gas exploration, automotive and aerospace industries, and other general industries. EFP molds, fabricates and markets expandable foam products used for packaging and thermal insulation by various industries. The principal raw materials used by Specialty Manufacturing are ferrous and nonferrous materials including stainless steel, alloy steels, nickel-based alloys, titanium, brass, beryllium-copper alloys, aluminum, expandable polystyrene, polypropylene, polyethylene and other resins.
The following table shows our revenues, operating income and operating income as a percentage of revenues for each segment for the years ended December 31, 2010, 2009 and 2008.
The following is a discussion of the key components of our results of operations:
Source of revenues. We derive revenues from:
· Morgan’s sales of truck bodies, parts and services;
· Morgan Olson’s sales of step van truck bodies, parts and services;
· Truck Accessories’ sales of pickup truck caps and tonneaus and trailer door and window components; and
· Specialty Manufacturing’s sales of manufacturing services to customers requiring precision machining of metal parts and casting services and specialty vehicles, including funeral coaches, buses and limousines, contract manufacturing services, packaging and other products.
Discounts, returns and allowances. Our gross revenues are reduced by discounts we provide to customers and returns and allowances in the ordinary course of our business. We provide discounts as deemed necessary to generate sales volume and remain price competitive. Discounts include payment term discounts and discretionary discounts from list price.
Cost of revenues. Cost of revenue represents the costs directly associated with manufacturing our products and generally varies with the volume of products produced. The components of cost of revenue are materials, labor and overhead including transportation costs. We have experienced significant fluctuations in transportation costs and in the cost of materials, such as aluminum, steel, fiberglass-reinforced plywood, lumber, fiberglass resin and plastic pellets, over the previous year that have affected our operating profit margins. However, increased prices we charge for our products and the cost to transport them mitigated the impact of rising prices on our financial condition and results of operations. The benefit of lower raw material and transportation costs are also mitigated by any decrease in the prices we charge for our products necessary to remain competitive. We have entered into supply contracts for some materials at a fixed price and in some cases prepurchased bulk quantities of materials to reduce rising prices as deemed necessary in the current economic environment. We increasingly source materials from overseas to take advantage of lower prices. Overhead costs are allocated to production based on labor costs and include the depreciation and amortization costs associated with the assets used in manufacturing including rent associated with manufacturing and indirect labor and other costs.
Selling and administrative expenses. Selling and administrative expenses are made up of the costs of selling our products and administrative costs related to information technology, accounting, finance and human resources. Costs include personnel and related costs, including travel, equipment and facility rent expense not associated with manufacturing activities, and professional services such as audit fees. Selling, general and administrative expenses also include our costs at corporate headquarters to manage and provide support to our operating subsidiaries.
Other income and expense. Income and expenses that we incur during the year that are nonrecurring in nature and not directly comparable to the prior year are included in other income and expense or are separately identified.
Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
Revenues. Our consolidated revenues increased $73.0 million, or 15.2%, to $553.6 million for 2010 compared to $480.6 million for 2009.
· Morgan’s revenues increased $50.5 million, or 34.4%, to $197.4 million for 2010 compared to $146.9 million for 2009. The increase was attributable to unit sales volume. The volume increase was attributable to improvement in general economic conditions related to the Class 3-7 truck market positively impacting demand for both commercial and consumer-related customers.
· Morgan Olson’s revenues increased $24.2 million, or 39.4%, to $85.8 million for 2010 compared to $61.6 million for 2009. The increase reflects higher sales volume with no price increases in the period. The volume increase was due to improved demand for step vans from commercial fleet customers, partially offset by lower shipments to retail customers and lower part sales.
· Truck Accessories’ revenues increased $8.3 million, or 7.2%, to $123.9 million for 2010 compared to $115.6 million for 2009. This increase reflects higher sales volume of $3.5 million (3.0%) and price increases of $4.8 million (4.1%). The volume increase was due to improvement in demand for truck caps and tonneaus attributable to improvement in demand for pickup trucks in the United States and Canada.
· Specialty Manufacturing’s revenues decreased by $9.5 million, or 6.0%, to $148.4 million for 2010 compared to $157.9 million for 2009. This decrease reflects lower sales volume of $3.6 million (2.3%) and price decreases of $5.9 million (3.7%). The price decrease was primarily attributable to price declines in oil and gas machined products at MIC. The volume decrease is primarily attributable to the Specialty Vehicle Group’s exit from the specialty transit bus business at the end of 2009.
Backlog. Consolidated backlog was $165.6 million as of December 31, 2010 compared to $149.9 million as of December 31, 2009, an increase of $15.7 million or 10.5%.
· Morgan’s backlog at December 31, 2010 was $86.7 million compared to $73.1 million at December 31, 2009, an increase of $13.6 million or 18.6%. The increase in backlog was primarily due to commercial rental orders of $32.9 million compared to $22.5 million in the prior year.
· Morgan Olson’s backlog was $8.9 million at December 31, 2010 compared to $38.1 million at December 31, 2009, a decrease of $29.2 million or 76.6%. The decrease was due to the timing of fleet orders of $15.4 million and two large retail orders of $12.6 million received at the end of 2009 that were not replicated at the end of 2010.
· Truck Accessories’ backlog was $2.7 million at December 31, 2010 compared to $2.6 million as of December 31, 2009, an increase of $0.1 million or 3.8%.
· Specialty Manufacturing’s backlog was $67.3 million at December 31, 2010 compared to $36.1 million at December 31, 2009, an increase of $31.2 million or 86.4%. The backlog of machining services increased $36.4 million over last year as demand from customers in the energy services industry increased.
Gross profit. Gross profit increased by $11.2 million, or 18.5%, to $71.7 million for 2010 compared to $60.5 million for 2009, and as a percentage of revenues improved to 12.9% in 2010 compared to 12.6% in 2009. The increase in gross profit primarily reflects operational improvements attributable to the continuing implementation of lean techniques and improved procurement activities at Morgan, Morgan Olson and Truck Accessories offset by operational inefficiencies and a significantly underpriced contract undertaken by MIC in 2010.
Selling and administrative expenses. Our consolidated selling and administrative expenses increased $4.7 million, or 9.7%, to $53.7 million for 2010 compared to $49.0 million for 2009. This increase reflects the additions of key personnel at the Parent, increased amortization of previously capitalized software cost and increased benefits costs. As a percentage of revenues, selling and administrative expenses improved to 9.7% of revenues in 2010 compared to 10.2% in 2009 due to the leverage of higher revenues and cost reductions partially offset by cost increases at the Parent.
Closed and excess facility costs. Specialty Manufacturing completed the closure of its facility in Fort Smith, Arkansas at a cost of $0.9 million. An additional $0.1 million of noncash charges related to the 2009 closure of Specialty Manufacturing’s Milwaukee, Wisconsin facility was recorded in 2010.
Loss (gain) on sale lease-back of real estate: During 2010, Poindexter Properties, LLC purchased six of our real estate properties and is leasing the properties back to us. Three of the six properties included in the transaction were sold for an aggregated loss of $2.8 million as the sale prices, based on appraised values, were less than the book values of the assets. The loss was recognized at the time of the transaction. The remaining three properties were sold for an aggregated gain of $3.6 million. The gain of $3.6 million has been deferred and will be
recognized as income over the life of the leases. During the years ended December 31, 2010 and 2009, the Company recognized $0.3 million as income on the deferred gain of $1.9 million originating from a 2008 sale lease-back arrangement with Poindexter Properties, LLC.
Gain on repurchase of 8.75% Notes. During the year ended December 31, 2009, the Company purchased $0.4 million of its 8.75% Notes on the open market and recognized a gain of $0.2 million.
Other expense (income). Other expense of $0.1 million in 2010 consisted of various nonrecurring charges. In 2009, other expense was primarily attributable to the loss on the sale of the specialized transit bus business by Specialty Vehicle Group.
Operating income. Operating income increased $3.5 million, or 32%, to $14.4 million in 2010 compared to $10.9 million in 2009, and as a percentage of revenues improved to 2.6% in 2010 compared to 2.3% in 2009. Operating income in 2010 reflects charges of $1.0 million for facility closure expense associated with Specialty Manufacturing’s plant closure activities.
· Morgan’s operating income increased by $7.4 million, or 644%, to $8.6 million in 2010 compared to $1.2 million in 2009, and as a percentage of revenues improved to 4.4% in 2010 compared to 0.7% in 2009. The increase in operating income and operating income as a percentage of revenues is primarily attributable to operational improvements including labor efficiency, material procurement and expense controls in manufacturing overhead, and selling and administrative expenses.
· Morgan Olson’s operating income increased by $2.5 million, or 96%, to $5.1 million in 2010 compared to 2.6 million in 2009, and as a percentage of revenues improved to 5.9% in 2010 compared to 4.2% in 2009. The increase in operating income and operating income as a percentage of revenue is primarily attributable to operational improvements including labor efficiency, material procurement and expense controls in manufacturing overhead, and selling and administrative expenses.
· Truck Accessories’ operating income increased by $4.8 million, or 61%, to $12.7 million in 2010 compared to $7.9 million in 2009, and as a percentage of revenues improved to 10.2% in 2010 compared to 6.8% in 2009. The increase in operating income and operating income as a percentage of revenues is primarily attributable to operational improvements including labor efficiency, material procurement and expense controls in manufacturing overhead, and selling and administrative expenses.
· Specialty Manufacturing incurred an operating loss of $1.8 million and operating margins of negative 1.2% in 2010 compared to operating income of $2.9 million and operating margin of 1.9% in 2009. The decline in year-over-year performance was primarily attributable to MIC. In 2010, MIC undertook a new contract which was significantly underpriced and poorly managed. This contract, in addition to operational inefficiencies and management deficiencies at MIC and the Specialty Vehicle Group plant closing costs of $1.0 million, was responsible for the majority of the decline in Specialty Manufacturing’s operating income.
· Corporate Parent expenses increased $6.6 million to $10.2 million for 2010 compared to $3.6 million for 2009. The increase is primarily attributable to additions of key executive personnel, including our Chief Operating Officer, Vice President of International Business Development and Vice President of Operational Improvement, increased depreciation of prior years’ capitalized enterprise resource planning costs, and the recognition of a $2.8 million loss on sale of real estate related to the 2010 sale lease-back arrangement with Poindexter Properties, LLC offset by $0.3 million recognition of deferred gain of $1.9 million originating from the 2008 sale lease-back arrangement with Poindexter Properties, LLC.
Interest expense (income). Interest expense decreased $0.3 million, or 1.6%, to $17.9 million (3.2% of revenues) for 2010 compared to $18.2 million (3.8% of revenues) for 2009. Interest income was $0.1 million and $0.2 million for 2010 and 2009, respectively.
Income tax provision (benefit). The effective income tax provision (benefit) rate was 42% and 31% of income before income taxes for 2010 and 2009, respectively. The income tax provision for 2010 differs from amounts computed based on the federal statutory rate as a result of state and foreign taxes in certain tax jurisdictions, research and development credits, and releases of reserves for uncertain tax positions due to expiration of statutes and settlements. The income tax benefit for 2009 differs from amounts computed based on the federal statutory rate largely as a result of state taxes in certain tax jurisdictions.
Year Ended December 31, 2009 Compared with Year Ended December 31, 2008
Revenues. Our consolidated revenues decreased $225.8 million, or 32.0%, to $480.6 million for 2009 compared to $706.4 million for 2008.
· Morgan’s revenues decreased $87.0 million, or 37.2%, to $146.9 million for 2009 compared to $233.9 million for 2008. This decrease reflects lower volume of $84.7 million (36.2%) and price decreases of $2.3 million (1.0%). General economic conditions continued to deteriorate in 2009 evidenced by lower demand for Class 3-7 truck bodies on already depressed levels.
· Morgan Olson’s revenues decreased $42.8 million, or 41.0%, to $61.6 million for 2009 compared to $104.4 million for 2008. The decrease reflects lower volume with no price increases in the period. Step van sales declined $33.6 million, or 43.0%, on a 48.4% decrease in unit shipments for 2009. Step van sales to customers with large fleets of vehicles were down $33.4 million, or 63.8%, compared to the prior year. Service parts sales and delivery income decreased $9.2 million due mainly to a one-time service parts purchase of $5.5 million by the United States Postal Service in the prior period and decreased delivery income on lower service parts sales.
· Truck Accessories’ revenues decreased $16.3 million, or 12.3%, to $115.6 million for 2009 compared to $131.9 million for 2008. This decrease reflects lower volume of $18.7 million (14.2%) and price increases of $2.4 million (1.8%). This decrease is primarily attributable to lower sales of pickup trucks in the United States and Canada due to deteriorating economic conditions in 2009.
· Specialty Manufacturing’s revenues decreased by $80.4 million, or 33.7%, to $157.9 million for 2009 compared to $238.3 million for 2008. This decrease reflects lower volume of $52.6 million (22.1%) and price decreases of $27.8 million (11.7%). This decrease in volume was primarily attributable to the deterioration of general economic conditions and declining oil prices. The decrease in price was primarily attributable to price decrease at MIC driven by large oil and gas equipment suppliers imposing industrywide price concessions on suppliers in response to steep declines to the price of oil in 2009 compared to 2008.
Backlog. Consolidated backlog was $149.9 million as of December 31, 2009 compared to $149.2 million as of December 31, 2008.
· Morgan’s backlog at December 31, 2009 was $73.1 million compared to $47.6 million at December 31, 2008. The increase in backlog was due to commercial rental orders of $22.5 million compared to $0.1 million in the prior year.
· Morgan Olson’s backlog was $38.1 million at December 31, 2009 compared to $18.2 million at December 31, 2008. The increase was due primarily to two retail orders of $12.6 million.
· Truck Accessories’ backlog of approximately two weeks of production was $2.6 million at December 31, 2009 compared to $2.2 million as of December 31, 2008.
· Specialty Manufacturing’s backlog at December 31, 2009 decreased $45.2 million to $36.1 million compared to $81.3 million at December 31, 2008. The backlog of machining services decreased $46.8 million over the prior year as demand from customers in the energy services industry continued to decline.
Gross Profit. Gross profit decreased by $35.1 million, or 36.7%, to $60.5 million in 2009 compared to $95.6 million for 2008, and as a percentage of revenues decreased to 12.6% in 2009 compared to 13.5% in 2008. The decrease in gross profit primarily reflects the volume declines discussed above. The decrease in gross profit percent is attributable to the loss of volume leverage and price reductions at MIC.
Selling and administrative expenses. Our consolidated selling and administrative expenses decreased $17.3 million, or 26.1%, to $49.0 million for 2009 compared to $66.3 million for 2008, and as a percentage of revenues increased to 10.2% in 2009 compared to 9.4% in 2008. The decrease in selling and administrative expenses was primarily attributable to the reduction in headcount and management incentives. The increase in selling and administrative expenses as a percent of revenue was attributable to the loss of volume leverage.
Closed and excess facility costs. Specialty Manufacturing completed the closure of its facility in Milwaukee, Wisconsin in 2009 at a cost of $0.6 million.
Loss (gain) on sale lease-back of real estate: We recognized $0.3 million as income on the deferred gain of $1.9 million resulting from the sale of three of our manufacturing properties to Poindexter Properties, LLC, an entity owned by our sole shareholder, in 2008.
Gain on repurchase of 8.75% Notes. During the year ended December 31, 2009, the Company purchased $0.4 million of its 8.75% Notes on the open market and recognized a gain of $0.2 million.
Other expense (income). The sale of the Specialty Vehicle Group specialized transit bus business was responsible for a $0.6 million loss. The allocation of goodwill associated with the bus business accounted for $0.5 million of the loss. Specialty Manufacturing’s machining business recognized $0.2 million from the sale of assets.
Operating income. Operating income decreased $18.8 million, or 63.4%, to $10.9 million in 2009, compared to $29.7 million in 2008, and as a percentage of revenues decreased to 2.3% in 2009 compared to 4.2% in 2008. The decrease in operating income was primarily attributable to lower revenues brought on by deteriorating economic conditions. The decrease in operating income as a percentage of sales was primarily attributable to reduced sales and price decreases at MIC.
· Morgan’s operating income decreased by $2.9 million, or 72.5%, to $1.1 million in 2009 compared to $4.0 million in 2008, and as a percentage of revenues decreased to 0.8% in 2009 compared to 1.7% in 2008. The decline in operating income was primarily attributable to the reduction in revenues caused by deteriorating economic conditions in the Class 3-7 truck market. The decrease in operating income as a percentage of revenues was attributable to reduced sales and declining prices.
· Morgan Olson’s operating income decreased by $2.8 million, or 52.6%, to $2.6 million in 2009 compared to $5.4 million in 2008, and as a percentage of revenues decreased to 4.2% in 2009 compared to 5.2% in 2008. The decrease in operating income and operating income as a percentage to revenues was primarily attributable to reduced sales due to lower demand for Class 3-7 trucks attributable to deteriorating economic conditions.
· Truck Accessories’ operating income increased by $5.4 million, or 226.2%, to $7.8 million in 2009 compared to $2.4 million in 2008, and as a percentage of revenues increased to 6.8% in 2009 compared to 1.8% in 2008. The increase in operating income and operating income as a percent of revenues was primarily attributable to operational improvements and price increases partially offset by reduced sales.
· Specialty Manufacturing’s operating income decreased by $23.0 million, or 88.7%, to $2.9 million in 2009 compared to $25.9 million in 2008, and as a percentage of revenues decreased to 1.9% in 2009 compared to 10.9% in 2008. The decrease in operating income and operating income as a percentage of revenues was primarily attributable to price decreases at MIC driven by customers in the oil and gas equipment supply business demanding lower prices in response to a significant decline in oil prices.
· Corporate Parent expenses decreased $4.4 million to $3.6 million in 2009 compared to $8.0 million in 2008. The decrease was primarily attributable to reductions in headcount, salaries and incentive compensation.
Interest expense (income). Interest expense decreased $0.3 million, or 1.8%, to $18.2 million (3.8% of revenues) for 2009 compared to $18.5 million (2.6% of revenues) for 2008. Interest income was $0.2 million and $0.4 million for 2009 and 2008, respectively.
Income tax provision (benefit). The effective income tax provision (benefit) rate was 31% and 41% of income before income taxes for 2009 and 2008, respectively. The income tax benefit for 2009 differs from amounts computed based on the federal statutory rate largely as a result of state taxes in certain tax jurisdictions. The income tax provision for 2008 differs from amounts computed based on the federal statutory rate as a result of state taxes of $1.4 million, a $0.8 million increase in the valuation allowance for foreign net operating loss carryforwards, offset by a $1.1 million reduction in the valuation allowance against capital loss carryforwards and $0.3 million of research and development credits.
Liquidity and capital resources
Historically, we have funded our operations with cash available from the proceeds of our 8.75% Notes, cash generated from operations and borrowings under our revolving credit facility, as needed. Working capital at December 31, 2010 was $112.9 million compared to $99.4 million at December 31, 2009. Our cash and cash equivalents increased $4.2 million as a result of cash provided by operating activities of $3.9 million, cash provided by investing activities of $2.0 million and reduced by cash used in financing activities of $1.7 million. Working capital, excluding cash and cash equivalents, increased $9.4 million as a result of an increase in accounts receivable of $1.2 million, an increase in inventories of $10.7 million, an increase in prepaid expenses of $0.3 million, reduced by an increase in current payables and accruals of $4.2 million. Average accounts receivable days sales outstanding at December 31, 2010 were approximately 24 compared to 27 at December 31, 2009 and inventory turns during 2010 were approximately 7.8 compared to 7.0 during 2009. Excluding vehicle chassis at Specialty Vehicle Group (vehicle chassis remain in inventory for extended periods of time and amounted to $9.5 million and $8.0 million at December 31, 2010 and 2009, respectively) inventory turns were 9.2 and 7.6 for 2010 and 2009, respectively.
Operating cash flows. Operating activities during 2010 generated cash of $3.9 million compared to $29.2 million in 2009 and $45.5 million in 2008. The decrease in net cash generated by operating activities during 2010 was due primarily to a $10.7 million investment in inventories compared to a reduction of inventories of $13.0 million in 2009 and a $1.2 million increase in accounts receivable compared to a $7.8 million decrease in 2009.
The decrease in net cash generated by operating activities during 2009 compared to 2008 was due primarily to the $18.8 million decrease in operating income.
Investing cash flows. Net cash generated by investing activities in 2010 was $2.0 million compared to cash used of $9.8 million and $8.6 million in 2009 and 2008, respectively. The increase of $11.8 million in 2010 compared to 2009 was primarily due to the Morgan, Morgan Olson, Truck Accessories Group and Specialty Manufacturing sale of six of its manufacturing properties to Poindexter Properties, LLC for $15.0 million (see Note 15 in the “Notes to Consolidated Financial Statements”). Capital expenditures during 2010 were $14.8 million and were comprised mainly of machinery and equipment of $7.0 million for Specialty Manufacturing, new product molds of $2.1 million for Truck Accessories Group and $2.9 million of equipment related to a Company-wide Enterprise
Resource Planning project. We acquired approximately $0.7 million of equipment under capital leases that were not included in capital expenditures. As of December 31, 2010, we had no significant open commitments for capital expenditures.
Financing cash flows. Net cash used by financing activities totaled $1.7 million in both 2010 and 2009 compared to $6.1 million in 2008.
Our Revolving Credit Agreement was scheduled to terminate on March 15, 2010; however, neither party to the agreement gave notice of termination. The Agreement was amended and extended on December 13, 2010 with a new termination date of March 14, 2012.
At December 31, 2010, the Consolidated Coverage Ratio, as defined in the Indenture relating to our 8.75% Notes, was 1.9 to 1.0 which was less than the indenture debt incurrence covenant of 2.0 to 1.0. As a result, we are limited in our ability to incur additional indebtedness. The Indenture permits certain exceptions with respect to capitalized lease obligations and other arrangements that are incurred for the purpose of financing all or part of the purchase price or cost of construction or improvements of property used in our business. Already existing obligations and any amounts available to be drawn on our existing revolving credit agreement are not subject to this limitation.
The revolving credit facility provides for available borrowings of up to $50.0 million in revolving loans. Available borrowings are subject to a borrowing base of eligible accounts receivable, inventory, machinery and equipment, and real estate. Borrowings under our revolving credit facility are collateralized by substantially all of our assets and the assets of our existing subsidiaries. Our revolving credit facility also includes a sub-facility for up to $15.0 million of letters of credit. As of December 31, 2010, we had no borrowings under the facility, $1.3 million of letters of credit outstanding and our borrowing base would have supported debt borrowings of $48.7 million under our revolving credit facility.
In addition, the revolving credit facility includes covenants that place various restrictions on us, including limitation on our ability to:
· incur additional debt;
· create or become subject to liens or guarantees;
· make investments or loans;
· pay dividends or make distributions;
· prepay the 8.75% Notes or other debt;
· merge with other entities or make acquisitions or dissolve;
· sell assets;
· change fiscal year or amend organizational documents or terms of any subordinated debt;
· enter into leases; and
· enter into transactions with affiliates.
We believe that we will have adequate resources to meet our working capital and capital expenditure requirements consistent with past trends and practices for at least the next 12 months. Additionally, we believe that our cash and borrowing availability under the revolving credit facility will satisfy our cash requirements for 2011, given our
anticipated capital expenditures, working capital requirements and known obligations. Our ability to make payments on our debt, including the 8.75% Notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic conditions, other factors influencing the industries in which we operate and circumstances that are beyond our control. We cannot be certain that we will generate sufficient cash flows, and if we do not, we may have to engage in other activities such as the sale of assets to meet our cash requirements.
Off-balance-sheet arrangements
We have no off-balance-sheet arrangements.
Commitments and capital expenditures
We have entered into an agreement with a paint manufacturer under which Truck Accessories, Morgan, Morgan Olson and Specialty Vehicle Group are committed to buy principally all of their automotive paint for five years ending October 2014. We estimate that we will purchase approximately $5.2 million of paint products during 2011 under this agreement. We occasionally commit to the purchase of aluminum based on expected levels of future production and at December 31, 2010, Morgan and Morgan Olson had commitments of $3.4 million to buy aluminum through 2011. We did not have any material commitments to acquire new capital equipment as of December 31, 2010.
Certain cash contractual obligations of ours as of December 31, 2010 are summarized in the table below.
The Company has recorded a long-term liability of approximately $0.9 million as of December 31, 2010 related to uncertain tax positions. Given the uncertainty of these positions, the Company has not reflected obligations in the above table.
Other matters
We are significantly leveraged and will continue to be significantly leveraged. We had $17.6 million of stockholder’s equity at December 31, 2010 and 2009. We operate in cyclical businesses and the markets for our products are highly competitive. In addition, we have two customers that accounted for 20% of 2010 consolidated revenues and our top ten customers accounted for 45% of our 2010 consolidated revenues.
We continually evaluate, depending on market conditions, the most efficient use of our capital and contemplate various strategic options, which may include, without limitation, restructuring our business, indebtedness or capital structure. Accordingly, we or our subsidiaries may from time to time consider, among other things, purchasing, refinancing or otherwise retiring certain outstanding indebtedness (whether in the open market or by other means), public or private issuances of debt or equity securities, joint venture transactions, acquisitions or dispositions, new borrowings, tender offers, exchange offers, or any combination thereof, although there can be no assurances that such financing sources will be available on commercially reasonable terms. Additionally, there can be no assurances that these strategic options, if pursued, will be consummated or, if consummated, what effect they will have on us.
Historically, inflation has not materially affected our business. We believe that we have the ability to increase our selling prices to levels necessary to offset the raw material cost inflation.
Recent economic conditions have resulted in fluctuations in raw material prices, but we cannot predict the effect that this will have on the selling price of our manufactured products. Operating expenses, such as salaries and employee benefits, are subject to normal inflationary pressures.
During 2008, Poindexter Properties, LLC, which is wholly owned by Mr. Poindexter, purchased three real estate properties from the Company for approximately $7.1 million in cash and is leasing the properties back to the Company. The Company recorded a gain on the sale of $1.9 million that has been deferred and will be recognized as income over the term of the leases, of which $265 was recorded as income in both 2010 and 2009. The transaction was financed by an independent lender and the properties were sold for prices determined by an independent appraisal.
During 2010, Poindexter Properties, LLC purchased six real estate properties from the Company for approximately $15.0 million in cash and is leasing the properties back to the Company. Three of the properties included in the transaction were sold for an aggregate loss of $2.8 million as the sales prices, based on appraised values, were less than the book value of the assets. The aggregate loss was recognized as of the transaction date as loss on sale lease-back of real estate. The remaining three properties were sold for an aggregated gain of $3.6 million. The gain of $3.6 million has been deferred and will be recognized as income over the life of the leases. The transaction was financed by an independent lender and the properties were sold for prices determined by an independent appraisal.
Beginning in July 2006, Mr. Poindexter began receiving a salary from the Company. Effective July 31, 2008, Mr. Poindexter ceased receiving a salary from the Company and we paid $0.5 million in fees to Southwestern Holdings, Inc. (“Southwestern”) for the services of Mr. Poindexter during each of 2010 and 2009.
Southwestern was a named insured under the Company’s general liability and excess umbrella insurance policies during 2007 when Southwestern became the defendant in a suit for damages resulting from a vehicle accident not involving the Company’s assets or any of its employees. The lawsuit was settled during 2008 and Southwestern paid the amount of the self-insured reserve of $0.3 million. Southwestern is no longer a named insured under the Company’s general liability policy effective July 1, 2007. Any increased premiums under the Company’s umbrella policy incurred in the future by the Company by reason of the settlement will be reimbursed by Southwestern.
Recently issued accounting standards
The effect on the Company of recently issued accounting standards on the Company is addressed in Note 1 of Notes to Consolidated Financial Statements.
Critical accounting policies and estimates
This discussion and analysis of financial condition and the results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the use of estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The estimates, including those related to warranties offered on products, self-insurance reserves, bad debts, inventory obsolescence, investments, intangible assets and goodwill, income taxes, financing operations, workers’ compensation insurance and contingent liabilities, are evaluated continually. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following are the most critical accounting policies used in the preparation of our financial statements.
Revenue recognition. Revenue is recognized upon shipment of the product to customers, except for Morgan and Morgan Olson where revenue is recognized when title transfers to the customer upon final body assembly, quality inspection and customer notification. We classify amounts billed to customers related to shipping and handling as revenue. The costs associated with shipping and handling revenue are included in cost of revenue.
Warranties. Reserves for costs associated with fulfilling warranty obligations offered on Morgan, Morgan Olson, Truck Accessories and Specialty Vehicle Group products are established based on historical experience and an estimate of future claims. Increases in the incidence of product defects would result in additional reserves being required in the future and would reduce income in the period of such determination.
Self-insurance reserves. We utilize a combination of insurance coverage and self-insurance programs for property, casualty, workers’ compensation and healthcare insurance. We use internally determined development factors to record a fully developed self-insurance reserve to cover the self-insured portion of these risks based on known facts and historical industry and company trends. Changes in the assumptions used could result in a different self-insurance reserve.
Income taxes. We estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure and assessing temporary differences resulting from the differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. We then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent recovery is not likely, a valuation allowance is established thereby reducing the deferred tax asset. When an increase in this allowance within a period is recorded, we include an expense in the tax provision in the consolidated statements of operations. Management’s judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the net deferred tax assets. We assess our uncertain income tax positions on an annual basis and make adjustments accordingly (see Note 11 of our Consolidated Financial Statements for a summary of this activity).
In June 2006, the Financial Accounting Standards Board (“FASB”) issued guidance that clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure.
Inventory valuation. Our inventories consist mainly of raw materials, vehicles prior to conversion, supplies and work-in-progress. Because we primarily produce products to our customers’ orders, we maintain a relatively small stock of finished goods inventories. Inventories are stated at the lower of cost (first-in, first-out method) or market. We record reserves against the value of inventory based upon our determination that the inventory is not usable in our products. These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations.
Accounts receivable. We provide credit to our customers in the ordinary course of business. We are not aware of any significant credit risks related to our customer base and do not generally require collateral or other security to support customer receivables. Specialty Vehicle Group sells to certain customers on extended terms and retains title to the vehicle until payment is complete. The carrying amount of our accounts receivable approximates the fair value of the receivables because of their short-term nature with payment typically due within 30 days of transfer of title to the product. We establish an allowance for doubtful accounts on a case-by-case basis when we believe that we are unlikely to receive payment in full of amounts owed to us. We make a judgment in these cases based on available facts and circumstances and we may record a reserve against a customer’s account receivable. We reevaluate the reserves and adjust them as we obtain more information regarding the account. The collectability of trade receivables could be significantly reduced if there is a greater than expected rate of defaults or if one or more significant customers experience financial difficulties or are otherwise unable to make required payments.
Goodwill, identified intangibles and long-lived assets impairment. We perform a test of our goodwill and indefinite-lived intangible assets for potential impairment annually as of October 1. The fair values of our reporting units for testing goodwill are based on various valuation methods, including multiples of earnings derived from information and analysis of recent acquisitions in the marketplace for companies with similar operations and discounted cash flow analysis. Changes in the assumptions used in the fair value calculation could result in an estimated reporting unit fair value that is below the carrying value, which may give rise to an impairment of our goodwill. In addition to the annual review, we also test for impairment of our long-lived assets, goodwill and intangible assets should events or circumstances indicate a potential reduction in the fair value of those assets below their carrying value. Lastly, on an annual basis, we determine that the remaining lives of identified amortizable intangible assets continue to be appropriate.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure About Market Risks
We are subject to certain market risks, including interest rate risk and foreign currency risk. The adverse effects of potential changes in these market risks are discussed below. See the Notes to Consolidated Financial Statements elsewhere in this 10-K for a description of our accounting policies and other information related to these financial instruments.
Variable-rate debt. From time to time, we borrow funds under our revolving credit facility. The interest rates on the revolving credit facility are based upon a spread above either the prime interest rate or the London Interbank Offered Rate (LIBOR), which rate used is determined at our option. The Company had no revolver borrowings outstanding at December 31, 2010 and 2009.
Fixed-rate debt. As of December 31, 2010, the Company had $198.8 million of 8.75% Notes outstanding, with an estimated fair value of approximately $199.3 million and $200.8 million based upon the traded value at December 31, 2010 and March 15, 2011, respectively. Market risk, estimated as the potential increase in fair value resulting from a hypothetical 1.0% decrease in interest rates, was approximately $6.9 million as of December 31, 2010.
Foreign currency. Morgan has a manufacturing plant in Canada that during 2010 generated sales of approximately $8.1 million for the year. The functional currency of Morgan’s Canadian operations is the Canadian dollar. Specialty Manufacturing has one plant in Mexico and one in Malaysia; however, the functional currency is the U.S. dollar. We do not currently employ risk management techniques to manage potential exposure to foreign currency fluctuations.
Item 8.
Item 8. Financial Statements and Supplementary Data
J.B. Poindexter & Co., Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholder’s Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholder of
J.B. Poindexter & Co., Inc.
We have audited the accompanying consolidated balance sheets of J.B. Poindexter & Co., Inc. and subsidiaries (Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of J.B. Poindexter & Co., Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with U.S. generally accepted accounting principles.
/s/ CROWE HORWATH LLP
South Bend, Indiana
April 13, 2011
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
The accompanying notes are an integral part of these consolidated financial statements.
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
The accompanying notes are an integral part of these consolidated financial statements.
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
(Dollars in Thousands)
The accompanying notes are an integral part of these consolidated financial statements.
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
The accompanying notes are an integral part of these consolidated financial statements.
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents. Cash and all highly liquid investments with a maturity of three months or less at the date of purchase, including short-term deposits and government agency and corporate obligations, are classified as cash and cash equivalents. At times, the Company has maintained deposits in financial institutions in excess of federally insured limits.
Revenue Recognition. Revenue is recognized upon shipment of the product to customers, except for Morgan and Morgan Olson where revenue is recognized when title transfers to the customer upon final body assembly, quality inspection and customer notification. Amounts billed to customers related to shipping and handling are classified as revenue. The costs associated with the shipping and handling revenue are included in cost of revenues.
Accounts Receivable. The Company sells to customers on terms customary in its industries. Discounts are allowed for early payment but only if economically justified based on the cost of capital. Accounts receivable is stated net of an allowance for doubtful accounts of $603 and $1,028 at December 31, 2010 and 2009, respectively. The Company establishes an allowance for doubtful accounts receivable on a case-by-case basis when it believes that the required payment of specific amounts owed is unlikely to occur. The activity in the allowance for doubtful accounts for the years ended December 31 was:
The carrying amounts of trade accounts receivable approximate fair value because of the short maturity of those instruments. The Company is not aware of any significant credit risks related to its customer base and does not generally require collateral or other security to support customer receivables.
Inventories. Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment. Property, plant and equipment, including property under capital leases, are stated at cost. The cost of property under capital leases is the lower of the present value of the future minimum lease payments or fair value at the inception of the lease. Depreciation and amortization is computed by using the straight-line method over the estimated useful lives of the applicable assets or over the shorter of the lease term or the estimated useful life of leasehold improvements. The cost of maintenance and repairs is charged to operating expense as incurred and the cost of major replacements and significant improvements is capitalized.
Goodwill and Intangible Assets. Goodwill and intangible assets with indefinite useful lives are not amortized, but are evaluated at least annually for impairment or more frequently if facts and circumstances indicate that the assets may be impaired. Intangible assets that are determined to have finite lives are amortized on a straight-line basis over the period in which we expect to receive economic benefit. See Note 5 for further discussion on goodwill and intangible assets.
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
Debt Issuance Costs. Debt issuance costs are amortized using the effective interest method over the term of the related debt, which ranges from four to ten years. Amortization of debt issuance costs is included in interest expense (see Note 5).
Evaluation of Impairment of Long-Lived Assets. The Company evaluates the carrying value of long-lived assets whenever significant events or changes in circumstances indicate the carrying value of these assets may be impaired. The Company evaluates potential impairment of long-lived assets by comparing the carrying value of the assets to the expected net future cash flows resulting from the use of the assets. As indicated in Note 5, the Company recorded impairment charges in 2008.
Warranty. Morgan provides product warranties for periods of up to five years. Morgan Olson provides a warranty period, which is one year or 12,000 miles for certain components, three years or 36,000 miles for paint, and five years or 50,000 miles for the van body structure. Truck Accessories provides a warranty period, exclusive to the original truck owner, which is, in general but with exclusions, one year for parts, five years for paint and lifetime for structure. The Specialty Vehicle Group provides a warranty on its products for a period of 48 months or 50,000 miles on the section of the body and parts manufactured for funeral coaches and funeral limousines, 36 months or 50,000 miles on the body and parts manufactured for bus bodies, and 48 months or 100,000 miles on the section of the body and parts manufactured for limousines. The remaining operations of Specialty Manufacturing do not provide a warranty on their products. A provision for warranty costs is included in cost of sales when goods are sold based on historical experience and estimated future claims. The Company had accrued warranty costs of $4,029 and $3,481 at December 31, 2010 and 2009, respectively. The activity in the accrued warranty cost accounts for the years ended December 31 was:
Advertising and Research and Development Expense. The Company expenses advertising costs and research and development (“R&D”) costs as incurred. During the years ended December 31, 2010, 2009 and 2008, advertising expense was $1,082, $1,749 and $3,324 respectively, and R&D expense was $1,396, $1,192 and $2,298, respectively.
Income Taxes. The provision (benefit) for income taxes is based on income recognized for financial statement purposes and includes the effects of temporary and permanent differences between such income and that recognized for tax return purposes. Deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. The Company considers the earnings in its Canadian operations to be permanently invested and as such has not provided for deferred taxes related to potential distributions of those earnings. The amount of undistributed earnings at December 31, 2010 was not material.
The Company’s management believes it is more likely than not that current and long-term deferred tax assets will reduce future income tax payments. Should the Company determine it is more likely than not that it will be unable to realize all or part of the net deferred tax asset in the future, a valuation allowance, necessary to reduce the deferred tax asset to the amount that is more likely than not to be realized, would reduce income in the period such determination was made.
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
The Company accounts for uncertain tax positions and reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Self-Insurance Reserves. The Company utilizes a combination of insurance coverage and self-insurance programs for property, casualty, workers’ compensation and healthcare insurance. The Company records a fully developed self-insurance reserve to cover the self-insured portion of these risks based on known facts and historical industry trends. Changes in management’s assumptions may result in a different self-insurance reserve.
Contingent Liabilities. Reserves are established for estimated environmental and legal loss contingencies when a loss is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liabilities are reflected in income in the period in which different facts or information become known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon the assumptions and estimates regarding the probable outcome of the matter. Should the outcome differ from the assumptions and estimates, revisions to the estimated reserves for contingent liabilities would be required.
Comprehensive Income. Comprehensive income consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustments, which are also recognized as a separate component of equity.
Translation of Foreign Financial Statements. Assets and liabilities of foreign operations are translated at year-end rates of exchange, and the income statements are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholder’s equity until the foreign operations are sold or substantially liquidated. Gains or losses resulting from foreign currency transactions (transactions that require settlement in a currency other than the Company’s functional currency) are included in net income (loss).
Fair Value of Financial Instruments. The Company’s financial instruments consist of cash and cash equivalents, receivables and debt. Fair values of cash and cash equivalents and receivables approximate carrying values for these financial instruments since they are relatively short-term in nature. The carrying amount of debt, except for the Company’s 8.75% Notes (see Note 8), approximates the fair value due either to length of maturity or existence of variable interest rates that approximate prevailing market rates. The fair value of the Company’s 8.75% Notes is determined under the provisions of applicable guidance, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates subject to change include the valuation of goodwill and other intangible assets, the allowances for doubtful accounts, shrinkage and excess and obsolete inventory, the valuation of deferred tax assets, and the allowances for self-insurance risks, warranty claims, and environmental claims.
Recent Accounting Pronouncements. In June 2009, the Financial Accounting Standards Board issued Accounting Standards Update No. 2009-17 (an amendment to Accounting Standards Codification 810, Consolidation), Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, “ASU No. 2009-17.” This update significantly changes the consolidation rules as they related to variable interest entities (“VIEs”). The update specifically changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s
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purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. As a result, it is expected that many off-balance-sheet entities previously exempt from consolidation - qualified special-purpose entities (QSPEs) - will be subject to consolidation. Due to the elimination of the QSPE scope exception, the impact of the changes resulting from this update may be more evident to financial services companies; however, the new guidance will have broad applicability across all industries. In addition, ASU No 2009-17 requires a number of new disclosures, including the requirements for a reporting entity to provide additional disclosures about its involvement with VIEs, any significant changes in risk exposure due to that involvement, and how its involvement with a VIE affects the reporting entity’s financial statements. The adoption of this update did not have a material effect on our consolidated financial statements.
2. Segment Data
The Company operates and manages its subsidiaries within the separate business segments. The Company evaluates performance and allocates resources based on the operating income of each segment. The accounting policies of the reportable business segments are the same as those described in the summary of significant accounting policies.
The following is a summary of the business segment data for the years ended December 31:
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Morgan had two customers that accounted for, on a combined basis, approximately 56%, 54% and 48% of Morgan’s revenues during 2010, 2009 and 2008, respectively. Accounts receivable from these customers totaled $2,323 and $2,816 at December 31, 2010 and 2009, respectively.
Morgan Olson had one customer that accounted for approximately 41%, 31% and 44% of Morgan Olson’s revenues during 2010, 2009 and 2008, respectively. Accounts receivable from this customer were $109 and $123 at December 31, 2010 and 2009, respectively.
Specialty Manufacturing has two customers in the international oilfield service industry that accounted for approximately 44%, 39% and 42% of Specialty Manufacturing’s revenues during 2010, 2009 and 2008, respectively. Accounts receivable from these customers totaled $8,272 and $4,882 at December 31, 2010 and 2009, respectively.
The Company, on a consolidated basis, had five customers that accounted for approximately 38%, 33% and 37% of total revenues during 2010, 2009 and 2008, respectively. Accounts receivable from these customers totaled $10,704 and $7,821 at December 31, 2010 and 2009, respectively. These were customers of Morgan, Morgan Olson and Specialty Manufacturing. Morgan had two customers, Penske and Ryder, which individually accounted for more than 10% of the Company’s revenues during any one or more of 2010, 2009 and 2008. Penske accounted for approximately 10%, 11% and 8% of the Company’s total revenues during 2010, 2009 and 2008, respectively. Accounts receivable for Penske was $1,036 and $1,696 at December 31, 2010 and 2009, respectively. Ryder accounted for approximately 10%, 6% and 8% of the Company’s total revenues during 2010, 2009 and 2008, respectively. Accounts receivable for Ryder was $1,287 and $1,120 at December 31, 2010 and 2009, respectively.
The Company’s operations are located principally in the United States. However, Morgan has operations located in Canada and Specialty Manufacturing has operations in Mexico and Malaysia. Long-lived assets relating to these foreign operations were $10,423 and $9,168 at December 31, 2010 and 2009, respectively. Consolidated revenues included $44,545, $31,881 and $31,888 in 2010, 2009 and 2008, respectively, of sales to customers outside the United States.
JBPCO (Parent) operating expenses for all periods comprise the costs of the parent company office and personnel who provide strategic direction and support to the subsidiary companies. JBPCO (Parent) costs were $10,266, $3,637, and $7,985 for 2010, 2009 and 2008, respectively.
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The sale lease-back transaction consummated in December 2010 with Poindexter Properties, LLC resulted in a recognized loss on sale of real estate of $2,820 and a deferred gain on sale lease-back of $3,595. The Company considers the loss related to the sale of real estate under the sale lease-back arrangement to be an unusual transaction that is not considered by the Company’s chief operating decision maker in his assessment of segment profitability and as a result has been included in JBPCO (Parent) category. To be consistent with treatment of the 2010 loss, the Company reclassified the $265 income recognized in 2009 on the deferred gain originating from the 2008 sale lease-back arrangement with Poindexter Properties, LLC that was previously presented as Morgan operating income.
3. Inventories
Consolidated net inventories consisted of the following:
Inventories are stated net of an allowance for excess and obsolete inventory of $2,975 and $3,391 at December 31, 2010 and 2009, respectively. The activity in the allowance for excess and obsolete inventory accounts for the years ended December 31 was:
4. Property, Plant and Equipment
Property, plant and equipment, as of December 31, 2010 and 2009, consisted of the following:
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Machinery and equipment included approximately $14,189 and $14,150 of equipment at cost recorded under capital leases as of December 31, 2010 and 2009, respectively, and accumulated depreciation of approximately $7,470 and $7,118 at December 31, 2010 and 2009, respectively.
Effective December 17, 2010, the Company sold and leased back six of its manufacturing facilities to Poindexter Properties, LLC, a company owned by Mr. Poindexter (see Note 15).
In 2010 and 2009, the Company capitalized $512 and $485, respectively, of interest costs incurred related to constructed assets in progress.
During 2009, the Company decided to consolidate the two Specialty Vehicle Group funeral and limousine manufacturing facilities and combine their production in the Amelia, Ohio plant. As part of the decision to consolidate, the Company sold its specialized transit bus business and related assets, including equipment, inventory and intangible assets on December 31, 2009 for total proceeds of $1,375, which resulted in a net loss on sale of $584 recorded in other income on the consolidated financial statements. The allocation of goodwill associated with the bus business accounted for $550 of the loss.
The Company decided to close and consolidate one of Specialty Manufacturing machining plants into another of its manufacturing facilities, resulting in a write-down of the carrying value of the assets by $677 in 2008. The Company also combined two of its Truck Accessories manufacturing facilities located in Elkhart, Indiana, resulting in a write-down of the carrying value of the assets by $111 in 2008. Specialty Manufacturing completed the closure of its facility in Fort Smith, Arkansas in 2010 and expenditures related to the closure were $937.
Depreciation expense was $13,535, $15,299 and $16,064 and included $1,612, $1,688 and $1,725 for assets recorded under capital leases for the years ended December 31, 2010, 2009 and 2008, respectively.
5. Goodwill, Intangibles and Other Assets
Goodwill represents the excess of costs over fair value of net assets of businesses acquired. The Company paid a premium over the fair value of net tangible and identifiable intangible assets acquired for reasons such as the profitable expansion of its business, strategic fit, economies of scale and the value of an assembled workforce, among others. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite life are not amortized but instead tested for impairment at least annually.
The Company completed its annual impairment review effective October 1, 2010, 2009 and 2008, which indicated that there was a $300 impairment in the carrying value of Federal Coach’s trade name recognized in 2008. The fair value of our reporting units is based on various valuation methods, including acquisition multiples of earnings and discounted cash flow analysis.
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives and are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows.
The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.
The Company sold its specialized transit bus business on December 31, 2009 and allocated $550 of goodwill associated with the business sold. Revenues related to the specialized transit bus business were $9,504 and $11,337 in 2009 and 2008, respectively, and approximated 2.0% and 1.6% of consolidated revenues in 2009 and 2008, respectively.
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At December 31, 2010, goodwill was $7,408, $14,884 and $12,708 for the Morgan, Truck Accessories and Specialty Manufacturing reporting units, respectively.
The changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2009 were:
Intangible assets and the related accumulated amortization as of December 31, 2010 and 2009 were:
The amortization of intangible assets was $1,635, $1,700 and $1,594 for the years ended December 31, 2010, 2009 and 2008, respectively. Estimated amortization expense for each of the subsequent five years ending December 31 is $1,571 - 2011, $1,377 - 2012, $1,073 - 2013, $1,073 - 2014 and $997 - 2015.
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Other assets as of December 31, 2010 and 2009 consisted of the following:
The amortization of debt issuance costs was $559, $584 and $691 for the years ended December 31, 2010, 2009 and 2008, respectively. Estimated amortization of debt issuance costs for each of the subsequent four years ending December 31 is $559 - 2011, $559 - 2012, $559 - 2013 and $140 - 2014.
The Company created a trust in favor of its insurance carrier to secure its liabilities under its self-insured, casualty insurance program including workers’ compensation insurance. The liabilities were previously secured by an irrevocable standby letter of credit that was canceled upon the initial deposit of $5,520 into the trust. For the year ended December 31, 2010 the trust was reduced by $982 due to a decreased claims experience rate. For the year ended 2009, the Company contributed an additional $315 to the trust.
6. Floor Plan Notes Payable
The Company had floor plan financing agreements with Ford Motor Credit Company for financing part of its chassis inventory at Federal Coach and Eagle Coach. Floor plan notes payable reflect the monetary value of the chassis that are in the Company’s possession as of December 31, 2010 and 2009. These obligations are reflected on the accompanying balance sheet as accounts payable, a current liability.
The total amount financed under these agreements was $274 and $791 as of December 31, 2010 and 2009, respectively. These borrowings bear interest at the prime rate plus 150 basis points on balances outstanding over 90 days. As of December 31, 2010 and 2009, the weighted average interest rate on all outstanding floor plan notes payable was 0.3% and 0.2%, respectively. The average interest rate for 2010 and 2009 on the liabilities that bear interest was 8.3% and 6.8%, respectively.
7. Revolving Credit Facility
On March 15, 2004, concurrently with the 8.75% Notes offering discussed in Note 8, the Company entered into a revolving credit agreement (the “Revolving Credit Facility”) that expired March 15, 2008. The Revolving Credit Facility automatically renewed for a 12-month period after March 15 of each year until December 13, 2010 at which time the agreement was amended and extended until March 14, 2012. The annual automatic renewal feature was not incorporated into the new agreement.
The Revolving Credit Facility currently provides for borrowings by the Company of up to $50,000. The Revolving Credit Facility allows the Company to borrow funds up to the lesser of $50,000 or an amount based on the sum of: 1) advance rates applied to the total amounts of eligible accounts receivable and inventories of the subsidiaries and 2) up to $20,000 collateralized by the fixed assets of the Company. The advance rates are 85% for eligible accounts receivable and 60% for eligible inventory, as defined. Borrowings against inventory may not exceed $20,000. The Company is entitled to borrow up to an additional $20,000 against fixed assets not to
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exceed the maximum amount of credit under the facility. The Revolving Credit Facility includes a sub-facility for up to $15,000 of letters of credit.
The Revolving Credit Facility provides for borrowing at variable rates of interest, based on either LIBOR (London Interbank Offered Rate, which was .455% at December 31, 2010) plus a margin of 1.75% or the bank’s base rate (the greater of the Federal Funds Rate plus 0.5% or its prime rate, which was 3.25% at December 31, 2010). Interest is payable monthly including a fee of 0.5% on the portion of the $50,000 total commitment that remains unused during the period.
The Revolving Credit Facility contains provisions allowing the lender to accelerate the repayment of debt upon the occurrence of an event the lender determines to represent a material adverse change. The Revolving Credit Facility also contains restrictive covenants, which, among other things, restrict the use of proceeds from the sale of assets, the ability of the Company to incur additional debt or pay dividends, and certain other corporate activities. In addition, the Company is subject to a financial covenant requiring it to maintain a minimum fixed charge coverage ratio, as defined, of 1.0 to 1.0 should availability fall below $10,000. At December 31, 2010, the Company was in compliance with all covenants of the Revolving Credit Facility. In the event that the Company’s borrowing availability is below $20,000, the Company’s cash balances will become restricted.
At December 31, 2010 and 2009, the Company had no borrowings, and $1,358 in standby letters of credit (see Note 14) at December 31, 2010, and had unused gross borrowing availability of $48,615 at December 31, 2010.
8. Long-Term Debt and 8.75% Notes Offering
Long-term debt as of December 31, 2010 and 2009 consisted of:
On March 15, 2004, the Company completed a note offering of $125,000, 8.75% Notes due in 2014 (the “8.75% Notes”) with interest payable semiannually. On May 17, 2004 and January 21, 2005, the Company completed offers to sell an additional $30,000 and $45,000, respectively, of the 8.75% Notes. The additional $30,000 of 8.75% Notes were issued at par and the $45,000 of 8.75% Notes were issued at a 5% premium. The additional 8.75% Notes were issued on the same terms as the original issue. Net proceeds from the additional offerings of approximately $46,400 increased the Company’s cash and short-term investments. The 8.75% Notes mature on March 15, 2014 and bear interest at an annual rate of 8.75% payable each September 15 and March 15 to the holders of record on September 1 and March 1 immediately preceding the interest payment date. On May 11, 2005, the Company completed an offer to exchange (“2005 Exchange Offer”) $200 million principal amount of its 8.75% Notes which had been registered under the Securities Act for any and all of its outstanding unregistered 8.75% Notes.
The 8.75% Notes are subordinated to borrowings under the Revolving Credit Facility (see Note 7) and other secured indebtedness to the extent of the assets securing the debt. Also, the Company’s obligations under the 8.75% Notes are guaranteed by each wholly owned subsidiary of the Company (the “Subsidiary Guarantors”). Each guarantee is a senior unsecured obligation of the Subsidiary providing such Guarantee. All the assets of the Company and its subsidiaries are encumbered under the guarantee arrangement related to the 8.75% Notes.
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Relevant groupings of individual assets of the guarantors, including the corporate level assets, and pertinent individual operating information related to guarantor operations is included in the disclosure of the segment information included in Note 2 of the Consolidated Financial Statements. The Subsidiary Guarantors are also borrowers under the Revolving Credit Facility (see Note 7).
The Company has the option to redeem the 8.75% Notes at any time on or after March 15, 2010, at a defined premium plus accrued and unpaid interest to the date of redemption. On February 5 and February 9, 2009, the Company purchased $150 and $250, respectively, of the 8.75% Notes on the open market, resulting in a gain of $186.
The 8.75% Notes’ Indenture includes covenants that limit the ability of the Company to: incur additional debt, including sale and leaseback transactions; pay dividends or distributions on its capital stock or repurchase capital stock; issue stock of subsidiaries; make certain investments; create liens on its assets to secure debt; enter into transactions with affiliates; merge or consolidate with another company; and transfer and sell assets. The Indenture contains a covenant to limit the incurrence of additional indebtedness as measured by its Consolidated Coverage Ratio, as defined. The Company and its subsidiaries are prohibited from incurring additional indebtedness when the Consolidated Coverage ratio is below 2.0 to 1.0. The Indenture permits certain exceptions with respect to capitalized lease obligations and other arrangements that are incurred for the purpose of financing all or part of the purchase price or cost of construction or improvements of property used in the business of the Company or its subsidiaries. Already existing obligations and any amounts available to be drawn under the Company’s existing revolving credit agreement are not subject to this limitation. At December 31, 2010, the Company’s consolidated coverage ratio was approximately 1.9 to 1.00, which is below the level at which the Indenture would permit additional debt to be incurred. Therefore, until the ratio improves to 2.0 to 1.0, the Company is prohibited from incurring additional or new indebtedness, except as permitted in the Indenture. At December 31, 2010, the Company had $50.0 million of current availability under the Company’s existing revolving credit agreement.
The Company, using level 1 inputs, estimates the fair value of the 8.75% Notes at December 31, 2010 and 2009 was approximately $199,300 and $168,000, respectively, based on their market values at those dates compared to a recorded amounts of $199,598 and $199,839 at December 31, 2010 and 2009, respectively.
The Company’s obligation under capital leases is due in varying maturity dates through 2014. The capital leases are collateralized by certain equipment with a net book value of approximately $6,719 and $7,031 at December 31, 2010 and 2009, respectively.
Maturities. Aggregate principal payments on long-term debt based on scheduled maturities for the next four years as of December 31, 2010 are as follows:
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(Dollars in Thousands)
9. Operating Leases
The Company leases certain manufacturing facilities and equipment under noncancelable operating leases certain of which contain renewal options. The future minimum lease payments subsequent to December 31, 2010 are as follows:
Total rental expense included in continuing operations under all operating leases was approximately $9,587 $10,042 and $9,711 for the years ended December 31, 2010, 2009 and 2008, respectively.
10. Supplemental Cash Flow Information
The supplemental cash flow information for the years ended December 31, 2010, 2009 and 2008 was as follows:
11. Income Taxes
The income tax provision (benefit) consists of the following for the years ended December 31, 2010, 2009 and 2008:
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The following table reconciles the differences between the federal statutory income tax rate and the effective tax rate for the years ended December 31, 2010, 2009 and 2008:
The domestic and foreign components of income (loss) before income taxes were:
Deferred income taxes are based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of the enacted tax laws. The net deferred tax assets and liabilities as of December 31, 2010 and 2009 were:
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The Company had alternative minimum tax credit carryforward deferred tax assets of approximately $800 at December 31, 2010 and 2009 for U.S. federal income tax purposes, which may be carried forward indefinitely.
During 2010, the Company generated federal net operating losses of approximately $2,884 and had recognized a current income tax refund receivable at December 31, 2010 related to the carryback of these losses. Additionally, at December 31, 2010 and 2009, the Company had state tax net operating loss carryforwards of approximately $64,000 and $67,000, respectively, and recognized a deferred tax asset of approximately $3,400 and $3,700, respectively. The state net operating loss carryforwards expire at varying dates ranging from 1 to 20 years. At December 31, 2010 and 2009, the Company had recorded a valuation allowance of approximately $2,100 against this deferred tax asset as it was uncertain as to whether it would be realized. The Company had foreign net operating losses of approximately $5,800 and $4,100 as of December 31, 2010 and 2009, respectively, and recognized a deferred tax asset of approximately $1,400 and $1,300, respectively. At December 31, 2010 and 2009, the Company recorded a valuation allowance of approximately $1,400 and $1,300, respectively, against this deferred tax asset as it was uncertain as to whether it would be realized. Foreign net operating losses will be carried forward for up to 20 years, with a significant majority being greater than 10 years.
As of December 31, 2010 and December 31, 2009, the Company had $880 and $1,821, respectively, of tax liabilities related to uncertain income tax liabilities, or $645 and $1,312, respectively, net of a federal tax benefit of $235 and $509, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The tax liability includes $435 and $511 of interest and penalties at December 31, 2010 and 2009, respectively. If these uncertain tax positions are favorably resolved, $645 would reduce our income tax provision in future periods. A reconciliation of the beginning and ending unrecognized tax liability is as follows:
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We are subject to U.S. federal income tax as well as income tax in foreign and multiple state jurisdictions. We have substantially concluded all U.S. federal income tax matters for years through 2005. Substantially all material foreign, state and local income tax matters have been concluded for fiscal years through 2006. Currently, we are under audit by the Internal Revenue Service for tax year 2006. The Company has provided for any known potential exposures for this examination and years after 2006 and does not expect the total amount of unrecognizable tax benefits to significantly change in the next twelve months.
12. Common Stock
As of December 31, 2010 and 2009, there were 100,000 shares authorized and 3,059 shares issued and outstanding of JBPCO common stock with a par value of $.01 per share. JBPCO was incorporated in Delaware. No other classes of common stock, preferred stock or common stock equivalents exist.
13. Employee Benefit Plans
Employee Incentive Plans. The Company has an Annual Management Incentive Plan for executives at the parent company and at each of the business units to provide for the earning of annual bonuses based upon the attainment of performance-based goals. Eligible participants are entitled to receive a bonus if the business unit (or the Company) attains at least 80% of the operating income target. Individual bonuses are then allocated among the eligible employees based upon their individual achievement of stated performance objectives including working capital performance objectives. The Company incurred expenses related to this plan totaling $2,544, $2,444 and $3,877 for the years ended December 31, 2010, 2009 and 2008, respectively.
The Company has a Long-Term Performance Plan (“LTPP”) designed to align the interests and the Company’s long-term financial performance goals with the most senior executives in the Company. Each element of the LTPP has a three-year duration and awards are paid only at the end of the three-year cycle, depending upon performance versus established budgeted financial goals. The Company incurred expenses related to this plan totaling $476, $349 and $733 for the years ended December 31, 2010, 2009 and 2008, respectively.
JBPCO 401(k) Defined Contribution Plan. The JBPCO-sponsored 401(k) savings plan allows participating employees to contribute through salary deductions up to 100% of gross compensation and provides for Company matching contributions up to 1% of the first 5% as well as the opportunity for an annual discretionary contribution. The Company has not made discretionary contributions. Vesting in the Company matching contribution is 20% per year over the first five years. The Company incurred related employer matching contribution and administrative expenses of $480, $632 and $1,702 during the years ended December 31, 2010, 2009 and 2008, respectively.
14. Commitments and Contingencies
Claims and Lawsuits. The Company is involved in certain claims and lawsuits arising in the normal course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the financial position or results of operations and cash flows of the Company.
Letters of Credit and Other Commitments. The Company had $1,358 in standby letters of credit outstanding at December 31, 2010, primarily securing the Company’s chassis bailment pool programs. The letters of credit were reduced to $59 as of January 2011. The Company holds funds in a trust for the benefit of its casualty insurance carrier of $6,420 to secure the Company’s insurance programs. Income from the trust accrues to the Company.
The Company has a five-year agreement that expires October 1, 2014 with a key supplier, whereby it exclusively purchases inventory from this supplier in return for favorable pricing. The Company estimates that it will purchase approximately $5.2 million from this supplier in 2011.
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Consigned Chassis Inventories. The Company obtains vehicle chassis for certain units produced at Morgan directly from the chassis manufacturer under a bailment pool agreement with General Motors Acceptance Corporation. Chassis are obtained directly from the manufacturer based on orders from customers, which are typically manufacturer dealers. The agreement generally provides that the Company is restricted to producing certain conversions or up-fittings on these chassis. The manufacturer does not transfer the certificate of origin to the Company and, accordingly, the Company accounts for the chassis as consigned inventory belonging to the manufacturer. Under these agreements, if the chassis is not delivered to a customer within a specified timeframe, the Company is required to pay a finance charge based on the value of the chassis. The finance charges incurred on consigned chassis inventories included in interest expense in the consolidated statements of income totaled $69, $177 and $215 for the years ended December 31, 2010, 2009 and 2008, respectively. Total consigned chassis inventory was $158 and $930 at December 31, 2010 and 2009, respectively.
Environmental Matters. The Company’s operations are subject to a variety of federal, state and local environmental and health and safety statutes and regulations, including those relating to emissions to the air, discharges to water, treatment, storage and disposal of waste, and remediation of contaminated sites. In certain cases, these requirements may limit the productive capacity of its operations. Certain laws, including the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, impose strict and, under certain circumstances, joint and several liability for costs to remediate contaminated sites upon designated responsible parties including site owners or operators and persons who dispose of wastes at, or transport wastes to, such sites. Some of the Company’s operations also require permits concerning, without limitation, water quality and air quality, which may restrict its activities and which are subject to renewal, modification or revocation by issuing authorities. In addition, the Company generates hazardous wastes, which are also subject to regulation under applicable environmental laws.
The Clean Water Act imposes strict controls on the discharge of pollutants into the navigable waters of the United States. The Clean Water Act also provides for civil, criminal and administrative penalties for any unauthorized discharge of hazardous substances in reportable quantities and imposes liability for the costs of removal and remediation of an unauthorized discharge. Many states have laws that are analogous to the Clean Water Act and also require remediation of accidental releases in reportable quantities. Both the Clean Water Act and many related state statutes and regulations require permit authorizations for certain operations. We hold all of the required permits pertaining to our operations under the Clean Water Act and its state counterparts.
The Clean Water Act imposes strict controls on the discharge of pollutants into the navigable waters of the United States. The Clean Water Act also provides for civil, criminal and administrative penalties for any unauthorized discharge of hazardous substances in reportable quantities and imposes liability for the costs of removal and remediation of an unauthorized discharge. Many states have laws that are analogous to the Clean Water Act and also require remediation of accidental releases in reportable quantities. Both the Clean Water Act and many related state statutes and regulations require permit authorizations for certain operations. We hold all of the required permits pertaining to our operations under the Clean Water Act and its state counterparts.
The Clean Air Act limits the ambient air discharge of certain materials deemed to be hazardous and establishes a federal air quality permitting program for such discharges. Many states have laws and programs that are analogous to the Clean Air Act. We hold and maintain all of the required air quality permits applicable to our operations. In addition, the EPA has promulgated, under the Clean Air Act, emissions standards for heavy-duty vehicles that may increase the cost of heavy-duty trucks manufactured after 2010. These standards may negatively impact the market for new heavy-duty trucks, which may negatively impact the market for our products.
On December 15, 2009, the EPA officially published its “Endangerment Finding,” an official finding that emissions of carbon dioxide, methane and other greenhouse gases (GHGs) present an endangerment to human health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the Earth’s
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
atmosphere and other climatic changes. The Endangerment Finding allows the agency to proceed with the adoption and implementation of regulations that would restrict emissions of GHGs under existing provisions of the CAA. The Agency has proceeded to promulgate and implement regulations concerning this Finding, including the Light Duty Vehicle Rule, which sets more stringent emissions standards for vehicles, and the Tailoring Rule, which requires new and modified large emitting sources of greenhouse gases to use the Best Available Control Technology to reduce greenhouse gas emissions. These rules could negatively impact the market for our products because of either increased fuel costs due to carbon regulations or increased engine manufacturing costs. Moreover, lawsuits have been filed seeking to require individual companies to reduce GHG emissions from their operations. These and other lawsuits relating to GHG emissions may result in decisions by state and federal courts and agencies that could impact our operations.
The Resource Conservation and Recovery Act regulates the generation, transportation, storage, treatment and disposal of hazardous and nonhazardous wastes and requires states to develop programs to ensure the safe disposal of wastes. We believe that all of the wastes that we generate are handled in all material respects in compliance with the Resource Conservation and Recovery Act and analogous state statutes and regulations.
From time to time, the Company has received notices of noncompliance with respect to its operations, which typically have been resolved by investigating the alleged noncompliance, correcting any noncompliant conditions and paying fines, none of which individually or in the aggregate has had a material adverse effect on the Company. The Company cannot ensure that it has been or will be at all times in compliance with all of these requirements, including those related to reporting or permit restrictions, or that it will not incur material fines, penalties, costs or liabilities in connection with such requirements or a failure to comply with them. Additionally, the Company expects that the nature of its operations will continue to make it subject to increasingly stringent environmental regulatory standards. Although the Company believes it has made sufficient capital expenditures to maintain compliance with existing laws and regulations, future expenditures may be necessary as compliance standards and technology change or as unanticipated circumstances arise. Unforeseen and significant expenditures required to comply with new or more aggressively enforced requirements or newly discovered conditions could limit expansion or otherwise have a material adverse effect on the Company’s business and financial condition.
15. Related-Party Transactions
The Company is party to a Management Services Agreement with Southwestern Holdings, Inc. (“Southwestern”), a corporation owned by Mr. Poindexter. The services agreement was suspended effective June 30, 2006 when Mr. Poindexter became an employee of the Company and reinstated effective July 31, 2008 when Mr. Poindexter ceased being an employee of the Company. Pursuant to the Management Services Agreement, Southwestern provides services to the Company, including those of Mr. Poindexter. The Company pays Southwestern a base fee of approximately $45 per month for these services, subject to annual automatic increases based upon the consumer price index. The Company paid Southwestern $534, $534 and $223 during 2010, 2009 and 2008, respectively, for all these services.
Southwestern was a named insured under the Company’s general liability and excess umbrella insurance policies during 2007 when Southwestern became the defendant in a suit for damages resulting from a vehicle accident not involving the Company’s assets or any of its employees. The lawsuit was settled during 2008 and Southwestern paid the amount of the self-insured reserve of $250. Southwestern is no longer a named insured under the Company’s general liability policy effective July 1, 2007. Any increased premiums under the Company’s umbrella policy incurred in the future by the Company by reason of the settlement will be reimbursed by Southwestern.
Effective December 12, 2008, Morgan sold and leased back three of its manufacturing facilities to Poindexter Properties, LLC, a company owned by Mr. Poindexter. The properties, located in Morgantown and Ephrata, Pennsylvania and Corsicana, Texas, were sold at their appraised value of $7,135. Morgan recorded a gain on the sale of $1,854 that has been deferred and included in other current and noncurrent liabilities in the accompanying
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
consolidated balance sheet and will be recognized as income over the term of the leases with $265 recognized as income in 2010 and 2009. Effective December 17, 2010, the lease terms were amended and the terms extended through December 2010 and 2025. The monthly payments total $62 through December 2025 and are included in the future lease commitments as disclosed in Note 9 of the Notes to Consolidated Financial Statements. Morgan paid rent of $923, $932 and $51 for the use of the properties for the years ended December 31, 2010, 2009 and 2008, respectively.
Effective December 17, 2010, the Company sold and leased back six of its manufacturing facilities to Poindexter Properties, LLC. The properties, located in Sturgis, Michigan, Brenham, Texas, Elkhart, Indiana and Ehrenberg, Arizona, were sold at their appraised value of $14,975. Three of the six properties included in the transaction were sold for an aggregated loss of $2.8 million as the sale prices, based on appraised values, were less than the book values of the assets. The loss was recognized at the time of the transaction. The remaining three properties were sold for an aggregated gain of $3.6 million. The gain of $3.6 million has been deferred and will be recognized as income over the life of the leases. The lease arrangement requires monthly total payments of $118 over the 15-year term ending in December 2025. The arrangement is accounted for as an operating lease and included in the Company’s future lease commitments as disclosed in Note 9 of the Notes to Consolidated Financial Statements.
J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
16. Selected Quarterly Information (Unaudited)
The Company’s accounting records are maintained on the basis of four 13-week quarters. Shown below are the selected unaudited quarterly data.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures
As of December 31, 2010, the Company conducted an evaluation, under the supervision and participation of management including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2010 that have materially affected, or are likely to materially affect, our internal controls over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the Company’s assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of the Company’s internal control over financial reporting. Based on this assessment, management identified no material weaknesses in the Company’s internal controls as of December 31, 2010 and management believes that its internal control over financial reporting is effective.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in the annual report.
Item 9B.
Item 9B. Other Information
The sole shareholder of the Company signed a consent dated December 1, 2010 electing the following members of the board of directors for the ensuing year: John B. Poindexter, Stephen P. Magee and William J. Bowen.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The Company’s directors and executive officers are set forth below. All directors hold office until the next annual meeting or until their successors are duly elected and qualified. The executive officers are appointed by the Board of Directors annually and serve at the discretion of the Board of Directors.
John B. Poindexter has served as Chairman of the Board of Directors since 1988 and Chief Executive Officer since 1994. He was President from November 2002 until September 2005 and again from November 2006 to present.
Stephen P. Magee has served as Director since the Company was formed in 1988, as Treasurer from 1988 to 2001 and as Chief Financial Officer from 1994 to 2001. Mr. Magee also serves as Chairman of the Audit Committee of the Board of Directors.
William J. Bowen served as Director since 1994. Mr. Bowen retired in 1992 as Chairman of the Board of Transco Energy Company, a diversified energy company based in Houston, Texas. Mr. Bowen served as Chief Executive Officer of Transco Energy from 1974 until his retirement from that position in 1987. Mr. Bowen served on the Company’s Audit Committee in 2010 and until his death on March 20, 2011.
Robert Preston became the Chief Operating Officer in February 2010. For the past five years prior to joining the Company, Mr. Preston served as President of Eastman Chemical Company Asia Pacific region based in Shanghai.
Michael J. O’Connor became the Chief Financial Officer in August 2010. During the five years prior to joining the Company, Mr. O’Connor served as Vice President and Chief Financial Officer of Step2 Holdings, LLC, Vice President and Chief Financial Officer of Stryker Instruments and Director of Strategic Planning at Gardner Denver, Inc.
Larry T. Wolfe has served as Vice President of Administration since May 1995. He previously served as Vice President of Human Resources and Administrative Services for Transco Energy Company.
Audit Committee
The Audit Committee is a standing committee of the Board of Directors. The primary purpose of the Committee is to assist the Board of Directors in fulfilling its oversight responsibility relating to (1) the integrity of our financial statements and financial reporting process and our systems of internal accounting and financial controls; (2) the annual independent audit of our financial statements, the engagement of the independent auditors and the evaluation of the independent auditors’ qualifications, independence and performance; and (3) the compliance by
the Company with legal and regulatory requirements, including disclosure controls and procedures. The Committee also reviews the Company’s critical accounting policies, annual and quarterly reports on Form 10-K and Form 10-Q, and earnings releases before they are published. The Committee has sole authority to engage, evaluate and replace the independent auditor. The Committee also has the authority to retain special legal, accounting and other consultants it deems necessary in the performance of its duties. The Committee meets regularly with our management and independent auditors to discuss internal controls and financial reporting process and also meets regularly with the independent auditor in private.
Members of the Audit Committee in 2010 were Messrs. Magee (chairman) and Bowen. Mr. Magee is the only current member. Since the Company is not a publicly traded company on a listed exchange, the Board of Directors has not designated a member of the Audit Committee as an “audit committee financial expert” who is independent as the term is used in Item 407(d)(5) of Regulation S-K under the Exchange Act.
Other Significant Persons
Although not an executive officer, each of the following persons is an officer of the referenced subsidiary or division thereof and is an important contributor to operations:
Nelson Byman became President of MIC in June 1998. Previously, Mr. Byman was Vice President/General Manager of a domestic division of Weatherford/Enterra, a manufacturer of oilfield-related equipment.
Jim Donohue became President of Truck Accessories in July 2008. Previously, Mr. Donohue spent nine years in general management positions with Unison Engine and Smiths Aerospace following a 19-year career with SKF Group.
Norbert Markert became President and Chief Operating Officer of Morgan in November 2005. Previously, he served two years as President of Autoliv of North America after having been President of Pilkington Automotive North America for four years.
Michael Ownbey became President of Morgan Olson in December 2007. Previously, Mr. Ownbey was Vice President of Operations for Honda Motor Company’s largest subsidiary in North America, Yachiyo Manufacturing of Alabama, LLC.
Tim Lautermilch became President of Federal Coach and Eagle Coach in April of 2010. Previously, Mr. Lautermilch was President and Principal at Lean Systems Advisors, a business improvement and turnaround consulting organization primarily serving manufacturing businesses for privately held companies.
Code of Ethics
The Board of Directors has adopted a code of ethics that applies to its executive officers. Management does not believe that a code of ethics is a substitute for an obligation to always act in an honest and ethical fashion. The code of ethics is included as an Exhibit to this Form 10-K.
Item 11.
Item 11. Executive Compensation
Overview of Compensation Program
The Chairman of the Board of Directors (the “Chairman”) along with other Board members and Larry T. Wolfe, Vice President of Administration and Secretary of the Company (for the purpose of this discussion, the “Committee”), has the responsibility for establishing, implementing and monitoring adherence to the Company’s executive compensation program. The Committee ensures that the total compensation paid to executives is fair, reasonable and competitive.
Compensation Practices and Objectives
The Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific goals and which aligns the executive’s interests with those of the Company. The Committee evaluates both performance and compensation to ensure that it maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to executives at similar companies. To that end, the Committee believes executive compensation provided by the Company to its executives, including the named executive officers, should include a combination of competitive base salaries and performance-driven incentive plans.
Role of Executive Officers in Compensation Decisions
The Committee participates in compensation assessments and recommendations for the executive officers of the Company and the Chairman reserves the right of final approval. The Chairman further reserves the right to exercise discretion in modifying any recommended adjustments or awards.
Setting Executive Compensation
The Committee has structured the Company’s annual and long-term incentive-based executive compensation to motivate executives to achieve the financial goals set by the Company and reward executives for achieving such goals. In furtherance of these objectives, the Committee periodically engages the services of outside executive compensation consultants to provide relevant market data and alternatives to consider when making compensation decisions.
In making compensation decisions, the Committee compares the total compensation opportunity of executives as compared to a nationwide survey of similar-sized companies from a cross section of manufacturing industries. This data is updated annually and is presented to the Company by a third-party firm expressed as 25th, 50th and 75th percentiles. The Company strives to manage the base and incentive compensation to the 50th percentile, which is further influenced by individual performance, Company performance and an executive’s length of service.
A significant portion of total compensation is provided as incentive compensation realized by the executives as a result of the Company achieving established objectives. Historically, incentive awards were reflective of both the Company’s achievement of established objectives and the individual executive’s performance.
2010 Executive Compensation Components
For the fiscal year ended December 31, 2010, the principal components of compensation for named executive officers were:
· Base salary
· Performance-based annual incentive compensation
· Performance-based long-term incentive compensation
The Company does not provide any executives with any form of noncash compensation such as retirement plans or perquisites.
Base Salary
The Company provides executive officers with a base salary to compensate them for services rendered during the fiscal year. Salary ranges for each executive are determined based on their position and responsibility and by using market data. The Company strives to manage an executive’s base salary compensation to the 50th percentile of the market data provided by an outside consultant. Salary levels are typically considered annually as part of the Company’s performance review process as well as upon a promotion or other change in job responsibility. Merit-based increases for executives are a result of recommendations made by the Committee and subject to the final approval of the Chairman.
Performance-Based Annual Incentive Plan
The Annual Management Incentive Plan (the “Annual Plan”) was established in the mid-1990s to provide an annual incentive opportunity to executives throughout the Company. The purpose of the Annual Plan is to align the interests of the executives with the financial performance at their business unit and the parent. At the beginning of each calendar year, the Chairman reviews and approves each participant’s eligibility in the Annual Plan and incentive target, which is expressed as a percent of base salary earnings for the year.
Participants in the Annual Plan at the parent level have their performance measured by the consolidated earnings performance of the Company in relationship to the earnings budget established at the beginning of each calendar year. The threshold level for earnings attainment is set at 80% of budgeted earnings. Once the annual audit is complete and the earnings are verified by the Company’s outside auditors, the percent of performance to budget is established. If the earnings performance exceeds 80%, that number is squared to determine what percent of a participant’s award is paid. (Example: If 90% earnings performance is achieved, then 90% x 90% = 81% of a participant’s incentive target award is paid.) The Annual Plan maximum payout is achieved when the earnings performance is 130% of budgeted earnings, which calculates to 169% of a participant’s incentive target.
Participants in the Annual Plan at the business unit level have their performance measured by a combination of their business unit’s performance to an established earnings budget, (weighted 50%), the management of business unit working capital (weighted 20%), performance of the Company in relationship to the consolidated earnings target of the parent (weighted 20%), and an element of individual performance, (weighted 10%, but no squaring opportunity). However, if the business unit earnings budget is not achieved at least at the threshold level, 80%, no incentive awards are earned for the business unit or individual performance but an award for the consolidated earnings at the parent (weighted 20%) may be earned. If the threshold earnings level is achieved, the percentage attainment is squared in the same manner as the parent computation. The threshold for working capital attainment is 100% and the attainment percentage performance is subject to squaring in a manner similar to earnings. The Annual Plan maximum amount for business unit participants is 154% achieved when earnings performance at both the parent and the business unit level reach 130% of budgeted earnings and working capital targets surpass targets by 130% of budget.
In any calendar year where performance falls below the threshold performance level, the Committee may make modest discretionary awards to certain Annual Plan participants to reward exceptional individual contributions.
Long-Term Performance Plan
The Long-Term Performance Plan (“LTPP”) was established in 1999 and was designed to align the interests and performance goals of the most senior executives in the Company with the long-term financial performance of the Company. Each cycle of the LTPP has a three-year duration and awards are paid only to eligible participants at
the end of the three-year cycle, depending upon cumulative consolidated financial performance versus established budgets.
Each year, the Committee designates participants in the LTPP and provides them with a letter which outlines their participation, their targeted award and the performance criteria. Because of the three-year cycle, a regular participant in the LTPP can have three cycles in progress simultaneously; one cycle will be in its first year, one in the second year and one in the third year. Targeted participant awards are expressed as a percent of their base annual salary at the end of the three-year cycle.
Performance of the LTPP is determined by the cumulative Profit Before Tax (“PBT”) financial performance of the Company over each three-year period as measured against the budgeted PBT for the same time period. Threshold performance is achieved when the Company’s cumulative PBT achieves 80% of budgeted PBT for the same period. A scale is used to determine a participant’s award so that at the threshold, or 80% performance, a participant receives 20% of the established award. The maximum award is achieved when PBT is 130% or greater than plan which, based on the scale, equates to a payment of 200% of a participant’s established award. Awards are paid at the conclusion of each three-year cycle, following the audit of the Company’s results of operations.
For any calendar year that the Company’s performance fails to reach at least the 80% threshold level, an 80% achievement factor is used for that year in the calculation for the three-year period. The Chairman has the authority to modify a participant’s final award, once the Company’s performance has become known for the three-year cycle, 80% to 200% of the calculated award, to recognize a participant’s individual performance and contribution. The Board has the authority to amend, modify or cancel the Plan at any time.
Nonqualified Deferred Compensation Plan
The Company sponsors a nonqualified deferred compensation plan that allows eligible employees to elect to tax defer any portion of their annual income up to 100%. There is no Company match and deferred amounts are hypothetically invested in funds managed by an independent investment company. The funds can earn market rates of return and are subject to normal market risk. The funds are not subject to a trust arrangement and therefore are not guaranteed in the future to pay the liability to the employee. Deferred amounts are eligible to be distributed to participants after their separation from the Company.
401(k) Plan
The Company sponsors a 401(k) savings plan that allows participating employees to contribute a portion of their gross compensation up to 100% and provides for Company-matching contributions up to 1% of the first 5% as well as the opportunity for an annual discretionary contribution. The Company has not made a discretionary contribution to date. Vesting in the Company’s matching contribution is 20% per year over the first five years of employment.
Perquisites and Other Personal Benefits
The Company does not provide any form of perquisite, executive benefit program or personal benefits to any of the named executives or any other senior management member.
Compensation Committee Interlocks and Insider Participation
The members of the Committee are Messrs. Poindexter, Magee and Wolfe. Mr. Wolfe is an officer of the Company. See Item 13, Certain Relationships and Related Transactions, and Director Independence, for a description of certain transactions between the Company and Messrs. Poindexter and Magee.
COMMITTEE REPORT
The Committee of the Company has reviewed and discussed this Compensation Discussion and Analysis and, based on such review and discussion, the Committee recommended to the Board that this Compensation Discussion and Analysis be included in this 10-K.
The Committee
John Poindexter - Chairman, President & CEO
Stephen Magee - Member, Board of Directors
Larry T. Wolfe - Vice President of Administration and Secretary
The following table sets forth certain information regarding the compensation paid to the Company’s Principal Executive Officer, the Company’s Principal Financial Officer, the Company’s three most highly compensated executive officers (including executive officers of the Company’s business units) other than the Principal Executive Officer and Principal Financial Officer (collectively, the “named officers”).
Summary Compensation Table
(a) Mr. Poindexter received a salary from the Company for July 2006 until July 31, 2008. He does not receive a bonus and does not participate in either the Annual Plan or LTPP. Beginning in August of 2008, Mr. Poindexter was compensated through a Management Services Agreement between Southwestern Holdings, Inc. and the Company. (Southwestern Holdings, Inc. is owned by Mr. Poindexter.) For all services, the Company paid Southwestern Holdings, Inc. $533,714, $533,714 and $222,830 in 2010, 2009 and 2008, respectively. The Company matched $6,900 of Mr. Poindexter’s contributions to the Company’s 401(k) Plan in 2008.
(b) Mr. Preston received a salary of $389,583 for 2010, was paid $194,792 in accordance with his employment agreement under the Annual Plan that was earned in 2010 but paid in 2011 and received reimbursement of relocation expenses totaling $62,607 in 2010. His annual base salary at the end of 2010 was $425,000.
(c) Mr. O’Connor received a salary of $91,667 for 2010, was paid $35,000 pursuant to the Annual Plan that was earned in 2010 but paid in 2011 and received reimbursement of relocation expenses totaling $20,208 in 2010. The Company matched $917 of Mr. O’Connor’s contributions to the Company’s 401(k) Plan in 2010. His annual base salary at the end of 2010 was $220,000.
(d) Mr. Kay received compensation of $189,600 in 2010. He did not receive a bonus and did not participate in either the Annual Plan or LTPP. Mr. Kay received reimbursement of living and business expenses totaling $15,108 and $8,239 in 2010 and 2009, respectively. Mr. Kay resigned his position as Principal Financial Officer of the Company effective August 9, 2010.
(e) Mr. Markert received a salary of $352,098 for 2010 and earned $205,648 pursuant to the Annual Plan that was earned in 2010 but paid in 2011. He also earned $131,217 pursuant to the LTPP for the three year period ended December 31, 2010 that was earned in the three-year cycle ending in 2010 but paid in 2011. The Company matched $3,300, $3,300 and $7,301 of Mr. Markert’s contributions to the Company’s 401(k) Plan in 2010, 2009 and 2008, respectively. Mr. Markert received reimbursement for relocation-related expenses of $197,471 in 2008.
(f) Mr. Donohue received a salary of $341,177 for 2010 and earned $149,038 pursuant to the Annual Plan that was earned in 2010 but paid in 2011. He also received a payment of $159,025 pursuant to the LTPP for the three- year period ended December 31, 2010 that was earned in the three-year cycle ending in 2010 but paid in 2011. The Company matched $3,228, $3,283 and $767 of Mr. Donohue’s contributions to the Company’s 401(k) Plan in 2010, 2009 and 2008, respectively. Mr. Donohue received reimbursement for relocation-related expenses of $23,709 and 7,228 in 2009 and 2008, respectively.
Estimated Annual Future Payouts Under
Non-Equity Incentive Plan Awards
(a) Mr. Poindexter is not eligible to participate in either the Annual Plan or the LTPP.
(b) Mr. Preston was granted an award under the Annual Plan with a consolidated earnings target for the Company for 2011. He will be eligible for the threshold amount if the Company reaches 80% of the earnings target and for the maximum amount, 169% if it reaches 130% of the target. During 2010, Mr. Preston was granted an award under the LTPP that makes him eligible for an award beginning in the three-year cycle ending in 2012. The
award is based on a cumulative attainment of Profit Before Tax compared to approved budgets during the years 2010, 2011 and 2012.
(c) Mr. O’Connor was granted an award under the Annual Plan with a consolidated earnings target for the Company for 2011. He will be eligible for the threshold amount if the Company reaches 80% of the earnings target and for the maximum amount, 169%, if the Company reaches 130% of the earnings target. During 2010, Mr. O’Connor was not eligible to participate in the LFPP.
(d) Mr. Kay was not eligible to participate in either the Annual Plan or the LTPP.
(e) Mr. Markert was granted an award under the Annual Plan with earnings and working capital targets for Morgan in conjunction with a consolidated earnings target for the Company for 2011. As described above under the caption “Performance Based-Based Annual Incentive Plan,” Mr. Markert will be eligible to receive from 65% to 154% of his targeted bonus if the Morgan business unit reaches a minimum of 80% of their earning target for 2011. During 2010 and previous years, Mr. Markert was granted awards under the LTPP that makes him eligible for awards for the three-year cycles ending in 2011, 2012 and 2013. The awards are based on a cumulative attainment of Profit Before Tax compared to approved budgets during the years during these three-year cycles.
(f) Mr. Donohue was granted an award under the Annual Plan with earnings and working capital targets for Truck Accessories in conjunction with a consolidated earnings target for the Company for 2011. As described previously in the Performance-Based Annual Incentive Plan section, Mr. Donohue will be eligible to receive from 65% to 154% of his targeted bonus if the Truck Accessories business unit reaches a minimum of 80% of its earning target for 2011. During 2010 and previous years, Mr. Donohue was granted awards under the LTPP that makes him eligible for awards for the three-year cycles ending in 2011, 2012 and 2013. The awards are based on a cumulative attainment of Profit Before Tax compared to approved budgets during the years during these three-year cycles.
Director’s Compensation
Directors who are executive officers or employees do not receive fees for serving as directors or committee members. The Company pays $20,000 per year as director’s fees to each outside director. Additionally, Mr. Magee receives $8,000 per year as Chairman of the Audit Committee of the Board of Directors. The following table sets forth information regarding the compensation of the Company’s nonemployee directors for the year ended December 31, 2010.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial ownership of the Company’s common stock as of December 31, 2010. No class of the Company’s securities is registered pursuant to Section 13 or 15(d) of the Exchange Act.
Mr. Poindexter has sole voting power with respect to all shares of common stock that he beneficially owns and is the only person who beneficially owns common stock. His address is 600 Travis St., Suite 200, Houston, Texas 77002.
The Company has not reserved any equity shares for issuance under any equity compensation plans.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Of the Company’s three directors, only Mr. Bowen is independent under Rule 5605(b) of the NASDAQ Marketplace Rules. Mr. Magee is chairman of the audit committee and the board of directors has concluded he is not currently independent under SEC rules or NASDAQ Marketplace Rules applicable to audit committee members. Mr. Poindexter is an executive officer of the Company and, thus, the board of directors has concluded that he is not currently an independent director.
The Company is party to a Management Services Agreement with Southwestern Holdings, Inc. (“Southwestern”), which is owned by Mr. Poindexter and of which Mr. Magee, one of the Company’s directors, serves as President. The Management Services Agreement was suspended effective June 30, 2006 when Mr. Poindexter became an employee of the Company and reinstated effective July 31, 2008 when Mr. Poindexter ceased being an employee of the Company. Pursuant to the Management Services Agreement, Southwestern provided services to the Company, including those of Mr. Poindexter. The Company paid to Southwestern approximately $45,000 per month for these services, subject to annual automatic increases based upon the consumer price index. The Company may pay a discretionary annual bonus to Southwestern or raise the annual increases above normal adjustments subject to certain limitations. For all services, the Company paid Southwestern $533,714 in both 2010 and 2009, and $222,830 in 2008.
Southwestern was a named insured under the Company’s general liability and excess umbrella insurance policies during 2007 when Southwestern became the defendant in a suit for damages resulting from a vehicle accident not involving the Company’s assets or any of its employees. The lawsuit was settled during 2008 and Southwestern paid the amount of the self-insured reserve of $250,000. Southwestern is no longer a named insured under the Company’s general liability policy effective July 1, 2007. Any increased premiums under the Company’s umbrella policy incurred in the future by the Company by reason of the settlement will be reimbursed by Southwestern.
Effective December 12, 2008, one of the Company’s subsidiaries sold and leased back three of its manufacturing facilities to Poindexter Properties, LLC, a company owned by Mr. Poindexter. The properties, located in Morgantown and Ephrata, Pennsylvania and Corsicana, Texas, were sold at their appraised value of $7,135,000. The Company subsidiary paid rent of $923,332 to Poindexter Properties, LLC for the use of the properties in 2010.
Effective December 17, 2010, four of the Company’s subsidiaries sold and leased back six manufacturing facilities to Poindexter Properties, LLC, a company owned by Mr. Poindexter. The properties, located in Ehrenburg, Arizona, Sturgis, Michigan, Elkhart, Indiana and Brenham, Texas, were sold at their appraised value of $14,975,000. The subsidiary’s paid rent of $117,869 to Poindexter Properties, LLC for the use of the properties in 2010.
Mr. Magee provided the Company consulting services in 2009 and 2008. The Company paid $60,000 and $228,000 in 2009 and 2008, respectively, for director’s fees and for consulting services. In addition, the Company reimbursed Mr. Magee for related business expenses.
The Company does not have an established procedure for the review, approval or ratification of related-party transactions. Prior to entering into any such transaction, however, the executive officers of the Company determine whether the transaction is permitted by the terms of the Company’s 8.75% Notes Indenture, the credit facility agreement and other relevant contractual obligations.
Item 14.
Item 14. Principal Accountant Fees and Services
The following table sets forth the fees billed to us by our independent auditors, Crowe Horwath, LLP (“CH”):
Audit Fees.
Audit fees are the charges billed by CH during the year in connection with the conclusion of the prior year audit and the current year audit of our consolidated financial statements as well as reviews of our quarterly reports on Form 10-Q.
Audit-related fees are the charges billed by CH for assurance and related services, including miscellaneous accounting advice.
These fees were preapproved by the Audit Committee under the procedures described below.
Preapproval Procedures
The Company’s Audit Committee is responsible for the engagement of the independent auditors and for approving, in advance, all auditing services and permitted non-audit services to be provided by the independent auditors. The Audit Committee maintains a policy governing the engagement of independent auditors that is intended to maintain the independence from the Company of the independent auditors. In adopting this policy, the Company’s Audit Committee considered the various services that independent auditors have historically performed or may be needed to perform for the Company. Under this policy, which is subject to review and re-adoption annually by the Audit Committee:
· The Audit Committee approves the performance by the independent auditors of audit-related services, subject to restrictions in certain cases, based on the Audit Committee’s determination that this action would not be likely to impair the independence of the independent auditors from the Company;
· The Company’s management must obtain the specific prior approval of the Company’s Audit Committee for each engagement of the independent auditors to perform any auditing or permitted non-audit services; provided however, that specific prior approval by the Company’s Audit Committee is not required for any auditing services that are within the scope of a preapproved engagement and that are consistent with other services provided by the auditor in the past; and provided further that specific prior approval is not required for permitted non-audit services that:
(i) in the aggregate do not total more than $25,000;
(ii) were not recognized by the Company at the time of the engagement to be non-audit services; and
(iii) are promptly brought to the attention of the Company’s Audit Committee and approved by the Audit Committee in accordance with this policy prior to the completion of the audit.
· The performance by the independent auditors of certain types of services (bookkeeping or other services related to the accounting records or financial statements of the Company; financial information systems design and implementation; appraisal or valuation services, fairness opinions or contribution-in-kind reports; actuarial services; internal audit outsourcing services; management functions or human resources; broker or dealer, or investment adviser or investment banking services; legal services and expert services unrelated to the audit; and any other service that the applicable federal oversight regulatory authority determines, by regulation, is impermissible) is prohibited due to the likelihood that their independence would be impaired.
Any approval required under this policy must be provided by the Company’s Audit Committee, by the chairman of the Audit Committee in office at the time, or by any other Audit Committee member to whom the Audit Committee has delegated that authority. The Company’s Audit Committee will not delegate its responsibilities to approve services performed by the independent auditors to any member of management.
The standard applied by the Company’s Audit Committee in determining whether to grant approval of an engagement of the independent auditors is whether the services to be performed, the compensation to be paid for such services and other related factors are consistent with the independent auditor’s independence under guidelines of the Securities and Exchange Commission and applicable professional standards. Relevant considerations include, but are not limited to, whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of the Company’s financial statements; whether the independent auditors would be functioning in the role of management or in an advocacy role; whether performance of the service by the independent auditors would enhance the Company’s ability to manage or control risk or improve audit quality; whether performance of the service by the independent auditors would increase efficiency because of their familiarity with the Company’s business, personnel, culture, systems, risk profile and other factors; and whether the amount of fees involved, or the proportion of the total fees payable to the independent auditors in the period that is for tax and other non-audit services, would tend to reduce the ability of the independent auditors to exercise independent judgment in performing the audit.
Part IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
1. Financial Statements:
The following financial statements are included within the text of this report:
Financial Statement
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Stockholder’s Equity for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Valuation and Qualifying Accounts disclosures have been incorporated in the Notes to Consolidated Financial Statements.
3. Exhibits:
The following exhibits are included with this report:
Exhibit
Number
Description
3.1 (1)
Second Restated Certificate of Incorporation of J.B. Poindexter & Co., Inc. dated January 21, 1994.
3.2 (2)
Certificate of First Amendment to the Second Restated Certificate of Incorporation of J.B. Poindexter & Co., Inc. dated December 29, 1994.
3.3 (2)
Amended and Restated Bylaws of J.B. Poindexter & Co., Inc. dated July 29, 1994.
4.1(4)
Indenture dated as of March 15, 2004, with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among J.B. Poindexter & Co., Inc., the subsidiary guarantors named therein and Wilmington Trust Company, as trustee.
4.2(5)
Form of 8.75% Senior Notes due 2014.
4.3(5)
Form of Senior Note Guarantee of 8.75% Senior Notes due 2014.
4.4(5)
First Supplemental Indenture dated December 14, 2004, to the Indenture dated as of March 15, 2004, with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among J.B. Poindexter & Co., Inc., the subsidiary guarantors named therein and Wilmington Trust Company, as trustee.
4.5(4)
Registration Rights Agreement dated March 15, 2004, among J.B. Poindexter & Co., Inc., certain guarantors listed therein, J.P. Morgan Securities Inc. and certain initial purchasers listed therein.
4.6(5)
Registration Rights Agreement dated May 17, 2004, among J.B. Poindexter & Co., Inc., certain guarantors listed therein and J.P. Morgan Securities Inc.
4.7(5)
Registration Rights Agreement dated January 27, 2005, among J.B. Poindexter & Co., Inc., certain guarantors listed therein and J.P. Morgan Securities Inc.
4.8(7)
Second Supplemental Indenture dated June 10, 2005, to the Indenture dated as of March 15, 2004, with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among J.B. Poindexter & Co., Inc., the subsidiary guarantors named therein and Wilmington Trust Company, as trustee.
4.9(8)
Third Supplemental Indenture dated January 9, 2006, to the Indenture dated as of March 15, 2004, with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among J.B. Poindexter & Co., Inc., the subsidiary guarantors named therein and Wilmington Trust Company, as trustee.
4.10(8)
Fourth Supplemental Indenture dated April 17, 2006, to the Indenture dated as of March 15, 2004, with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among J.B. Poindexter & Co., Inc., the subsidiary guarantors named therein and Wilmington Trust Company, as trustee.
4.11(9)
Fifth Supplemental Indenture dated September 30, 2006, to the Indenture dated as of March 15, 2004, with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among J.B. Poindexter & Co., Inc., the subsidiary guarantors named therein and Wilmington Trust Company, as trustee.
4.12(10)
Sixth Supplemental Indenture dated September 4, 2007, to the Indenture dated as of March 15, 2004, with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among J.B. Poindexter & Co., Inc., the subsidiary guarantors named therein and Wilmington Trust Company, as trustee.
4. 13(11)
Seventh Supplemental Indenture dated December 31, 2008, to the Indenture dated as of March 15, 2004, with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among J.B. Poindexter & Co., Inc., the subsidiary guarantors named therein and Wilmington Trust Company, as trustee.
10.1(4)
Loan and Security Agreement dated March 15, 2004, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.2(4)
First Amendment to Loan and Security Agreement dated May 13, 2004, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.3(5)
Limited Consent and Second Amendment to Loan and Security Agreement dated November 3, 2004, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.4(5)
Third Amendment to Loan and Security Agreement dated January 20, 2005, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.5(4)
Sales Agreement dated October 1, 2004 between E. I. du Pont de Nemours and Company and Morgan Trailer Mfg. Co.
10.6(4)
Sales Agreement dated October 1, 2004 between E. I. du Pont de Nemours and Company and Truck Accessories Group, Inc.
10.7 (1)
Form of Incentive Plan for certain employees of the subsidiaries of J.B. Poindexter & Co., Inc.
10.8 *
Form of Long Term Performance Plan
10.9(5)
Management Services Agreement dated as of May 23, 1994, between J.B. Poindexter & Co., Inc. and Southwestern Holdings, Inc.
10.10 (3)
Management Services Agreement effective as of December 19, 2003, between J.B. Poindexter & Co., Inc., Morgan Trailer Mfg. Co., and Morgan Olson.
10.11 (6)
Fourth Amendment to Loan and Security Agreement dated April 25, 2005, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.12 (9)
Limited Consent, Joinder and Fourth Omnibus Amendment dated October 10, 2006, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.13(10)
10.13 Limited Consent, Joinder and Fifth Omnibus Amendment dated April 30, 2007, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.14(10)
Limited Consent, Joinder and Sixth Omnibus Amendment dated August 22, 2007, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.15(10)
Limited Consent, Joinder and Seventh Omnibus Amendment dated September 4, 2007, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and LaSalle Bank National Association, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.16(11)
Limited Consent, Joinder and Eight Omnibus Amendment dated October 7, 2008, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and Bank of America, a national banking association, for itself, as a lender, and as the agent for the lenders.
10.17*
Limited Consent, Joinder and Ninth Omnibus Amendment dated January 14, 2010, among J.B. Poindexter & Co., Inc., certain subsidiaries thereof, certain other loan parties signatories thereto and Bank of America, a national banking association, for itself, as a lender, and as the agent for the lenders.
12*
Computation of Ratio of Earnings to Fixed Charges
14(12)
Code of Ethics
21(12)
List of subsidiaries of J.B. Poindexter & Co., Inc.
31.1*
Rule 13(a)-14(a)/15d-14(a) Certificate of the Chief Executive Officer
31.2*
Rule 13(a)-14(a)/15d-14(a) Certificate of the Chief Financial Officer
32.1*
Section 1350 Certificate of the Chief Executive Officer
32.2*
Section 1350 Certificate of the Chief Financial Officer
#
Management contracts or compensatory plans.
*
Filed herewith.
(1)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Registration Statement on Form S-1 (No. 33-75154) as filed with the SEC on February 10, 1994.
(2)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Annual Report on Form 10-K for the year ended December 31, 1994, as filed with the SEC on March 31, 1995.
(3)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, as filed with the SEC on November 14, 2003.
(4)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Registration Statement on Form S-4 (No. 333-123598) as filed with the SEC on March 25, 2005.
(5)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Registration Statement as amended on Form S-4A (No. 333-123598) as filed with the SEC on April 7, 2005.
(6)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, as filed with the SEC on November 14, 2005.
(7)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the SEC on March 31, 2006.
(8)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2006, as filed with the SEC on September 5, 2007.
(9)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the SEC on April 2, 2007.
(10)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, as filed with the SEC on November 20, 2007.
(11)
Incorporated by reference to J.B. Poindexter & Co., Inc.’s Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on March 31, 2009.
(12)
Incorporated by reference to J.B. Poindexter & Co., Inc.'s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on March 31, 2010.
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.
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.