ITEM 1. BUSINESS
(a) The Registrant designs, manufactures and markets certain equipment for light trucks, principally under the "Rawson-Koenig" name. As used in this report, the term "the Registrant" refers to Rawson-Koenig, Inc. unless a contrary or more limited meaning is indicated by the context. The Registrant was incorporated in Texas on November 18, 1977.
The demand for the products manufactured by the Registrant is cyclical, and tied to the general economic conditions of the geographic market for the Registrant's products. In particular, demand for the Registrant's products is related to certain service industries, including construction and public utilities. The primary market for the Registrant's products is the United States.
The ability of the Registrant to improve its results of operations and recover the cost of its assets through operations is dependent on improvements in manufacturing efficiency and increased sales volume through the expansion of its distribution base and the introduction of new and improved product lines. See paragraph (c)(xi) below for a discussion of the Registrant's research and development activities.
(b) The Registrant operates in the truck equipment industry segment, which accounted for approximately 100% of its business in 1996. See the Financial Statements of Registrant included in this report for data relating to the amounts of sales for the last three years.
(c) The following paragraphs provide information as to specific aspects of the Registrant's business.
(i) Substantially all of the Registrant's products are truck equipment, which includes truck service bodies, truck tool boxes, winches and truck-mounted cranes. Service bodies are structures mounted on a truck chassis in order to provide cover, storage space or working space, while tool boxes are simpler and usually smaller structures, which are also truck-mounted, but are designed solely for storage of tools or other property.
The Registrant's service bodies offer a wide selection of standard and optional features. Like the Registrant's tool boxes, they can be installed on trucks of all major United States and foreign producers and are used for general, industrial and recreational purposes. In general, the Registrant believes that its service bodies and tool boxes compete in the upper portions of their respective markets in terms of quality and price. The Registrant also believes that it offers the largest line of tool boxes available from any single manufacturer.
The Registrant's standard winches have pulling capacities of 2,000 to 30,000 pounds, are designed to be truck-mounted and also are sold for general and industrial purposes. All these winches are available with or without automatic safety brakes and may be used with mechanical, hydraulic or electrical power sources. In addition to these standard products, the Registrant manufactures winches for special applications such as mining, logging and well drilling.
The Registrant's crane models may be mounted on the Registrant's service bodies specially designed to withstand additional stress when the crane is in use. Lifting capacity of the cranes ranges up to 6,000 pounds depending on the model.
The Registrant sells its products primarily through a nationwide network of distributors, although certain sales are also made directly to end-user customers and to truck dealers. The Registrant currently deals with approximately 350 active distributors of its service bodies, tool boxes, winches and cranes.
The Registrant's only agreements with each distributor are contained in an authorization letter and a credit application. The Registrant believes that its relations with its distributors are good and that, in any event, the loss of any single distributor would have no material impact on its operations.
The Registrant believes that its most effective sales promotion and advertising method is a combination of product demonstration and the use of a strong diverse distributor network. The Registrant's distributors are strategically located to provide coverage of key marketing areas. The distributor network is also supported by the Registrant through product line literature, trade shows, cooperative advertising and seminars by the Registrant's sales personnel.
(ii) The Registrant continually monitors and updates its product lines. In 1994, 1995 and 1996, the Registrant concentrated on keeping up with increasing demand while continuing to make product improvements on an ongoing basis.
(iii) The Registrant purchases steel, welding supplies, castings, paint and other materials from independent suppliers. Virtually all purchases are made on the basis of competitive bids. The Registrant utilizes a combination of foreign, national and regional suppliers. All purchases are made in U.S. dollars.
All classes of supplies purchased by the Registrant are presently available from a number of sources. The Registrant deals with a large number of suppliers. Accordingly, the Registrant believes that its business is not dependent upon any single supplier or upon any group of suppliers. It is possible that shortages of a particular type of supply could occur at any time in the future. However, the Registrant has no reason to anticipate any such shortage.
(iv) The Registrant owns no patents that are material to its business.
(v) Sales are seasonal in nature and in most years tend to be highest around May and lowest around October. This seasonality is believed to reflect, among other factors, model changes of truck manufacturers in September and October and low levels of activity in the construction industries in the fall and winter months. In 1994 and 1995, seasonality was less of a factor due to truck manufacturers being overloaded with incoming orders throughout the entire year. In 1996, sales declined in December.
(vi) Most of the Registrant's inventory is comprised of standard products. Reference is made to Note 4 to the Financial Statements for information as to a line of credit which is available to finance inventory as required.
(vii) Since a significant portion of sales are made through distributors, the Registrant does not necessarily know the identity of any particular purchaser of its products. All statements made in the following paragraph are subject to this qualification.
The Registrant sells to a large number of customers, and to the best of its knowledge, no customer accounted for as much as 10% of sales during the years ended December 31, 1994, 1995 and 1996. The Registrant also believes that foreign or export sales, sales to governmental agencies and sales to the military are insignificant. The Registrant's products are marketed on a nationwide basis. The Registrant's products are used in a variety of industries, and the relative importance of these industries may vary from year to year. The service and public utility industries were the most significant industries during the years ended December 31, 1994, 1995 and 1996.
(viii) The Registrant's backlogs at the respective dates indicated were approximately as follows: $1,399,000 at December 31, 1994, $1,004,000 at December 31, 1995 and $835,000 at December 31, 1996. All backlog at December 31, 1996 is believed to be firm and is expected to be shipped during the fiscal year ending December 31, 1997.
(ix) The Registrant does not do a material amount of business with the federal government.
(x) The market for all the Registrant's products is very competitive. Although the Registrant's products are marketed on a nationwide basis, each manufacturer of otherwise competitive service bodies may have certain advantages in its own region because of transportation costs. In addition to this factor, competition in selling service bodies is believed to involve such factors as product quality, delivery capability, product price and quality of distributors. In selling tool boxes, the more important competitive factors are believed to be product quality, delivery capability, product prices, range of product line and number of distributors or other outlets.
The Registrant competes in selling service bodies with a number of manufacturers, some of which are larger in terms of assets and sales. However, the Registrant believes that no single manufacturer dominates the market for these products and that it can continue to compete successfully for its market share, particularly in its primary sales region.
Because of lower transportation costs, competition for sales of tool boxes, winches and cranes is generally on a national rather than a regional basis. Competition is based primarily on quality and price. As stated elsewhere, the Registrant offers a standard product line but stresses its ability to construct specialized products. While several competitive manufacturers of tool boxes, winches and cranes are larger in terms of sales and assets, and some offer related equipment not produced by the Registrant, the Registrant believes that no single manufacturer dominates the market and that it can continue to compete successfully for its market share.
(xi) The Registrant does not carry on research and development activities except in connection with product testing, development and design. Six employees were involved on a part-time basis in product testing, development and design during the years ended December 31, 1994 and 1995. Eight employees were involved on a part-time basis in product testing, development and design during the year ended December 31, 1996. The amount spent on such activities was less than $100,000 in each of these years.
(xii) The Registrant does not believe that compliance with federal, state and local environmental laws will adversely affect its business, earnings or competitive position in the long run when regulations are enforced uniformly across the nation. In 1994, 1995 and 1996, compliance with federal, state and local environmental laws did not have a material effect on the Registrant's earnings and competitive position in the market. In 1994, 1995 and 1996, no material capital expenditures for environmental control facilities were incurred and none are anticipated for 1997.
(xiii) At December 31, 1996, the Registrant employed 301 persons. No employee is represented by any union, and the Registrant believes that its employee relations are good.
(d) The Registrant's products are marketed primarily in the United States. Direct export sales are immaterial to the Registrant's operations.
ITEM 2.
ITEM 2. PROPERTIES
The Registrant owns its manufacturing and office facilities in Houston, Texas and Fort Worth, Texas. The Registrant's Houston service body and tool box manufacturing facility occupies approximately 163,000 square feet of space in a metal and brick building located in an office and industrial park, while its executive and administrative offices occupy approximately 12,000 square feet in the same building. The Registrant's winch and crane manufacturing facility occupies approximately 24,000 square feet of space in an adjacent metal and concrete building constructed on the same tract of approximately 13 acres. The Fort Worth facility is on approximately 3.7 acres of land with metal and block buildings totaling approximately 73,000 square feet. The Houston facilities are subject to mortgage liens of approximately $1,300,000. The Registrant owns almost all of the machinery and equipment used in its operations.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a party to and its property is not subject to any material pending legal proceedings other than ordinary routine litigation incidental to its business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
(a) The Registrant's common stock, no par value per share (Common Stock), is traded on the National Association of Securities Dealers Automated Quotation System (NASDAQ) Small Cap Market under the symbol "RAKO". The following table shows the high and low bid and ask prices of the Common Stock during the periods indicated:
The foregoing figures, which were obtained from NASDAQ monthly statistical reports, do not reflect retail markups or markdowns and may not represent actual trades.
(b) As of February 21, 1997, the Common Stock was held by approximately 1,400 stockholders of record.
(c) The Registrant has not paid any dividends since it became a publicly held company.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information for the Registrant for the periods indicated must be read in conjunction with the Financial Statements in this report and the notes thereto, which are an integral part of the Financial Statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Summary.
The following table sets forth for the years indicated (1) percentages which certain items reflected in the accompanying statements of income and in the accompanying selected financial data bear to total sales of the Registrant and (2) the percentage increase (decrease) of such items as compared to the indicated prior year.
Results of Operations.
Year Ended December 31, 1994. Sales for the year ended December 31, 1994 increased 18.9% from the year ending December 31, 1993 due primarily to the Registrant's intensified marketing efforts and continued improvement in the national economy, particularly improvement in light truck sales. Cost of sales as a percentage of sales decreased from 81.5% in 1993 to 77.4% in 1994 due to volume efficiencies and the Registrant's continued program of upgrading manufacturing equipment and refining production methods. Selling, general and administrative expenses as a percentage of sales increased from 12.9% in 1993 to 13.3% in 1994 primarily due to increases in insurance costs and payroll-related expenses.
Year Ended December 31, 1995. Sales for the year ended December 31, 1995 increased 8.7% from the year ending December 31, 1994 due primarily to the Registrant's continued marketing efforts and strong national light truck sales. Cost of sales increased from 77.4% in 1994 to 79.8% in 1995 due to sharp increases in material costs during the third and fourth quarters of 1995. Selling, general and administrative expenses as a percentage of sales increased from 13.3% in 1994 to 13.8% in 1995 primarily due to increases in insurance costs and payroll-related expenses. Additionally, during 1995, approximately $240,000 of office improvements and repairs were incurred of which $105,000 was expensed. Income tax expense increased 7.3% from 1994 to 1995 due to alternative minimum tax credits which were fully utilized during 1994.
Year Ended December 31, 1996. Sales for the year ended December 31, 1996 increased 4.5% from the year ending December 31, 1995 due primarily to the Registrant's increased marketing efforts and, to a lessor degree, due to an increase in nationwide sales of light trucks. Over the last three years the Registrant has concentrated on improving its marketing efforts by increasing the number and quality of its sales staff and by increasing advertising, trade show attendance, and personal demonstrations of its products. Cost of sales as a percentage of sales decreased from 79.8% in 1995 to 76.8% in 1996 primarily due to lower material costs during the third and fourth quarters of 1996 compared to the same period of 1995. During the third and fourth quarters of 1995 the Registrant experienced sharp increases in material costs. In 1996 material costs declined to previous levels. Selling, general and administrative expenses as a percentage of sales increased from 13.8% in 1995 to 14.1% in 1996 primarily due to increases in insurance costs and payroll-related expenses. Interest expense decreased 24.3% from 1995 to 1996 primarily due to lower average borrowings during 1996. Income tax expense increased 45.2% from 1995 to 1996 primarily due to the increase in income before income taxes and due to the decreased effect of net operating loss carryforwards.
Liquidity and Capital Resources.
The Registrant plans to fund future operations from cash on hand, cash from operations and by use of its credit facility, which currently has an available line of credit of approximately $2,000,000 based upon the applicable borrowing base calculation. The Registrant's line of credit expires in April 1998. The Registrant also has an agreement with a bank to borrow up to $1,000,000 to finance equipment purchases under which no borrowings have occurred.
Net cash provided from operating activities was $1,099,973, $664,636 and $2,035,197 for 1994, 1995 and 1996, respectively. Accounts receivable are usually collected within 30 days. Accounts payable are paid within 30 days. During 1994, 1995 and 1996, the Registrant increased inventory levels to be more responsive to customer needs. In 1996 inventory increased $325,924.
In 1994, 1995 and 1996, the Registrant used $234,960, $790,470 and $1,342,460, respectively, for investing activities. The purchase of property, plant and equipment accounted for the majority of investing activities in these three years.
In 1996 the Registrant used $673,950 for financing activities. In 1994, 1995 and 1996 financing activities consisted of scheduled payments of long-term debt and borrowings and payments under the Registrant's line of credit agreement. In 1996, the Registrant reduced the outstanding balance on the line of credit by $431,605. The outstanding balance on the line of credit was $200,000 at December 31, 1996.
The line of credit agreement and other bank debt contain various restrictive covenants which include, among other things, maintenance of a minimum tangible net worth and minimum working capital, restrictions on property, plant and equipment additions and additional indebtedness, and requirements to maintain certain financial ratios. All loans from the bank are collateralized by accounts receivable, inventories, equipment and the Houston facility.
The Registrant intends to renew and extend the line of credit prior to the April 1998 expiration date. Although management believes that the combination of cash from operations and the bank credit facilities will be sufficient to meet the Registrant's long-term liquidity and capital resource needs, there can be no assurance that such bank financing will be available on terms acceptable to the Registrant.
Inflation.
The Registrant's business is relatively labor intensive, and the Registrant purchases supplies and components from third parties. Nevertheless, the Registrant has generally been able to raise its prices sufficiently to offset any adverse effects of inflation. During the year ended December 31, 1994, the Registrant increased prices on its cranes. During the year ended December 31, 1995, the Registrant increased prices on its service bodies, tool boxes and winches. During January 1996 and January 1997, the Registrant increased prices on the majority of its products. In January 1997, the Registrant also decreased prices on a few of its products. The Registrant cannot predict any possible future effects of inflation on its operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this report. Reference is made to the index on page 16 preceding the Financial Statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the directors and executive officers of the Registrant.
Served As A Name Age Position Director Since
Thomas C. Rawson 44 Chairman of the Board, September 18, 1987 Director and Chief Executive Officer
Catherine A. Rawson 72 Director, President September 18, 1987 and Principal Financial Officer
Pamela Y. Rawson 40 Director September 18, 1987 (1)
Farrell G. Huber, Jr. 64 Director July, 1983 (2)
George W. Fazakerly 55 Director September 21, 1987
Allen F. Rhodes 72 Director September 21, 1987
Joseph M. Scheer 70 Director April 10, 1991
Fredrick C. Wamhoff 39 Vice President-General Counsel and Secretary
Richard F. Koenig 53 Vice President- Information Systems
(1) Except for the period from September 21, 1987 to October 17, 1989. (2) Except for the period from September 18, 1987 to September 21, 1987.
Thomas C. Rawson co-founded Rawson Industries, Inc. ("Rawson") in 1978 with his father, the late Clare J. Rawson, his mother, Catherine A. Rawson, and his wife, Pamela Y. Rawson. He holds a law degree from Thomas M. Cooley School of Law in Michigan and a Bachelor of Science Degree from Michigan State University. Mr. Rawson was admitted to the State Bar of Texas in 1979. Mr. Rawson served as a Director and President of the Registrant from September 18, 1987 to October 17, 1989, when he was elected Chairman of the Board and Chief Executive Officer.
Catherine A. Rawson co-founded Rawson in 1978. Prior to joining Rawson, she was employed as a Test Administrator for the Michigan Civil Service Commission and prepared and administered bookkeeping records for various family-owned businesses. Mrs. Rawson received an Associate Arts Degree from Pierce College in 1965. Mrs. Rawson served as Treasurer and a Director of Rawson from 1978 to 1987 and Treasurer and Vice President of Administration of the Registrant from September 18, 1987 to October 17, 1989. She is currently President, Principal Financial Officer and a Director of the Registrant.
Pamela Y. Rawson co-founded Rawson in 1978 after earning a Bachelor of Science degree in Social Studies from Michigan State University. She served as Secretary and a Director of Rawson and a Director of the Registrant from September 18, 1987 to September 21, 1987. She was re-elected to the Board of Directors of the Registrant on October 17, 1989.
Farrell G. Huber, Jr. is a personal investor. Mr. Huber has been a Director of Keystone International, Inc., an industrial valve and operator manufacturer, since 1980 and plans on retiring from the Keystone International, Inc. Board on May 5, 1997.
George W. Fazakerly is a partner in the Dallas law firm of Vial, Hamilton, Koch & Knox. He specializes in corporate and securities matters and received his Juris Doctor Degree from Southern Methodist University in 1969. He has been a partner with Vial, Hamilton, Koch & Knox since 1974.
Allen F. Rhodes is currently Chairman of the Silver Fox Advisors, a business consulting firm. He has been a member of the Silver Fox Advisors since 1993. He was President of Arnco Technology, a metallurgical research company, from 1991 to 1993, and President and Chief Executive Officer of Gripper, Inc., an undersea pipeline fittings manufacturer, from 1986 to 1991. Mr. Rhodes has been a Director of Keystone International, Inc., an industrial valve and operator manufacturer, since 1980.
Joseph M. Scheer is currently a management consultant and personal investor. He has been a Director of Microsemi Corporation, an electronics component manufacturer, since 1994 and a member of the Advisory Board of Soligen Corporation, an innovative manufacturer of cast parts and tools, since 1996. He was a Director of Laserform Inc., a prototype parts manufacturer in Auburn Hills, Michigan from 1989 to 1994.
Fredrick C. Wamhoff joined Rawson in 1984 and has served the Registrant in various functions including Vice President - Manufacturing Operations. He currently serves as Vice President - General Counsel and Secretary of the Registrant. Prior to joining Rawson, Mr. Wamhoff was in the private practice of law in Lansing, Michigan. He attended Michigan State University and was graduated in 1979 with a Bachelor of Arts Degree. He received his Juris Doctor Degree from Marquette University in 1982. Mr. Wamhoff has been a member of the Michigan and Wisconsin Bars since 1982 and the Texas Bar since 1986.
Richard F. Koenig began his career with the Registrant in 1967 and has served the Registrant in many and various functions including Manager of Engineering and Data Processing, and General Manager of the Registrant's winch and crane manufacturing facilities. Mr. Koenig has been a key member of the Registrant's upper management team since September 17, 1987 and was elected Vice President - Information Systems on January 18, 1994.
Each Director holds office until the next annual meeting of Shareholders of the Registrant and until his successor is duly elected and qualified. Officers of the Registrant are elected by, and serve at, the discretion of the Board of Directors.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, in summary fashion, the compensation paid or accrued for the last three fiscal years to each of the most highly compensated executive officers of the Registrant whose annual rate of remuneration exceeded $100,000.
The Registrant currently has no stock option plans. During the last three fiscal years the Registrant granted no stock options or stock appreciation rights ("SAR") to any of its employees or directors; further, during the last three fiscal years no SAR or stock options were exercised by any of the Registrant's employees or directors. The Registrant made no awards of long term incentive plans to any employee or director of the Registrant in the last three fiscal years. The Registrant has no written employment contracts with any executive officer of the Registrant and has no compensatory plan or arrangement with any executive officer which provides for compensation as a result of the resignation, retirement or termination of employment of an executive officer, or as a result of change in control of the Registrant.
Compensation of Directors
Of the seven directors of the Registrant, four are "outside" directors or non-employees of the Registrant. Each outside director receives a fee of $1,000 for attendance at meetings of the Board of Directors. Prior to October 1996, each of the four outside directors received a fee of $500 for each meeting attended. The three "inside" directors receive no fee for attendance at meetings of the Board of Directors. In addition, of the four outside directors, two live outside of the Houston area and receive reimbursement for travel expenses incurred in connection with attendance of meetings of the Board of Directors. The Board of Directors of the Registrant has not formed any committees. The following table sets forth the amounts received by each of the four outside directors during the last fiscal year, including travel expense reimbursement.
Name Directors' Fees Travel Reimbursement Farrell G. Huber, Jr. $2,500 Not Applicable George W. Fazakerly $2,500 $840 Allen F. Rhodes $2,500 Not Applicable Joseph M. Scheer $2,500 $1,399
During 1996, the Registrant paid Joseph M. Scheer $6,400 for management, marketing and financial services rendered by him for the Registrant. Under the terms of such arrangement Mr. Scheer bills the Registrant $100 per hour for his services and is reimbursed for out-of-pocket expenses incurred by him in connection with the services provided under the arrangement. During 1996, the out-of-pocket reimbursement paid to Mr. Scheer was $328.
Prior to 1994, Pamela Y. Rawson was a non-employee director of the Registrant. During 1994, Ms. Rawson became a part-time employee of the Registrant and serves as a payroll administrator. During 1996, the Registrant's compensation paid to Ms. Rawson consisted of hourly wages totaling $23,405.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE REGISTRANT
The following table shows the number and percentage of shares of Common Stock of the Registrant that may be deemed to be beneficially owned as of February 21, 1997, by (i) each person known by the Registrant to be the beneficial owner of more than five percent of the outstanding shares of Common Stock of the Registrant, (ii) each director and nominee for director of the Registrant who owns shares of Common Stock of the Registrant and (iii) all directors, nominees, and officers as a group. The persons listed below have the sole power to vote and to dispose of the shares beneficially owned by them except as otherwise indicated below.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements: Page Reference
Report of Independent Accountants Balance Sheets as of December 31, 1996 and 1995 For the years ended December 31, 1996, 1995 and 1994, the Statements of Income Statements of Shareholders' Equity Statements of Cash Flows Notes to Financial Statements Schedule II - Valuation and Qualifying Accounts
2. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission, which are not presented, are not required under the related instructions or are inapplicable, and therefore have been omitted.
3. The following exhibits are filed with this report:
Page Number In This Filing or Incorporation Exhibit Number and Description By Reference to
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession*
(3) Articles of Incorporation and Bylaws 3.1 Restated Articles of Incorporation Exhibit 3.1*** 3.2 Amended and Restated Bylaws Exhibit 3.2***
(4) Instruments defining the rights of Exhibit 4 to Koenig's security holders, including indentures Registration on Form 10, as amended, under the Securities Exchange Act of 1934.
(9) Voting trust agreement*
(10) Material Contracts 10.1 Koenig, Inc. Profit-Sharing Plan and Trust Exhibit 10.1** 10.2 Koenig, Inc. 1983 Stock Option Plan Exhibit 10.2** 10.3 Koenig, Inc. Restricted Stock Plan Exhibit 10.3** 10.4 Loan Agreement dated September 22, 1987 Exhibit 10.4*** 10.5 Agreement of Sale and Purchase of Houston Plant Facility with conformed exhibits Exhibit 10.5**** 10.6 Loan Agreement dated January 29, 1990 Exhibit 10.6***** 10.7 First Amendment to Letter Loan Agreement dated March 31, 1991 Exhibit 10.7****** 10.8 Second Amendment to Letter Loan Agreement dated May 21, 1991 Exhibit 10.8****** 10.9 Third Amendment to Letter Loan Agreement dated March 24, 1992 Exhibit 10.9******* 10.10 Fourth Amendment to Letter Loan Agreement dated April 30, 1993 Exhibit 10.10******** 10.11 Fifth Amendment to Letter Loan Agreement dated May 21, 1993 Exhibit 10.11******** 10.12 Sixth Amendment to Letter Loan Agreement dated April 30, 1994 Exhibit 10.12********* 10.13 Amended and Restated Letter Loan Agreement dated April 21, 1995 Exhibit 10.13********** 10.14 First Amendment to Amended and Restated Letter Loan Agreement, Promissory Note (Advancing Term) and Amended and Restated Security Agreement dated September 21, 1995 Exhibit 10.14********** 10.15 Second Amendment to Amended and Restated Letter Loan Agreement and Amended and Restated Security Agreement, and First Amendment to Revolving Note dated May 28, 1996 Exhibit 10.15 (11) Statement re: computation of per share earnings* (12) Statement re: computation of ratios* (13) Annual report to security holders* (16) Letter re: change in certifying accountant* (18) Letter re: change in accounting principles* (21) Subsidiaries of the registrant* (22) Published report regarding matters submitted to vote of security holders*
(23) Consents of experts and counsel* (24) Power of attorney* (27) Financial Data Schedule Exhibit 27 (99) Additional Exhibits*
* Inapplicable. ** Included in the Registrant's Form 10-K for the year ended September 30, 1983. *** Included in the Registrant's Form 10-K for the year ended September 30, 1987. **** Included in the Registrant's Form 10-K for the year ended September 30, 1988. ***** Included in the Registrant's Form 10-K for the year ended December 31, 1990. ****** Included in the Registrant's Form 10-K for the year ended December 31, 1991. ******* Included in the Registrant's Form 10-K for the year ended December 31, 1992. ******** Included in the Registrant's Form 10-K for the year ended December 31, 1993. ********* Included in the Registrant's Form 10-K for the year ended December 31, 1994. ********** Included in the Registrant's Form 10-K for the year ended December 31, 1995.
(b) Reports on Form 8-K.
No reports were filed on Form 8-K during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Houston, Texas, on the 19th day of March 1997.
Rawson-Koenig, Inc.
By:/s/ Thomas C. Rawson --------------------- Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated and on the date indicated:
Signature Title Date
/s/ Thomas C. Rawson Chairman of the March 19, 1997 - ------------------------- Board, Director and Thomas C. Rawson Chief Executive Officer
/s/ Catherine A. Rawson Director, President March 19, 1997 - ------------------------- and Principal Financial Catherine A. Rawson Officer
/s/ Leslie T. Horvath Controller March 19, 1997 - ------------------------- Leslie T. Horvath
/s/ George W. Fazakerly Director March 19, 1997 - ------------------------- George W. Fazakerly
/s/ Farrell G. Huber, Jr. Director March 19, 1997 - ------------------------- Farrell G. Huber, Jr.
/s/ Pamela Y. Rawson Director March 19, 1997 - ------------------------- Pamela Y. Rawson
/s/ Allen F. Rhodes Director March 19, 1997 - ------------------------- Allen F. Rhodes
/s/ Joseph M. Scheer Director March 19, 1997 - ------------------------- Joseph M. Scheer
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders Rawson-Koenig, Inc.:
We have audited the financial statements and the financial statement schedule of Rawson-Koenig, Inc. (the "Company") listed in Item 14(a) of this Form 10-K. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rawson-Koenig, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Houston, Texas February 12, 1997
RAWSON-KOENIG, INC.
BALANCE SHEETS DECEMBER 31, 1996 AND 1995
The accompanying notes are an integral part of the financial statements.
RAWSON-KOENIG, INC.
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes are an integral part of the financial statements.
RAWSON-KOENIG, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes are an integral part of the financial statements.
RAWSON-KOENIG, INC.
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The accompanying notes are an integral part of the financial statements.
RAWSON-KOENIG, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF ORGANIZATION:
Rawson-Koenig, Inc. (the "Company"), a Texas corporation, designs, manufactures, and markets certain equipment for light trucks. Its chief products are truck tool boxes, truck service bodies, winches and truck-mounted cranes.
The Company sells its products to customers in the truck equipment industry located throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Net Income Per Share
Net income per share is computed on the basis of the weighted average number of shares of common stock outstanding during the year.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers any highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Inventories
Inventories are valued at the lower of cost or market. Cost, which includes material, labor and manufacturing overhead, is determined by the first-in, first-out (FIFO) method and, at December 31, 1996 and 1995, consisted of the following:
Tooling Costs
The costs of self-constructing tools and dies for use in manufacturing are capitalized and depreciated over four years using the straight-line method. Capitalized costs consist of labor, material and construction overhead.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and include improvements that significantly add to productive capacity or extend useful lives. Costs of maintenance and repairs are charged to expense. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the accounts and the gain or loss, if any, is reflected in operations.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from three to thirty one years. Depreciation expense for the years ended December 31, 1996, 1995 and 1994, amounted to $502,706, $470,156 and $454,292, respectively.
RAWSON-KOENIG, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property, plant and equipment at December 31, 1996 and 1995, consisted of the following:
Included in accumulated depreciation and amortization at December 31, 1995, is $72,102 of accumulated amortization on machinery and equipment acquired under a capital lease agreement. The lease expired during 1996 and the Company purchased the equipment for $1 under the terms of the lease.
Included in accumulated depreciation and amortization at December 31, 1996 and 1995, is $660,514 and $546,081, respectively, of accumulated depreciation on self-constructed tools and dies.
Income Taxes
Income taxes are computed under the provisions of the Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured by using enacted tax rates that are applicable to the future years in which deferred tax assets or liabilities are expected to be realized or settled. Under SFAS 109, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in net earnings in the period in which the tax rate change was enacted. The Company establishes a valuation allowance when it is more likely than not that a deferred tax asset will not be recovered.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
3. ACCRUED EXPENSES:
Accrued expenses at December 31, 1996 and 1995, include $400,000 for potential claims against the Company by its employees arising from injuries incurred in the normal course of business prior to May 1, 1994. Actual claims for medical expenses and lost time paid during the years ended December 31, 1996, 1995 and 1994, for injuries incurred prior to May 1, 1994, were $12,000, $1,085 and $7,570, respectively. In addition, prior to May 1, 1994, the Company had stop-loss insurance for any individual claim in excess of $250,000. Effective May 1, 1994, the Company was fully insured under standard workers' compensation insurance for claims incurred after that date.
RAWSON-KOENIG, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accrued expenses at December 31, 1996 and 1995, include $123,097 and $124,110, respectively, for accrued payroll.
4. LONG-TERM DEBT:
Long-term debt at December 31, 1996 and 1995, consisted of the following:
Effective May 28, 1996, the Company amended its loan agreement with its primary lender. The amended agreement extended the maturity date of the line of credit to April 30, 1998 and provided the Company with an advancing term equipment loan under which the Company may borrow up to $1,000,000 to finance equipment purchases through April 30, 1997. Any borrowings outstanding under this advancing term equipment loan as of April 30, 1997, will be converted to a five year term loan that will be due in sixty equal monthly principal payments beginning May 30, 1997, plus interest at the bank's prime rate. As of December 31, 1996, there were no amounts outstanding under this advancing term equipment loan.
The Company's other advancing term equipment loan agreement, that allowed for borrowings up to $1,500,000, expired unused on August 31, 1996.
The line of credit agreement and other bank debt contain various restrictive covenants which include, among other things, maintenance of a minimum tangible net worth and minimum working capital, restrictions on property, plant and equipment additions and additional indebtedness, and requirements to maintain certain financial ratios. All loans from the bank are collateralized by accounts receivable, inventories, equipment and Houston real estate.
Future maturities of long-term debt are as follows:
RAWSON-KOENIG, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cash paid for interest was $147,572, $194,578 and $211,372 for the years ended December 31, 1996, 1995 and 1994, respectively.
5. INCOME TAXES:
The composition of deferred tax assets and liabilities and the related tax effects at December 31, 1996 and 1995 was as follows:
The differences between the federal income tax provision and the amount that would result if the federal statutory rate of 34% were applied to pretax financial income for 1996, 1995 and 1994 were as follows:
RAWSON-KOENIG, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, the Company had approximate tax net operating loss and tax credit carryforwards available to offset future taxable income as follows:
Utilization of net operating loss carryforwards is limited under the alternative minimum tax rules. Additionally, special limitations exist under the tax law which may restrict the utilization of the regular tax and alternative minimum tax net operating loss carryforwards.
Cash paid for income taxes was $503,530, $575,773 and $182,226 for the years ended December 31, 1996, 1995 and 1994, respectively.
6. RELATED PARTY TRANSACTIONS:
During 1996 and 1995, the Company paid $8,127 and $7,470, respectively, to directors for consulting fees. In addition, the Company made payments for legal services provided by the law firm of a director in the amount of $90,346, $49,217 and $30,990 for the years ended December 31, 1996, 1995 and 1994, respectively. Accrued amounts payable to this law firm at December 31, 1996 and 1995 were $36,067 and $29,079, respectively.
7. COMMITMENTS AND CONTINGENCIES:
The Company is engaged in various claims and litigation arising from its operations. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse effect upon the financial position or results of operations of the Company.
8. SUPPLEMENTAL CASH FLOW INFORMATION:
During 1996, the Company purchased certain equipment with a cost of $1,124,120 of which $112,412 was included in accounts payable at December 31, 1996.
RAWSON-KOENIG, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS