The 10-K is now available.
Regarding restructuring:
To accomplish the Company's business strategy, it has been necessary to
build a centralized, upgraded, operational infrastructure ahead of revenue
growth and restructuring driven cost savings. The Company is in the process of
centralizing and improving its accounting and data processing functions and
implementing a company-wide enterprise resource planning system ("ERP") to meet
all of its information systems requirements. This necessitates that personnel
and other resources be added at the central location prior to the time
corresponding resources are eliminated at other locations, resulting in
duplication of costs during the time both existing systems are being operated
and the new system is being implemented. For example, prior to deciding to
centralize the accounting function, the Company had approximately 60 full-time
equivalent employees in its various operations performing accounting functions.
During the centralization process, the Company will add 10 to 15 employees, but
after centralization, the Company believes the accounting function will only
require about 30 employees. In addition, many businesses acquired since October
1, 1997, have been primarily distribution oriented. Distribution companies
generally have higher levels of operating expenses, and higher gross margins
than production oriented companies. The Company is nearing the completion of
formulating a plan to integrate the acquired companies that includes the
evaluation of the business processes of each operation and location to determine
their relative importance to the Company's overall strategic plan. Such
evaluation for each operation encompasses, among other things, staffing levels,
product mix and focus, locale in relation to customer base, and levels and
nature of assets utilized. In connection with the anticipated integration of the
acquired companies, the Company previously announced it expects to record a non-
recurring charge of between $5 and $15 million during Fiscal 1999 consisting
primarily of severance and other personnel related costs and costs associated
with consolidation of facilities. The Company expects to vigorously implement
its anticipated integration plan resulting in a restructuring charge that will
be at the high end of this range, and possibly above it.
Regarding the revolving debt:
The Company has a $100 million revolving credit facility with Bank America
Business Credit ("BABC") and other lenders expiring in June 2001, under which
borrowings were $69.8 million at December 31, 1998, including a $15 million
overadvance facility (the "BABC Bridge"). In addition, at December 31, 1998 the
Company had a $15 million bridge loan from Deutsche Bank AG (the "Deutsche
Bridge"). The BABC Bridge and the Deutsche Bridge were repaid subsequent to
December 31, 1998. At February 10, 1999, the Company had borrowed $83 million
under the revolving line of credit and $7 million was available to be borrowed.
At December 31, 1998, the Company was not in compliance with the debt service
coverage covenant under the revolving credit agreement. The lenders have waived
compliance with this requirement. The Company is working with the lenders to
amend such covenant to be reflective of its current operating configuration in a
manner that should lessen the likelihood of the need for similar waivers in the
future. However, there is no assurance such amendment will be obtained.
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