IN RE PULLMAN CONST. INDUSTRIES, INC.
| Decision Date | 02 February 1990 |
| Docket Number | Bankruptcy No. 87 B 6441-87 B 6444. |
| Parties | In re PULLMAN CONSTRUCTION INDUSTRIES INC., Pullman Sheet Metal Works, Inc., Preferred Piping Inc., and Mid-City Architectural Iron Co., Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Steven B. Towbin, Towbin & Zazove, Ltd., Chicago, Ill., for debtor.
Larry M. Wolfson, Jenner & Block, Chicago, Ill., for the Goldwyns.
Lawrence Fisher, D'Ancona & Pflaum, Chicago, Ill., for Creditors' Committee.
Mark K. Thomas, Katten, Muchin & Zavis, Chicago, Ill., for Wells Fargo.
Richard C. Friedman, Office of the U.S. Trustee, Chicago, Ill.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
In connection with the Consolidated Hearing on Confirmation of Debtors' Fourth Amended Plan As Modified ("Plan"), and Wells Fargo's Motion to Lift Automatic Stay, the parties having rested, the Court has considered all the admitted evidence and arguments of counsel and all objections and pleadings filed with respect thereto, and now makes and enters the following Findings of Fact and Conclusions of Law.1 Pursuant thereto, confirmation will be denied and stay modification and other relief ordered.
1. On May 1, 1987 ("Petition Date"), Pullman Construction Industries, Inc., Pullman Sheet Metal Works, Inc., Preferred Piping, Inc., and Mid-City Architectural Iron Co. (collectively referred to as "Debtors" or "Pullman") filed petitions for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. Their cases have been jointly administered. No Trustee has been appointed. The Debtors have been administering their affairs as Debtors-in-Possession. The trial on which these Findings are founded came to be heard on the confirmation hearing held on the Debtors' proposed Plan under 11 U.S.C. §§ 1128, 1129, and Bankruptcy Rules 3020(b) and 9014; and on the final hearing on Wells Fargo's Motion to Lift Automatic Stay under 11 U.S.C. § 362.
2. Debtors are incorporated under the laws of Illinois, and have their principal place of business in Chicago, Illinois. Pullman Construction Industries, Inc. ("PCI") is the parent Corporation of three wholly-owned subsidiaries: Pullman Sheet Metal Works, Inc. ("Pullman Sheet Metal"), Preferred Piping, Inc. ("Preferred Piping"), and Mid-City Architectural Iron Co. ("Mid-City"). Pullman Ex. 2, p. 4.
3. The stock of Pullman Construction Industries, Inc. ("PCI") is owned by Lester and Norma Goldwyn. PCI owns all the stock of the other Debtors (collectively the "Stock"). W.F. Ex. 38.
4. (a) The primary business of the Debtors is sheet metal and mechanical contracting. W.F. Ex. 38.
(b) Pullman employs approximately 125 people and is primarily engaged in the business of heating, ventilating and air-conditioning ("HVAC") contracting for commercial, industrial and governmental entities. In addition, Pullman designs and manufactures a patented fire damper and related products for the nuclear power industry. Pullman Ex. 2, p. 1.
(c) Pullman was founded in 1943 as a sheet metal fabricating company. During the post-war construction boom, Pullman expanded its business to encompass the fabrication and installation of warm air heating, ventilating and air-conditioning ("HVAC") systems in residential and light commercial buildings. During the 1960's Pullman continued to expand its business into commercial high-rise construction projects. In the mid-1970's, after a brief period as a subsidiary of Brand Insulation, Inc., Pullman began providing HVAC contracting services to the nuclear power industry. Pullman Ex. 2, pp. 5-7.
(d) Pullman also expanded its business horizontally through the acquisition of Preferred Piping, a plumbing contractor; Mid-City, a manufacturer of gallery work such as gratings, stairs and handrails, principally for nuclear power plants; PCI Engineers, a consulting firm which focused on the energy conservation market for hospitals and schools; and Perfection Fabricators, a sheet metal fabricator for non-ventilation applications. Pullman Ex. 2, pp. 6-7.
(e) Beginning in 1982, Pullman attempted to replace its declining nuclear power plant construction business by expanding into the commercial construction markets of Stamford, Connecticut, and Tampa, Miami, and Stuart, Florida. Pullman also added two other business lines in 1984: the manufacture and distribution of a patented fire damper, primarily for use in nuclear power plants; and the installation of "clean rooms", used for the production of semi-conductors and compact discs. Pullman Ex. 2, pp. 7-8.
(f) The fire damper line of business remains a strong source of revenue for Pullman, while the clean room division has been discontinued. Shortly after the Chapter 11 case began, Pullman terminated its work on all non-Chicago construction projects, in an effort to focus on its core businesses. Pullman Ex. 2, pp. 8-9.
(g) Prior to the commencement of the Chapter 11 case, Pullman experienced substantial financial losses stemming from its non-Chicago commercial construction business. Pullman suffered losses of $3,269,000 in 1985, $2,919,000 in 1986, and $3,716,000 during the first four months of 1987. Pullman's financial difficulties were caused by a combination of factors, including inadequate accounting systems and other internal controls, unqualified supervisory personnel on non-Chicago construction projects, inaccurate job cost estimating, and management's decision to complete major projects at a loss rather than abandon them. Pullman Ex. 2, pp 8-9.
(h) Pullman's Chapter 11 case was commenced as a result of its significant and continuing financial losses from its Connecticut and Florida operations; increasing pressure from unions, insurance companies, subcontractors and other creditors for payment of past due obligations; and Pullman's inability to reach a satisfactory agreement to restructure its debt due to the Wells Fargo Bank (the "Bank"). When management's efforts to effectuate a sale or merger of Pullman proved unsuccessful, Pullman sought relief under Chapter 11. Pullman Ex. 2, pp. 8-9.
5. (a) Pullman has operated much more efficiently since the commencement of its Chapter 11 case, notwithstanding extensive administrative expenses and certain restrictions on its operations due to a Chapter 11 business environment. Soon after the Chapter 11 case was filed, Pullman contracted its business operations by completing the liquidation of its Connecticut and Florida operations. Pullman Ex. 2, p. 9.
(b) From May 1, 1987 through April 30, 1989, Pullman had operating income of $1,869,000, extraordinary Chapter 11 expenses of $1,663,000, and write-off from its Florida operations of $120,000, leaving Pullman with net post-petition income of $86,000 (before debt service would be taken into account). Pullman Ex. 21. Pullman's April 30, 1989 balance sheet reflects total assets of $6,754,000, total liabilities of $14,499,000 (including all pre-petition debt) and a negative shareholders' equity of $7,745,000. Pullman Ex. 22.
(c) Since Pullman discontinued its out-of-town operations, it has been able to concentrate on its core businesses. Despite Pullman's inability to obtain bonding from a commercial surety since the commencement of its Chapter 11 case, Pullman has nevertheless continued to obtain a significant amount of new work, at acceptable profit margins. Pullman has averaged in excess of $1,000,000 of "earned revenue" monthly for the two years in which Pullman has operated under Chapter 11. Pullman Ex. 21. Total new sales from May 1, 1987 through April 30, 1989 were in excess of $29 million. Pullman Ex. 27.
(d) The continuity of business operations which Pullman has enjoyed is due, in part, to the special procedure utilized for the payment of pre-petition lien claims. This procedure was approved by the court early on in the Chapter 11 proceedings and has been successfully implemented. Under this procedure, Pullman has paid $2,549,463 of pre-petition lien claims, without the need for a single hearing. Pullman Ex. 20. As a result, Pullman has continued its business operations without interruption or delay and has not been required to abandon any construction project in the Chicago metropolitan area since the commencement of the Chapter 11 case.
(e) Additionally, Pullman assumed many of its pre-petition collective bargaining agreements, namely those with Sheet Metal Workers' Local 73, Sheet Metal Workers' Local 265, United Association Local 306, United Association Local 497, United Association Local 507, United Association Local 514 and Plumbers' Local 130. Pullman has now cured all pre-petition monetary defaults under the assumed collective bargaining agreements and has paid, in aggregate, $801,596 to achieve that result. In addition, Pullman paid approximately $490,000 to employees after the commencement of the Chapter 11 proceedings on account of pre-petition wages, benefits and related tax claims in order to maintain continuity in the business. Consequently, Pullman presently enjoys an excellent working relationship with all labor organizations and fringe benefit funds necessary for Pullman's post-confirmation operations, as well as with its non-union employees. Pullman Ex. 2, p. 11.
(f) Also during the Chapter 11 case, Pullman reached comprehensive settlements with General Electric Capital Corporation ("GECC") and Signal Capital Corporation ("Signal") to restructure long term obligations arising under certain equipment lease agreements. The settlements with GECC and Signal enabled Pullman to retain all of the equipment necessary for its present and future operations at a reduced cost, while returning unneeded equipment. Pullman Ex. 2, pp. 11-12.
(g) Additionally, Pullman assumed a modified version of the pre-petition lease agreement for its principal place of business. This lease assumption has resulted...
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