What started as a bleak year for KLN Steel Products Co. LLC is ending on a high note for the maker of furniture for the military and universities.
The San Antonio company entered the year mired in Chapter 11 bankruptcy. It came perilously close to going out of business before Dallas-based Avteq Inc., a major KLN customer, bought it in June.
Now, six months later, KLN is in the midst of a resurgence under its new ownership, led by 34-year-old President Kelly O’Donnell. She holds the same position with Avteq, a business that makes videoconferencing carts and furniture.
“Obviously, there were some significantly wrong things going on in the company — otherwise they wouldn’t have gone into bankruptcy,” O’Donnell said.
O’Donnell blamed KLN’s problems, in part, on poor management. Its owners were unable to handle increased business after lowering prices to win more contracts, she said. The company also expanded from its core business, making such things as solar-panel frames and medical tables, she said.
O’Donnell said the 48-year-old company, now known as KLN Manufacturing, has been profitable every month since the sale, a transaction valued at about $11 million. In the approximately seven months prior to the sale, court documents show KLN lost more than $2.5 million on more than $10.4 million in revenue.
On a recent morning, workers at KLN’s manufacturing plant welded metal wardrobes that were headed for the Army’s Fort Benning in Georgia. Other workers attached cushions and seatbacks on hundreds of metal chair frames, part of a 1,281-chair order for Joint Base San Antonio-Lackland.
“We’ve been focusing really hard on the numbers, (and) really hard on getting back to the company’s core competency, which is manufacturing metal dormitory furniture for the U.S. military and universities,” O’Donnell said.
KLN and two sister companies, Dehler Manufacturing and California-based wood-furniture maker Furniture by Thurston, filed for bankruptcy on Nov. 22, 2011, after their operations were effectively shut down for a short time when lender Banco Popular North America refused to fund payroll. Just days before the filing, KLN chopped more than a third of its 300-person payroll.
KLN had been owned since 2006 by the Herman family, which ran Dehler, a maker of beds and desks, in Chicago.
Two years after the sale, KLN’s owners announced plans to bring 500 new manufacturing jobs to San Antonio by consolidating work from other factories. They intended to invest $25 million, the San Antonio Express-News reported at the time.
In return, KLN received tax abatements from the city and job-creation incentives from the state.
KLN, however, failed to meet the hiring targets.
The company had other problems. It often was late completing contracts for the Army, which eventually stopped allowing the company to bid, O’Donnell said. So KLN struck a deal to act as a contract manufacturer for Avteq — which doesn’t do any of its own manufacturing.
“By going through Avteq, (KLN’s) piece of the pie was much, much less” than if it sold directly to the Army, O’Donnell explained. “I’m sure that did contribute to the bankruptcy.”
In February, Avteq negotiated the purchase of KLN and its two sister companies for $16.6 million. But Avteq was unable to obtain the financing necessary to close the deal, according to a bankruptcy court filing.
Banco Popular, KLN’s largest creditor, filed court documents requesting that the bankruptcy be converted to a Chapter 7 liquidation. The bank was owed more than $25 million.
KLN officials, however, were given more time to find a buyer. Soon after, Avteq re-emerged with another bid, albeit about $5.5 million less than its earlier offer.
“It worked out well,” O’Donnell said with a smile.
The deal was a relief to many of KLN’s longtime vendors.
Avteq “taking over saved myself and I don’t know how many other vendors from going out of business,” said Leonard Secrest, president of La Vernia-based Bexar Transportation LLC, which hauls freight for KLN.
Today, KLN employs about 165 workers.
O’Donnell and KLN sales staff have devoted a lot of time since the acquisition to making calls and visits to purchasing managers in an effort to rebuild the business.
Their message: “We want to get back to what you know and trust, as far as high quality … furniture that’s delivered on time and that we stand behind,” she said.
The company has hired four engineers and a production manager to help improve manufacturing while lowering or containing costs, she said.
Amsco’s Forrest said he’s noticed changes under the new owners. In the past, KLN officials often would tell suppliers “whoever’s got it and can get it to (us) the fastest is going to get the order,” he said. “Now, they’re doing a lot more planning.”
He added, “Things are moving in the right direction.”
KLN, meanwhile, is preparing to move its operations to a 185,000-square-foot plant at 2 Winnco Drive, not far from its current location at 4200 N. Pan Am Expressway. KLN formerly occupied the Winnco Drive building, which is owned by a company affiliated with David Ladensohn. His family had owned KLN before the sale to the Herman family.
The Winnco Drive building has less than half the space that KLN occupies at its current location, commonly referred to as the Friedrich Air Conditioning Co. building.
KLN is on track to do about $25 million in revenue this year, a figure O’Donnell expects to increase to $30 million next year.
Eventually, she wants to return to loftier sales figures.
“The growth will come, but I need a good foundation under us first before we can go try to grow the company again,” O’Donnell said. “We’re going to be pretty conservative for the next 12 months.”
Express-News archives contributed to this report.