REPORT OF MANAGEMENT
Management is responsible for the preparation and integrity of the accompanying
financial statements and all other financial information appearing in this
Annual Report. The financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances. The
other financial information in this Annual Report is consistent with the
financial statements.
Management is responsible for developing and maintaining cost-effective internal
accounting control. Internal control effectiveness is supported throughout the
Company with written communication of policies and procedures, careful selection
and training of personnel, and audits by a professional staff of internal
auditors. The Company's control environment is further enhanced through a formal
Code of Conduct that sets standards of professionalism and integrity for
employees.
The financial statements have been audited by the auditors Coopers & Lybrand
L.L.P. The Company engages them to render an independent professional opinion
based upon an examination conducted in accordance with generally accepted
auditing standards.
The Audit Committee of the Board of Directors is composed solely of non-employee
directors and is responsible for oversight of management's internal control and
financial reporting responsibilities. The Audit Committee is also responsible
for recommending to the Board the independent accounting firm to be used for the
coming year. The Audit Committee meets periodically with management, the
internal auditors, and privately with the independent auditors to review
auditing, accounting, internal control and financial reporting matters.
/s/ DAVID R. ZIMMER /s/ RAYMOND H. STEBEN, JR. /s/ THOMAS G. HOOPER
- --------------------- --------------------------- ----------------------
David R. Zimmer Raymond H. Steben, Jr. Thomas G. Hooper
President and Chief Vice President-Finance and Treasurer and
Executive Officer Chief Financial Officer Controller
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors Core Industries Inc
We have audited the accompanying consolidated balance sheets of Core Industries
Inc and subsidiaries as of August 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended August 31, 1995. Our audits also
included the financial statement schedule listed in the index at Item 14 for
each of the three years in the period ended August 31, 1995. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial position of Core Industries
Inc and subsidiaries as of August 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information required
to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Detroit, Michigan
October 11, 1995
F-2
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS August 31
----------------------------
1994 1995
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $14,643,000 $1,135,000
Accounts receivable, less collection
allowances of $960,000 in 1994
and $1,020,000 in 1995 47,444,000 44,214,000
Inventories 48,863,000 41,276,000
Prepaid expenses 808,000 157,000
Deferred taxes on income 2,027,000 5,447,000
Net assets held for disposition - 16,089,000
------------ ------------
TOTAL CURRENT ASSETS $113,785,000 $108,318,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $1,278,000 $896,000
Buildings 18,161,000 17,746,000
Machinery and equipment 44,322,000 36,532,000
------------ ------------
Total $63,761,000 $55,174,000
Less accumulated depreciation 36,377,000 32,332,000
------------ ------------
TOTAL PROPERTY, PLANT AND
EQUIPMENT $27,384,000 $22,842,000
------------ ------------
OTHER ASSETS:
Excess of cost over net assets
of companies acquired $7,033,000 $6,774,000
Inv. in real estate partnership 1,343,000 1,323,000
Note receivable 1,500,000 1,500,000
Prepaid pensions and other 5,342,000 5,490,000
------------ ------------
TOTAL OTHER ASSETS $15,218,000 $15,087,000
------------ ------------
$156,387,000 $146,247,000
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY August 31
----------------------------
1994 1995
------------ ------------
CURRENT LIABILITIES:
Notes payable - $787,000
Accounts payable $11,485,000 7,581,000
Accrued payroll and other expenses 12,817,000 12,385,000
Dividends payable 587,000 589,000
Taxes on income 1,585,000 2,041,000
Long-term debt due within one year 4,610,000 4,610,000
------------ ------------
TOTAL CURRENT LIABILITIES $31,084,000 $27,993,000
------------ ------------
LONG-TERM DEBT $41,608,000 $32,609,000
DEFERRED TAXES ON INCOME 1,770,000 1,690,000
ACCRUED POSTRETIREMENT BENEFITS 2,908,000 2,942,000
STOCKHOLDERS' EQUITY Preferred stock, par value $1:
Authorized - 100,000 shares
Issued - none
Common stock, par value $1:
Authorized - 20,000,000
Issued - 11,219,152 shares in 1994 and
11,237,172 shares in 1995 $11,219,000 $11,237,000
Additional paid-in capital 810,000 999,000
Retained earnings 73,025,000 74,499,000
Cumulative translation adjustments 661,000 976,000
Treasury stock (1,410,160 shares)
- at cost (6,698,000) (6,698,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $79,017,000 $81,013,000
------------ ------------
$156,387,000 $146,247,000
============ ============
F-3
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended August 31
------------------------------------------
1993 1994 1995
------------ ------------ ------------
Net sales $156,615,000 $166,260,000 $187,897,000
Cost of sales, exclusive of
depreciation and amortization $104,455,000 $111,294,000 $121,088,000
Depreciation and amortization 3,943,000 4,004,000 4,364,000
Selling, general and
administrative expenses 33,222,000 35,333,000 43,126,000
Interest expense 4,576,000 3,820,000 3,355,000
Other income (1,531,000) (2,402,000) (929,000)
------------ ------------ ------------
$144,665,000 $152,049,000 $171,004,000
------------ ------------ ------------
Earnings from continuing operations
before taxes on income $11,950,000 $14,211,000 $16,893,000
Taxes on income 4,050,000 5,002,000 6,200,000
------------ ------------ ------------
Earnings from continuing operations $7,900,000 $9,209,000 $10,693,000
------------ ------------ ------------
Discontinued operations (net of
income tax):
Income (loss) from disc. operations $665,000 $797,000 ($365,000)
Estimated loss on disposal - - (6,500,000)
------------ ------------ ------------
Income (loss) from disc. operations $665,000 $797,000 ($6,865,000)
------------ ------------ ------------
Net earnings $8,565,000 $10,006,000 $3,828,000
============ ============ ============
Net earnings (loss) per
common share:
Continuing operations $0.81 $0.94 $1.09
Discontinued operations 0.07 0.08 (0.70)
------------ ------------ ------------
Net earnings $0.88 $1.02 $0.39
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustments Stock
----------- -------- ----------- ----------- -----------
Balance, August 31, 1992 $11,185,000 $449,000 $59,153,000 $356,000 ($6,698,000)
Net earnings 8,565,000
Cash dividends declared (2,346,000)
Exercise of stock options 2,000 12,000
Incentive compensation awards 21,000 267,000
----------- -------- ----------- ----------- -----------
Balance, August 31, 1993 $11,208,000 $728,000 $65,372,000 $356,000 ($6,698,000)
Net earnings 10,006,000
Cash dividends declared (2,353,000)
Exercise of stock options 4,500 19,000
Incentive compensation awards 6,500 63,000
Foreign currency adjustment 305,000
----------- -------- ----------- ----------- -----------
Balance, August 31, 1994 $11,219,000 $810,000 $73,025,000 $661,000 ($6,698,000)
Net earnings 3,828,000
Cash dividends declared (2,354,000)
Incentive compensation awards 18,000 189,000
Foreign currency adjustment 315,000
----------- -------- ----------- ----------- -----------
Balance, August 31, 1995 $11,237,000 $999,000 $74,499,000 $976,000 ($6,698,000)
=========== ======== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31
----------------------------------------
1993 1994 1995
------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $8,565,000 $10,006,000 $3,828,000
Adjustments to reconcile net earnings
to net cash provided
by operating activities:
Depreciation $3,827,000 $3,794,000 $3,953,000
Amortization 117,000 211,000 412,000
Loss on disposal of disc. operations - - 10,000,000
Discontinued operations (665,000) (797,000) 365,000
Net gain on sale of division - (915,000) -
(Increase) decrease in net assets:
Accounts receivable (1,695,000) (1,345,000) (2,828,000)
Inventories 1,275,000 (1,969,000) (4,205,000)
Prepaid expenses 698,000 580,000 475,000
Taxes on income 4,186,000 935,000 514,000
Deferred taxes on income 2,879,000 800,000 (3,500,000)
Increase (decrease) in liabilities:
Accounts payable 3,104,000 (200,000) (1,947,000)
Accrued payroll and other exp. 991,000 1,147,000 1,412,000
------------ ----------- ------------
TOTAL ADJUSTMENTS $14,717,000 $2,241,000 $4,651,000
------------ ----------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $23,282,000 $12,247,000 $8,479,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($2,894,000) ($4,242,000) ($4,988,000)
Net proceeds from sale of divisions - 9,816,000 -
Acquisition of businesses - (2,510,000) (4,325,000)
Discontinued operations (1,330,000) 4,407,000 (1,728,000)
Other 34,000 494,000 107,000
------------ ----------- ------------
NET CASH FROM (USED IN)
INVESTING ACTIVITIES ($4,190,000) $7,965,000 ($10,934,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments (borrowings) on
short-term bank loans ($15,000,000) ($900,000) $300,000
Reductions in long-term debt (3,012,000) (2,967,000) (8,999,000)
Cash dividends paid (2,346,000) (2,353,000) (2,354,000)
------------ ----------- ------------
NET CASH USED IN
FINANCING ACTIVITIES ($20,358,000) ($6,220,000) ($11,053,000)
NET INCREASE (DECREASE) IN CASH (1,266,000) 13,992,000 (13,508,000)
CASH AT BEGINNING OF PERIOD 1,917,000 651,000 14,643,000
------------ ----------- ------------
CASH AT END OF PERIOD $651,000 $14,643,000 $1,135,000
============ =========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $4,538,000 $3,757,000 $3,512,000
============ =========== ============
Income taxes paid $2,070,000 $3,200,000 $5,500,000
============ =========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
CORE INDUSTRIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
1. PRINCIPLES OF REPORTING AND ACCOUNTING
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany profits, transactions and balances have been eliminated.
Inventories - Approximately 89% and 88% of inventories at August 31, 1994
and 1995, respectively, are valued at the lower of cost or market on a
first-in, first-out (FIFO) basis. Other inventories are valued at cost on
a last-in, first-out (LIFO) basis. If all inventories were valued on a
FIFO basis, inventories would have been $1,441,000 and $1,562,000 higher
than reported at August 31, 1994 and 1995, respectively.
Following is the detail of inventories:
1994 1995
----------- -----------
Raw materials and supplies $25,976,000 $17,734,000
Work in process 8,940,000 8,225,000
Finished goods 13,947,000 15,317,000
----------- -----------
Total $48,863,000 $41,276,000
=========== ===========
Property, Plant and Equipment - Items of property, plant and equipment,
including significant improvements to existing facilities and leasehold
improvements, are recorded at cost. Expenditures for maintenance and
repairs are charged to operations in the year incurred. Long-term lease
obligations incurred in connection with industrial development revenue
bond financing have been capitalized at the total principal amount of the
obligations. Depreciation is computed principally on an accelerated basis.
Excess of Cost Over Net Assets of Companies Acquired - The excess of total
cost over net assets of companies acquired is being amortized over either
15 or 40 years except for $2,048,000 relating to acquisitions prior to
October 31, 1970 which is not being amortized. Amortization expense
amounted to $84,000 in 1993 and 1994 and $227,000 in 1995. Accumulated
amortization amounted to $2,645,000 and $2,150,000 at August 31, 1994 and
1995, respectively.
Investment in Real Estate Partnership - The Company has a minority
interest in a partnership formed for the purpose of owning an office
building, a portion of which the Company leases for its corporate offices.
Rents paid were $400,000 in 1993, $346,000 in 1994, and $382,000 in 1995.
The investment is accounted for according to the equity method.
Revenue Recognition - Revenue from sales of products is recognized at the
time of shipment. Revenue from long-term construction contracts is
recognized using the percentage-of-completion method.
Earnings Per Common Share are computed by dividing net earnings by the
weighted average shares outstanding (9,776,376 shares in 1993 , 9,800,135
shares in 1994, and 9,809,041 shares in 1995). The number of common stock
equivalents was not significant.
Foreign Currency Translation - Assets and liabilities of certain foreign
subsidiaries whose functional currencies are other than the U.S. dollar
are translated at year-end rates of exchange. Income and expense items are
translated at average exchange rates for the year. The resulting
translation adjustments are recorded directly into a separate component of
stockholders' equity.
F-7
2. DEBT AND COMMITMENTS
The Company has a $15,000,000 unsecured line of credit with a major
domestic bank at interest rates on an as-offered basis, which have been
less than the prime rate. There was $14,700,000 available under this
facility at August 31, 1995.
Long-term debt consists of the following:
1994 1995
----------- -----------
Notes payable $39,550,000 $30,440,000
Industrial development revenue bonds 6,668,000 6,779,000
Total $46,218,000 $37,219,000
----------- -----------
Portion due within one year 4,610,000 4,610,000
----------- -----------
Total $41,608,000 $32,609,000
=========== ===========
Notes payable include three unsecured promissory notes to insurance
companies: one 9.8%, $6,000,000 note and two 10.02% notes aggregating
$24,000,000. The notes require semi-annual interest payments with
repayment of principal in 10 equal annual installments which commenced
August 1993 for the 9.8% note and commenced May 1995 for the 10.02% notes.
The other note payable requires repayment in four annual equal
installments.
Industrial development revenue bonds mature principally in 2006 and 2013
and include $5,000,000 related to a 15-year loan agreement with a variable
interest rate entered into during 1991. Interest rates on the bonds change
based on prevailing market rates and as of August 31, 1995, averaged
3.84%.
Scheduled principal repayments of long-term debt are $4,610,000 in each of
the four years ending 1999, and $3,000,000 in the year ending 2000.
Certain of the Company's loan agreements contain restrictive covenants
pertaining to the maintenance of working capital and tangible net worth.
Under the most restrictive covenant, retained earnings of $20,604,000 were
available for the payment of cash dividends at August 31, 1995.
The estimated fair value of the notes payable at August 31, 1995 was
approximately $33,000,000. The fair value was estimated based on the
discounted amounts of future cash flows at the current note rates assuming
all prepayment options were exercised. The estimated fair value of
industrial development revenue bonds is the book value of $6,779,000.
3. TAXES ON INCOME
Income taxes on a continuing operations basis are as follows:
1993 1994 1995
----------- ----------- -----------
Current:
Federal $ 3,792,000 $ 3,654,000 $ 5,250,000
State and local 536,000 548,000 950,000
----------- ----------- -----------
Total $ 4,328,000 $ 4,202,000 $ 6,200,000
Deferred (278,000) 800,000 0
----------- ----------- -----------
Total taxes on income $ 4,050,000 $ 5,002,000 $ 6,200,000
=========== =========== ===========
F-8
Federal income taxes include foreign income taxes of ($9,000) in 1993,
($44,000) in 1994, and ($17,000) in 1995. The foreign pretax loss amounted
to ($98,000) in 1993, ($199,000) in 1994, and ($400,000) in 1995.
A reconciliation of income taxes computed using the U.S. federal statutory
rate to the provision for federal income taxes follows:
1993 1994 1995
---------- ---------- ----------
Computed at U.S. statutory rate $4,182,000 $4,974,000 $5,911,000
State and local taxes 348,000 356,000 616,000
Goodwill amortization and write-offs 62,000 62,000 62,000
Foreign income taxes 25,000 26,000 123,000
Research tax credit (258,000) (235,000) (353,000)
Other (309,000) (181,000) (159,000)
---------- ---------- ----------
Total taxes on income $4,050,000 $5,002,000 $6,200,000
========== ========== ==========
Deferred income taxes result from temporary differences in the recognition
of income and expenses for financial reporting and tax purposes. The
source and deferred tax effect of these differences is as follows:
1993 1994 1995
--------- --------- ---------
Depreciation $144,000 $(229,000) $(185,000)
Employee benefits (10,000) 496,000 144,000
Inventory related (39,000) 67,000 (60,000)
Accounts receivable allowances (134,000) - (84,000)
Tax credit carryforwards (270,000) 567,000 -
Accrued expenses - - 84,000
Other 31,000 (101,000) 101,000
--------- --------- ---------
Total deferred ($278,000) $800,000 $ 0
========= ========= =========
Deferred tax (assets) liabilities are comprised of the following:
1994 1995
----------- -----------
Discontinued operations - ($3,823,000)
Inventory related ($807,000) (693,000)
Accrued expenses (707,000) (324,000)
Accounts receivable allowances (259,000) (358,000)
Other (14,000) -
----------- -----------
Gross deferred tax assets ($1,787,000) ($5,198,000)
----------- -----------
Depreciation $1,148,000 $871,000
Employee benefits 111,000 296,000
Other 271,000 274,000
----------- -----------
Gross deferred tax liabilities $1,530,000 $1,441,000
----------- -----------
Net deferred tax assets ($257,000) ($3,757,000)
=========== ===========
F-9
4. RETIREMENT PLANS
PENSION PLANS
The Company has a defined benefit retirement plan covering a portion of
its domestic employees. The net pension credit for the defined benefit
retirement plan amounted to $286,000, $864,000 and $534,000 in fiscal
1993, 1994 and 1995, respectively.
Net pension credit from the Company's defined benefit plans included the
following components:
1993 1994 1995
---------- ---------- ----------
Service cost $ 241,000 $ 187,000 $ 162,000
Interest on projected benefit obligations 540,000 544,000 548,000
Actual return on plan assets (909,000) (4,000) (1,963,000)
Net amortization and deferral (219,000) (1,225,000) 719,000
---------- ---------- ----------
Net pension credit ($ 347,000) ($ 498,000) ($ 534,000)
========== ========== ==========
F-10
The Company incurred a pension curtailment gain of $366,000 in 1994 in
connection with the sale of its Du-Al division.
The following table sets forth the plans' funded status and prepaid
pension cost at August 31:
1994 1995
----------- -----------
Vested benefit obligation $ 6,038,000 $ 6,860,000
=========== ===========
Accumulated benefit obligation $ 6,059,000 $ 7,208,000
=========== ===========
Plan assets at fair value (principally listed
stocks and bonds) $11,429,000 $12,989,000
Projected benefit obligation (7,024,000) (8,126,000)
----------- -----------
Excess of assets over projected benefit obligation $ 4,405,000 $ 4,863,000
Unrecognized net (gain) loss:
From excess funding at implementation of SFAS 87 (1,363,000) 776,000
Other 1,162,000 (901,000)
----------- -----------
Prepaid pension cost $ 4,204,000 $ 4,738,000
=========== ===========
The company-sponsored pension plans generally provide benefits based on
average salary levels and years of service. The projected unit credit
funding method was used along with discount rates of 8% in 1994 and 7.75%
in 1995. The increase in the accumulated benefit obligation from 1994 to
1995 was primarily due to the decrease in discount rates and the effect of
change in other valuation assumptions. The assumed rate of return on
assets was 9%, and the assumed rate of increase in future compensation
levels was 5%.
The Company also contributes certain amounts per labor hour to
multi-employer union pension funds. Such contributions amounted to
$383,000 in 1993, $427,000 in 1994, and $389,000 in 1995.
F-11
OTHER POSTRETIREMENT BENEFIT PLANS
Certain divisions and subsidiaries of the Company provide health care and
life insurance benefits for retirees which are, depending on the type of
plan, either contributory or non-contributory. Approximately 25% of
employees may become eligible for these benefits.
Net periodic postretirement benefit cost included the following components:
1993 1994 1995
-------- -------- --------
Service cost - benefits attributed
to service during the period $ 63,000 $ 49,000 $ 42,000
Interest cost on accumulated
postretirement benefit obligation 251,000 260,000 263,000
-------- -------- --------
Net periodic postretirement benefit cost $314,000 $309,000 $305,000
======== ======== ========
The Company's postretirement plans are not funded. The status of the plans
at August 31, 1995 follows:
1994 1995
---------- ----------
Accumulated postretirement benefit obligation
Retirees $2,542,000 $2,729,000
Fully eligible and other active participants 524,000 612,000
---------- ----------
Total $3,066,000 $3,341,000
Unrecognized loss (158,000) (399,000)
---------- ----------
Total accrued postretirement benefits $2,908,000 $2,942,000
========== ==========
For measurement purposes, a 11.7% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1995. The rate
was assumed to decrease gradually to 6.0% through the year 2008 and remain
constant thereafter. The assumptions for the health care cost trend rate
has a significant effect on the amount of the obligation and periodic cost
reported. An increase in the assumed health care cost trend rates by 1% in
each year would increase the accumulated postretirement benefit obligation
as of August 31, 1995 by approximately 3.7% and the aggregate of the
service and interest cost components of net periodic postretirement
benefit cost for the year then ended by 3.2%.
The weighted-average discount rates used in determining the accumulated
postretirement benefit obligation were 8.0% and 7.75% as of August 31,
1994 and August 31, 1995, respectively. The increase in the accumulated
postretirement benefit obligation from 1994 to 1995 was primarily due to
the decrease in discount rates.
Cash expenditures for postretirement benefits were $214,000 in 1993,
$216,000 in 1994, and $270,000 in 1995.
5. LEASES
The Company leases certain office and production facilities and equipment
under agreements expiring from 1996 through 2006. Several of the lease
commitments contain renewal and/or purchase options exercisable at the end
of the lease terms.
F-12
The following is a schedule of future minimum rental payments required
under operating leases for continuing operations that have remaining terms
in excess of one year as of August 31, 1995:
Year ending August 31:
1996 $580,000
1997 520,000
1998 420,000
1999 330,000
2000 280,000
Later years 350,000
----------
Total minimum payments required $2,480,000
==========
The rental expense for all operating leases was $660,000, $610,000, and
$560,000, for the years ended August 31, 1993, 1994 and 1995,
respectively.
6. STOCK OPTIONS AND AWARDS
The Company's 1993 Performance Incentive Plan approved during 1994 permits
the grant of up to 490,000 shares of Company common stock for stock
options, stock appreciation rights and restricted stock to key employees
of the Company. Options for 229,000 shares ($13.31 to $13.56 per share)
were granted during 1994, and with 4,000 options expiring in 1995, 225,000
shares were outstanding at August 31, 1995. Vesting of most of the shares
over the first three years following grant is dependent upon appreciating
stock market valuation of Core stock. If the Company's stock fails to
reach and maintain for defined periods of time those specified levels,
vesting is delayed until 9 1/2 years after grant.
Under prior employee stock option plans, options were outstanding as of
August 31, 1995, for 144,900 shares ($5.25 to $13.88 per share) with
expiration dates through 2003. Options for 8,000 shares ($9.25 per share)
were granted in 1993. Options for 2,000 and 4,500 shares were exercised in
1993 and 1994, respectively, and options for 8,900 and 5,000 shares
expired in 1994 and 1995, respectively.
The 1991 Director Discounted Stock Option Plan is for non-employee
directors of the Company. In accordance with the Plan, directors may elect
to receive discounted stock options in lieu of director fees payable in
cash, with the aggregate discounts equal to the cash fees forfeited. Under
the Plan, 200,000 shares were reserved for issuance of non-qualified stock
options at either 50% or 75% of market value at the date of grant. Stock
options for 15,731 shares ($11.16 per share), and 28,128 shares ($7.3594)
were granted in 1994 and 1995, respectively. 205,403 options were
outstanding as of August 31, 1995, with 94,597 shares reserved for future
grants.
Under a similar 1988 Director Discounted Stock Option Plan, options were
outstanding as of August 31, 1994 and August 31, 1995 for 100,000 shares
($4.41 to $9.28 per share) with expiration through 2001.
Pursuant to incentive compensation programs, the Company in 1994 and 1995
awarded 6,594 and 18,020 shares of common stock, respectively, to key
employees of the Company.
7. PREFERRED SHARE PURCHASE RIGHTS
In September 1987, the Board of Directors declared a dividend distribution
of one Preferred Share Purchase Right for each outstanding share of common
stock. Each right will entitle shareholders to purchase one two-hundredth
of a share of a new series of junior participating preferred stock at an
exercise price of $50. The rights will only be exercisable 30 days after a
person or group acquires 20% or more of the Company's common stock or
commences a tender offer to acquire 30% or more of the common stock. The
Company has reserved 48,876 shares of its preferred
F-13
stock for the outstanding rights. If the Company is acquired in a merger
or other business combination after the rights become exercisable, each
right will entitle the holder to purchase common stock of the acquiring
company having a market value of twice the exercise price of the right.
The rights may be redeemed by the Company at a price of $0.02 per right up
to 30 days after a 20% position has been acquired or completion of a
tender offer for 30% or more of common stock. The rights will expire on
September 28, 1997.
8. ACQUISITIONS
During fiscal 1995, the Company purchased two companies. Core's Amprobe
Instrument Division purchased Promax Industries, Inc., a manufacturer of
refrigerant recycling and recovery products for the heating, ventilating,
and air conditioning (HVAC) industry. Core's Fluid Control Group purchased
Oil and Gas Specialties, Inc. (OGASCO) which designs and fabricates
skid-mounted pipeline metering systems and fabricated strainers. The total
cost of the above acquisitions was approximately $4,800,000, including a
short-term note payable with a balance due of $487,000 at August 31, 1995.
During fiscal 1994, the Company purchased the grain drill business of Best
Manufacturing (Farm Equipment Group), and Hendrix Steel & Fabricating,
Inc. (Fluid Control Group), a fabricator of strainers and other specialty
flow control products. The total cost of these acquisitions was
approximately $3,370,000, including a five year note payable with a
balance due of $440,000 at August 31, 1995.
These acquisitions were accounted for as purchases, and accordingly, the
operating results of the acquired businesses have been included in the
Company's financial statements from their respective dates of acquisition.
The pro forma results of operations, as if the operations of the acquired
businesses had been included from September 1, 1993, would not differ
materially from the amounts reported in the consolidated statement of
earnings.
9. SALE OF DIVISIONS
Effective September 23, 1993, the Company sold its Du-Al Manufacturing
Division, a manufacturer of front end loaders, back hoes and other
equipment sold to the construction and farm industries. Effective May 31,
1994, the Company sold its Pioneer Industries Division, a manufacturer of
metal doors and frames for the construction industry. The total sale price
of these transactions was approximately $12,000,000, consisting of cash
and a promissory note for $1,500,000. The businesses sold had
approximately $9,000,000 of sales in FY 1994 prior to disposition and
approximately $20,000,000 of sales in FY 1993.
Other income for the year ended August 31, 1994 includes pretax gain of
$1,475,000 (total of $.09 per share) related to the sale of the Du-Al
Division.
10. DISCONTINUED OPERATIONS
On October 6, 1995, the Company adopted a formal plan to divest its
wholly-owned electronics-related subsidiary, Cherokee International, Inc.
and its subsidiaries (Cherokee) effective August 31, 1995. Cherokee
represented a separate line of business producing electronic power
supplies sold to distinct customers and has been accounted for as a
discontinued operation. Appropriate provisions were recorded in the fourth
quarter of fiscal 1995 for (a) the estimated losses for the discontinued
operation through its expected disposal date, (b) reduction of assets to
their net realizable values, and (c) the anticipated liabilities related
to the disposal. The total provision amounted to $6,500,000, net of income
tax benefit of $3,500,000.
F-14
Selected information related to Cherokee's operations prior to
discontinuance follows:
1993 1994 1995
----------- ----------- -----------
Sales $50,431,000 $53,193,000 $44,669,000
Pretax income (loss) 1,315,000 1,845,000 (285,000)
Income taxes 650,000 1,048,000 80,000
Net income (loss) 665,000 797,000 (365,000)
Earnings (loss) per share .07 .08 (.04)
The net assets of the discontinued Cherokee operation held for sale have
been included in the Balance Sheet at August 31, 1995 under the caption
"Net Assets Held for Sale." Interest expense was allocated based on debt
incurred to finance Cherokee since its acquisition. The Company expects to
dispose of all the net assets within one year.
F-15
11. PRODUCT SEGMENT INFORMATION
The Company groups its products and services into three segments.
Financial information by segment is summarized below (based upon
continuing operations). Assets and capital expenditures are also reported
net of items applicable to discontinued operations.
(In Thousands)
Depreciation Earnings
Capital and Net Before
Assets Expenditures Amortization Sales Income Taxes
-------- ------- ------- -------- -------
Year ended August 31, 1993:
Fluid controls and
construction products $ 48,782 $ 1,734 $ 2,328 $ 72,907 $ 9,400
Test, measurement and control 24,845 407 731 42,237 4,957
Farm equipment 37,912 687 801 41,471 5,942
Corporate unallocated 5,498 66 83 - (3,773)
Discontinued operations 34,240 - - - -
Interest expense - - - - (4,576)
-------- ------- ------- -------- -------
Total $151,277 $2,894 $3,943 $156,615 $11,950
======== ======= ======= ======== =======
Year ended August 31, 1994:
Fluid controls and
construction products $ 44,606 $ 1,610 $ 2,351 $ 78,745 $ 8,624
Test, measurement and control 26,627 1,512 833 49,229 5,328
Farm equipment 34,082 1,073 693 38,286 7,257
Corporate unallocated 21,112 115 127 - (3,178)
Discontinued operations 29,960
Interest expense - - - - (3,820)
-------- ------- ------- -------- -------
Total $156,387 $4,310 $4,004 $166,260 $14,211
======== ======= ======= ======== =======
Year ended August 31, 1995:
Fluid controls and
construction products $ 49,951 $ 2,483 $ 2,404 $ 80,732 $ 10,766
Test, measurement and control 34,702 984 1,022 63,819 6,928
Farm equipment 38,239 1,571 813 43,346 6,075
Corporate unallocated 7,266 139 125 - (3,521)
Discontinued operations 16,089 - - - -
Interest expense - - - - (3,355)
-------- ------- ------- -------- -------
Total $146,247 $5,177 $4,364 $187,897 $16,893
======== ======= ======= ======== =======
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12. QUARTERLY SALES AND EARNINGS SUMMARY (UNAUDITED)
Continuing Operations Total
-------------------------------------------------------- -----------------------
Net
Net Net Earnings
Cost Net Earnings Earnings (Loss)
Net Sales of Sales Earnings Per Share (Loss) Per Share
--------- -------- -------- --------- -------- ---------
(In Thousands except per share data)
Fiscal 1994
First Quarter $ 39,337 $ 26,548 $ 2,523 $ .26 (A) $2,908 .30
Second Quarter 37,635 24,899 1,889 .19 2,143 .22
Third Quarter 47,246 32,243 2,504 .26 2,446 .25
Fourth Quarter 42,042 27,604 2,293 .23 2,509 .25
-------- -------- ------- ----- ------- -----
Total Year $166,260 $111,294 $ 9,209 $ .94 (A) $10,006 $1.02
======== ======== ======= ===== ======= =====
Fiscal 1995
First Quarter $ 43,187 $ 27,724 $2,250 $ .23 $2,021 $.21
Second Quarter 44,819 28,745 2,316 .24 2,362 .24
Third Quarter 52,426 34,269 3,023 .30 3,133 .32
Fourth Quarter 47,465 30,350 3,104 .32 (3,688) (.38)
-------- -------- ------- ----- ------- -----
Total Year $187,897 $121,088 $10,693 $1.09 $3,828 $ .39
======== ======== ======= ===== ======= =====
(A) Includes pretax gain of $.09 per share related to sale of Du-Al division.
F-17