SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
Amendment No. 1
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 15, 1995
CORE INDUSTRIES INC
(Exact name of registrant as specified in its charter)
Nevada 1-5024 38-1052434
(State or other jurisdiction (Commission file IRS Employer
of incorporation) Number Identification No.)
P. O. Box 2000, Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (810) 642-3400
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 15, 1995, Core Industries Inc (the "Registrant") acquired
CMB Industries ("CMB") in a merger transaction. CMB, a privately held producer
of specialty valves, has annual revenues of approximately $30 million. CMB stock
was acquired by the Registrant in the merger. The capital investment was a
combination of debt assumptions and notes payable issued totaling $13,550,000
and 857,283 shares of the Registrant's common stock, which stock had a closing
price of $13.50 per share on December 14, 1995.
Subsequent to the transaction there were 10,684,464 shares of the
Registrant's common stock issued and outstanding.
A copy of the press release dated December 15, 1995 issued by the
Registrant relating to the closing of the sale is attached as Exhibit 99 hereto
and is incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
The audited balance sheets of CMB Industries as of December
31, 1994 and 1993, and the related statements of income, stockholders'
equity, and cash flows for the years then ended are filed with this
report beginning on Page F-4.
(b) Pro Forma Financial Information
The following unaudited pro forma condensed consolidated
financial statements are filed with this report:
Pro Forma Condensed Consolidated Balance
Sheet as of December 1, 1995........................Page F-1
Pro Forma Condensed Consolidated Statements
of Earnings:
Year ended August 31, 1995...................Page F-2
First Quarter ended December 1, 1995.........Page F-3
The Pro Forma Condensed Consolidated Balance Sheet as of December 1,
1995, and the Pro Forma Condensed Consolidated Statements of Earnings for the
year ended August 31, 1995, and the three months ended December 1, 1995 assume
the merger took place on September 1, 1994. The pro forma information is based
on historical financial statements of the Registrant and CMB, giving effect to
the transactions and adjustments in the accompanying notes to the pro forma
financial statements.
The unaudited pro forma condensed financial statements have been
prepared by Registrant based upon assumptions deemed proper by it. The unaudited
pro forma condensed consolidated financial statements presented herein are shown
for illustrative purposes only and are not necessarily indicative of the future
financial position or results of operations of Registrant, or of the financial
position or results of operations of Registrant that would have actually
occurred had the transaction been in effect as of the date or for the periods
presented. The results of operations have not been adjusted for the benefits
from synergies of the combined operations related to marketing and product
efforts, purchasing advantages and other combined benefits. The results of CMB
Industries during the periods shown reflect unusual costs in new product
development and introduction. Also, the concentration of most of CMB's sales
from its "Poly-jet" product line (10-15% of total sales) into several different
months within a year may distort the overall results of CMB for any particular
cutoff period.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements and
related notes of Registrant.
(c) Exhibits
*2.1 Agreement and Plan of Merger between Core Industries Inc and
CMB Industries
99 Press release dated December 15, 1995.
*The Registrant will supply the Commission upon request with
copies of any schedules to Exhibits which are not included
herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CORE INDUSTRIES INC
By: /s/ RAYMOND H. STEBEN, JR.
--------------------------
Raymond H. Steben, Jr.
V.P.-Finance and CFO
Dated: February 22, 1996
Core Industries Inc and Subsidiaries and CMB Industries
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
December 1, 1995
As Reported
----------------------
Core
Industries
Inc and CMB Pro Forma Pro Forma
Subsidiaries Industries Adjustments Consolidated
-------- -------- -------- --------
(000s omitted)
ASSETS
Current Assets:
Cash and cash equivalents $ 537 ($ 262) -- $ 275
Accounts receivable 43,941 5,165 -- 49,106
Inventories 41,913 7,936 -- 49,849
Prepaid expenses 504 32 -- 536
Deferred taxes on income 5,487 -- -- 5,487
Net assets held for disposition 16,780 -- -- 16,780
-------- -------- -------- --------
TOTAL CURRENT ASSETS $109,162 $ 12,871 -- $122,033
-------- -------- -------- --------
Property, plant and equipment $ 55,709 $ 9,041 -- $ 64,750
Less accumulated depreciation 33,371 6,331 -- 39,702
-------- -------- -------- --------
Total Property, Plant and Equipment $ 22,338 $ 2,710 -- $ 25,048
-------- -------- -------- --------
Goodwill $ 6,701 -- $15,199(b) $ 21,900
Other assets 8,583 $ 122 -- 8,705
-------- -------- -------- --------
Total Other Assets $ 15,284 $ 122 $ 15,199 $ 30,605
-------- -------- -------- --------
$146,784 $ 15,703 $ 15,199 $177,686
======== ======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 1,487 $ 8,650 $6,474(a) $ 16,611
Accounts payable 8,468 3,090 -- 11,558
Accrued payroll and other expenses 9,556 664 -- 10,220
Dividends payable 590 -- -- 590
Taxes on income 1,966 -- -- 1,966
Long-term debt due with one year 4,610 -- -- 4,610
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES $ 26,677 $ 12,404 $ 6,474 $ 45,555
--------- --------- --------- ---------
Long-term debt, less current portion 32,499 -- -- 32,499
Deferred taxes on income 1,810 -- -- 1,810
Accrued employee benefits 2,962 -- 451(d) 3,413
Stockholders's Equity:
Common stock $ 11,237 $ 4,085 ($ 4,085) $ 11,237
Additional paid-in capital 1,001 -- 7,501(c) 8,502
Retained earnings 76,320 (786) 786 76,320
Cumulative translation adjustments 976 -- -- 976
Treasury stock (6,698) -- 4,072(c) (2,626)
--------- --------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 82,836 $ 3,299 $ 8,274 $ 94,409
--------- --------- --------- ---------
$ 146,784 $ 15,703 $ 15,199 $ 177,686
========= ========= ========= =========
<FN>
(a) Additional debt required in connection with acquisition.
(b) The excess of cost over the estimated fair value of CMB's assets and
liabilities.
(c) Reflects the issuance of 857,000 shares of common stock from treasury.
(d) Projected benefit obligation respect to CMB's pension plan.
</FN>
F-1
Core Industries Inc and Subsidiaries and CMB Industries
Pro Forma Condensed Consolidated Statement of Earnings (Unaudited)
Year Ended August 31, 1995
As Reported
-------------------------
Core
Industries
Inc and CMB Pro Forma Pro Forma
Subsidiaries Industries Adjustments Consolidated
--------- --------- --------- ---------
(000s omitted, except per-share data)
Net Sales $ 187,897 $ 26,987 -- $ 214,884
Cost of Sales $ 121,088 $ 17,469 -- $ 138,557
Depreciation & Amortization 4,364 1,013 380 (b) 5,757
Selling, General and
Administration Expenses 43,126 7,710 -- 50,836
Interest Expense 3,355 812 212 (a) 4,379
Other Expense (Income) (929) (93) -- (1,022)
--------- --------- --------- ---------
$ 171,004 $ 26,911 $ 592 $ 198,507
--------- --------- --------- ---------
Earnings Before Income Taxes $ 16,893 $ 76 ($ 592) $ 16,377
Taxes on Income 6,200 1 (50)(c) 6,151
--------- --------- --------- ---------
Net Earnings $ 10,693 $ 75 ($ 542) $ 10,226
========= ========= ========= =========
Earnings Per Share $ 1.09 -- -- $ 0.96
========= ========= ========= =========
Average Shares Outstanding 9,809 -- 857 (c) 10,666
========= ========= ========= =========
<FN>
(a) Interest expense on $15 million on Registrant's estimated short term rate of
6.9% - less CMB's actual interest (CMB's rate approximated 8%).
(b) Amortization over 40 years of cost in excess of net assets acquired.
(c) Decrease in income tax provisions associated with (a) above. (No tax benefit
for amortization in (b) above). Also provide tax on CMB earnings at
Registrant's rate (CMB was "S" Corporation).
(d) To reflect shares issued in connection with acquisition as if transaction
had been completed at beginning of period.
</FN>
F-2
Core Industries Inc and Subsidiaries and CMB Industries
Pro Forma Condensed Consolidated Statement of Earnings (Unaudited)
Three Months Ended December 1, 1995
As Reported
-------------------------
Core
Industries
Inc and CMB Pro Forma Pro Forma
Subsidiaries Industries Adjustments Consolidated
--------- --------- --------- ---------
(000s omitted, except per-share data)
Net Sales $ 46,437 $ 6,898 -- $ 53,335
Cost of Sales $ 29,999 $ 4,300 -- $ 34,299
Depreciation & Amortization 1,210 255 152 (b) 1,617
Selling, General and
Administration Expenses 10,760 1,897 -- 12,657
Interest Expense 805 187 55 (a) 1,047
Other Expense (Income) (127) 8 -- (119)
--------- --------- --------- ---------
$ 42,647 $ 6,647 $ 207 $ 49,501
--------- --------- --------- ---------
Earnings Before Income Taxes $ 3,790 $ 251 ($ 207) $ 3,834
Taxes on Income 1,380 0 71 (c) 1,451
--------- --------- --------- ---------
Net Earnings $ 2,410 $ 251 ($ 278) $ 2,383
========= ========= ========= =========
Earnings Per Share $ 0.25 -- -- $ 0.22
========= ========= ========= =========
Average Shares Outstanding 9,827 -- 857 (c) 10,684
========= ========= ========= =========
<FN>
(a) Interest expense on $15 million on Registrant's estimated short term rate of
6.45% - less CMB's actual interest (CMB's rate ranged from 7 1/2% to 8%).
(b) Amortization over 40 years of cost in excess of net assets acquired.
(c) Decrease in income tax provisions associated with (a) above. (No tax benefit
for amortization in (b)). Also provide tax on CMB earnings at Registrant's
rate (CMB was "S" Corporation).
(d) To reflect shares issued in connection with acquisition as if transaction
had been completed at beginning of period.
</FN>
F-3
CMB INDUSTRIES
FINANCIAL STATEMENTS
December 31, 1994 and 1993
TABLE OF CONTENTS
Report of Independent Auditors................................................1
Financial Statements
Balance Sheets.............................................................2
Statements of Income.......................................................3
Statements of Stockholders' Equity.........................................4
Statements of Cash Flows.................................................5-6
Notes to Financial Statements...........................................7-12
F-4
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS
CMB INDUSTRIES
We have audited the accompanying balance sheets of CMB Industries as of December
31, 1994 and 1993, and the related statements of income, stockholders' equity,
and cash flows for the years then ended. 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 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 financial position of CMB Industries as of December
31, 1994 and 1993 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in note 10 to the financial statements, the Company changed its
method of accounting for income taxes in the year ending December 31, 1993.
/s/ NOEL CLEVENGER & COMPANY
- ----------------------------
Noel Clevenger & Company
1001 North Demaree
Visalia, CA 93291
March 16, 1995
F-5
CMB INDUSTRIES
BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
------------ ------------
ASSETS -- --
Current Assets
Cash and Short-Term Investments $ 432,630 $ 294,162
Accounts Receivable, less allowance for doubtful accounts of
$88,460 in 1994 and $70,595 in 1993 4,084,935 2,773,413
Receivable from Affiliated Entities -- 74,526
Notes Receivable from Stockholders (Note 3) 700,000 --
Notes Receivable (Note 3) 50,000 --
Inventory (Note 2) 8,360,766 8,561,161
Prepaid Expenses 29,895 94,448
Deferred Taxes (Note 10) 7,826 23,115
------------ ------------
Total Current Assets 13,666,052 11,820,825
Property, Plant and Equipment, Net (Note 4) 5,811,881 6,224,613
Product Process Improvement Costs (Note 5) 1,145,372 1,069,858
Patents, Net of Accumulated Amortization of $2,490,700 in 1994
and $2,478,700 in 1993 97,726 13,187
Other 31,706 4,464
------------ ------------
$ 20,752,737 $ 19,132,947
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 2,476,799 $ 2,583,961
Accrued Liabilities 1,064,506 1,269,551
Current Portion of Capital Lease Obligations (Note 8) 198,323 175,212
Note Payable (Note 7) 4,073,952 2,700,000
Current Maturities of Long-Term Debt (Note 7) 170,000
------------ ------------
Total Current Liabilities 7,983,580 6,728,724
Long-Term Debt, Less Current Maturities (Note 7) 1,530,000 --
Notes Payable to Stockholders (Note 6) 3,107,089 5,107,089
Obligations under Capital Leases (Note 8) 185,110 383,434
Deferred Taxes (Note 10) 12,332 2,787
Stockholders' Equity
Common Stock, no par value; 10,000 shares authorized, 6,650
shares issued and outstanding in 1994 and 1993 4,085,000 4,085,000
Retained Earnings 4,164,860 3,057,860
Excess of Additional Pension Liability Over Unrecognized Prior
Service Cost (Note 9) (315,234) (231,947)
------------ ------------
Total Stockholders' Equity 7,934,626 6,910,913
------------ ------------
$ 20,752,737 $ 19,132,947
============ ============
See accompanying notes.
F-6
CMB INDUSTRIES
STATEMENTS OF INCOME
For The Years Ended December 31, 1994 and 1993
1994 1993
------------ ------------
Revenues
Sales $ 29,161,481 $ 23,588,761
Other Income 19,046 17,706
------------ ------------
Total Revenues 29,180,527 23,606,467
Costs and Expenses
Cost of Goods Sold 19,879,479 16,659,799
Selling 5,444,959 4,807,866
General and Administrative 2,000,272 1,805,229
Interest 723,183 494,104
Litigation Settlement (Note 11) -- 425,000
------------ ------------
Total Costs and Expenses 28,047,893 24,191,998
------------ ------------
Income (Loss) Before Provision for State Income Taxes and
Cumulative Effect of a Change in Accounting Principle 1,132,634 (585,531)
Provision for State Income Taxes 25,634 5,972
------------ ------------
Income (Loss) Before Cumulative Effect of a Change in
Accounting Principle 1,107,000 (591,503)
Cumulative Effect on Prior Years of Adopting a Required New
Method of Accounting for Income Taxes - FASB 109
(Note 10) -- 30,047
------------ ------------
Net Income (Loss) $ 1,107,000 $ (561,456)
============ ============
See accompanying notes.
F-7
CMB INDUSTRIES
STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1994 and 1993
Common Retained
Stock Earnings Other Total
----------- ----------- ----------- -----------
Balance at December 31, 1992 $ 4,085,000 $ 3,695,606 $ (239,356) $ 7,541,250
Net Income -- (561,456) -- (561,456)
Dividends Paid From
Undistributed Retained Earnings -- (76,290) -- (76,290)
Reduction in Excess Pension
Liability Over Unrecognized Prior
Service Cost (Note 9) -- -- 7,409 7,409
----------- ----------- ----------- -----------
Balance at December 31, 1993 4,085,000 3,057,860 (231,947) 6,910,913
Net Income -- 1,107,000 -- 1,107,000
Increase in Excess Pension
Liability Over Unrecognized Prior
Service Cost (Note 9) -- -- (83,287) (83,287)
----------- ----------- ----------- -----------
Balance at December 31, 1994 $ 4,085,000 $ 4,164,860 $ (315,234) $ 7,934,626
=========== =========== =========== ===========
See accompanying notes.
F-8
CMB INDUSTRIES
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1994 and 1993
1994 1993
----------- -----------
Cash Flows from Operating Activities
Net Income (Loss) $ 1,107,000 $ (561,456)
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation and Amortization 1,049,465 939,495
Provision for Losses on Accounts Receivable 70,000 74,210
Gain on Sale of Property, Plant and Equipment (10,552) (8,876)
Change in Assets and Liabilities
Decrease (Increase) in Receivables (1,306,996) 107,800
Decrease (Increase) in Inventories 200,395 (1,921,997)
Decrease in Prepaid Expenses 64,553 125,403
Increase in Other Assets (27,242) (1,893)
Decrease (Increase) in Deferred Tax Asset 24,834 (24,875)
Increase in Patents (96,493) (2,749)
(Decrease) Increase in Accounts Payable (107,162) 1,015,041
(Decrease) Increase in Accrued Liabilities (205,045) 561,457
Decrease (Increase) in Excess of Additional Pension
Liability Over Unrecognized Prior Service Cost (83,287) 7,409
----------- -----------
Net Cash Provided by Operating Activities 679,470 308,969
Cash Flows from Investing Activities
Proceeds from Sale of Property, Plant and Equipment 11,979 8,876
Disbursements on Notes Receivable (750,000) --
Purchases of Property, Plant and Equipment (701,720) (907,972)
----------- -----------
Net Cash Used in Investing Activities (1,439,741) (899,096)
Cash Flows from Financing Activities
Proceeds from Debt Borrowings 4,629,486 1,050,000
Payments on Notes Payable to Shareholders (2,250,000) --
Proceeds from Borrowing Under Notes Payable to
Shareholders 250,000 --
Principal Payments on Debt (1,555,534) (200,000)
Principal Payments on Capital Lease Obligations (175,213) (154,795)
Dividends Paid to Stockholders -- (76,290)
----------- -----------
Net Cash Provided by Financing Activities 898,739 618,915
Net Increase in Cash and Cash Equivalents 138,468 28,788
Beginning of Year-Cash and Cash Equivalents 294,162 265,374
----------- -----------
End of Year-Cash and Cash Equivalents $ 432,630 $ 294,162
=========== ===========
See accompanying notes.
F-9
CMB INDUSTRIES
STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended December 31, 1994 and 1993
1994 1993
-------- --------
Supplemental Disclosures
Cash Paid During the Year For:
Interest (Net of $80,842 Capitalized in 1993) $654,386 $425,454
Income Taxes $ -- $ 800
See accompanying notes.
F-10
CMB INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1994 and 1993
1. Organization and Summary of Significant Accounting Policies
Organization and Operations
CMB Industries (the Company), a closely-held California corporation,
manufactures and distributes commercial valves and backflow prevention
devices through its Febco division.
Cash and Cash Equivalents
For the purposes of reporting cash flows, the Company considers all highly
liquid instruments with a maturity of three months or less at acquisition
to be cash equivalents.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market. Manufacturing overhead is applied to inventory based on the
material cost of inventory.
Property, Plant and Equipment
Property, plant and equipment are carried at cost net of accumulated
depreciation and amortization. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets;
generally 5 to 25 years for buildings and improvements; 10 to 12 years for
machinery, equipment and casting patterns; and 5 to 10 years for furniture,
fixtures and vehicles.
All maintenance and repair expenses are expensed as incurred. Expenditures
that increase the value or productive capacity of assets are capitalized.
Patents
Patents are stated at cost and are amortized using the straight-line method
over the remaining lives of the patents, ranging from five to fourteen
years.
2. Inventory
Inventory is comprised of the following at December 31:
1994 1993
---------- ----------
Raw Materials $4,211,866 $4,146,537
Work in Progress 35,029 1,166,617
Finished Goods 4,113,871 3,248,007
---------- ----------
$8,360,766 $8,561,161
========== ==========
F-11
CMB INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1994 and 1993
3. Notes Receivable
During 1994, the Company loaned $50,000 to an outside product representative in
the form of five notes receivable of $10,000 each bearing interest at 7.5%. The
notes mature on various dates in 1995.
The Company made cash advances to shareholders aggregating $700,000 during 1994.
Such advances are due upon demand and are non-interest bearing.
4. Property, Plant and Equipment
Property, plant and equipment is comprised of the following at December 31:
1994 1993
----------- -----------
Land $ 777,981 $ 777,981
Buildings and Improvements 3,707,557 3,704,675
Machinery and Equipment 6,370,875 6,518,295
Casting Patterns 1,393,463 837,889
Furniture and Fixtures 779,817 778,357
Vehicles -- 13,575
----------- -----------
13,029,693 12,630,772
Less: Accumulated Depreciation and Amortization 7,217,812 6,406,159
----------- -----------
$ 5,811,881 $ 6,224,613
=========== ===========
5. Product Process Improvement Costs
Product Process Improvement Costs include costs associated with getting newly
developed Febco product ready for large volume production and the costs of
testing and obtaining certification by various agencies with authority in
regional markets throughout the United States. The Company has began producing
and selling new product in the "Large Device" line in certain regions of the
United States and therefore costs associated with the large device line are
being amortized over a five year period. Amortization expense for the new
product line was $154,135 and $112,989 in 1994 and 1993, respectively.
6. Notes Payable to Stockholders
The notes payable to stockholders at December 31, 1994 and 1993 are unsecured
and due on demand. However, as noted in the June 1994 bank credit agreement more
fully described in Note 7, amounts payable to certain stockholders, up to an
aggregate of $3,000,000, are subordinated in right of repayment to all
obligations of the Company to the Bank. Accordingly, the obligations are
classified as long-term for purposes of these financial statements. Interest
under the notes is payable at 1/4% above the Wells Fargo Bank reference rate
(7.930% at December 31, 1994). Interest expense related to such notes aggregated
$315,586 and $330,099 in 1994 and 1993, respectively. Unpaid interest to
stockholders amounted to $114,576 and $60,181 at December 31, 1994 and 1993.
F-12
CMB INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1994 and 1993
7. Debt
In July 1994, the Company entered into a newly amended credit agreement with
Wells Fargo Bank to replace the credit facilities previously in place. The
amended credit agreement provides for a $5,000,000 revolving line of credit. The
revolving line of credit is available through June 15, 1995.
Borrowings under the line of credit aggregated $4,073,952 at December 31, 1994
with interest payable monthly at 1/4% above the Bank's prime rate. Amounts
outstanding under the Line are due June 15, 1995 and are secured by the
Company's accounts receivable and inventory. The agreement contains various
covenants including maintenance of certain financial ratios, restrictions on the
amount of dividends and on new obligations which may be incurred. As of December
31, 1994, all covenants were complied with or waived.
Additionally, the Company has a term loan payable to Wells Fargo Bank for
$1,700,000, with an additional $300,000 loan commitment available. The loan
bears interest at 3/8% above the prime rate, and is payable in sixty equal
principal payments including monthly interest, until completely repaid at the
maturity date, June 15, 2000. The payments will begin July 15, 1995. The loan is
secured by accounts receivable, inventory and equipment.
The note payable at December 31, 1993 represents the amount outstanding under
the then $3,500,000 line of credit with Wells Fargo Bank.
Maturities of Long-Term Debt as of December 31, 1994 are as follows:
1995 $ 170,000
1996 340,000
1997 340,000
1998 340,000
1999 and Thereafter 510,000
----------
$1,700,000
==========
8. Capital Lease Obligations
The Company leases two machining centers under capital lease arrangements.
Future minimum payments by year, and in aggregate, under such capital leases
consist of the following at December 31, 1994:
1995 $ 235,008
1996 195,840
----------
Total Minimum Lease Payments 430,848
Amount Representing Interest (47,415)
----------
Net Present Value of Minimum Lease Payments 383,433
Less: Current Maturities 198,323
----------
$ 185,110
==========
F-13
CMB INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1994 and 1993
8. Capital Lease Obligations (Continued)
The cost and accumulated epreciation of assets obtained under capital lease
transactions were as follows at December 31:
1994 1993
-------- --------
Cost $880,346 $880,346
Less: Accumulated Depreciation 398,250 272,487
-------- --------
$482,096 $607,859
======== ========
The Company has the option to purchase the machining centers for stated amounts
at anytime throughout the term of the lease. In addition, the lessor has a put
option which would require the Company to exercise the purchase option at the
end of the lease for approximately $80,000.
9. Pension and Profit-Sharing Plans
The Company has a defined benefit pension plan covering substantially all of its
employees. Benefits are based on years of service and compensation levels of the
employees. The Company's funding policy is to contribute the minimum annual
contributions required by applicable regulations.
The Plan's funded status and amounts recognized in the Company's financial
statements as of December 31 are as follows:
1994 1993
----------- -----------
Actuarial Present Value of Benefit Obligations:
Accumulated Benefit Obligation, Including
Vested Benefits of Approximately
$1,052,900 and $980,700 in 1994 and
1993, Respectively $(1,096,104) $(1,045,641)
=========== ===========
Projected Benefit Obligation for Services
Rendered to Date $(1,569,230) $(1,452,910)
Plan Assets at Fair Value 947,524 913,861
----------- -----------
Projected Benefit Obligation In Excess of
Plan Assets (621,706) (539,049)
Unrecognized Net Loss From Past Experience
Different From That Assumed and Effects
of Changes in Assumptions 838,248 706,485
Unrecognized Prior Service Cost 5,998 6,855
Unrecognized Net Asset Being Recognized
Over 14 years (49,889) (67,270)
Adjustment Required to Recognize Minimum Liability (321,231) (238,801)
----------- -----------
Accrued Pension Liability $ (148,580) $ (131,780)
=========== ===========
F-14
CMB INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1994 and 1993
9. Pension and Profit-Sharing Plans (Continued)
1994 1993
Net Pension Cost Includes the Following Components: --------- ---------
Service Cost - Benefits Earned During the Period $ 172,800 $ 172,533
Interest Cost on Projected Benefit Obligation 108,124 109,805
Actual Return on Plan Assets 49,862 (10,275)
Net Amortization and Deferral (110,164) (17,296)
--------- ---------
Net Pension Cost $ 220,622 $ 254,767
========= =========
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8% and 5%, respectively, in 1994 and 1993. The expected
long-term rate of return on assets was 8% and 8.5% in 1994 and 1993. Plan assets
are invested primarily in a money fund which invests in short-term money market
instruments.
The Company has a profit-sharing plan covering substantially all employees.
Company contributions are determined annually by the Board of Directors. There
were no contributions to the plan in 1994 or 1993.
10. Income Taxes
The Company files its federal and state income tax returns as an "S"
corporation. As such, income taxes on the Company's earnings are generally the
responsibility of the individual stockholders rather than the Company. For state
income tax purposes, the Company pays a tax of 1.5% on its taxable income in
1994 and 2.5% in 1993.
The Company has approximately $2,400,000 of net operating loss carry forwards
available at December 31, 1994, which can be used to offset future taxable
income for franchise tax purposes, subject to certain limitations. Such carry
forwards expire through 2007. At January 1, 1993, generally accepted accounting
principles required the Company to adopt FASB No.109 - Accounting for Income
Taxes. This pronouncement requires deferred income taxes be measured utilizing a
balance sheet approach as opposed to the income statement approach required by
APB No.11.
The cumulative effect on the prior year as a result of this change was to
increase income by $30,047. The following balances are the major components
contained in the balance sheet:
1994 1993
-------- --------
Deferred Tax Assets $ 29,833 $ 47,893
Deferred Tax Liabilities (34,339) (27,565)
-------- --------
Net Deferred Tax
Assets (Liabilities) $ (4,506) $ 20,328
======== ========
Included in Deferred Tax Assets is an allowance to reduce deferred tax assets by
$18,000 and $20,220 in 1994 and 1993. This allowance is the result of reserving
fifty percent of the Company's total net operating loss carry forwards of
$2,400,000 and $2,680,000 in 1994 and 1993.
F-15
CMB INDUSTRIES
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1994 and 1993
10. Income Taxes (Continued)
Deferred income taxes are provided with respect to differences in the timing of
recognition of certain income and expense items for financial statement and
taxable income reporting purposes. Such differences relate primarily to the
method of accounting for contingency losses, inventory obsolescence reserves,
inventory overhead allocations, special tooling costs and pension expenses.
The provision for state income taxes for the years ended December 31, 1994 and
1993 consists of the following:
1994 1993
------- -------
Current $ 800 $ 800
Deferred 24,834 5,172
------- -------
Total Provision $25,634 $ 5,972
======= =======
Additionally, as a result of an enacted change in the franchise tax rate from
2.5% to 1.5% for taxable years beginning in 1994, total net deferred tax
benefits were reduced by $9,612 in 1993.
11. Commitments, Contingency and Concentrations of Credit Risk
Commitments
Effective January 1, 1992, the Company entered an agreement to pay one of
its key employees 300,000 over a ten year period ending December 31, 2001.
The annual payments of $30,000 become due and payable each year the
employee remains employed by the Company.
Contingency
In 1993, the Company was a defendant in a lawsuit alleging breach of
contract, fraud and breach of expressed and implied warranties in
connection with the 1991 sale by the Company of its Bailey Division. In
1994, the Company and the plaintiff reached a settlement in the amount of
$425,000, which was recognized as an expense in the accompanying 1993
financial statements.
Concentrations of Credit Risk
The Company manufactures and sells commercial valves and backflow
prevention devices to distributors located primarily throughout the United
States for use in the installation of waterworks, irrigation, plumbing, and
fire sprinkler systems. The Company performs periodic credit evaluations of
its customers' financial condition and generally does not require
collateral. At December 31, 1994, accounts receivable from customers
concentrated in the irrigation and plumbing industries were approximately
$1,623,730 and $1,122,060, respectively. Receivables generally are due
within 45 days. Credit losses have been within management's expectations
and comparable to losses for the portfolio as a whole.
12. Related Party Transactions
During the years ended December 31, 1993, CMB paid legal expenses totaling
approximately $41,500 on behalf of the shareholders corporate interests.
F-16
EXHIBIT INDEX
Exhibit Number Description
2.1 Agreement and Plan of Merger between Core Industries Inc
and CMB Industries
99 Press release of the Registrant issued December 15, 1995.
F-17