1
EXHIBIT 13
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
2
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors of
Core Industries Inc
Bloomfield Hills, Michigan:
We have audited the accompanying consolidated balance sheet of Core Industries
Inc and subsidiaries as of August 31, 1994 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the year 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 audit. The financial statements of Core Industries Inc
for the years ended August 31, 1993 and 1992, were audited by other auditors,
whose report hereon, dated October 21, 1993, included an explanatory paragraph
noting that the Company changed its methods of accounting for income taxes and
postretirement benefits other than pensions effective September 1, 1991 to
conform with Statements of Financial Accounting Standards Nos. 109 and 106,
respectively, as discussed in Notes 3 and 4 to the financial statements.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the fiscal 1994 consolidated 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, 1994 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
October 11, 1994
F-2
3
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Core Industries Inc
Bloomfield Hills, Michigan:
We have audited the consolidated balance sheet of Core Industries Inc and
Subsidiaries as of August 31, 1993 and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the two years in the
period ended August 31, 1993. Our audits also included the financial statement
schedules listed in the Index at Item 14 for each of the two years in the
period ended August 31, 1993. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Core Industries Inc
and Subsidiaries at August 31, 1993 and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
August 31, 1993, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Notes 3 and 4 to the financial statements, the Company changed
its methods of accounting for income taxes and postretirement benefits other
than pensions effective September 1, 1991 to conform with Statements of
Financial Accounting Standards Nos. 109 and 106, respectively.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Detroit, Michigan
October 21, 1993
F-3
4
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31
---------------------------
1994 1993
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 14,643,000 $ 651,000
Accounts receivable, less collection
allowances of $ 960,000 in 1994
and $ 970,000 in 1993 47,444,000 50,558,000
Inventories 48,863,000 54,092,000
Prepaid expenses 808,000 1,337,000
Refundable income taxes - 139,000
Deferred taxes on income 2,027,000 2,637,000
------------ ------------
TOTAL CURRENT ASSETS $113,785,000 $109,414,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $ 1,278,000 $ 1,374,000
Buildings 18,161,000 18,672,000
Machinery and equipment 44,322,000 50,145,000
------------ ------------
Total $ 63,761,000 $ 70,191,000
Less accumulated depreciation 36,377,000 41,304,000
------------ ------------
TOTAL PROPERTY, PLANT AND
EQUIPMENT $ 27,384,000 $ 28,887,000
------------ ------------
OTHER ASSETS:
Excess of cost over net assets
of companies acquired $ 7,033,000 $ 7,269,000
Investment in real estate partnership 1,343,000 1,432,000
Note receivable 1,500,000 -
Prepaid pensions and other 5,342,000 4,275,000
------------ ------------
TOTAL OTHER ASSETS $ 15,218,000 $ 12,976,000
------------ ------------
$156,387,000 $151,277,000
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
August 31
---------------------------
1994 1993
---- ----
CURRENT LIABILITIES:
Notes payable to bank - $ 900,000
Accounts payable $11,485,000 12,521,000
Accrued payroll and other expenses 12,817,000 12,899,000
Dividends payable 587,000 587,000
Taxes on income 1,585,000 -
Long-term debt due within one year 4,610,000 1,500,000
------------ ------------
TOTAL CURRENT LIABILITIES $31,084,000 $ 28,407,000
------------ ------------
LONG-TERM DEBT,
less amount due within one year $41,608,000 $ 47,134,000
DEFERRED TAXES ON INCOME 1,770,000 1,580,000
ACCRUED EMPLOYEE BENEFITS 2,908,000 3,190,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1:
Authorized - 100,000 shares
Issued - none
Common stock, par value $1:
Authorized - 20,000,000 shares
Issued - 11,219,152 sharesin 1994
and 11,208,058 shares in 1993 $11,219,000 $ 11,208,000
Additional paid-in capital 810,000 728,000
Retained earnings 73,025,000 65,372,000
Cumulative translation adjustments 661,000 356,000
Treasury stock (1,410,160 shares) - at cost (6,698,000) (6,698,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $79,017,000 $ 70,966,000
------------ ------------
$156,387,000 $151,277,000
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
5
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended August 31
--------------------------------------------------------------
1994 1993 1992
---- ---- ----
Net sales $219,454,000 $207,046,000 $183,734,000
Cost of sales, exclusive of
depreciation and amortization $154,278,000 $144,661,000 $128,575,000
Depreciation and amortization 5,182,000 5,149,000 5,545,000
Selling, general and
administrative expenses 41,591,000 40,409,000 39,726,000
Write-off of intangibles - - 2,721,000
Interest expense 4,570,000 5,091,000 6,175,000
Other income (2,223,000) (1,529,000) (427,000)
------------ ------------ ------------
$203,398,000 $193,781,000 $182,315,000
------------ ------------ ------------
Earnings from continuing operations
before taxes on income and cumulative
effects of accounting changes $ 16,056,000 $ 13,265,000 $ 1,419,000
Taxes on income 6,050,000 4,700,000 1,239,000
------------ ------------ ------------
Earnings from continuing operations
before cumulative effects of
accounting changes $10,006,000 $ 8,565,000 $ 180,000
Discontinued operations (net of income
tax benefits):
Loss from discontinued operations - - ($4,015,000)
Estimated loss on disposal - - (20,859,000)
------------ ------------ ------------
- - ($24,874,000)
------------ ------------ ------------
Earnings (loss) before cumulative
effects of accounting changes $10,006,000 $ 8,565,000 ($24,694,000)
Cumulative effects of accounting changes:
Income taxes - - $ 300,000
Postretirement benefits - - (1,974,000)
------------ ------------ ------------
- - ($1,674,000)
------------ ------------ ------------
Net earnings (loss) $10,006,000 $ 8,565,000 ($26,368,000)
============ ============ ============
Net earnings (loss) per common share:
Continuing operations before
accounting changes $ 1.02 $ .88 $ .02
Discontinued operations - - (2.55)
Cumulative effects of accounting changes - - (.17)
------------ ------------ ------------
Net earnings (loss) $ 1.02 $ .88 $ (2.70)
============ ============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
6
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, 1991 $11,185,000 $449,000 $ 88,454,000 ($1,133,000) ($6,698,000)
Net loss (26,368,000)
Cash dividends declared (2,933,000)
Foreign currency adjustments:
Continuing operations 617,000
Discontinued operations 872,000
----------- -------- ----------- ---------- -----------
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 adjustments 305,000
----------- -------- ----------- -------- -----------
Balance, August 31, 1994 $11,219,000 $810,000 $ 73,025,000 $ 661,000 ($6,698,000)
=========== ======== ============ ========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
7
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31
-------------------------------------------------------
1994 1993 1992
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $10,006,000 $ 8,565,000 ($26,368,000)
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation $ 4,856,000 $4,879,000 $ 4,990,000
Amortization 326,000 270,000 555,000
Cumulative effect of accounting change - - 1,674,000
Loss from discontinued operations - - 28,174,000
Discontinued operations - - 3,031,000
Write-off of intangibles - - 2,721,000
Net gain on sale of division (915,000) - -
(Increase) decrease in assets:
Accounts receivable (177,000) (4,660,000) 2,790,000
Inventories 813,000 (5,505,000) 403,000
Prepaid expenses 606,000 692,000 (265,000)
Taxes on income 968,000 3,890,000 (5,809,000)
Deferred taxes on income 800,000 3,176,000 1,801,000
Increase (decrease) in liabilities:
Accounts payable (743,000) 4,689,000 (558,000)
Accrued payroll and other expenses 810,000 1,246,000 2,593,000
----------- ----------- -----------
TOTAL ADJUSTMENTS $ 7,344,000 $ 8,677,000 $42,100,000
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $17,350,000 $17,242,000 $15,732,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($4,967,000) ($4,930,000) ($6,400,000)
Net proceeds from sale of divisions 9,816,000 - -
Acquisition of businesses (2,510,000) - -
Discontinued operations - 6,784,000 (4,756,000)
Other 523,000 (4,000) 421,000
----------- ----------- -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES $ 2,862,000 $ 1,850,000 ($10,735,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on short-term bank loans ($900,000) ($15,000,000) ($2,100,000)
Decrease in restricted cash - - 2,684,000
Reductions in long-term debt (2,967,000) (3,012,000) (1,159,000)
Cash dividends paid (2,353,000) (2,346,000) (3,519,000)
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES ($6,220,000) ($20,358,000) ($4,094,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 13,992,000 (1,266,000) 903,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 651,000 1,917,000 1,014,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $14,643,000 $ 651,000 $ 1,917,000
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 4,510,000 $ 5,050,000 $ 6,180,000
=========== =========== ===========
Income taxes paid $3,340,000 $ 2,200,000 $ 800,000
=========== =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
8
CORE INDUSTRIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
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 93% of inventories at August 31,
1994 and 1993, 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
$1,155,000 higher than reported at August 31, 1994 and 1993,
respectively.
Following is the detail of inventories:
1994 1993
---- ----
Raw materials and supplies $25,976,000 $26,762,000
Work in process 8,940,000 13,417,000
Finished goods 13,947,000 13,913,000
----------- -----------
Total $48,863,000 $54,092,000
=========== ===========
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 40
years except for $2,048,000 relating to acquisitions prior to October 31,
1970 which is not being amortized. Amortization expense amounted to
$177,000 in 1994 and 1993, and $191,000 in 1992. Accumulated amortization
amounted to $2,645,000 and $2,441,000 at August 31, 1994 and 1993,
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 $346,000 in 1994, $400,000 in 1993, and $447,000 in 1992.
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 (9,800,135 shares in 1994, 9,776,376
shares in 1993 and 9,775,196 shares in 1992). 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.
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. This credit facility was unused at August 31,
1994.
F-8
9
Long-term debt consists of the following:
1994 1993
---- ----
Notes payable $39,550,000 $42,000,000
Industrial development revenue bonds 6,668,000 6,634,000
----------- -----------
Total $46,218,000 $48,634,000
Portion due within one year 4,610,000 1,500,000
----------- -----------
Total $41,608,000 $47,134,000
=========== ===========
Notes payable include three unsecured promissory notes to insurance
companies: one 9.8%, $9,000,000 note and two 10.02% notes aggregating
$30,000,000. 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 commencing May 1995 for the 10.02%
notes. The other note payable requires repayment in five equal
installments commencing November, 1994.
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, 1994,
averaged 3.66%.
Principal repayments of long-term debt are $4,610,000 in each of the five
years ending 1999.
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 $20,075,000 were
available for the payment of cash dividends at August 31, 1994.
The estimated fair value of the notes payable was approximately
$42,550,000. 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 $6,668,000.
3. TAXES ON INCOME
Income taxes on a continuing operations basis are as follows:
1994 1993 1992
---- ---- ----
Current:
Federal $ 4,450,000 $ 4,278,000 $ 1,853,000
State and local 800,000 700,000 400,000
----------- ----------- -----------
Total $ 5,250,000 $ 4,978,000 $ 2,253,000
Deferred 800,000 (278,000) (1,014,000)
----------- ----------- -----------
Total taxes on income $ 6,050,000 $ 4,700,000 $ 1,239,000
=========== =========== ===========
Federal income taxes include foreign income taxes of ($32,000) in 1994,
$8,000 in 1993, and $103,000 in 1992. The foreign pretax loss amounted to
($845,000) in 1994, ($268,000) in 1993, and ($62,000) in 1992.
A reconciliation of income taxes computed using the U.S. federal statutory
rate to the provision for federal income taxes follows:
1994 1993 1992
---- ---- ----
Computed at U.S. statutory rate $5,620,000 $ 4,510,000 $ 482,000
State and local taxes 520,000 462,000 264,000
Goodwill amortization and write-offs 68,000 60,000 836,000
Foreign income taxes 264,000 98,000 124,000
Research tax credit (224,000) (258,000) (299,000)
Other (198,000) (172,000) (168,000)
---------- ----------- ----------
Total taxes on income $6,050,000 $4,700,000 $1,239,000
========== ========== ==========
F-9
10
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:
1994 1993 1992
---- ---- ----
Depreciation $(229,000) $ 144,000 $ (292,000)
Employee benefits 496,000 (10,000) (8,000)
Inventory related 67,000 (39,000) (408,000)
Accounts receivable allowances - (134,000) (119,000)
Tax credit carryforwards 567,000 (270,000) -
Other (101,000) 31,000 (187,000)
--------- ----------- -----------
Total deferred $800,000 ($278,000) ($1,014,000)
======== ========= ===========
Deferred tax (assets) liabilities are comprised of the following:
1994 1993
---- ----
Inventory related ($ 807,000) ($ 870,000)
Accrued expenses (707,000) (499,000)
Employee benefits - (384,000)
Accounts receivable allowances (259,000) (263,000)
Research tax credit carryforwards - (370,000)
Other (14,000) (49,000)
----------- -----------
Gross deferred tax assets ($1,787,000) ($2,435,000)
----------- -----------
Depreciation $1,148,000 $1,378,000
Employee benefits 111,000 -
Other 271,000 -
----------- -----------
Gross deferred tax liabilities $1,530,000 $1,378,000
----------- -----------
Net deferred tax assets ($ 257,000) ($1,057,000)
============ ===========
In February 1992, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," effective as of
September 1, 1991. The Statement requires use of the asset and liability
method of accounting for income taxes rather than the deferral method
previously used. The cumulative effect of this accounting change in 1992
was to increase net earnings by $300,000 or $.03 per share.
4. RETIREMENT PLANS
PENSION PLANS
The Company has defined benefit retirement plans covering a portion of its
domestic employees. The net pension credit for company-sponsored plans
amounted to $864,000, $286,000, and $582,000 in fiscal 1994, 1993 and
1992, respectively. The Company also contributes certain amounts per
labor hour to union pension funds. Such contributions amounted to
$427,000 in 1994, $383,000 in 1993, and $356,000 in 1992.
Net pension credit from the Company's defined benefit plans included the
following components:
1994 1993 1992
---- ---- ----
Service cost $ 187,000 $ 241,000 $ 184,000
Interest on projected benefit obligations 544,000 540,000 512,000
Actual return on plan assets (4,000) (909,000) (1,156,000)
Net amortization and deferral (1,225,000) (219,000) 33,000
---------- --------- ----------
Net pension credit ($ 498,000) ($ 347,000) ($ 427,000)
========== ========== ===========
The Company incurred a pension curtailment gain of $366,000 in connection
with the sale of its Du-Al division.
F-10
11
The following table sets forth the plans' funded status and prepaid
pension cost at August 31:
1994 1993
---- ----
Vested benefit obligation $ 6,038,000 $ 6,651,000
=========== ===========
Accumulated benefit obligation $ 6,059,000 $ 6,715,000
=========== ===========
Plan assets at fair value (principally listed
stocks and bonds) $11,429,000 $11,804,000
Projected benefit obligation (7,024,000) (8,337,000)
----------- -----------
Excess of assets over projected benefit obligation $ 4,405,000 $ 3,467,000
Unrecognized net (gain) loss:
From excess funding at implementation of SFAS 87 (1,363,000) (1,614,000)
Other 1,162,000 1,487,000
----------- -----------
Prepaid pension cost $ 4,204,000 $ 3,340,000
=========== ===========
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
ranging from 6.75% to 7% in 1993. The decrease in the accumulated benefit
obligation from 1994 to 1993 was primarily due to the increase in discount
rates. The assumed rate of return on assets was 9%, and rates of increase
in future compensation levels ranged from 5.5% to 6.5%.
F-11
12
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.
The Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective as of September 1,
1991. The Statement requires accounting for postretirement benefits on an
accrual basis which necessitates measurement of the obligation to provide
future benefits and accrual of the cost during the years that employees
provide service. The Company elected to record a one-time charge to
recognize its accumulated postretirement benefit obligation. The
cumulative effect of this accounting change was to decrease 1992 earnings
by $1,974,000 (net of a tax benefit of $1,018,000) or $.20 per share.
Net periodic postretirement benefit cost included the following components:
1994 1993
---- ----
Service cost - benefits attributed to service during the period $ 49,000 $ 63,000
Interest cost on accumulated postretirement benefit obligation 260,000 251,000
-------- --------
Net periodic postretirement benefit cost $309,000 $314,000
======== ========
The Company's postretirement plans are not funded. The status of the
plans at August 31 follows:
1994 1993
---- ----
Accumulated postretirement benefit obligation
Retirees $2,542,000 $2,162,000
Fully eligible and other active participants 524,000 1,300,000
---------- ----------
Total $3,066,000 $3,462,000
Unrecognized loss (158,000) (272,000)
---------- ----------
Total accrued postretirement benefits $2,908,000 $3,190,000
========== ==========
For measurement purposes, a 12.2% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1994. 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, 1994 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 2.8%.
The weighted-average discount rates used in determining the accumulated
postretirement benefit obligation were 7.5% as of August 31, 1994. The
decrease in the accumulated postretirement benefit obligation from 1994 to
1993 was primarily due to amounts recognized for settlements and
curtailments. The assumed rate of future compensation levels was 6.5%.
Cash expenditures for postretirement benefits were $216,000 in 1994,
$214,000 in 1993, and $157,000 in 1992.
5. LEASES
The Company leases certain office and production facilities and equipment
under agreements expiring from 1995 through 2006. Several of the lease
commitments contain renewal and/or purchase options exercisable at the end
of the lease terms.
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, 1994:
F-12
13
Year ending August 31:
1995 $1,190,000
1996 1,250,000
1997 1,070,000
1998 510,000
1999 500,000
Later years 650,000
----------
Total minimum payments required $5,170,000
==========
The rental expense for all operating leases was $1,370,000, $1,420,000,
and $1,845,000, for the years ended August 31, 1994, 1993 and 1992,
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 all remained outstanding at August 31, 1994.
Vesting of most of the shares over the first three years following grant
is dependent upon accelerated 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, 1994, for 149,900 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 4,500 and 2,000 shares were exercised
in 1994 and 1993, respectively, and options for 8,900 shares expired in
1994.
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 42,908 shares
($6.19 per share) were granted in 1994 and 1993, respectively. All remain
outstanding as of August 31, 1994, leaving 122,725 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, 1993 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 1993
awarded 6,594 and 20,702 shares of common stock, respectively, to key
employees of the Company. The stock awarded in 1993 cannot be sold for
three years and the employees must remain employed with the Company until
September 1, 1996 to retain the stock.
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 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
Effective December 1, 1993 the Company purchased the grain drill business
of Best Manufacturing, and effective April 1, 1994 purchased Hendrix Steel
& Fabricating, Inc., a fabricator of strainers and other
F-13
14
specialty flow control products. 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.
The total cost of the above acquisitions was approximately $3,370,000,
including a five year note payable at $550,000.
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
Effective February 29, 1992, the Company adopted a formal plan to divest
three major electronics-related subsidiaries. The three businesses,
Anilam Electronics, FlexStar and Hilton Industries, produced machine tool
controls, disk-drive test equipment, and tantalum capacitors. These
subsidiaries represented separate lines of business and served separate
customers and are accounted for as discontinued operations. Appropriate
provisions were recorded for (a) the estimated losses of the discontinued
operations through their expected disposal dates, (b) reduction of assets
to their net realizable values, and (c) the anticipated liabilities
relating to the disposals. The total provision amounted to $20,859,000,
net of income tax benefits of $7,315,000. Although there was a change in
the individual components of the provision from the original estimate, in
aggregate the provision was appropriate.
11. WRITE-OFF OF INTANGIBLES
In 1992 the Company recorded a special charge of $2,721,000 (net of tax)
to write-off that portion of the excess of cost over net assets of
companies acquired considered to be not realizable as a result of
management's reassessment of the strategic direction of the Company.
F-14
15
12. PRODUCT SEGMENT INFORMATION
The Company groups its products and services into three segments.
Financial information by segment is summarized below (based upon
continuing operations before cumulative effects of accounting changes).
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
------ ------------ ------------ ----- ------------
(a)
Year ended August 31, 1994:
Electronics $ 56,580 $2,237 $2,011 $102,422 $ 7,923
Farm equipment 34,077 1,073 693 38,287 7,257
Fluid controls
and construction products 44,598 1,610 2,351 78,745 8,624
Corporate unallocated 21,112 115 127 - (3,178)
Interest expense - - - - (4,570)
-------- ------ ------ -------- -------
Total $156,367 $5,035 $5,182 $219,454 $16,056
======== ====== ====== ======== =======
Year ended August 31, 1993:
Electronics $ 59,085 $2,443 $1,937 $ 92,668 $ 6,787
Farm equipment 37,912 687 801 41,471 5,942
Fluid controls
and construction products 48,782 1,734 2,328 72,907 9,400
Corporate unallocated 5,498 66 83 - (3,773)
Interest expense - - - - (5,091)
-------- ------ ------ -------- -------
Total $151,277 $4,930 $5,149 $207,046 $13,265
======== ====== ====== ======== =======
Year ended August 31, 1992:
Electronics $ 52,124 $1,784 $2,239 $ 79,380 $ 3,781
Farm equipment 39,264 589 817 31,755 2,834
Fluid controls
and construction products 53,044 3,900 2,350 72,599 5,365
Corporate unallocated 5,654 127 139 - (4,386)
Discontinued operations 6,497 - - - -
Interest expense - - - - (6,175)
-------- ------ ------ -------- -------
Total $156,583 $6,400 $5,545 $183,734 $ 1,419
======== ====== ====== ======== =======
(a) Fiscal 1992 results include pretax charges of $2,721,000 from write-off of
intangibles and $5,626,000 from other charges associated with management's
reassessment of the strategic direction of the Company. These charges are
assignable to the Company's segments as follows: Electronics, $2,734,000;
Farm Equipment, $320,000; Fluid Controls and Construction Products,
$3,833,000; and Corporate unallocated, $1,460,000.
F-15
16
13. QUARTERLY SALES AND EARNINGS SUMMARY (UNAUDITED)
Net
Cost Net Earnings
Net Sales of Sales Earnings Per Share
--------------------------------------------------------------
(In Thousands)
---------------------------------------------
FISCAL 1994
First Quarter $ 54,008 $ 38,288 $2,908 $ .30 (A)
Second Quarter 49,594 34,565 2,143 .22
Third Quarter 60,578 43,187 2,446 .25
Fourth Quarter 55,274 38,238 2,509 .25
--------- --------- --------- ------
Total Year $219,454 $154,278 $10,006 $1.02
======== ======== ======= =====
FISCAL 1993
First Quarter $ 46,084 $ 31,537 $1,626 $ .17
Second Quarter 46,875 32,271 1,761 .18
Third Quarter 56,484 40,262 2,245 .23
Fourth Quarter 57,603 40,591 2,933 .30 (B)
--------- --------- --------- ------
Total Year $207,046 $144,661 $8,565 $ .88
======== ======== ======= =====
(A) Includes pretax gain of $.09 per share related to sale of Du-Al division.
(B) Includes pretax gain of $.03 per share related to a litigation settlement.
F-16