1
EXHIBIT 13(e)
XXXXXXXX INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------------------------------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT F-1 and F-2
CONSOLIDATED FINANCIAL STATEMENTS OF XXXXXXXX INDUSTRIES, INC.
AND SUBSIDIARIES AS OF JUNE 30, 1995 AND 1994 AND FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED JUNE 30, 1995:
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6 and F-7
Notes to Consolidated Financial Statements F-8 to F-25
FINANCIAL STATEMENT SCHEDULES
Xxxxxxxx Industries, Inc. and Subsidiaries
Schedule I - Condensed Financial Information of Registrant S-1 to S-4
Schedule II - Valuation and Qualifying Accounts S-5
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Xxxxxxxx Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Xxxxxxxx
Industries, Inc. and subsidiaries (the "Company") as of June 30, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1995. Our
audits also included the financial statement schedules listed in the Table of
Contents. 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 financial position of Xxxxxxxx Industries, Inc. and
subsidiaries at June 30, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1995
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 Note 4 to the consolidated financial statements, the Company is
involved in litigation relating to a steel fabricating facility which had been
operated prior to its close in 1981 by a former subsidiary of the Company. In
June 1995, the Company accrued an estimate of certain amounts which it may
incur in connection with the final resolution of the dispute; however, the
ultimate outcome of the litigation cannot presently be determined.
F -1
3
As discussed in Note 2 to the consolidated financial statements, through
December 31, 1994 the consolidated financial statements include the Company's
investment in and equity in earnings of its affiliate, Jupiter National, Inc.
("Jupiter"). In January 1995, the Company increased its ownership interest in
Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became
a consolidated, majority owned subsidiary of the Company in January 1995.
As of and for the year ended June 30, 1995, $19,892,000 of the Company's
investments and $2,455,000 of the Company's earnings related to security values
estimated by Jupiter's Board of Directors in the absence of readily
ascertainable market values. As of June 30, 1994 and for the years ended June
30, 1994 and 1993, a portion of the Company's investment in Jupiter
($9,074,000) and the Company's interest in the earnings (losses) of Jupiter
[$1,091,000 and $(582,000), respectively] related to security values estimated
by Jupiter's Board of Directors in the absence of readily ascertainable market
values. We have reviewed the procedures used in arriving at the estimates of
value of such securities and have inspected underlying documentation and, in
the circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, because of the inherent uncertainty of
valuation, those estimated values may differ significantly from the values that
would have been used had a ready market for Jupiter's investment securities
existed, and the difference could be material to the Company's consolidated
financial statements.
As discussed in Note 20 to the consolidated financial statements, on August 16,
1995, the Company announced an agreement to purchase for cash all publicly held
shares of Jupiter.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
August 18, 1995
F -2
4
XXXXXXXX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
ASSETS 1995 1994(a)
CURRENT ASSETS:
Cash and cash equivalents $ 9,456,000 $ 3,914,000
Marketable securities, at fair value 9,741,000
Accounts and notes receivable, net of allowance of
$1,113,000 and $368,000 43,333,000 18,152,000
Inventories 46,389,000 25,438,000
Prepaid expenses and other 1,892,000 1,330,000
-------------- --------------
Total current assets 110,811,000 48,834,000
INVESTMENTS - At market or fair value as determined
by directors 19,892,000
INVESTMENTS - At equity 4,174,000 21,036,000
PROPERTY, PLANT, AND EQUIPMENT - Net 114,309,000 65,354,000
INTANGIBLE ASSET - Pension 2,675,000 2,874,000
OTHER ASSETS 3,240,000 2,096,000
$ 255,101,000 $ 140,194,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994(a)
CURRENT LIABILITIES:
Short-term borrowings $ 6,800,000 $ 2,500,000
Current maturities of long-term debt 5,894,000 5,087,000
Accounts payable 19,692,000 6,410,000
Accrued expenses 13,084,000 7,372,000
Income taxes payable 1,219,000 806,000
Deferred income taxes 2,947,000 1,164,000
-------------- -------------
Total current liabilities 49,636,000 23,339,000
LONG-TERM DEBT 98,834,000 36,216,000
-------------- -------------
OTHER LIABILITIES 14,023,000 16,876,000
-------------- -------------
LONG-TERM DEFERRED INCOME TAXES 9,012,000 3,955,000
-------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 20,169,000
--------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; authorized,
3,000,000 shares; none issued
Common stock, par value $.10 per share; authorized,
20,000,000 shares; issued 12,426,891 and 12,411,891 1,243,000 1,241,000
Additional paid-in capital 17,258,000 17,107,000
Retained earnings 54,808,000 51,065,000
-------------- -------------
Total 73,309,000 69,413,000
Less treasury stock: 1,861,912 and 1,682,112 shares at cost (8,108,000) (6,407,000)
Less minimum pension liability adjustment, net of tax benefit (1,774,000) (3,198,000)
-------------- -------------
Stockholders' equity 63,427,000 59,808,000
-------------- -------------
$ 255,101,000 $ 140,194,000
============== =============
(a) The June 30, 1994 balances have been restated to reflect Jupiter National,
Inc. on an operating company basis as discussed in Note 2.
See notes to consolidated financial statements.
F-3
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XXXXXXXX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994(a) 1993(a)
NET SALES $263,327,000 $159,904,000 $154,074,000
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales, excluding depreciation and
amortization 209,598,000 121,261,000 120,933,000
Selling, general, and administrative 21,899,000 13,306,000 11,980,000
Depreciation and amortization 13,939,000 10,202,000 9,761,000
------------ ------------ ------------
Total costs and expenses 245,436,000 144,769,000 142,674,000
------------ ------------ ------------
INCOME FROM OPERATIONS 17,891,000 15,135,000 11,400,000
OTHER EXPENSE:
Interest expense - net 5,915,000 2,845,000 2,403,000
Other - net 1,509,000 590,000 491,000
------------ ------------ ------------
Total other expenses 7,424,000 3,435,000 2,894,000
------------ ------------ ------------
EQUITY IN EARNINGS (LOSSES)
OF EQUITY INVESTMENTS 1,000,000 (1,141,000) 5,093,000
REALIZED AND UNREALIZED
INVESTMENT PORTFOLIO GAIN 5,191,000
------------ ------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST 16,658,000 10,559,000 13,599,000
PROVISION FOR INCOME TAXES 7,083,000 4,064,000 5,185,000
------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 9,575,000 6,495,000 8,414,000
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY 1,700,000
------------ ------------ ------------
NET INCOME $ 7,875,000 $ 6,495,000 $ 8,414,000
============ ============ ============
EARNINGS PER SHARE $ .74 $ .60 $ .77
============ ============ ============
DIVIDENDS PER SHARE $ .39 $ .35 $ .32
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 10,697,339 10,850,141 10,931,781
============ ============ ============
(a) Income for the years ended June 30, 1994 and 1993 has been restated to
reflect the equity in earnings of Jupiter National, Inc. on an operating
company basis as discussed in Note 2.
See notes to consolidated financial statements.
F-4
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XXXXXXXX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
COMMON STOCK
--------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
BALANCE, JUNE 30, 1992 - As previously reported 12,178,422 $1,219,000 $15,938,000 $43,422,000
Adjustment for Jupiter National, Inc. restatement
(see Note 2) (160,000)
---------- ---------- ----------- -----------
BALANCE, JUNE 30, 1992 - As restated 12,178,422 1,219,000 15,938,000 43,262,000
Exercise of stock options 159,823 16,000 795,000
Purchase of treasury stock
Net income 8,414,000
Dividends paid ($.32 per share) (3,412,000)
---------- ---------- ----------- -----------
BALANCE, JUNE 30, 1993 12,338,245 1,235,000 16,733,000 48,264,000
Exercise of stock options 73,742 6,000 376,000
Purchase of fractional shares (96) (2,000)
Purchase of treasury stock
Net income 6,495,000
Dividends paid ($.35 per share) (3,694,000)
Minimum pension liability adjustment,
net of tax benefit of $1,957,000
---------- ---------- ----------- -----------
BALANCE, JUNE 30, 1994 12,411,891 1,241,000 17,107,000 51,065,000
Exercise of stock options 15,000 2,000 151,000
Purchase of treasury stock
Net income 7,875,000
Dividends paid ($.39 per share) (4,132,000)
Minimum pension liability adjustment,
net of taxes of $871,000
---------- ---------- ----------- -----------
BALANCE, JUNE 30, 1995 12,426,891 $1,243,000 $17,258,000 $54,808,000
========== ========== =========== ===========
TREASURY STOCK MINIMUM
------------------------- PENSION LIABILITY
SHARES AMOUNT ADJUSTMENT TOTAL
BALANCE, JUNE 30, 1992 - As previously reported 1,328,062 $(3,366,000) $57,213,000
Adjustment for Jupiter National, Inc. restatement
(see Note 2) (160,000)
--------- ------------ -----------
BALANCE, JUNE 30, 1992 - As restated 1,328,062 (3,366,000) 57,053,000
Exercise of stock options 811,000
Purchase of treasury stock 322,350 (2,693,000) (2,693,000)
Net income 8,414,000
Dividends paid ($.32 per share) (3,412,000)
--------- ------------ -----------
BALANCE, JUNE 30, 1993 1,650,412 (6,059,000) 60,173,000
Exercise of stock options 382,000
Purchase of fractional shares (2,000)
Purchase of treasury stock 31,700 (348,000) (348,000)
Net income 6,495,000
Dividends paid ($.35 per share) (3,694,000)
Minimum pension liability adjustment,
net of tax benefit of $1,957,000 $(3,198,000) (3,198,000)
--------- ------------ -----------
BALANCE, JUNE 30, 1994 1,682,112 (6,407,000) (3,198,000) 59,808,000
Exercise of stock options 153,000
Purchase of treasury stock 179,800 (1,701,000) (1,701,000)
Net income 7,875,000
Dividends paid ($.39 per share) (4,132,000)
Minimum pension liability adjustment,
net of taxes of $871,000 1,424,000 1,424,000
--------- ------------ ----------- -----------
BALANCE, JUNE 30, 1995 1,861,912 $ (8,108,000) $(1,774,000) $63,427,000
========= ============ =========== ===========
See notes to consolidated financial statements.
F-5
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XXXXXXXX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994(a) 1993(a)
OPERATING ACTIVITIES:
Net income $ 7,875,000 $ 6,495,000 $ 8,414,000
------------ ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 13,939,000 10,202,000 9,761,000
Provision for bad debts 89,000 151,000 383,000
Net realized and unrealized gain on portfolio (5,191,000)
investment
Undistributed (income) losses in investments (1,000,000) 1,141,000 (5,093,000)
Minority interest in income of consolidated 1,700,000
subsidiary
Changes in assets and liabilities:
Accounts and notes receivable (9,140,000) (2,563,000) (375,000)
Inventories 7,432,000 (2,244,000) (309,000)
Deferred income taxes 1,783,000 (50,000) (21,000)
Prepaid expenses and other assets 287,000 (566,000) 264,000
Accounts payable (1,014,000) (2,157,000) (4,133,000)
Accrued expenses 47,000 794,000 (27,000)
Income taxes payable (551,000) 168,000 113,000
Other liabilities 847,000 1,683,000 2,222,000
Other, net (34,000) 31,000 172,000
------------ ------------ ------------
Total adjustments 9,194,000 6,590,000 2,957,000
------------ ------------ ------------
Net cash provided by operating activities 17,069,000 13,085,000 11,371,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (21,983,000) (12,701,000) (10,381,000)
Unpaid capital expenditures 5,784,000 482,000 2,767,000
Increase in investments (3,254,000) (4,578,000) (2,034,000)
Repayments of loans by stockholders 5,383,000 341,000
Purchase of Jupiter, net of cash acquired 3,758,000
------------ ------------ ------------
Net cash used in investing activities (15,695,000) (11,414,000) (9,307,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Principal payments of debt (5,086,000) (4,022,000) (2,000,000)
Proceeds from issuance of long-term debt 12,634,000 13,325,000
Net borrowings (repayments) under line-of-credit 2,300,000 (7,500,000) 4,000,000
agreements
Purchase of treasury stock (1,701,000) (348,000) (2,693,000)
Proceeds from employee stock ownership plan 1,454,000
Proceeds from issuance of common stock 153,000 380,000 811,000
Dividends paid (4,132,000) (3,694,000) (3,412,000)
------------ ------------ ------------
Net cash provided by (used in) financing 4,168,000 (1,859,000) (1,840,000)
activities ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,542,000 (188,000) 224,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,914,000 4,102,000 3,878,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,456,000 $ 3,914,000 $ 4,102,000
============ ============ ============
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XXXXXXXX INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(CONTINUED)
1995 1994 1993
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $6,720,000 $2,962,000 $2,861,000
Income taxes $3,932,000 $2,908,000 $2,472,000
(a) Years ended June 30, 1994 and 1993 have been restated to reflect the equity
in earnings of Jupiter National, Inc. on an operating company basis as
discussed in Note 2.
See notes to consolidated financial statements.
F-7
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XXXXXXXX INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995 AND 1994 AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JUNE 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Xxxxxxxx Industries, Inc. ("Xxxxxxxx"), its wholly owned
subsidiaries, Southern Phenix Textiles, Inc. and Opp and Xxxxxxx Xxxxx,
Inc., its majority owned subsidiary, Jupiter National, Inc. ("Jupiter") and
Jupiter's wholly owned subsidiaries, Wellington Sears Company
("Wellington"), Pay Telephone America, Ltd., and Greater Washington
Investments, Inc. ("GWI") (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated.
Xxxxxxxx and its wholly owned subsidiaries and Wellington are diversified
manufacturers of textile fabrics used in the residential, industrial, and
to a lesser extent, apparel, and automotive marketplaces. Jupiter holds
venture capital portfolio investments in new and developing companies that
offer long-term growth prospects. GWI is a small business investment
company licensed under the Small Business Investment Act of 1958. Under
applicable Small Business Administration regulations, GWI is restricted to
investing only in qualified small business concerns contemplated by the
1958 Act, as amended, and such regulations. Total assets attributable to
the textile operations and to the venture capital operations as of June 30,
1995 are approximately $217.9 million and $37.2 million, respectively.
Fiscal Year-End - Xxxxxxxx has a fiscal year-end of June 30. However, the
operating subsidiaries have a fiscal year-end based on a 52/53 week
reporting period that ends on the Saturday closest to June 30. For the
fiscal years ended on June 30, 1995 and 1994, such operating subsidiaries'
fiscal years ended on July 1, 1995 and July 2, 1994, respectively.
Cash Equivalents - The Company classifies all highly liquid investments
with a maturity of three months or less as cash equivalents. Cash
equivalents held by GWI are required to be invested in securities of the
U.S. Government.
Inventories - The Company's inventories of finished goods, work-in-process,
and raw materials are stated at the lower of cost (using the last-in,
first-out cost flow assumption) or market. Supplies are stated at cost
determined on the first-in, first-out basis.
Property, Plant, and Equipment - Property, plant, and equipment is stated
at cost. Depreciation and amortization are computed principally by the use
of the straight-line method over the estimated useful service lives of
20-40 years for buildings, 20 years for improvements, and 3-20 years for
machinery and equipment.
Revenue Recognition - Revenue is generally recognized as products are
shipped to customers. When customers, under the terms of specific orders,
request that the Company manufacture and invoice goods on a bill and hold
basis, the Company recognizes revenue based on the completion date required
in the order and actual completion of the manufacturing process. At that
time, title and risks of ownership are
F-8
10
transferred to the customer. Accounts receivable included bill and hold
receivables of $9,150,000 and $3,736,000 at June 30, 1995 and 1994,
respectively.
Concentration of Credit Risk - The Company's accounts receivable are
generally unsecured and are liquidated based on cash flows generated by its
customers' operations.
Valuation of Investments - Portfolio investments held by Jupiter in
publicly traded entities are stated at market or fair value as determined
by quoted market prices and are reflected as marketable securities in the
accompanying balance sheet. Such investments expected to be sold within
the next 12 months are classified as current assets. Other portfolio
investments held by Jupiter are recorded at market or fair value as
determined in good faith by Jupiter's Board of Directors. Unrealized
appreciation (depreciation) is included as a component of net income.
There are restrictions on the disposition of most of the securities, and
values do not necessarily represent the amounts that may be realized from
their immediate sale or other disposition.
Investments in companies and joint ventures in which the Company has a 20%
to 50% interest are accounted for under the equity method. The investments
are recorded at cost and adjusted for the Company's share of earnings or
losses and cash distributions.
Recognition of Interest Income - Jupiter accrues interest on the principal
balance of notes outstanding considered to be collectible.
Gains or Losses on Securities Sold - Sales of securities by Jupiter are
recorded on the trade date (date the order to sell is executed). The cost
of securities sold is reported on the average cost basis for financial
statement purposes. Realized losses are recognized for securities whose
value is considered permanently impaired.
Income Taxes - In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes." Effective July 1, 1993, the Company adopted
SFAS 109 retroactively, and restated all prior years presented. Under SFAS
109, the Company determines income taxes for financial reporting purposes
using the asset and liability method. Under this method, deferred tax
assets and liabilities are established for temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled.
Earnings Per Share - Earnings per share are calculated based on the
weighted average number of common and common equivalent shares outstanding
during each respective fiscal year. Fully diluted earnings per share are
not presented because the difference from primary earnings per share is
insignificant for all periods presented.
Postretirement Benefits - On July 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 106 ("SFAS
106"), "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The impact of adoption of SFAS 106 was not material to the
Company's financial position or results of operations.
Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year presentation.
F-9
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Contributions Made - Statement of Financial Accounting Standards No. 116
("SFAS 116"), "Accounting for Contributions Received and Contributions
Made," establishes standards for accounting and reporting for contributions
received and made and is effective for fiscal years beginning after
December 15, 1994. The Company expects that there will be no material
effect upon implementing SFAS 116 on its financial position or results of
operations.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of -
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," establishes standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is effective for
fiscal years beginning after December 15, 1995. The Company expects that
there will be no material effect upon implementing SFAS 121 on its
financial position or results of operations.
2. JUPITER NATIONAL, INC.
In January 1995, the Company purchased an additional 89,300 shares of
Jupiter for approximately $2,300,000 which increased the Company's
ownership interest in the outstanding shares of Jupiter from 49.6% at
December 31, 1994 to 54.2%. As a result, Jupiter became a consolidated,
majority owned subsidiary of the Company in January 1995. Minority
interest is recorded for the minority shareholders' proportionate share of
the equity and earnings of Jupiter.
The following represents the results of operations on a pro forma basis
assuming Xxxxxxxx had owned 54.2% of Jupiter as of July 1, 1993. This pro
forma information is provided for informational purposes only. Such pro
forma information is based on historical information and is not necessarily
indicative of the actual results that would have been achieved had Xxxxxxxx
purchased the additional shares of Jupiter on July 1, 1993, nor is it
necessarily indicative of future results of operations (see Note 20).
YEAR ENDED JUNE 30,
-----------------------------------
1995 1994
Net sales $ 333,873,000 $ 290,572,000
Net income 8,117,000 6,371,000
Earnings per share .76 .59
The Company accounted for its investment in Jupiter using the equity method
through December 31, 1994. For the six months ended December 31, 1994 and
for the years ended June 30, 1994 and 1993, Xxxxxxxx recorded equity in the
changes in net assets of Jupiter of $1,308,000, $(161,000), and $5,982,000,
respectively.
As of and for the year ended June 30, 1995, $19,892,000 of the Company's
investments and $2,455,000 of the Company's earnings, respectively, relate
to security values estimated by Jupiter's Board of Directors. The Company'
equity in the net assets of Jupiter at June 30, 1994 was $18,701,000, which
included $9,074,000 of security values determined by Jupiter's Board of
Directors. For the years ended June 30, 1994 and 1993, $1,091,000 and
$(582,000), respectively, of the Company's equity in Jupiter's changes in
net assets was derived from net unrealized appreciation (depreciation) of
investments whose values have been estimated by Jupiter's Board of
Directors. The quoted market value of the Company's investment in Jupiter
was approximately $28,387,000 and $20,148,000 on June 30, 1995 and 1994,
respectively.
F-10
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Summarized financial information of Jupiter as of June 30, 1994 and for the
years ended June 30, 1994 and 1993 is as follows:
FINANCIAL POSITION
1994
Net current assets $ 27,186,000
Investments 22,218,000
Total assets 111,610,000
Long-term debt (including current portion) 54,766,000
Net assets 38,099,000
RESULTS OF OPERATIONS
1994 1993
Net sales $ 130,688,000 $ 77,499,000
Operating income 5,210,000 3,508,000
Net income 233,000 15,917,000
Through November 30, 1994, Jupiter was considered a closed-end venture
capital investment company that used specialized accounting policies
required for investment companies to determine the net asset value of its
portfolio of investments. Under these policies, securities with readily
available market quotations were valued at the current market price, and
all other investments were valued at fair value as determined in good faith
by Jupiter's Board of Directors using a formal portfolio valuation
procedure. Effective December 1, 1994, Xxxxxxx received approval from the
Securities and Exchange Commission to withdraw its election as a business
development company under the Investment Act of 1940. As a result,
majority owned operating companies are required to be recorded at
historical cost. This change to the historical cost basis for such
operating companies was effected through a retroactive change in accounting
method that resulted in a restatement of Xxxxxxxx'x and Jupiter's prior
financial statements through December 31, 1994. This retroactive change
did not have a material impact on Xxxxxxxx'x financial position or results
of operations.
The remaining nonoperating assets require periodic valuation of each
investment in Jupiter's consolidated portfolio to determine net asset value
as described above. As a result, effective January 1995, the Company's
proportionate share of the unrealized appreciation (depreciation) of
Jupiter's portfolio companies will be included as a separate line item in
the Company's income statement.
F-11
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The following summarizes the aggregate cost and market or fair value of the
portfolio investments as of June 30, 1995:
MARKET OR
COST FAIR VALUE
Marketable securities $ 1,575,000 $ 9,741,000
============= =============
Portfolio investments - long-term $ 15,426,000 $ 19,892,000
============= =============
These investments are principally comprised of subordinated notes,
preferred stock, and common stock of new and developing companies.
3. GREATER WASHINGTON INVESTMENTS, INC.
As discussed in Note 1, GWI is a small business investment company licensed
under the Small Business Investment Act of 1958. Summary financial
information for GWI consists of the following:
STATEMENT OF FINANCIAL POSITION
JUNE 30,
1995
Current assets $ 5,933,000
Portfolio investments, at fair value 23,951,000
Other assets 44,000
-------------
Total assets $ 29,928,000
=============
Current liabilities $ 325,000
Subordinated debentures 14,500,000
Deferred income taxes 2,677,000
-------------
Total liabilities 17,502,000
Shareholder's equity 12,426,000
-------------
Total liabilities and shareholder's equity $ 29,928,000
=============
F-12
14
STATEMENT OF OPERATIONS
FISCAL YEAR
ENDED JUNE 30,
1995
Operating income $ 1,485,000
Operating expenses (3,000)
Interest expense (1,155,000)
-------------
Net operating income 327,000
Realized gain on sale of investments 392,000
Provision for income taxes (2,371,000)
-------------
Net realized loss (1,652,000)
Increase in unrealized appreciation of investments 6,253,000
-------------
Results of operations $ 4,601,000
=============
4. STEEL FABRICATION OPERATIONS
The accompanying balance sheets as of June 30, 1995 and 1994 include
accruals of $8,363,000 and $7,903,000, respectively, for the remaining
costs expected to be incurred in phasing out the Company's steel
fabrication operations (see Notes 9 and 11). These costs are principally
related to health insurance and death benefits for former employees and are
stated at the actuarially determined discounted present value. These
operations were discontinued in 1981.
In February 1994, the operators of a steel fabricating facility filed a
complaint against a previous operator of the facility and a former
subsidiary of Xxxxxxxx which had operated the facility earlier before its
close in 1981. The complaint seeks to have the earlier operators bear the
response costs incurred in remediation of contamination at the plant site.
Such costs are alleged to be approximately $3,900,000; however, the Company
disputes such costs. The lawsuit is presently in the litigation process.
In June 1995, the Company established a reserve of $1,000,000 for costs
which it may incur in connection with the final resolution of the dispute.
In addition, the Company has established a reserve in the amount of
$200,000 as an estimate of potential legal and other costs to be incurred
in connection with defending this matter. Although management believes
that the accruals described above are sufficient to cover the estimated
costs of such matters, the ultimate outcome of the litigation cannot
presently be determined.
5. RELATED PARTY TRANSACTIONS
During 1992 and 1993, the Company made secured revolving loans to Redlaw
Industries, Inc. ("Redlaw"), a stockholder. As of June 30, 1993,
$5,524,000 was outstanding. In July 1993, principal and interest was paid
in full. An additional loan of $1,300,000 was made to Redlaw in October
1993 and interest and principal was paid in full in December 1993. All
loans bore interest at the Company's interest rate on its revolving credit
loan plus 1/2 of 1%.
F-13
15
In May 1994, Xxxxxx became the commissioned sales agent in Canada for sales
of textile products manufactured by the Company. The Company paid Redlaw
approximately $152,000 related to Xxxxxx's commissioned sales business for
the fiscal year ended June 30, 1995.
6. INVENTORIES
Inventories consist of the following at June 30, 1995 and 1994:
1995 1994
Finished goods $ 18,191,000 $ 11,585,000
Work-in-process 15,288,000 6,897,000
Raw materials and supplies 12,910,000 6,956,000
------------- -------------
$ 46,389,000 25,438,000
=============
Difference between LIFO carrying value and
current replacement cost (838,000)
-------------
Current replacement cost $ 24,600,000
=============
Although current replacement cost for inventories at June 30, 1994 was less
than last-in, first-out carrying value, the carrying value was recovered
through future sales which yielded normal profit margins. The excess of
replacement cost over the value of inventories based upon the LIFO method
was $4,107,000 at June 30, 1995.
7. EQUITY INVESTMENT
Tech Textiles, USA
During 1992, the Company entered into a 50%/50% partnership with an English
company to establish Tech Textiles, USA ("Tech Textiles") for the joint
manufacture and sale of certain specialized textile products. The
Company's investment in this entity was $4,174,000 and $2,335,000 at June
30, 1995 and 1994, respectively. Losses of $308,000, $980,000, and
$889,000, respectively, for the years ended June 30, 1995, 1994, and 1993
were recorded. Subsequent to year-end, the Company purchased the remaining
50% interest for a total cost of $655,000. Thus, Tech Textiles became a
consolidated, wholly owned subsidiary of the Company beginning in fiscal
1996.
Summarized financial information of Tech Textiles as of June 30, 1995 and
1994 is as follows:
1995 1994
FINANCIAL POSITION
Net current assets $ 2,365,000 $ 593,000
Total assets 4,559,000 2,662,000
Net assets 4,174,000 2,335,000
F-14
16
8. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at June 30, 1995 and
1994:
1995 1994
Land $ 1,373,000 $ 555,000
Buildings and improvements 33,671,000 19,422,000
Machinery and equipment 159,741,000 106,871,000
-------------- ---------------
194,785,000 126,848,000
Less accumulated depreciation and amortization (80,476,000) (61,494,000)
-------------- ---------------
Property, plant, and equipment - net $ 114,309,000 $ 65,354,000
============== ===============
9. ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 1995 and 1994:
1995 1994
Salaries, wages, and employee benefits $ 5,100,000 $ 2,821,000
Pension costs 2,148,000 1,697,000
Taxes, other than income taxes 1,459,000 1,276,000
Interest expense 507,000 41,000
Current estimated phase-out costs of steel
fabrication operations 2,000,000 1,000,000
Other 1,870,000 537,000
------------- ------------
$ 13,084,000 $ 7,372,000
============= ============
10. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS
Long-term debt and short-term borrowings consist of the following at June
30, 1995 and 1994:
1995 1994
XXXXXXXX
Short-term borrowings $ 6,800,000 $ 2,500,000
============= =============
Revolving credit loans $ 45,000,000 $ 35,000,000
Term notes payable 5,000,000
Purchase money mortgage loan 1,217,000 1,303,000
------------- -------------
46,217,000 41,303,000
JUPITER
Subordinated debentures 14,500,000
Securities loans 1,191,000
Other debt 933,000
-------------
16,624,000
F-15
17
1995 1994
WELLINGTON SEARS
Revolving credit loans $ 17,361,000
Term loan 19,687,000
Equipment loans 2,768,000
Amounts due former affiliates of Polylok 1,434,000
Installment and other loans 637,000
--------------
41,887,000
-------------- -------------
Total 104,728,000 41,303,000
Less current maturities (5,894,000) (5,087,000)
-------------- -------------
$ 98,834,000 $ 36,216,000
============== =============
The estimated fair value of long-term debt (including current maturities)
is $107,086,000 at June 30, 1995. Interest rates that are currently
available to the Company for issuance of debt with similar terms, credit
characteristics, and remaining maturities were used to estimate fair value
of long-term debt.
XXXXXXXX
Amended Credit Agreement - In January 1995, Xxxxxxxx amended and restated
its revolving credit agreement to increase the borrowings under its
revolving credit loans to $45,000,000 and to provide for $10,000,000 in
annually renewable lines of credit. Principal under the agreement is
payable in full no later than January 14, 1997. Interest is payable
quarterly at a variable rate which is the higher of the federal funds rate
plus 1/2 of 1% or the prime rate (7.5% at June 30, 1995 and 1994). A
commitment fee of 1/2 of 1% on the unused portion of the revolving credit
facility is payable annually. Borrowings under the lines of credit bear
interest at the higher of the federal funds rate plus 1/2 of 1% or the
prime rate. At June 30, 1995, there were borrowings of $6,800,000 under
the lines of credit, and the interest rate under these borrowings was 9%.
All machinery, equipment, inventory, and receivables of Xxxxxxxx and its
wholly owned subsidiaries are pledged as collateral under the Amended
Credit Agreement.
Terms Notes Payable - The term notes were payable to banks and bore
interest at the fixed rate of 8.75% per annum. In March 1995, such term
notes were paid in full.
Purchase Money Mortgage Loan - In connection with the purchase of a new
office building during 1994, Xxxxxxxx obtained a Purchase Money Mortgage
Loan of $1,325,000. At June 30, 1995, borrowings outstanding under this
loan were $1,217,000. Borrowings under this loan accrue interest at the
lesser of: (1) 30-day adjustable, 60-day adjustable, or 90-day adjustable
LIBOR rate plus 2.70% or (2) the prime rate. The interest rate on this
loan was 8.75% at June 30, 1995. Beginning on March 31, 1994, Xxxxxxxx was
obligated to make 58 consecutive quarterly payments of principal of $21,667
plus interest, with all remaining principal and interest due on December
31, 2008. The new office building in Columbus, Georgia is pledged as
collateral under this loan agreement.
Covenants and Restrictions - The Amended Credit Agreement requires
Xxxxxxxx, among other things, to maintain certain financial ratios and
specified levels of working capital and tangible net worth, as defined.
The agreement also places a limit on Xxxxxxxx'x total borrowings to the
lower of $52,000,000,
F-16
18
Xxxxxxxx'x total stockholders' equity, or an amount computed using a
borrowing base formula. Additionally, Xxxxxxxx'x restricted investments,
defined to include guarantees and advances to affiliates, are limited to
the lesser of 20% of Xxxxxxxx'x total assets or $13,500,000 plus 50% of net
income for fiscal 1995, 1994, and 1993. This agreement also restricts
Xxxxxxxx'x ability to incur debt, buy or sell assets, pay dividends, and
issue or repurchase capital stock. Xxxxxxxx'x wholly owned subsidiaries
paid dividends of $15,952,000 to Xxxxxxxx during the year ended June 30,
1995.
JUPITER
Subordinated Debentures - The subordinated debentures, which relate to GWI,
are payable to the Small Business Administration ("SBA") and bear interest
at an effective weighted rate of 7.8% at June 30, 1995. Principal payments
are due as follows:
YEAR ENDING
JUNE 30, AMOUNT
1998 $ 2,500,000
2001 7,000,000
2003 5,000,000
-------------
$ 14,500,000
=============
The subordinated debentures contain restrictions on prepayments,
distributions to shareholders, and certain operating results. At June 30,
1995, GWI did not have available funds for distribution (equity of
$12,426,000) to its shareholder nor funds for the prepayment of its
debentures.
Securities Loans - At June 30, 1995, Xxxxxxx had borrowed $1,191,000 under
a brokerage margin account with average interest rates of 10%.
WELLINGTON
Revolving Credit Loans - In January 1995, Wellington amended its revolving
credit, term loan, and equipment loan agreement with a bank. The agreement
provides that Wellington may obtain revolving credit loans up to an
aggregate amount of the lesser of $24,000,000 or certain percentages of
accounts receivable and inventories through November 20, 1998, with an
automatic renewal for one year. Substantially all machinery, inventory,
and receivables of Wellington are pledged as collateral under such
borrowing agreement.
Wellington is also required to pay a commitment fee equal to 1/2 of 1% per
annum on the unused portion of the revolving credit facility. The unused
available line of credit at June 30, 1995 was approximately $4,770,000.
Interest is payable at the current prime rate plus 1% (10% at June 30,
1995). At June 30, 1995 and 1994, Wellington had outstanding letters of
credit of $400,000 and $350,000, respectively.
Term Loan - The amended agreement provides for a term loan of $21,000,00
payable in monthly installments of $218,735 through November 1998, at which
time the remaining unpaid balance is due. The term loan bears interest at
the current prime rate plus 1% (10% at June 30, 1995).
F-17
19
Equipment Loans - Through November 18, 1998, Wellington may borrow up to
$5,000,000 to finance the purchase of equipment. The principal amount is
payable in monthly installments of 1/96th of the loan balance from August
1995 through November 1998, when the remaining balance is due. The
equipment loans bear interest at the current prime rate plus 1% (10% at
June 30, 1995).
Covenants and Restrictions - The amended revolving credit, term loan, and
equipment loan agreement requires Wellington, among other things, to
maintain certain financial ratios and specified levels of working capital
and profitability, as defined. The agreement also restricts Wellington's
ability to incur debt, buy or sell assets, pay dividends, transfer assets
to its parent company for payment or settlement of debt, and issue or
repurchase capital stock. At June 30, 1995, Wellington did not have
available funds for distribution (equity of $29,722,000) to its
shareholder.
At certain times during the years ended June 30, 1995 and 1994, Wellington
was not in compliance with either its cash flow coverage ratio covenant or
debt coverage ratio covenant. These events of noncompliance were waived by
the lending institution in waivers dated September 27, 1994, November 21,
1994, and April 21, 1995.
Amounts Due Former Affiliates of Polylok - Amounts due former affiliates of
Polylok are primarily comprised of $1,434,000 due under a note payable
agreement and deferred compensation agreement with the former owner of
Polylok Corporation. Amounts are payable in equal quarterly installments
of $269,108 plus interest, which accrues at the prime interest rate (9% at
June 30, 1995).
During the year ended June 30, 1995, Wellington stopped making payments
under these agreements due to the former owner's failure to sign a debt
subordination agreement required by Wellington's lender (see Note 16). The
former owner has sued Wellington for performance under the agreements. The
principal and interest payments past due total $1,434,000 and $277,000,
respectively, at June 30, 1995.
Installment and Other Loans - Installment and other loans are comprised of
$527,000 due in September 1996 for the purchase of certain machinery and
equipment, and $110,000 borrowed to finance the construction of a new roof
in one of the Company's facilities. The principal under the roof loan is
payable in monthly installments of $7,340 through July 1996, at which time
all remaining amounts are due. Both loans are noninterest-bearing, and the
Company did not record any imputed interest.
DEBT MATURITIES - Aggregate scheduled repayments of long-term debt are
summarized as follows:
YEAR ENDING
JUNE 30, AMOUNT
1996 $ 5,894,000
1997 48,653,000
1998 5,584,000
1999 31,574,000
2000 and thereafter 13,023,000
---------------
$ 104,728,000
===============
F-18
20
11. OTHER LIABILITIES
Other liabilities consist of the following at June 30, 1995 and 1994:
1995 1994
Long-term portion of estimated phase-out costs
of steel fabrication operations $ 6,363,000 $ 6,903,000
Additional pension liability (see Note 17) 5,534,000 8,029,000
Other 2,653,000 1,944,000
------------- -------------
$ 14,550,000 $ 16,876,000
============= =============
12. COMMON STOCK
On November 1, 1993, the Board of Directors approved a three-for-two stock
split, whereby shareholders of record on January 4, 1994 were entitled to
one additional share of common stock for every two shares held, payable on
January 24, 1994. Stock options, treasury stock, outstanding common stock,
and per share data have been retroactively adjusted to reflect the split.
On February 1, 1993, Xxxxxxxx purchased 294,000 shares of its stock at
$8.50 per share from GRM Industries, Inc., a subsidiary of Redlaw.
13. STOCK OPTION PLANS
Employees' Stock Incentive Plan - Xxxxxxxx has a Stock Incentive Plan for
Key Employees under which Xxxxxxxx may xxxxx incentive stock options,
nonqualified stock options, stock appreciation rights, and restricted
stock. Stock appreciation rights may only be granted in conjunction with
nonqualified stock options. The maximum number of common shares which
could be issued upon exercise of options or through awards granted under
this plan is 2,358,450. Incentive stock options granted under the plan are
exercisable, on a cumulative basis, at a rate of 25% each year, beginning
one year after the date of grant. Nonqualified stock options are
exercisable beginning six months after the date of grant.
A summary of employee stock option activity for the three years ended June
30, 1995 is as follows:
NON- INCENTIVE
QUALIFIED STOCK EXERCISE
OPTIONS OPTIONS TOTAL PRICE
Options outstanding at June 30, 1992 371,362 57,204 428,566 $2.37 - $5.55
Options granted 213,750 213,750 6.85 - 10.17
Options exercised (107,438) (52,386) (159,824) 2.37 - 3.22
-------- ------- --------
Options outstanding at June 30, 1993 477,674 4,818 482,492 3.22 - 10.17
Options exercised (68,924) (4,818) (73,742) 2.37 - 3.22
-------- ------- --------
Options outstanding at June 30, 1994 408,750 - 408,750 2.37 - 10.17
Options exercised (15,000) (15,000) 3.22
-------- ------- --------
Options outstanding at June 30, 1995 393,750 - 393,750 5.55 - 10.17
======== ======= ========
Options available for grant at June 855,000
30, 1995 ========
F-19
21
At June 30, 1995, approximately 341,250 of the outstanding options are
exercisable.
Compensation expense is recognized when nonqualified stock options are
granted at prices which are less than market value on the date of grant.
Compensation expense is also recognized on stock appreciation rights based
on the change in market price from the xxxxx xxxxx. Compensation expense
relating to the Xxxxxxxx'x Employee Stock Incentive Plan for employees was
$3,000 during the year ended June 30, 1993. No compensation expense was
recognized in 1995 and 1994.
Other Stock Option Agreement - During 1991, Xxxxxxxx entered into a
nonqualified stock option agreement with a director under which the
director was granted options to purchase a maximum of 22,500 shares of
Xxxxxxxx'x common stock. The options are exercisable at $3.22 per share.
Jupiter Stock Option Plans - Jupiter has an employee stock option plan and
a director stock option plan under which options have been granted to
purchase 428,220 shares of Jupiter common stock at prices ranging from
$3.62 to $28.75. At June 30, 1995, approximately 302,000 of the options
are exercisable.
In connection with Xxxxxxxx'x planned acquisition of the remaining publicly
held shares of Jupiter (see Note 20), these options are expected to be
redeemed by Xxxxxxxx.
14. EMPLOYEE STOCK PURCHASE PLAN
On October 15, 1990, Xxxxxxxx adopted an Employee Stock Purchase Plan under
which selected eligible key employees and directors of Xxxxxxxx were
granted the opportunity to purchase shares of Xxxxxxxx'x common stock.
Through June 30, 1995, 900,209 shares of Xxxxxxxx'x stock have been
purchased at market prices by employees and directors under the plan.
At June 30, 1995, the Company has guaranteed plan participants' bank
borrowings totaling approximately $7,088,000.
15. INCOME TAXES
The Company adopted SFAS 109 effective July 1, 1993 and has applied the
provisions of such statement retroactively to July 1, 1988. Accordingly,
the consolidated financial statements have been restated to comply with the
provisions of SFAS 109.
The effect of the retroactive restatement on stockholders' equity at July
1, 1991 was a reduction of $418,000. The impact of applying SFAS 109 on
net income and earnings per share for the year ended June 30, 1993 was a
reduction of $352,000 and $.03, respectively.
F-20
22
The provision for income taxes is comprised of the following for each of
the three years in the period ended June 30, 1995:
1995 1994 1993
Federal:
Current $ 2,834,000 $ 2,604,000 $ 2,185,000
Deferred 3,276,000 810,000 2,191,000
------------ ------------ ------------
6,110,000 3,414,000 4,376,000
------------ ------------ ------------
State:
Current 552,000 689,000 392,000
Deferred 421,000 (39,000) 417,000
------------ ------------ ------------
973,000 650,000 809,000
------------ ------------ ------------
Provision for income taxes $ 7,083,000 $ 4,064,000 $ 5,185,000
============ ============ ============
The significant components of deferred income tax assets and liabilities at
June 30, 1995 and 1994 are as follows:
1995 1994
Deferred tax assets:
Estimated phase-out costs of steel fabrication operations $ 3,174,000 $ 3,000,000
Alternative minimum tax 1,949,000 678,000
Additional pension liabilities 1,086,000 1,957,000
Other - net 2,413,000 1,570,000
-------------- --------------
8,622,000 7,205,000
-------------- --------------
Deferred tax liabilities:
Unrealized appreciation - investments (5,012,000)
Inventories (2,365,000) (2,235,000)
Investments - at equity (in consolidated affiliates) (2,916,000) (1,742,000)
Property, plant, and equipment (10,288,000) (8,347,000)
-------------- --------------
(20,581,000) (12,324,000)
-------------- --------------
Net deferred tax liability $ (11,959,000) $ (5,119,000)
============== ==============
Net current deferred tax liability $ (2,947,000) $ (1,164,000)
Net long-term deferred tax liability (9,012,000) (3,955,000)
-------------- --------------
$ (11,959,000) $ (5,119,000)
============== ==============
Net deferred tax liabilities are classified in the financial statements as
current or long-term depending upon the classification of the temporary
difference to which they relate.
F-21
23
The reconciliation of the Company's effective income tax rate to the
federal statutory rate of 34% for the three years ended June 30, 1995,
1994, and 1993 follows:
1995 1994 1993
Federal income taxes at statutory rate $ 5,664,000 $ 3,590,000 $ 4,624,000
State income taxes, net of federal tax benefit 746,000 429,000 533,000
Equity in income of majority owned subsidiary 607,000
Impact of purchase accounting adjustments (61,000)
Other, net 66,000 45,000 89,000
------------ ------------ ------------
$ 7,083,000 $ 4,064,000 $ 5,185,000
============ ============ ============
Effective rate 42.5% 38.5% 38.1%
===== ===== =====
At June 30, 1995, the Company has alternative minimum tax credit
carryforwards of approximately $1,949,000 which have been recorded as an
asset and are included in the long-term deferred taxes payable account.
The Company presently believes that realization of these carryforwards is
more likely than not and as such has not established any valuation
allowance against this asset.
16. COMMITMENTS AND CONTINGENCIES
On March 3, 1995, Polylok Corporation and its majority shareholder
commenced an action against Jupiter and Wellington in the United States
District Court for the Eastern district of North Carolina. The action
arises from the sale of the former Polylok plant located at Tarboro, North
Carolina to Wellington's predecessor (JPI Development Corporation). The
majority shareholder asserted claims against Jupiter and Wellington for
breach of contract and anticipatory breach of contract relating to
installment payments due to such majority shareholder under a $1.6 million
note.
Jupiter and Wellington have filed counterclaims against Polylok and the
majority shareholder for breach of the majority shareholder consultancy
agreement and breach of the settlement of prior litigation between the
parties relating to the plant sale. They have alleged that the majority
shareholder has breached the consultancy agreement by refusing to
subordinate his note to lender financing for Wellington which now operates
the former Polylok plant.
The case is scheduled for trial on or after November 6, 1995. The majority
shareholder has filed motions for summary judgment on his claims for
installment payments amounting to approximately $900,000. Xxxxxxx and
Wellington have vigorously defended against the majority shareholder's
motions. Since this case is in its preliminary stages, the eventual
outcome cannot be predicted with reasonable accuracy.
The Company is periodically involved in legal proceedings arising out of
the ordinary conduct of its business. Management does not expect that they
will have a material adverse effect on the Company's consolidated financial
position or results of operations.
Lease Commitments - Rent expense under operating leases covering production
equipment and office facilities was $791,000 in 1995, $785,000 in 1994, and
$1,100,000 in 1993.
F-22
24
At June 30, 1995, the Company is committed to pay the following minimum
rental payments on noncancelable operating leases:
YEAR ENDING
JUNE 30, AMOUNT
1996 $ 587,000
1997 471,000
1998 257,000
1999 37,000
2000 and thereafter 22,000
------------
$ 1,374,000
============
Other Commitments - The Company has employment contracts with certain of
its employees extending through 1999 aggregating $4,939,000.
The Company has purchase commitments as of June 30, 1995 with several
vendors to buy inventory with terms in excess of one year aggregating
approximately $13,707,000.
The Company also has capital commitments as of June 30, 1995 with several
vendors for the purchase of machinery and equipment with terms extending
over one year aggregating approximately $8,031,000.
17. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans - Xxxxxxxx has two noncontributory defined
benefit pension plans covering substantially all hourly and salaried
employees. The plan covering salaried employees provides benefit payments
based on years of service and the employees' final average ten years'
earnings. The plan covering hourly employees generally provides benefits
of stated amounts for each year of service. Xxxxxxxx'x current policy is
to fund retirement plans in an amount that falls between the minimum
contribution required by ERISA and the maximum tax deductible contribution.
Plan assets consist primarily of bonds, convertible securities, growth
equity securities, cash and cash equivalents, and unallocated insurance
contracts.
The provisions of Financial Accounting Standards Board Statement No. 87
("SFAS 87"), "Employers' Accounting for Pensions" require recognition in
the balance sheet of an additional minimum liability and related intangible
asset for pension plans with accumulated benefits in excess of plan assets.
At June 30, 1995 and 1994, an additional liability of $5,534,000 and
$8,029,000, respectively, is reflected in the consolidated balance sheets.
At June 30, 1995 and 1994, the liability exceeded the unrecognized prior
service cost resulting in a minimum pension liability, net of taxes, of
$1,774,000 and $3,198,000, respectively, recorded as a reduction of the
Company's equity.
F-23
25
Net periodic pension cost for 1995, 1994, and 1993 was $2,342,000,
$2,205,000, and $1,815,000, respectively, and included the following
components:
1995 1994 1993
Service cost $ 953,000 $ 1,010,000 $ 824,000
Interest cost 1,999,000 1,829,000 1,729,000
Actual (return) loss on assets (2,460,000) 395,000 (1,202,000)
Net amortization and deferral 1,850,000 (1,029,000) 464,000
------------ ------------ ------------
Net periodic pension cost $ 2,342,000 $ 2,205,000 $ 1,815,000
============ ============ ============
The following sets forth the funded status of the plans at June 30, 1995
and 1994:
1995 1994
Actuarial present value of benefit obligations:
Vested benefit obligation $ 25,280,000 $ 24,784,000
Nonvested benefit obligation 729,000 464,000
------------- -------------
Accumulated benefit obligation $ 26,009,000 $ 25,248,000
============= =============
Projected benefit obligation $ 27,798,000 $ 27,048,000
Plan assets at fair value 19,013,000 15,769,000
------------- -------------
Projected benefit obligation in excess of plan assets $ 8,785,000 $ 11,279,000
============= =============
Unrecognized prior service cost $ 590,000 $ 491,000
Unrecognized net loss 4,649,000 6,956,000
Unrecognized net liability at date of initial adoption 2,084,000 2,382,000
Pension liability recognized 1,462,000 1,450,000
------------- -------------
Total $ 8,785,000 $ 11,279,000
============= =============
For the salaried and hourly plans, the weighted average discount rate used
in determining the projected benefit obligation was 8% in 1995 and 7.5% in
1994, and the rate of increase in future compensation levels was graded by
age from 7.5% to an ultimate rate of 4% for 1995 and was a flat rate of 6%
for 1994. The expected long-term rate of return on plan assets was 8% for
1995 and 1994 for both plans.
Defined Contribution Plans - Through December 31, 1994, Xxxxxxx maintained
a defined contribution employee pension plan for substantially all
employees to which it made annual contributions of 10% of compensation,
subject to a $30,000 individual annual limitation. A portion of the plan's
assets was invested in Jupiter's common stock. At June 30, 1995, 7,554
Jupiter shares were owned by the plan. During August 1995, Xxxxxxx
received a favorable determination letter from the Internal Revenue Service
to terminate the plan, effective December 31, 1994. Accordingly, the plan
assets were distributed to the participants during August 1995.
Wellington has a defined contribution savings plan that covers
substantially all full-time Wellington employees who qualify as to age and
length of service. Wellington may make discretionary contributions to the
plan. Wellington made contributions of $286,000 for the year ended June
30, 1995.
F-24
26
18. MAJOR CUSTOMERS
Net sales to a major customer of the Company comprised 6%, 11%, and 10% of
net sales for the years ended June 30, 1995, 1994, and 1993, respectively.
Another major customer, who acts as a distributor for the Company,
comprised 5%, 9%, and 9%, of net sales for the years ended June 30, 1995,
1994, and 1993, respectively.
19. TRUST AGREEMENTS
During 1991 and 1993, the Company entered into trust agreements with
officers to transfer assets to trusts in lieu of paying annual bonuses and
consulting fees. These trust assets, which are included in "Other Assets"
on the consolidated balance sheets and are recorded at the fair market
value of the underlying assets, include corporate stocks including equity
securities of affiliated companies, corporate bonds including debt
securities of affiliated companies, and short-term investments. The
compensation to the officers is determined in accordance with the trust
agreements. Upon termination of the officers' employment with the Company,
the trust assets will be distributed to the officers. If the Company
becomes insolvent at any time before the assets of the trust are
distributed to the officers, the trust assets may be used to satisfy the
claims of the Company's creditors. As of June 30, 1995 and 1994, the trust
assets and corresponding liabilities each totaled $1,061,000 and
$1,005,000, respectively.
20. SUBSEQUENT EVENT
On August 16, 1995, Xxxxxxxx jointly announced with Jupiter an agreement
and plan of merger under which the public shareholders of Jupiter would
receive $32.875 per share in cash from Xxxxxxxx. The per share cash price
is subject to adjustment based upon the market value of certain securities
held by Jupiter on a date close to the date the merger proxy statement is
mailed to Jupiter shareholders. If this adjustment had been made as of the
close of business on August 15, 1995, the amount to be paid by Xxxxxxxx
would have been $31.593 per share or approximately $37,500,000. The merger
is subject to approval by Jupiter's shareholders and is expected to close
in December 1995.
F-25
27
FINANCIAL STATEMENT SCHEDULES
(See Independent Auditors' Report on Page F-1 and F-2)
28
XXXXXXXX INDUSTRIES, INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
JUNE 30, 1995 AND 1994
ASSETS 1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 2,979,000 $ 3,681,000
Prepaid expenses and other 469,000 522,000
Deferred income taxes 788,000
------------ -------------
Total current assets 4,236,000 4,203,000
INVESTMENT IN WHOLLY OWNED CONSOLIDATED
SUBSIDIARIES - At equity 95,705,000 92,116,000
INVESTMENTS IN MAJORITY OWNED SUBSIDIARY AND
IN UNCONSOLIDATED AFFILIATES - At equity 29,067,000 21,036,000
PROPERTY, PLANT, AND EQUIPMENT - Net 2,739,000 2,331,000
INTANGIBLE ASSET - PENSION 2,675,000 2,874,000
OTHER ASSETS 1,721,000 7,127,000
LONG-TERM DEFERRED INCOME TAXES 4,859,000 5,933,000
------------ -------------
$141,002,000 $ 135,620,000
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
CURRENT LIABILITIES:
Short-term borrowings $ 6,800,000 $ 2,500,000
Current maturities of long-term debt 87,000 5,087,000
Accounts payable 856,000 280,000
Accrued expenses 3,012,000 2,037,000
Income taxes payable 656,000
Deferred income taxes 1,731,000
Intercompany payables 7,541,000 11,030,000
------------ -------------
Total current liabilities 18,296,000 23,321,000
LONG-TERM DEBT 46,130,000 36,216,000
------------ -------------
OTHER LIABILITIES 13,149,000 16,275,000
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share; authorized,
20,000,000 shares; issued 12,426,891 and 12,411,891 1,243,000 1,241,000
Additional paid-in capital 17,258,000 17,107,000
Retained earnings 54,808,000 51,065,000
------------ -------------
Total 73,309,000 69,413,000
Less treasury stock: 1,861,912 and 1,682,112 shares at (8,108,000) (6,407,000)
cost
Less minimum pension liability adjustment, net of tax (1,774,000) (3,198,000)
benefit ------------ -------------
Stockholders' equity 63,427,000 59,808,000
------------ -------------
$141,002,000 $ 135,620,000
============ =============
S - 1
29
XXXXXXXX INDUSTRIES, INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994 1993
NET SALES $ - $ - $ -
COSTS AND EXPENSES:
Cost of sales, excluding depreciation and amortization (5,000) 483,000 96,000
Selling, general, and administrative (53,000) (310,000) 93,000
Depreciation and amortization 255,000 (240,000) (252,000)
---------------- --------------- ---------------
Total costs and expenses 197,000 (67,000) (63,000)
---------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS (197,000) 67,000 63,000
OTHER EXPENSE:
Interest expense - net 3,776,000 2,984,000 2,504,000
Other - net 1,717,000 619,000 1,095,000
---------------- --------------- ---------------
Total other expenses 5,493,000 3,603,000 3,599,000
---------------- --------------- ---------------
EQUITY IN EARNINGS (LOSSES)
OF EQUITY INVESTMENTS 2,784,000 (1,141,000) 5,093,000
---------------- --------------- ---------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES AND INCOME FROM SUBSIDIARIES (2,906,000) (4,677,000) 1,557,000
PROVISION (BENEFIT) FOR INCOME TAXES (926,000) (1,606,000) 512,000
---------------- --------------- ---------------
NET INCOME (LOSS) BEFORE INCOME
OF SUBSIDIARIES (1,980,000) (3,071,000) 1,045,000
INCOME FROM OPERATIONS OF SUBSIDIARIES 9,855,000 9,566,000 7,369,000
---------------- --------------- ---------------
NET INCOME $ 7,875,000 $ 6,495,000 $ 8,414,000
================ =============== ===============
S - 2
30
XXXXXXXX INDUSTRIES, INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994 1993
OPERATING ACTIVITIES:
Net income $ 7,875,000 $ 6,495,000 $ 8,414,000
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 255,000 (240,000) (252,000)
Undistributed income from operations of (9,855,000) (9,566,000) (7,369,000)
subsidiaries
Undistributed income of affiliates (2,784,000) 1,141,000 (5,093,000)
Changes in assets and liabilities:
Deferred income taxes (359,000) (161,000) 507,000
Prepaid expenses and other assets (299,000) (198,000) 324,000
Accounts payable 715,000 222,000 (36,000)
Accrued expenses 975,000 (18,000) (94,000)
Income taxes payable (687,000) (9,000) 152,000
Intercompany accounts (9,441,000) (10,752,000) (8,019,000)
Other liabilities (568,000) 487,000 1,060,000
Other, net 4,000 124,000 124,000
----------- ----------- -----------
Total adjustments (22,044,000) (18,970,000) (18,696,000)
----------- ----------- -----------
Net cash used in operating activities (14,169,000) (12,475,000) (10,282,000)
----------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (720,000) (1,997,000) (200,000)
Increase in investments (5,247,000) (4,578,000) (2,034,000)
Repayments of loans by stockholders 5,383,000 341,000
----------- ----------- -----------
Net cash used in investing activities (5,967,000) (1,192,000) (1,893,000)
----------- ----------- -----------
FINANCING ACTIVITIES:
Principal payments of debt (5,086,000) (4,022,000) (2,000,000)
Proceeds from issuance of long-term debt 10,000,000 13,325,000
Net borrowings (repayments) under line-of-credit 4,300,000 (7,500,000) 4,000,000
agreements
Purchase of treasury stock (1,701,000) (348,000) (2,693,000)
Proceeds from employee stock ownership plan 1,454,000
Proceeds from issuance of common stock 101,000 380,000 811,000
Payments from consolidated subsidiaries 15,952,000 15,818,000 16,749,000
Dividends paid (4,132,000) (3,694,000) (3,412,000)
----------- ----------- -----------
Net cash provided by financing activities 19,434,000 13,959,000 14,909,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (702,000) 292,000 2,734,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,681,000 3,389,000 655,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,979,000 $ 3,681,000 $ 3,389,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest paid $ 3,673,000 $ 2,962,000 $ 2,861,000
=========== =========== ===========
Income taxes paid $ 3,168,000 $ 2,401,000 $ 2,052,000
=========== =========== ===========
S - 3
31
XXXXXXXX INDUSTRIES, INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
Xxxxxxxx Industries, Inc. and subsidiaries (the "Company") publish consolidated
financial statements that are its primary financial statements. Therefore,
these parent company condensed financial statements are not intended to be the
primary financial statements of the Company, and should be read in conjunction
with the consolidated financial statements and notes thereto of the Company.
S - 4
32
XXXXXXXX INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS
BEGINNING CHARGED TO OTHER BALANCE AT
DESCRIPTION OF YEAR OPERATIONS ACCOUNTS DEDUCTIONS END OF YEAR
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1995 $ 368,000 $ 305,000 $ 838,000(2) $ (398,000)(1) $ 1,113,000
========= ========= ========= ========== ============
1994 $ 314,000 $ 151,000 $ (97,000)(1) $ 368,000
========= ========= ========= ========== ============
1993 $ 667,000 $ 383,000 $ (736,000)(1) $ 314,000
========= ========= ========= ========== ============
(1) Amounts written off, net of recoveries.
(2) Additional amount added during the year is from the consolidation of
Jupiter in January 1995 representing the balance at the date of
consolidation.
S - 5
