<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
/x/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended August 31, 1996 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______.
Commission file number 1-5034
CORE INDUSTRIES INC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 38-1052434
- -------------------------------------------------------------- -----------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
P. O. Box 2000, Bloomfield Hills, Michigan 48304
- -------------------------------------------------------------- -----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 642-3400
Securities registered pursuant to Section 12(b) of the Act: -----------------------------------------
Title of each class Name of each exchange on which registered
- -------------------------------------------------------------- -----------------------------------------
Common Stock New York Stock Exchange
- -------------------------------------------------------------- -----------------------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
----
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /x/
As of September 30, 1996, 10,710,930 common shares were outstanding, and the
aggregate market value of the common shares held by nonaffiliates of the
Registrant (based upon the closing sale price of $13.63 for these shares on the
New York Stock Exchange) was approximately $146 million.
Certain sections of the definitive proxy statement to be filed for the Annual
Meeting of Stockholders to be held on January 14, 1997 are incorporated by
reference in Part III of this Form 10-K.
<PAGE> 2
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF THE COMPANY
The Company was incorporated under the name of Soss Manufacturing Company in
1909 as a manufacturer of a line of concealed hinges sold to the hardware,
furniture and home building trades and subsequently developed hinges and
other stampings for the infant automotive industry. The Company went public
in 1937 and had its shares traded on the American Stock Exchange.
In 1958, the Company began to diversify its interests through the
acquisition of a number of businesses. It presently groups its businesses
into three industry segments: Fluid Controls and Construction Products;
Test, Measurement and Control; and Farm Equipment. From sales of $5,000,000
in 1958, 90% of which were derived from the production of automobile parts,
the Company has grown to its present size and diversified structure with
less than five percent automotive business.
The Company changed its name in January 1969 to SOS Consolidated Inc. to
help alleviate confusion between the parent company and its automotive
division. In April 1969, the Company's shares were listed for trading on
the New York Stock Exchange. In January 1978, the Company adopted the name
Core Industries Inc, as being more representative of its operations.
Various acquisitions, primarily in the electronics industry, contributed to
the Company's sales growth in the 1980s. However, in 1992, after several
years of declining earnings, the Company divested three unprofitable
electronics subsidiaries and instituted a plan to become a more focused
business. Since then, the Company has made six acquisitions related to
existing businesses and has sold three unrelated operations. During 1996,
the Company sold its wholly-owned electronics-related subsidiary, Cherokee
International, Inc. and its subsidiaries (collectively "Cherokee") for cash
and a long-term note receivable. Cherokee had been classified as a
discontinued operation as of August 31, 1995. The Company plans to grow
in its focus businesses through new products and additional geographic and
end-user markets, as well as making selected, strategic acquisitions in its
focus areas.
Under the Company's method of operation and control, each division operates
as a separate and autonomous entity with its own manufacturing, engineering,
accounting, sales staff and distribution network. Personnel at Corporate
office direct overall policies and perform services for all divisions in the
areas of financial and treasury control, manufacturing consultation,
information systems and marketing. Corporate maintains involvement in the
divisions through direct contact, reviews of budgets and reports, internal
auditing and involvement in formal planning. In addition, the Corporate
office develops and implements strategic options to increase shareholder
value and responds to division results and opportunities.
(B) INDUSTRY SEGMENTS
The Company is engaged principally in the manufacture of specialty products
for commercial and industrial use. Required industry segment financial
information is set forth in the notes to consolidated financial statements
incorporated herein by reference. The Company operates in three segments:
Fluid Controls and Construction Products; Test, Measurement and Control; and
Farm Equipment.
FLUID CONTROLS AND CONSTRUCTION PRODUCTS
Fluid Controls and Construction Products and services cover a broad range from
specialty valves and pipeline strainers for various fluid control applications
to molded plastic parts, metal stampings and hinges, and mechanical
contracting. This group serves the Heating, Ventilation and Air Conditioning
("HVAC") market as well as the chemical and petrochemical processing industry,
oil and gas industry, the irrigation industry, the paper and food processing
industry, the commercial construction market, and general industry.
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The CORE FLUID CONTROLS GROUP (CFCG) is a major part of this segment and
consists of the following units:
MUELLER STEAM SPECIALTY is the largest division of CFCG and manufactures four
primary product lines: strainers and specialty valves, check valves, butterfly
valves and non-lubricated plug valves. Mueller believes that it is the largest
manufacturer of pipeline strainers and check valves in the world. Pipeline
strainers catch objects larger than 40 microns and prevent them from damaging
machinery. Strainers and valves are used in various kinds of industrial
processes and plants, essentially wherever piping systems exist. Mueller
believes that it carries a product line that is more extensive than most of its
competitors, and Mueller's ability to design, build, and ship products in a
short time frame is well known in the industry. Business is derived largely
from quoting jobs as well as from stocking distributors and retrofit orders.
Valves designed by Mueller are outsourced from approximately 65 foundries
throughout the world. Once castings are received at Mueller's North Carolina
plant, Mueller machines, assembles, tests, and packages the valves to meet a
wide variety of specifications. Orders are typically processed within a week
of their receipt.
CMB INDUSTRIES (CMB), located in Fresno, California, was acquired in fiscal
1996 and is the second largest division of CFCG. CMB designs and manufactures
a broad line of bronze and ductile iron products for the backflow prevention
industry under the FEBCO name. FEBCO has a network of highly trained agents
that sell worldwide to the end user. FEBCO is an industry leader in backflow
prevention sales and is also the valve of choice in many municipal and fire
protection markets. CMB's Bailey Polyjet product is a custom-designed,
multi-jet, sleeve-type control valve engineered for optimum performance for
high pressure drops and precise flow control over a wide range, solving
cavitation problems in waterworks, power generation and industrial
applications.
MUELLER FLOW TECHNOLOGY, located in Houston, Texas, includes two companies
acquired in 1994 and 1995. HENDRIX STEEL & FABRICATING is a full-service
fabricating company specializing in pressure vessels and specialty and custom
flow control products. OIL AND GAS SPECIALTY COMPANY (OGASCO) specializes in
fluid measurement systems and related products widely used in the oil and gas
industry, petrochemical industry and other markets where precise flow
measurement is required.
Other United States operations of CFCG include MUELLER WEST, a Phoenix,
Arizona, distribution center; ASSOCIATED PIPING EQUIPMENT, INC., a supplier of
commodity type valves and strainers; and MUELLER VALVE SPECIALTIES, formed in
1996 to manufacture a full line of manual and automated teflon sleeved and
lined plug valves for the chemical and petrochemical industries.
CFCG's overseas locations include MUELLER ASIA, located in Singapore, and
MUELLER/DAVIS FILTERS LTD., located in the United Kingdom. MUELLER ASIA is a
sales, warehouse and distribution center for the entire Pacific Rim which will
also begin manufacturing operations in FY 1997. MUELLER/DAVIS FILTERS LTD.,
which was acquired in 1996, is a manufacturer of "Y" type strainers for the
pipeline industry, and also will market other CFCG products in Europe.
Other companies in the Fluid Controls and Construction Products segment are
POLY CRAFT (injection molded plastic products), UNIVERSAL INDUSTRIAL PRODUCTS
(UIP)commercial lawnmower blades and Soss hinges, and THE ROBERT CARTER
CORPORATION (mechanical contractor). Poly Craft and UIP each represent less
than five percent of Core's total sales and all three account for less than
five percent of Core's total earnings.
There is substantial competition in the markets served by this segment, and in
certain instances, the Company competes with companies whose financial
resources are greater.
This segment's backlog aggregated $21,500,000 at August 31, 1996, as compared
to $21,400,000 at August 31, 1995. It is anticipated that substantially all of
the backlog will be filled during the year ending August 31, 1997. In general,
this segment business is not seasonal in nature.
The primary raw materials used by this product segment are steel coil and
sheet, castings made of various metals, resins and plastics. The Company
generally obtains these materials from several sources, including foreign
suppliers, and materials are readily available.
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The Company holds important patents related to its CMB product line. Other
patents relative to this product segment, although of value, do not play a
significant part in the Company's operations. The Company also has registered
certain product trademarks which are considered to be of value.
TEST, MEASUREMENT AND CONTROL
The Test, Measurement and Control group is Core's second largest segment. The
Company believes it is the leading producer of selected electrical test,
measurement and control products. Sales are primarily made through dealers and
manufacturers' representatives in the United States and abroad. This group
serves the electrical, construction, and maintenance markets; the HVAC
industry; factory automation companies; computer and telecommunications
manufacturers, and general industry.
AMPROBE INSTRUMENT has been recognized as a leader in quality test equipment
for professionals in the electrical, HVAC, construction, and maintenance
markets. Amprobe primarily manufactures hand-held devices, which are used by
professionals for testing and measuring electrical properties in various field
applications. Amprobe's name is well recognized in the industry and
represents a significant asset in marketing its products. Amprobe believes
that its products have a reputation for being reliable and competitively priced.
Primary products include clamp-on units, multi-meters (volt/amp/ohmmeters),
circuit tracers, harmonic analyzers, ultrasonic leak detectors, and refrigerant
recovery products. The 1995 acquisition of Promax, a manufacturer of
refrigerant recycling and recovery products, has strengthened Amprobe's
presence in the HVAC market. All sales are made through distributors and
catalogs. Amprobe's advertising is targeted directly to consumers to create
demand at the distributor level. Amprobe performs primarily light assembly and
calibration in its ISO 9000 certified plant in Lynbrook, New York, and conducts
research and development activities in Denver, Colorado.
Amprobe's new product development efforts include enhancing the features of
existing products, and introducing new products such as circuit tracers,
digital clamp-on units, ultrasonic leak detectors, and refrigerant recovery
products. Known in the industry for its clamp-on products, Amprobe is
continually improving and expanding its products offerings. Amprobe has
developed a strong presence in the refrigerant recycling and recovery product
market. The Company believes that oil-less recovery products of Promax offer
a number of performance advantages over competitive systems. This product line
is sold through its HVAC distribution channels.
GSE, INC. operates in three areas: "tech-motive" tools, measurement and
control products (including torque sensors), and scales and weighing systems.
"tech-motive" tools are a line of direct current electric nutrunners and
electronic controllers for accurate fastening in manufacturing or repair
applications. GSE's measurement and control products are used in a wide
variety of applications and industries. GSE provides process controllers and
monitors for process operations and sensors and systems testing equipment for
measuring forces such as torque. Scales and weighing systems consist of
programmable scales and controllers used for accurate measurement, parts
counting, or weight-based processes.
GSE manufactures numerous torque measuring devices and has the exclusive
license to a non-contact torque sensing technology. Non-contact torque
measurement has two important applications in vehicles and predictive
maintenance in industrial applications such as oil drilling. Management
believes that significant additional revenues from this application may be
developed over the next several years, but there can be no assurance that
technological obstacles can be overcome or that sufficient market acceptance
can be achieved to permit this application to make a significant contribution
to this segment's revenues or earnings.
"tech-motive" products represent another major growth area for GSE. Their
nutrunner products provide accurate, reliable fastening and offer significant
performance advantages over other fastener systems products such as pneumatic
tools. Its new CS 4000 tech-motive tool nutrunner system is the first tool of
its kind with 100% digital communications. Although the overall nutrunner
market is fairly mature, DC electric systems are growing and taking market
share from other systems. Additionally, GSE is benefitting from the worldwide
macro trend toward superior manufacturing quality and the increased emphasis on
the importance of quality in safety-related applications.
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GSE's programmable scales and weighing systems is its other growth area. GSE
continues to grow in this area by expanding its research and development effort
to remain a technology leader and introducing new products that provide greater
value than competing systems. New product offerings include both products for
general applications and specialized systems for unique applications.
GSE's primary strategy is to become the technology leader in applying
controlled strain gage technology to high performance tooling, torque sensing,
and programmable weighing systems. Through new product development, GSE seeks
to grow in its existing markets and penetrate related markets. GSE also seeks
to expand its presence in Europe, largely by increasing the distribution of its
scale systems.
GREAT LAKES/EGLINTON (GLE) is a well-recognized manufacturer of high precision
carbide tooling. It accounts for less than five percent of Core's total sales
and earnings.
There is substantial competition in the markets served by this segment, and in
certain instances, the Company competes with companies whose financial
resources are greater.
The backlog of this segment aggregated $5,500,000 at August 31, 1996, as
compared to $5,000,000 at August 31, 1995. It is anticipated that all of the
backlog will be shipped during the year ending August 31, 1997. In general,
the business of this segment is not highly seasonal in nature.
This segment's products are made principally from purchased electronic
components and materials which are readily available from numerous sources.
The Company holds important patents related to its "tech-motive" tool product
line. Other patents relative to this segment, although of value, do not play a
significant part in the Company's operations, although the exclusive right to
distribute the non-contact torque sensing technology in the Americas and Europe
has strong potential. The Company also has licenses and has registered certain
product trademarks which are considered to be of value.
FARM EQUIPMENT
The Farm Equipment segment is made up of short line products for the farm
industry. Core believes it is the leading producer of tillage equipment in the
High Plains region and a leading manufacturer of grain augers. Although farm
equipment is a traditionally seasonal business, certain sales strategies
significantly reduce seasonal fluctuations. Sales are made through dealers and
distributors primarily in the High Plains and Midwest United States, as well as
in Canada. In 1996, while continuing to be profitable, results were reduced by
unfavorable weather conditions in the farm belt.
SUNFLOWER MANUFACTURING COMPANY, INC. is among the world's leading producers of
high-quality disc harrows. Its grain drills and other tillage equipment are
also known for their quality, reliability and value. This equipment is used to
prepare land for seeding and for seeding operations. The primary market for
Sunflower equipment is the High Plains states of Texas, Colorado, Nebraska,
Kansas, and the Dakotas. Secondary market areas include the Midwest, and
Sunflower is working to expand into the delta region of the South.
Sunflower equipment is sold through a direct sales force and an independent
dealership network of more than 400 dealers. Within this 400 dealership
network, Sunflower believes it has approximately a 20% share of all tillage
equipment sold. Tillage equipment usually represents 10 to 15% of a dealer's
sales. Sunflower enhances its dealer relationships by training and educating
its dealers and by providing outstanding customer service.
Sunflower has benefitted from the 1990 Farm Bill, which required farmers on
erosion-prone soil to maintain a certain percentage of residue. Sunflower
manufactures several conservation tillage tools which protect topsoil from
erosion. Sunflower is continually implementing product design changes to
comply with conservation tillage regulations.
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FETERL MANUFACTURING COMPANY (grain augers, cleaners and service bodies) and
RICHARDTON MANUFACTURING COMPANY (foraging wagons) form the remainder of Core's
Farm Equipment segment. Neither business accounts for more than five percent
of Core's total sales, although Feterl accounts for slightly more than five
percent of total earnings.
There is substantial competition in the markets served by this segment, and in
certain instances, the Company competes with companies whose financial
resources are greater.
This segment's backlog aggregated $7,200,000 at August 31, 1996, as compared to
$3,800,000 at August 31, 1995. It is anticipated that substantially all of the
backlog will be shipped during the first quarter of fiscal 1997. Sales of many
products are seasonal in nature. The Company partially mitigates this
seasonality by balancing production throughout the year. The farm economy has
been, historically, very cyclical and can be significantly affected by the
general economy and the weather. As is customary in the farm equipment
industry, the Company makes many sales with seasonal dating payment terms to
its farm equipment customers.
The primary raw material used by the businesses within this segment is standard
sheet steel which is readily available from numerous sources.
The Company holds various patents relating to the products of this segment
which, although of value, do not play a significant part in the Company's
operations. The Company also has registered certain product trademarks which
are considered to be of value.
(C) EMPLOYMENT
At August 31, 1996, there were approximately 1,565 people employed by the
Company in its operations, of whom 1,500 were employed in the United States.
(D) OTHER
While the Company places a high emphasis on the development of new and
improved products, research and development activities did not represent
significant expenditures during the past three years.
Compliance with federal, state and local provisions which have been enacted
or adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, is not expected to
have a material effect upon the capital expenditures, earnings and
competitive position of the Company.
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ITEM 2.PROPERTIES
- --------------------------
Listed below are the major properties of the Company:
<TABLE>
<CAPTION>
SQUARE OWNED EXPIRATION
FOOT OR DATE OF BUSINESS
LOCATION AREA LEASED LEASE SEGMENT
- -------------------------- ------------------ ------------------ ---------- -----------------------------
<S> <C> <C> <C> <C>
Bridgeport, Michigan 23,000 Owned Test, Measurement and Control
Farmington Hills, Michigan 36,000 Owned Test, Measurement and Control
Lynbrook, New York 49,000 Owned Test, Measurement and Control
Southfield, Michigan 8,000 Leased 1999 Test, Measurement and Control
Denver, Colorado 18,000 Leased 1997 Test, Measurement and Control
Beloit, Kansas 88,000 Owned Farm Equipment
Cawker City, Kansas 51,000 Owned Farm Equipment
Richardton, North Dakota 37,000 Owned Farm Equipment
Salem, South Dakota 108,500 Owned Farm Equipment
Houston, Texas 32,000 Owned Fluid Controls and Construction Products
18,000 Leased 1997
Lumberton, North Carolina 144,000 Owned Fluid Controls and Construction Products
St. Pauls, North Carolina 216,000 Owned Fluid Controls and Construction Products
Fresno, California 116,000 Leased 2005 Fluid Controls and Construction Products
Phoenix, Arizona 14,000 Leased 1997 Fluid Controls and Construction Products
Pioneer, Ohio 66,400 Owned Fluid Controls and Construction Products
Wauseon, Ohio 47,000 Owned Fluid Controls and Construction Products
Singapore 26,700 Owned Fluid Controls and Construction Products
9,300 Leased 2006
Bloomfield Hills, Michigan 12,000 Leased 2001 Corporate Offices
</TABLE>
All of the above properties are substantially utilized, are suitable for the
Company's needs and have sufficient productive capacity.
ITEM 3. LEGAL PROCEEDINGS
On August 8, 1996, a lawsuit was served on Core Industries Inc (the "Company").
The lawsuit is entitled "Electro Lock, Inc., vs. Dynamic Acquisition
Corporation, Inc., Cherokee International, Inc., Core Industries Inc, CI
Tustin, Inc., CII Tustin, Inc., and Motec Industries, Inc.," Case No. BC 155007,
and was filed in the Superior Court of California, County of Los Angeles,
Central District. The Complaint seeks significant unsubstantiated damages in
connection with allegedly defective components supplied by Dynamic Acquisition
Corporation, Inc. ("Dynamic," which is a subsidiary of a subsidiary of the
Registrant) to Electro Lock, Inc. ("Electro Lock"). Electro Lock also seeks
damages against CII Tustin, Inc. (the parent of Dynamic) and against the
Registrant (the parent of CII Tustin, Inc.), as alter egos of Dynamic.
The case is in its early stages. The operations of CII Tustin, Inc. and of
Dynamic have been reported by the Company as discontinued operations since
August 31, 1995. Dynamic had total assets of approximately $700,000 as of
August 31, 1996. The Company intends to defend vigorously any claims against
it, and management of the Company believes that the ultimate disposition of
this matter will not have a material effect on the Company's financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1996 to a vote of security
holders through a solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
At August 31, 1996, there were 1,898 shareholders of record of the common stock
of Core Industries Inc.
The Company's common stock is traded on the New York Stock Exchange. The
following table indicates the high and low sales prices of the common stock of
the Company, and the dividends paid per share for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARKET PRICE
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AUGUST 31, 1996 HIGH LOW DIVIDENDS
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<S> <C> <C> <C>
First quarter $14 $11 $.06
Second quarter 14-1/2 12-1/8 .06
Third quarter 15-7/8 13-5/8 .06
Fourth quarter 15-3/4 11-1/2 .06
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$ .24
=========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARKET PRICE
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AUGUST 31, 1995 HIGH LOW DIVIDENDS
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<S> <C> <C> <C>
First quarter $11-1/8 $8-5/8 $.06
Second quarter 12-1/2 9-1/2 .06
Third quarter 12-5/8 10 .06
Fourth quarter 12-5/8 9-3/4 .06
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$ .24
=========
</TABLE>
NOTE A: Under the Company's debt agreements with insurance companies,
retained earnings of approximately $27 million were available
for dividends at August 31, 1996 subject to future earnings
levels.
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ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Net sales $230,157,000 $187,897,000 $166,260,000 $156,615,000 $146,571,000
Earnings from continuing operations
(Note B) 12,940,000 10,693,000 9,209,000 7,900,000 (596,000)
Net earnings (loss) 12,940,000 3,828,000 10,006,000 8,565,000 (26,368,000)
Net earnings (loss) per common share:
Continuing operations $1.24 $1.09 $0.94 $0.81 $(0.06)
Net earnings (loss) 1.24 0.39 1.02 0.88 (2.70)
Cash dividends declared per share 0.24 0.24 0.24 0.24 0.30
As of August 31:
Total assets $172,949,000 $147,043,000 $156,387,000 $151,277,000 $156,583,000
Long-term debt 24,520,000 32,609,000 41,608,000 47,134,000 50,146,000
</TABLE>
NOTE A: 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 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.
NOTE B: Effective February 29, 1992, the Company adopted a formal plan to
divest three major electronics-related subsidiaries. The three
operations, Anilam Electronics, FlexStar and Hilton Industries,
produced machine tool controls, disk-drive test equipment and tantalum
capacitors, respectively, were 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 benefit of
$7,315,000. Selected information related to these discontinued
operations follows:
<TABLE>
<CAPTION>
1991 1992
----------- -----------
<S> <C> <C>
Sales $42,796,000 $16,291,000
Net earnings (loss) (6,350,000) (4,015,000)
Net earnings (loss) per share (0.65) (0.41)
</TABLE>
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On October 6, 1995, the Company adopted a formal plan to divest its
wholly-owned electronics-related subsidiary, Cherokee International, Inc.
and its subsidiaries ("Cherokee") effective August 31, 1995. Cherokee
represented a separate line of business producing electronic power supplies
to distinct customers and was accounted for as a discontinued operation.
Appropriate provisions were recorded in the fourth quarter of fiscal 1995
for (a) the estimated losses for the discontinued operation through its
expected disposal date, (b) reduction of assets to their net realizable
values, and (c) the anticipated liabilities related to the disposal. The
total provision amounted to $6,500,000, net of income tax benefit of
$3,500,000.
Selected information related to Cherokee's operations prior to
discontinuance follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Sales $44,669,000 $53,193,000 $50,431,000
Pretax income (loss) (285,000) 1,845,000 1,315,000
Income taxes 80,000 1,048,000 650,000
Net income (loss) (365,000) 797,000 665,000
Earnings (loss) per share (0.04) 0.08 0.07
</TABLE>
The net assets of the discontinued Cherokee operation held for sale were
included in the Balance Sheet at August 31, 1995 under the caption "Net
Assets Held for Sale." In 1996, the net assets of the discontinued
operations were sold for cash and a long-term note receivable. It is
anticipated that the provision established in 1995 should be adequate.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
During the fiscal year ended August 31, 1996, the Company continued its strong
improvement trend which began in 1992 after Core took dramatic action to
restructure operations and refocus its resources. Management continues to
focus on operating and financial strategies to improve operating performance
and shareholder value. These strategies include new product development and
market penetration initiatives, improved levels of manufacturing efficiencies
and customer service, and the acquisition of selected companies which can
increase future growth and profitability.
Fiscal 1996 Compared with Fiscal 1995
Sales increased 22% in 1996 over 1995 to $230,157,000 which included
approximately $25 million from the acquisition of CMB Industries. Net earnings
were $12,940,000 or 21% higher than 1995 earnings from continuing operations of
$10,693,000. Net earnings per share increased 14% to $1.24 from earnings from
continuing operations of $1.09, while the average number of shares outstanding
was 7% higher. The strong earnings growth was fueled by new product offerings
and operations improvements in the Company's Fluid Controls and Construction
Products, and Test, Measurement and Control segments which more than offset the
decline in operating earnings in the Farm Equipment segment principally caused
by difficult weather conditions.
Overall gross profit margins decreased from 35.6% to 34.9% as a result of
unfavorable product mix changes and competitive pressures in the Farm Equipment
segment. Margins improved in both of the Company's other two segments. The
decrease in selling, general and administrative expenses to 22.5% of sales from
23% reflects the Company's efforts to reduce the growth in administrative
expenses, which more than offsets increases in research and development
expenditures related to new products, resulting in engineering expenses
increasing 39% over 1995 to $5,500,000. Interest expense increased 13.7% over
1995 due to increased borrowings to finance acquisitions.
The average number of shares outstanding during 1996 was 10.5 million compared
to 9.8 million, primarily due to stock issued in connection with the
acquisition of CMB Industries in December 1995.
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Fiscal 1995 Compared with Fiscal 1994
Consolidated sales from continuing operations were up 13% to $187,897,000 over
1994 sales of $166,260,000. Earnings from continuing operations were
$10,693,000, or 16% higher than 1994. Included in 1994 earnings was an
after-tax gain of $915,000 ($.09 per share) related to the sale of a division.
Excluding this item, earnings from continuing operations increased 29% in 1995
compared to 1994.
Approximately 67% of the sales increase and 60% of the earnings before income
tax increase was attributable to the Test, Measurement and Control segment
which had a 30% sales and earnings increase over 1994. Fluid Controls and
Construction sales increased 3% with earnings before taxes growing almost 25%.
Excluding 1994's gain on the sale of the division, Farm Equipment earnings
before taxes increased 11% on a 15% sales increase.
Overall gross profit margins improved strongly from 33.1% to 35.6% as a result
of favorable product mix changes and new product introductions. The increase
in selling, general and administrative expenses from 21.2% of sales to 22.9%
relates primarily to key units where there were increased investments in
research and development, and promotional and selling costs related to new
products and entering new markets.
Other income in 1994 included the $1.475 million pretax gain related to the
sale of the Company's Du-Al division. Interest expense declined 12.2% in 1995
from 1994 as borrowings were reduced by $9 million throughout the year.
Segment Operating Review
Fluid Controls and Construction Products Segment
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Sales $115,497 $80,732 $78,745
Earnings before taxes 15,134 10,766 8,624
</TABLE>
Sales and earnings before taxes in 1996 increased 43% and 41%, respectively,
over the prior year. This increase was primarily due to the improved
performance of the Core Fluid Control Group which benefitted from recent
acquisitions and expanded distribution efforts. While all of the recent
acquisitions (OGASCO, acquired effective January 1, 1995; CMB Industries,
acquired effective December 1, 1995; and Davis Filters, acquired effective
January 1, 1996) contributed to the growth in sales and earnings, the base
businesses of the Core Fluid Control Group had increases in sales and
earnings.
Test, Measurement and Control Segment
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Sales $69,131 $63,819 $49,229
Earnings before taxes 8,015 6,928 5,328
</TABLE>
Sales and earnings before taxes increased 8% and 16%, respectively, over 1995.
This strong improvement was fueled by new product offerings and operating
efficiencies.
Farm Equipment Segment
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Sales $45,529 $43,346 $38,286
Earnings before taxes 5,073 6,075 7,257
</TABLE>
11
<PAGE> 12
Sales increased 5% over 1995 with earnings before taxes down 16%. Difficult
weather conditions early in fiscal 1996 resulted in lower demand for certain
higher margin products. This change in product mix also resulted in higher
sales incentives. Operations improved during the latter part of fiscal 1996
with fourth quarter sales and earnings ahead of 1995's fourth quarter.
LIQUIDITY AND CAPITAL RESOURCES
One of the Company's financial strengths has been its ability to generate cash
from its operating activities. In 1996, the Company again experienced positive
operating cash flow as operating activities provided $14.2 million. Cash flow
generation has been enhanced by the Company's ongoing efforts to improve
operating efficiencies, make cost reductions, and manage working capital
requirements to support increased sales volumes.
During 1996 the Company exercised its maximum allowable prepayment options and
reduced its 10% rate long-term debt by $8 million. Accordingly, debt as a
percentage of capital employed was reduced to 22.1% at August 31, 1996 from
31.5% at the end of the previous fiscal year.
The Company continued to invest in its future during 1996 by making two
strategic acquisitions and making capital expenditures of $5.4 million. The
total cost of the acquisitions included a combination of cash, debt assumptions
and notes payable issued totaling $15.6 million and the issuance of 857,283
shares of the Company's common stock, valued at $13.50 per share. The $13
million net cash received during 1996 from the sale of the Company's Cherokee
subsidiary helped finance these acquisitions. The majority of capital
expenditures were focused at those units where the Company believes it has the
greatest growth potential. The Company plans to invest $10 to $12 million in
capital expenditures in fiscal 1997, excluding business acquisitions, with
major emphasis on expanding facilities at several locations to support growth
and improve efficiencies.
The Company continues its active program to complement internal growth with
acquisition of product lines and businesses that meet the Company's selective
criteria. It is expected that this effort may require the significant
expenditure of funds over the next few years.
At August 31, 1996, the Company had working capital of $72.6 million with a
current ratio of 2.8 to 1. Management believes its current cash position, cash
flows from operations, unused lines of credit ($15,300,000 at August 31, 1996),
along with its borrowing capacity, are adequate to fund its strategies for
future growth, including working capital, expenditures for manufacturing
expansion and efficiencies, new product development and acquisition activities.
At the Company's current quarterly dividend rate of $.06 per share, future
annual dividend payments would approximate $2.6 million. Under the Company's
debt agreements with insurance companies, retained earnings of approximately
$27.3 million are available for dividends, subject to future earnings levels.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and the report of independent
accountants thereon of Coopers & Lybrand L.L.P., independent auditors for the
Company, are included in Exhibit 13 and are identified in Item 14(a)(1) of
this report. Other financial statement schedules are filed pursuant to Item
14(a)(2) and exhibits are filed pursuant to Item 14(a)(3) of this report.
Selected quarterly financial data for the years 1996 and 1995 appear in Note 13
to the financial statements on F-17 (see Exhibit 13).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
12
<PAGE> 13
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information required by this item is incorporated by reference to a
definitive proxy statement involving the election of directors which is filed
by the Company pursuant to Regulation 14A within 120 days after the close of
its fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is provided as to the Executive Officers of the
Company:
<TABLE>
<CAPTION>
Percentage of
Company's
Outstanding Common
Common Shares Shares Beneficially
Beneficially Owned Owned as of Oct.
Name Age Capacities in Which Served as of Oct. 15, 1996 15, 1996
- -------------------- --- -------------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
David R. Zimmer* 50 President and Chief 125,407 1.1%
Executive Officer since
March 1992 (previously
President and Chief
Executive Officer of New
Venture Gear, Inc. since
January 1990)
Lawrence J. Murphy* 54 Executive Vice President 36,546 ***
since October 1990
(previously Vice
President-Finance, three
years)
Mark J. MacGuidwin** 44 Vice President-Finance 0 ***
and Chief Financial
Officer since October
1996 (previously Vice
President, Controller of
Varity Corporation since
1995; previously Vice
President-Finance of
Libbey-Owens-Ford Co.
since 1990)
Thomas G. Hooper* 52 Treasurer and Controller 12,667 ***
since October 1990
(previously Controller
since 1981)
James P. Dixon* 52 Vice President-Planning 13,069 ***
since January 1994
(previously Vice
President-Marketing,
since October 1990;
previously
Manager-Marketing
Services, since April
1990)
</TABLE>
* Elected by the Board of Directors on January 9, 1996
** Elected by the Board of Directors on October 2, 1996
*** Less than 1%
13
<PAGE> 14
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to a
definitive proxy statement involving the election of directors which is filed
by the Company pursuant to Regulation 14A within 120 days after the close of
its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to a
definitive proxy statement involving the election of directors which is filed
by the Company pursuant to Regulation 14A within 120 days after the close of
its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to a
definitive proxy statement involving the election of directors which is filed
by the Company pursuant to Regulation 14A within 120 days after the close of
its fiscal year.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS. (Included in Exhibit 13)
PAGES IN
EX-13
--------
Report of Management..................................................F-1
Report of Independent Accountants.....................................F-2
Consolidated Statements of Earnings for the Years Ended
August 31, 1996, 1995 and 1994.................................F-3
Consolidated Balance Sheets as of August 31, 1996 and 1995............F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
August 31, 1996, 1995 and 1994.................................F-5
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1996, 1995 and 1994.................................F-6
Notes to Consolidated Financial Statements for the Years Ended
August 31, 1996, 1995 and 1994 ................................F-7 - F-17
2. FINANCIAL STATEMENT SCHEDULES
(A) Consent of Independent Accountants..........................EX-23
(B) Schedule Index: PAGE IN
10-K
--------
Schedule II - Valuation and Qualifying Accounts ..........16
Schedules other than those listed are omitted because they are not applicable
or the required information is shown in the financial statements or notes
thereto.
(A) 3. EXHIBITS
The exhibits are listed on the accompanying Index to Exhibits.
(B) 4. REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
15
<PAGE> 16
CORE INDUSTRIES INC AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended August 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------ ---------- --------------- ---------- ---------
(1) (2)
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS - AT END
OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
---------- ---------- ------------ ----------------- ----------
(NOTE A)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts, deducted from
accounts receivable in
the balance sheet:
1996 $1,020,000 $212,000 $(86,000) (C) $ 58,000 $1,260,000
========== ======== ========= ======== ==========
1995 $ 960,000 $300,000 $120,000 (B) $120,000 $1,020,000
========== ======== ========= ======== ==========
1994 $ 970,000 $480,000 $490,000 $ 960,000
========== ======== ======== ==========
</TABLE>
Note A: Accounts written off
Note B: Discontinued operations
Note C: Acquisition
16
<PAGE> 17
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: October 29, 1996 CORE INDUSTRIES INC
---------------- -----------------------------------------
By: /s/ THOMAS G. HOOPER
-----------------------------------------
Thomas G. Hooper, Treasurer and Controller
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
CHIEF EXECUTIVE OFFICER:
/s/ DAVID R. ZIMMER October 29, 1996
- ------------------- ----------------
David R. Zimmer, President and Director Date
CHIEF FINANCIAL OFFICER:
/s/ MARK J. MACGUIDWIN October 29, 1996
- ---------------------- ----------------
Mark J. MacGuidwin, Vice President - Finance Date
OTHER DIRECTORS:
/s/ JAY A. ALIX October 29, 1996
- --------------- ----------------
Jay A. Alix Date
/s/ RICHARD P. KUGHN October 29, 1996
- -------------------- ----------------
Richard P. Kughn Date
/s/ HAROLD M. MARKO October 29, 1996
- ------------------- ----------------
Harold M. Marko Date
/s/ LAWRENCE J. MURPHY October 29, 1996
- ---------------------- ----------------
Lawrence J. Murphy, Executive Vice President Date
/s/ ALAN E. SCHWARTZ October 29, 1996
- -------------------- ----------------
Alan E. Schwartz Date
/s/ ROBERT G. STONE, JR. October 29, 1996
- ------------------------ ----------------
Robert G. Stone, Jr. Date
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------------------------- ----------------------------------------------------------------------------------
<S> <C>
3(a) Restated Certificate of Incorporation of Company and amendments thereto**
3(b) By-Laws, as amended, of the Company**
10(a) 1991 Director Discounted Stock Option Plan**
10(b) 1988 Director Discounted Stock Option Plan (Incorporated by reference to Appendix B
to Company's Proxy Statement dated November 23, 1988 filed pursuant to Regulation 14)
10(d) Preferred Share Purchase Rights (Incorporated by reference to Company's Form 8-K
Report dated September 28, 1988)
10(e) Deferred Compensation for Non-Employee Directors**
10(f) Agreement and Plan of Merger between Core Industries Inc and CMB Industries***
10(g)(1) 9.75% Note Agreement dated August 1, 1987 between the Company and The Northwestern
Mutual Life Insurance Company**
10(g)(2) Amendment dated as of March 15, 1989 to the Agreement dated August 1, 1987 between
the Company and The Northwestern Mutual Life Insurance Company**
10(g)(3) Amendment dated as of March 15, 1989 to the Agreement dated August 1, 1987 between
the Company and The Northwestern Mutual Life Insurance Company**
10(h)(1) 10.02% Note Agreements dated as of March 15, 1989 between the Company and The
Northwestern Mutual Life Insurance Company/Allstate Life Insurance Company**
10(h)(2) Amendment dated as of March 15, 1992 to the Agreement dated as of March 15, 1989
between the Company and The Northwestern Mutual Life Insurance Company/Allstate Life
Insurance Company**
10(I) 1993 Performance Incentive Plan (Incorporated by reference to Appendix A to Company's
Proxy Statement dated November 23, 1993 filed pursuant to Regulation 14)
10(j) 1993 Stock Bonus Plan (Incorporated by reference to Appendix A to Company's Proxy
Statement dated November 23, 1993 filed pursuant to Regulation 14)
*11 Calculations of Earnings Per Share
*13 Financial Statements
*22 Subsidiaries of the Company
*23 Consent of Coopers & Lybrand L.L.P. relating to Financial Statement Schedule
*27 Financial Data Schedule
</TABLE>
* Filed herewith
** Incorporated by reference to exhibits to the 1992 Form 10-K
***Incorporated by reference to exhibit 2.1, Form 8-K/A filed February 22, 1996
18
<PAGE> 19
NOTE: The Exhibits attached to this report will be furnished to requesting
security holders upon payment of a reasonable fee to reimburse the Company
for expenses incurred by the Company in furnishing such Exhibits.
19
<PAGE> 1
EXHIBIT 11
CORE INDUSTRIES INC AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
for the years ended August 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------
1996 1995 1994
-------------- ----------- -------------
<S> <C> <C> <C>
Earnings applicable to common stock $12,940,000 $3,828,000 $10,006,000
Net earnings $12,940,000 $3,828,000 $10,006,000
Average number of common shares outstanding (A) 10,453,360 9,809,041 9,800,135
Earnings per share $1.24 $0.39 $1.02
</TABLE>
Note A: The number of common stock equivalents related to stock
option plans were 93,000, 77,000 and 117,000 at the
fiscal years ended 1996, 1995 and 1994, respectively.
<PAGE> 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 on Form 10-K. 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 on Form
10-K 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.
<TABLE>
<CAPTION>
/s/ DAVID R. ZIMMER /s/ MARK J. MACGUIDWIN /s/ THOMAS G. HOOPER
------------------- ---------------------- ---------------------
<S> <C> <C>
David R. Zimmer Mark J. MacGuidwin Thomas G. Hooper
President and Chief Vice President-Finance and Treasurer and
Executive Officer Chief Financial Officer Controller
</TABLE>
F-1
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors Core Industries Inc
We have audited the accompanying consolidated balance sheets of Core Industries
Inc and subsidiaries as of August 31, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended August 31, 1996. Our audits also
included the financial statement schedule listed in the index at Item 14 for
each of the three years in the period ended August 31, 1996. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Core Industries
Inc and subsidiaries as of August 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
- ---------------------------
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
October 9, 1996
F-2
<PAGE> 3
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended August 31
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $230,157,000 $187,897,000 $166,260,000
Cost of sales, exclusive of depreciation and amortization $149,772,000 $121,088,000 $111,294,000
Depreciation and amortization 5,670,000 4,364,000 4,004,000
Selling, general and administrative expenses 51,743,000 43,126,000 35,333,000
Interest expense 3,815,000 3,355,000 3,820,000
Other income (1,283,000) (929,000) (2,402,000)
------------ ------------ ------------
$209,717,000 $171,004,000 $152,049,000
------------ ------------ ------------
Earnings from continuing operations before taxes on income $ 20,440,000 $ 16,893,000 $ 14,211,000
Taxes on income 7,500,000 6,200,000 5,002,000
------------ ------------ ------------
Earnings from continuing operations $ 12,940,000 $ 10,693,000 $ 9,209,000
Discontinued operations (net of income tax):
Income (loss) from discontinued operations - ($365,000) $ 797,000
Estimated loss on disposal - (6,500,000)
------------ ------------ ------------
Income (loss) from discontinued operations - ($6,865,000) $ 797,000
------------ ------------ ------------
Net earnings $ 12,940,000 $ 3,828,000 $ 10,006,000
============ ============ ============
Net earnings (loss) per share:
Continuing operations $ 1.24 $ 1.09 $ 0.94
Discontinued operations - (0.70) 0.08
------------ ------------ ------------
Net earnings $ 1.24 $ 0.39 $ 1.02
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 4
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
August 31
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 572,000 $ 1,135,000
Accounts receivable, less collection
allowances of $1,260,000 in 1996
and $1,020,000 in 1995 56,923,000 44,214,000
Inventories 51,935,000 41,276,000
Prepaid expenses 1,199,000 953,000
Deferred taxes on income 2,167,000 5,447,000
Net assets held for disposition - 16,089,000
------------ ------------
TOTAL CURRENT ASSETS $112,796,000 $109,114,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $ 896,000 $ 896,000
Buildings 17,552,000 17,746,000
Machinery and equipment 43,173,000 36,532,000
------------ ------------
Total $ 61,621,000 $ 55,174,000
Less accumulated depreciation 35,715,000 32,332,000
------------ ------------
TOTAL PROPERTY, PLANT AND
EQUIPMENT $ 25,906,000 $ 22,842,000
------------ ------------
OTHER ASSETS:
Excess of cost over net assets
of companies acquired $ 22,251,000 $ 6,774,000
Investment in real estate partnership 1,273,000 1,323,000
Notes receivable 4,311,000 1,500,000
Prepaid pensions and other 6,412,000 5,490,000
------------ ------------
TOTAL OTHER ASSETS $ 34,247,000 $ 15,087,000
------------ ------------
$172,949,000 $147,043,000
============ ============
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
August 31
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 5,100,000 $ 787,000
Accounts payable 13,016,000 7,581,000
Accrued payroll and other expenses 15,721,000 13,181,000
Dividends payable 643,000 589,000
Taxes on income 1,090,000 2,041,000
Long-term debt due within one year 4,610,000 4,610,000
------------ ------------
TOTAL CURRENT LIABILITIES $ 40,180,000 $ 28,789,000
------------ ------------
LONG-TERM DEBT,
less amount due within one year 24,520,000 32,609,000
DEFERRED TAXES ON INCOME 2,250,000 1,690,000
ACCRUED EMPLOYEE BENEFITS 3,355,000 2,942,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1:
Authorized - 100,000 shares
Issued - none
Common stock, par value $1:
Authorized - 20,000,000 shares
Issued - 11,261,499 shares in 1996
11,237,172 shares in 1995 $ 11,261,000 $ 11,237,000
Additional paid-in capital 8,570,000 999,000
Retained earnings 84,922,000 74,499,000
Cumulative translation adjustments 517,000 976,000
Treasury stock (552,877 shares in 1996
and 1,410,160 in 1995) - at cost (2,626,000) (6,698,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $102,644,000 $ 81,013,000
------------ ------------
$172,949,000 $147,043,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 5
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustments Stock
----- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
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,
$.24 per share (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)
Net earnings 3,828,000
Cash dividends declared,
$.24 per share (2,354,000)
Incentive compensation awards 18,000 189,000
Foreign currency adjustments 315,000
----------- ---------- ----------- --------- -----------
Balance, August 31, 1995 $11,237,000 $ 999,000 $74,499,000 $ 976,000 ($6,698,000)
Net earnings 12,940,000
Cash dividends declared,
$.24 per share (2,517,000)
Exercise of stock options 24,000 69,000
Treasury shares issued
re: acquisition 7,502,000 4,072,000
Foreign currency adjustments (459,000)
----------- ---------- ----------- --------- -----------
Balance, August 31, 1996 $11,261,000 $8,570,000 $84,922,000 $ 517,000 ($2,626,000)
=========== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE> 6
CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31
-------------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12,940,000 $ 3,828,000 $10,006,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation $ 4,900,000 $ 3,953,000 $ 3,794,000
Amortization 770,000 412,000 211,000
Loss from discontinued operations - 10,000,000 -
Discontinued operations - 365,000 (797,000)
Net gain on sale of division - - (915,000)
(Increase) decrease in assets:
Accounts receivable (7,206,000) (2,828,000) (1,345,000)
Inventories (2,665,000) (4,205,000) (1,969,000)
Prepaid expenses (215,000) (322,000) 580,000
Taxes on income (951,000) 514,000 935,000
Deferred taxes on income 3,840,000 (3,500,000) 800,000
Increase (decrease) in liabilities:
Accounts payable 2,397,000 (1,947,000) (200,000)
Accrued payroll and other expenses 1,472,000 2,208,000 1,147,000
Other non-current assets and liabilities (1,131,000) (225,000) 113,000
------------ ------------ -----------
TOTAL ADJUSTMENTS $ 1,211,000 $ 4,425,000 $ 2,354,000
------------ ------------ -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 14,151,000 $ 8,253,000 $12,360,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($5,396,000) ($4,988,000) ($4,242,000)
Net proceeds from sale of divisions - - 9,816,000
Acquisition of businesses ($15,643,000) (4,325,000) (2,510,000)
Discontinued operations 13,008,000 (1,728,000) 4,407,000
Other 10,000 333,000 381,000
------------ ------------ -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES ($8,021,000) ($10,708,000) $ 7,852,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on short-term notes $ 3,913,000 $ 300,000 ($900,000)
Reductions in long-term debt (8,089,000) (8,999,000) (2,967,000)
Cash dividends paid (2,517,000) (2,354,000) (2,353,000)
------------ ------------ -----------
NET CASH USED IN FINANCING
ACTIVITIES ($6,693,000) ($11,053,000) ($6,220,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (563,000) (13,508,000) 13,992,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD $ 1,135,000 $ 14,643,000 $ 651,000
------------ ------------ -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 572,000 $ 1,135,000 $14,643,000
============ ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 4,133,000 $ 3,512,000 $ 3,757,000
============ ============ ===========
Income taxes paid $ 4,800,000 $ 5,500,000 $ 3,200,000
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE> 7
CORE INDUSTRIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
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.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Inventories - Approximately 91% and 88% of inventories at August 31,
1996 and 1995, respectively, are valued at the lower of cost or market on a
first-in, first-out (FIFO) basis. Other inventories are valued at cost on a
last-in, first-out (LIFO) basis. If all inventories were valued on a FIFO
basis, inventories would have been $1,613,000 and $1,562,000 higher than
reported at August 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Following is the detail of inventories:
1996 1995
----------- -----------
<S> <C> <C>
Raw materials and supplies $24,399,000 $17,734,000
Work in process 7,864,000 8,225,000
Finished goods 19,672,000 15,317,000
----------- -----------
Total $51,935,000 $41,276,000
=========== ===========
</TABLE>
Property, Plant and Equipment - Items of property, plant and equipment,
including significant improvements to existing facilities and leasehold
improvements, are recorded at cost. Expenditures for maintenance and
repairs are charged to operations in the year incurred. Long-term lease
obligations incurred in connection with industrial development revenue bond
financing have been capitalized at the total principal amount of the
obligations. Depreciation is computed principally on an accelerated basis.
Excess of Cost Over Net Assets of Companies Acquired - The excess of
total cost over net assets of companies acquired is being amortized over
either 15 or 40 years except for $2,048,000 relating to acquisitions prior
to October 31, 1970 which is not being amortized. Amortization expense
amounted to $584,000 in 1996, $227,000 in 1995 and $84,000 in 1994.
Accumulated amortization amounted to $2,734,000 and $2,150,000 at August 31,
1996 and 1995, respectively.
Investment in Real Estate Partnership - The Company has a minority
interest in a partnership formed for the purpose of owning an office
building, a portion of which the Company leases for its corporate offices.
Rents paid were $445,000 in 1996, $382,000 in 1995 and $346,000 in 1994.
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 (10,453,360 shares in 1996, 9,809,041
shares in 1995, and 9,800,135 shares in 1994). The number of common stock
equivalents was not significant.
F-7
<PAGE> 8
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.
Reclassifications - Certain reclassifications have been made to conform prior
years' data to the current year presentation.
Cash Flow Statement - In connection with the acquisition of CMB
Industries and Davis Filters in the second quarter of fiscal 1996, the
Company issued 857,283 shares of its common stock from treasury valued at
approximately $11,574,000 and issued notes payable totaling $7,400,000.
2. DEBT AND COMMITMENTS
The Company has a $20,000,000 unsecured line of credit with a major
domestic bank at interest rates on an as-offered basis, which have been less
than the prime rate. There was $15,300,000 available under this facility at
August 31, 1996.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Notes payable $22,330,000 $30,440,000
Industrial development revenue bonds 6,800,000 6,779,000
----------- -----------
Total $29,130,000 $37,219,000
Portion due within one year 4,610,000 4,610,000
----------- -----------
Total $24,520,000 $32,609,000
=========== ===========
</TABLE>
Notes payable include three unsecured promissory notes to insurance
companies: one 9.8%, $4,000,000 note and two 10.02% notes aggregating
$18,000,000. The notes require semi-annual interest payments with repayment
of principal in 10 equal annual installments which commenced August 1993 for
the 9.8% note and commenced May 1995 for the 10.02% notes. The other note
payable requires repayment in three annual equal installments. At August
31, 1996, letters of credit amounting to $5,500,000 were outstanding.
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 which averaged 3.79% as of
August 31, 1996.
Scheduled principal repayments of long-term debt are $4,610,000 in 1997
and 1998, $4,110,000 in 1999, and $3,000,000 in the two years ending 2000
and 2001.
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 $27,295,000 were
available for the payment of cash dividends at August 31, 1996.
The estimated fair value of the notes payable at August 31, 1996 was
approximately $23,800,000. 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 $6,800,000.
F-8
<PAGE> 9
3. TAXES ON INCOME
Income taxes on a continuing operations basis are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $2,560,000 $5,250,000 $3,654,000
State and local 1,100,000 950,000 548,000
---------- ---------- ----------
Total $3,660,000 $6,200,000 $4,202,000
Deferred 3,840,000 0 800,000
---------- ---------- ----------
Total taxes on income $7,500,000 $6,200,000 $5,002,000
========== ========== ==========
</TABLE>
Federal income taxes include foreign income taxes of $93,000 in 1996,
($17,000) in 1995, and ($44,000) in 1994. The foreign pretax earnings
(loss) amounted to $500,000 in 1996, ($400,000) in 1995, and ($199,000) in
1994.
A reconciliation of income taxes computed using the U.S. federal
statutory rate to the provision for federal income taxes follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Computed at U.S. statutory rate $7,154,000 $5,911,000 $4,974,000
State and local taxes 385,000 616,000 356,000
Goodwill amortization and write-offs 129,000 62,000 62,000
Foreign income taxes (82,000) 123,000 26,000
Research tax credit (45,000) (353,000) (235,000)
Other (41,000) (159,000) (181,000)
---------- ---------- ----------
Total taxes on income $7,500,000 $6,200,000 $5,002,000
========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Disposed operations $3,131,000 - -
Depreciation (96,000) $(185,000) $(229,000)
Employee benefits 374,000 144,000 496,000
Inventory related 69,000 (60,000) 67,000
Accounts receivable allowances (148,000) (84,000) -
Tax credit carryforwards - - 567,000
Acquisition 304,000 - -
Other 206,000 185,000 (101,000)
---------- --------- ---------
Total deferred $3,840,000 $ 0 $ 800,000
========== ========== =========
</TABLE>
F-9
<PAGE> 10
Deferred tax (assets) liabilities are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Discontinued operations ($3,823,000)
Inventory related ($901,000) (693,000)
Accrued expenses (153,000) (324,000)
Accounts receivable allowances (239,000) (358,000)
Other (365,000) -
----------- ----------
Gross deferred tax assets ($1,658,000) ($5,198,000)
----------- ----------
Depreciation $928,000 $ 871,000
Employee benefits 520,000 296,000
Other 293,000 274,000
----------- ----------
Gross deferred tax liabilities $ 1,741,000 $1,441,000
----------- ----------
Net deferred tax liabilities (assets) $ 83,000 ($3,757,000)
=========== ==========
</TABLE>
4. RETIREMENT PLANS
PENSION PLANS
The Company has three defined benefit retirement plans covering a
portion of its domestic employees. The plans' benefits are based principally
on years of credited service and on participants' compensation. The plans'
assets consist principally of marketable fixed income and equity securities.
Net pension credit from the Company's defined benefit plans included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 309,000 $ 162,000 $ 187,000
Interest on projected benefit obligations 728,000 548,000 544,000
Actual return on plan assets (1,322,000) (1,963,000) (4,000)
Net amortization and deferral (129,000) 719,000 (1,225,000)
----------- ----------- ----------
Net pension credit ($ 414,000) ($ 534,000) ($ 498,000)
=========== =========== ==========
</TABLE>
F-10
<PAGE> 11
The following table sets forth the funded status of the defined benefit
plans at August 31:
<TABLE>
<CAPTION>
1996 1995
------------------------ -----------
Assets Accumulated Assets
Exceed Benefits Exceed
Accumulated Exceed Accumulated
Benefits Assets Benefits
----------- ----------- -----------
<S> <C> <C> <C>
Vested benefit obligation $ 7,074,000 $ 1,607,000 $ 6,860,000
=========== =========== ===========
Accumulated benefit obligation $ 7,363,000 $ 1,712,000 $ 7,208,000
=========== =========== ===========
Plan assets at fair value $13,594,000 $ 1,469,000 $12,989,000
Projected benefit obligation (8,267,000) (2,304,000) (8,126,000)
----------- ----------- -----------
Assets in excess of (less
than) projected benefit
obligation $ 5,327,000 ($ 835,000) $ 4,863,000
Unrecognized net (gain) loss:
From excess funding at
implementation of SFAS 87 683,000 776,000
Other (665,000) 440,000 (901,000)
----------- ----------- -----------
Prepaid pension cost
(or pension liability) $ 5,345,000 ($ 395,000) $ 4,738,000
=========== =========== ===========
</TABLE>
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 7.75% in 1996 and 1995.
The assumed rate of return on assets was 9%, and the assumed rate of increase
in future compensation levels was 5%. The primary reason for increases in
plan assets and benefit obligations relates to the Company assuming a defined
benefit plan in connection with the acquisition of CMB Industries.
The Company also contributes certain amounts per labor hour to
multi-employer union pension funds. Such contributions amounted to $528,000
in 1996, $389,000 in 1995, and $427,000 in 1994.
F-11
<PAGE> 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 31% of
employees may become eligible for these benefits.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits attributed
to service during the period $ 48,000 $ 42,000 $ 49,000
Interest cost on accumulated
postretirement benefit obligation 274,000 263,000 260,000
-------- -------- --------
Net periodic postretirement benefit cost $322,000 $305,000 $309,000
======== ======== ========
</TABLE>
The Company's postretirement plans are not funded. The status of the
plans at August 31 follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Accumulated postretirement benefit
obligation
Retirees $2,635,000 $2,729,000
Fully eligible and other
active participants 709,000 612,000
---------- ----------
Total $3,344,000 $3,341,000
Unrecognized loss (361,000) (399,000)
---------- ----------
Total accrued postretirement benefits $2,983,000 $2,942,000
========== ==========
</TABLE>
For measurement purposes, a 11.2% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1996. 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, 1996 by approximately 3.7% and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year then ended by 3.2%.
The weighted-average discount rates used in determining the accumulated
postretirement benefit obligation was 7.75% as of August 31, 1996 and August
31, 1995.
Cash expenditures for postretirement benefits were $282,000 in 1996,
$270,000 in 1995, and $216,000 in 1994.
5. LEASES
The Company leases certain office and production facilities and
equipment under agreements expiring from 1997 through 2006. Several of the
lease commitments contain renewal and/or purchase options exercisable at the
end of the lease terms.
F-12
<PAGE> 13
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, 1996:
<TABLE>
<CAPTION>
Year ending August 31:
<S> <C>
1997 $ 720,000
1998 700,000
1999 600,000
2000 520,000
2001 450,000
Later years 1,070,000
----------
Total minimum payments required $4,060,000
==========
</TABLE>
The rental expense for all operating leases was $850,000, $560,000, and
$610,000 for the years ended August 31, 1996, 1995 and 1994, 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 222,500 shares ($13.75 to $14.56 per share) were
granted during 1996 and options for 229,000 shares ($13.31 to $13.56 per
share) were granted during 1994. With 13,000 options expiring in 1996 and
1995, 438,500 shares were outstanding at August 31, 1996. Vesting of most of
the shares over the first three years following grant is dependent upon
appreciating stock market valuation of Core stock. If the Company's stock
fails to reach and maintain for defined periods of time those specified
levels, vesting is delayed until 9 1/2 years after grant.
Under prior employee stock option plans, options were outstanding as of
August 31, 1996, for 136,200 shares ($5.25 to $10.94 per share) with
expiration dates through 2002. Options for 2,000 and 4,500 shares were
exercised in 1994 and options for 8,700, 5,000 and 8,900 shares expired in
1996, 1995, and 1994, respectively.
The 1991 and 1988 Director Discounted Stock Option Plans are for
non-employee directors of the Company. In accordance with the Plans,
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, 300,000 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 12,941 shares ($9.56 per share), and 28,128
shares ($7.3594) were granted in 1996 and 1995, respectively. Options for
45,027 shares were exercised in 1996. 173,317 options were outstanding as of
August 31, 1996, with 81,656 shares reserved for future grants.
Pursuant to incentive compensation programs, the Company in 1995 and
1994 awarded 18,620 and 6,594 shares of common stock, respectively, to key
employees of the Company.
7. PREFERRED SHARE PURCHASE RIGHTS
In September 1987, the Board of Directors declared a dividend
distribution of one Preferred Share Purchase Right for each outstanding share
of common stock. Each right will entitle shareholders to purchase one
two-hundredth of a share of a new series of junior participating preferred
stock at an exercise price of $50. The rights will only be exercisable 30
days after a person or group acquires 20% or more of the Company's common
stock or commences a tender offer to acquire 30% or more of the common
stock. The Company has reserved 48,876 shares of its preferred 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
F-13
<PAGE> 14
of the acquiring company having a market value of twice the exercise
price of the right. The rights may be redeemed by the Company at a price of
$0.02 per right up to 30 days after a 20% position has been acquired or
completion of a tender offer for 30% or more of common stock. The rights
will expire on September 28, 1997.
8. ACQUISITIONS
During fiscal 1996, the Company acquired two companies. Effective
December 2, 1995, the Company acquired the common stock of CMB Industries, a
privately held producer of specialty valves, with annual revenues of
approximately $30 million. Effective January 1, 1996, the Company purchased
Davis Filters, Ltd., a manufacturer of pipeline strainers located near
Birmingham, England, with annual sales of approximately $1 million. The
total cost of these acquisitions included a combination of cash, debt
assumptions and notes payable issued totaling approximately $15.6 million
plus 857,283 shares of the Company's common stock, which stock was valued at
$13.50 per share.
During fiscal 1995, the Company purchased two companies. Core's Amprobe
Instrument Division purchased Promax Industries, Inc., a manufacturer of
refrigerant recycling and recovery products for the heating, ventilating, and
air conditioning (HVAC) industry. Core's Fluid Control Group purchased Oil
and Gas Specialties, Inc. (OGASCO) which designs and fabricates skid-mounted
pipeline metering systems and fabricated strainers. The total cost of the
above acquisitions was approximately $4,800,000, including a short-term note
payable with a balance due of $487,000 at August 31, 1995.
During fiscal 1994, the Company purchased the grain drill business of
Best Manufacturing (Farm Equipment Group), and Hendrix Steel & Fabricating,
Inc. (Fluid Control Group), a fabricator of strainers and other specialty
flow control products. The total cost of these acquisitions was
approximately $3,370,000, including a five year note payable with a balance
due of $440,000 at August 31, 1995.
These acquisitions were accounted for as purchases, and accordingly, the
operating results of the acquired businesses have been included in the
Company's financial statements from their respective dates of acquisition.
The following unaudited pro forma summary reflects the Company's consolidated
results from continuing operations as if the above-noted acquisitions had
been acquired as of the beginning of fiscal 1995. This pro forma summary
includes adjustments to give effect to amortization of goodwill, interest
expense on acquisition debt, together with related income tax effects. The
pro forma results are not necessarily indicative of what would have occurred
if the acquisition had been in effect for the entire year, nor are they
intended to be a projection of future results.
<TABLE>
<CAPTION>
(Unaudited)
Year Ended August 31
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net Sales $237,357,000 $218.600,000
============ ============
Earnings from continuing operations $ 12,937,000 $ 10,443,000
============ ============
Net earnings per share $1.21 $0.98
===== =====
</TABLE>
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.
F-14
<PAGE> 15
Other income for the year ended August 31, 1994 includes pretax gain of
$1,475,000 (total of $.09 per share) related to the sale of the Du-Al
Division.
10. DISCONTINUED OPERATIONS
On October 6, 1995, the Company adopted a formal plan to divest its
wholly-owned electronics-related subsidiary, Cherokee International, Inc.
and its subsidiaries (Cherokee) effective August 31, 1995. Cherokee
represented a separate line of business producing electronic power supplies
sold to distinct customers and has been accounted for as a discontinued
operation. Appropriate provisions were recorded in the fourth quarter of
fiscal 1995 for (a) the estimated losses for the discontinued operation
through its expected disposal date, (b) reduction of assets to their net
realizable values, and (c) the anticipated liabilities related to the
disposal. The total provision amounted to $6,500,000, net of income tax
benefit of $3,500,000.
Selected information related to Cherokee's operations prior to
discontinuation follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Sales $44,669,000 $53,193,000
Pretax income (loss) (285,000) 1,845,000
Income taxes 80,000 1,048,000
Net income (loss) (365,000) 797,000
Earnings (loss) per share (.04) .08
</TABLE>
The net assets of the discontinued Cherokee operation held for sale were
included in the Balance Sheet as of August 31, 1995 under the caption "Net
Assets Held for Sale." In 1996 the net assets of the discontinued operation
were sold for cash and a long-term note receivable. It is anticipated that
the provision established in 1995 should be adequate.
11. CONTINGENCIES
The Company is a defendant in various lawsuits covering a wide range of
matters. In some of these pending lawsuits, the remedies sought or damages
claimed are substantial. The Company is vigorously defending against these
claims. While it is not possible to predict with certainty the ultimate
outcome of these lawsuits, management believes that resolution of these
matters will not have a material effect on the consolidated financial
position of the Company.
F-15
<PAGE> 16
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). Assets and capital expenditures are also reported net of items
applicable to discontinued operations.
(In Thousands)
<TABLE>
<CAPTION>
Earnings
Depreciation Before
Capital and Net Income
Assets Expenditures Amortization Sales Taxes
-------- ------------ ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1996:
Fluid controls and
construction products $ 87,830 $3,722 $3,399 $115,497 $15,134
Test, measurement and control 38,029 912 1,156 69,131 8,015
Farm equipment 35,533 711 996 45,529 5,073
Corporate unallocated 11,557 51 119 - (3,966)
Interest expense - - - (3,816)
-------- ------ ------ -------- -------
Total $172,949 $5,396 $5,670 $230,157 $20,440
======== ====== ====== ======== =======
Year ended August 31, 1995:
Fluid controls and
construction products $ 49,951 $2,483 $2,404 $ 80,732 $10,766
Test, measurement and control 34,702 984 1,022 63,819 6,928
Farm equipment 38,239 1,571 813 43,346 6,075
Corporate unallocated 7,266 139 125 - (3,521)
Discontinued operations 16,089 - - - -
Interest expense - - - - (3,355)
-------- ------ ------ -------- -------
Total $146,247 $5,177 $4,364 $187,897 $16,893
======== ====== ====== ======== =======
Year ended August 31, 1994:
Fluid controls and
construction products $ 44,606 $1,610 $2,351 $ 78,745 $ 8,624
Test, measurement and control 26,627 1,512 833 49,229 5,328
Farm equipment 34,082 1,073 693 38,286 7,257
Corporate unallocated 21,112 115 127 - (3,178)
Discontinued operations 29,960
Interest expense - - - - (3,820)
-------- ------ ------ -------- -------
Total $156,387 $4,310 $4,004 $166,260 $14,211
======== ====== ====== ======== =======
</TABLE>
F-16
<PAGE> 17
13. QUARTERLY SALES AND EARNINGS SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
Continuing Operations Total
------------------------------------------ --------------------
Net
Net Net Earnings
Cost Net Earnings Earnings (Loss)
Net Sales of Sales Earnings Per Share (Loss) Per Share
--------- -------- -------- --------- -------- ---------
(In Thousands, except per share data)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1996
First Quarter $ 46,437 $ 29,999 $ 2,410 $ .25 $ 2,410 $ .25
Second Quarter 58,322 38,173 2,862 .27 2,862 .27
Third Quarter 63,124 41,525 3,620 .34 3,620 .34
Fourth Quarter 62,274 40,075 4,048 .38 4,048 .38
-------- -------- ------- ----- ------- -----
Total Year $230,157 $149,772 $12,940 $1.24 $12,940 $1.24
======== ======== ======= ===== ======= =====
FISCAL 1995
First Quarter $ 43,187 $ 27,724 $ 2,250 $ .23 $ 2,021 $ .21
Second Quarter 44,819 28,745 2,316 .24 2,362 .24
Third Quarter 52,426 34,269 3,023 .30 3,133 .32
Fourth Quarter 47,465 30,350 3,104 .32 (3,688) (.38)
-------- -------- ------- ----- ------- -----
Total Year $187,897 $121,088 $10,693 $1.09 $ 3,828 $ .39
======== ======== ======= ===== ======= =====
</TABLE>
F-17
<PAGE> 1
EXHIBIT 22
CORE INDUSTRIES INC AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
NAME OF SUBSIDIARY STATE OF INCORPORATION
---------------------------------------------------- ----------------------
Anilam Electronics Corporation* Florida
The Robert Carter Corporation Indiana
CII Tustin, Inc.* California
Dynamic Electronics Manufacturing Inc.* California
Feterl Mfg. Co. South Dakota
FlexStar, Inc.* California
GSE, Inc. Michigan
Hilton Industries, Inc.* Florida
Hendrix Steel & Fabricating, Inc. Texas
Mueller Asia Pte. Ltd. Singapore
Mueller U.K. Ltd. United Kingdom
Davis Filters Ltd. United Kingdom
Oil & Gas Specialties Co. Texas
Pasar, Inc. Colorado
Poly-Craft, Inc. Ohio
Sunflower Manufacturing Co., Inc. Kansas
CMB Industries, Inc. California
*Discontinued operation
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Core Industries Inc and subsidiaries on Form S-3 (File No. 333-5195) and Form
S-8 (File No. 033-56149) of our report dated October 9, 1996, on our audits of
the consolidated financial statements and financial statement schedule of Core
Industries Inc as of August 31, 1996 and 1995, and for each of the three years
in the period ended August 31, 1996, which report is included in this Annual
Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Detroit, Michigan
October 29, 1996
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<S> <C> <C>
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<FISCAL-YEAR-END> AUG-31-1996 AUG-31-1996
<PERIOD-START> JUN-01-1996 SEP-01-1995
<PERIOD-END> AUG-31-1996 AUG-31-1996
<CASH> 572,000 572,000
<SECURITIES> 0 0
<RECEIVABLES> 58,183,000 58,183,000
<ALLOWANCES> (1,260,000) (1,260,000)
<INVENTORY> 51,935,000 51,935,000
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<PP&E> 61,621,000 61,621,000
<DEPRECIATION> (35,715,000) (35,715,000)
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<CURRENT-LIABILITIES> 40,180,000 40,180,000
<BONDS> 24,520,000 24,520,000
0 0
0 0
<COMMON> 11,261,000 11,261,000
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<TOTAL-COSTS> 15,450,000 57,413,000
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<INTEREST-EXPENSE> 785,000 3,815,000
<INCOME-PRETAX> 6,438,000 20,440,000
<INCOME-TAX> 2,390,000 7,500,000
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