<PAGE>
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended January 2, 1999
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: 0-21345
CONTROL DEVICES, INC.
---------------------------
(Exact name of registrant as specified in charter)
Indiana 01-0490335
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation of organization) identification No.)
228 Northeast Road, Standish, Maine 04084
- ----------------------------------- -----------------------
(Address of principal executive offices) (Zip code)
The Company's telephone number, including area code: (207) 642-4535
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None Not applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Shares, no par value
---------------------------
(Title of Class)
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 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 the 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]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on January 22, 1999 was approximately $125,000,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Shares, no par value:
8,325,967 shares as of January 22, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K
Document Incorporated Part of Form 10-K
- --------------------- --------------------
Proxy Statement for 1999 Annual Meeting of Shareholders Part III
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PART 1
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Item 1: Description of Business
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General Development of Business:
--------------------------------
On July 29, 1994, Control Devices, Inc. ("CDI" or the "Company") acquired
substantially all of the assets and certain liabilities (the ''Business'') of
GTE Control Devices Incorporated and Dominican Overseas Trading Company, two
subsidiaries of GTE Corporation (collectively referred to herein as ''GTE'').
For periods prior to July 29, 1994, the Business is sometimes referred to herein
as the "Predecessor Company." The Company is an Indiana corporation,
incorporated in June 1994 to purchase the Business. Unless the context
otherwise requires "CDI" and "the Company" includes Control Devices, Inc. and
its subsidiaries.
The Company filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission, which was declared effective on October 2, 1996. On
October 8, 1996, the Company closed on the sale of 3,333,332 Common Shares
(giving adjustment for subsequent stock splits) in connection with its initial
public offering (the "public offering") and received net proceeds of
approximately $15.7 million. On October 15, 1996, the Company issued 500,000
Common Shares in connection with the exercise of the underwriter's overallotment
option granted in connection with the public offering and received net proceeds
of approximately $2.5 million.
On December 15, 1997, the Company effected a 4-for-3 stock split of its
Common Shares which entitled each shareholder to receive one additional share
for each three outstanding Common Shares held of record as of the close of
business on December 1, 1997. On June 15, 1998, the Company effected a 5-for-4
stock split of its Common Shares which entitled each shareholder to receive one
additional share for each four outstanding Common Shares held of record as of
the close of business on May 29, 1998. All share and per share amounts have
been restated to give retroactive effect to the stock splits.
In April 1996, the Company acquired all of the outstanding capital stock of
Realisations et Diffusion pour l'Industrie ("RDI"), which is headquartered near
Paris, France. RDI markets, distributes, assembles and packages a full line of
circuit protection devices, including various fuses and circuit breaker
components and assemblies manufactured by other companies.
On June 26, 1998, CDI purchased Arnould Electro Industrie SA ("AEI"), which
distributes electronic components to the Northern European market from its
headquarters near Paris, France. In December 1998, AEI was merged into RDI
(herein after, RDI unless noted refers to RDI and AEI).
The Company purchased RDI and AEI primarily to enhance its market penetration
of the automotive original equipment manufacturer ("OEM") market in Europe, in
part by locating itself closer to European customers. Management believes that
the resulting expansion of its European presence and improvement of its European
distribution network will enhance the Company's ability to distribute in Europe
existing, internally developed and newly acquired products.
The Company designs, manufactures and markets circuit breakers, electronic
sensors and electronic ceramic component parts used by OEMs in the automotive,
appliance and telecommunications markets. The Company has supplied circuit
breakers to automotive OEMs for more than 30 years, and in 1991 expanded its
offerings to the automotive market by introducing its initial sensor product, a
solar sensor used for climate control systems in luxury cars. The Company's
products are sold to the three major North American automotive OEMs, General
Motors Corporation ("GM"), Ford Motor Company ("Ford") and Daimler-Chrysler
Corp. ("Chrysler"), as well as to foreign OEMs such as Mercedes and Volkswagen.
Other principal customers include Danfoss, Celwave, Bartley Machine, and Siecor.
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Narrative Description of the Business:
--------------------------------------
Products:
- ---------
Circuit Protection. The Company manufactures and markets for the automotive
and appliance industries; circuit breakers which protect transformers, battery
chargers, compressors and small motors from heat and current overloads. The
technology utilized in such devices traces back to automatically resetting
circuit breakers developed as an alternative to fuses by Sylvania in 1956. Due
to the resetting feature, Sylvania's circuit breakers provided the same
protection from current overloads as fuses without the need for replacement.
The Company manufactures over 250 types of circuit breakers, including over 150
types of glass enclosed circuit breakers. The Company's sales of circuit
breakers were $35.8 million, or 44.8% of net sales in 1998, $32.3 million, or
45.9% of net sales in 1997, and $31.7 million, or 52.3% of net sales in 1996.
Electronic Sensors. The Company's automotive sensors use optical sensing
technologies to recognize external conditions and send an electronic signal to a
central processor which automatically triggers a control response, that in many
cases, had required manual operation. The functions automatically controlled by
the Company's sensors include climate control and headlight intensity in
response to sunlight, power steering assist in response to driving conditions,
wiper control in response to precipitation and defrost operation in response to
window fog. The Company's rain, window fog and "next generation" solar (climate
control)/twilight (headlamp control) sensors are in various stages of
development. The Company's sales of sensors were $16.6 million, or 20.7% of net
sales in 1998, $12.7 million, or 18.1% of net sales in 1997, and $8.8 million or
14.5% of net sales in 1996.
Electronic Ceramics. The Company's ceramic products include PTC (Positive
Temperature Coefficient) thermistors and dielectric resonators. PTC thermistors,
which convert electrical current into heat, are used as component parts in
supplemental automotive heating applications, room air heaters and protection
devices for switching equipment critical to the operation of telephone
companies' central offices (facilities that provide the local switching and
distribution functions for telephone companies). Dielectric resonators are used
to filter frequencies in wireless communications equipment. In addition to
sales to cellular communications equipment manufacturers, the Company provides
custom designed dielectric resonators to the Personal Communication Systems
("PCS") equipment manufacturers. The Company's sales of ceramics were $5.7
million, or 7.1% of net sales in 1998, $7.0 million, or 10.0% of net sales in
1997, and $4.5 million, or 7.5% of net sales in 1996.
RDI. In addition to the Company's products, RDI distributes a number of
electronic components in Europe such as capacitors, connectors, circuit
protection devices produced by other manufacturers and various electronic fuses
and aftermarket products. These components are supplied to the automotive,
appliance, and telecommunication OEM markets and are sourced and stocked by RDI.
Sales of RDI were $31.1 million in 1998, $25.3 million in 1997, and $20.6
million in 1996, which includes $9.2 million in 1998, $7.1 million in 1997, and
$5.1 million in 1996 of the Company's circuit protection and electronic sensors
sales discussed in the above sections. The remaining $21.9 million, or 27.4% in
1998, $18.2 million, or 26.0% in 1997 and $15.5 million, or 25.7% in 1996,
includes other products distributed by RDI.
Markets:
- --------
The Company sells its products primarily to three markets: automotive,
appliance and telecommunications.
Automotive Market:
Circuit Protection. The Company produces over 100 types of metal-based
(covered or uncovered) automatically resetting circuit breakers. These products
utilize a bimetal technology which essentially protects electrical circuits and
motors from heat and current overloads. The Company offers a broad line of
automotive circuit breakers which operate in a wide range of ambient
temperatures, thereby enabling customers to choose the protection most
appropriate for the particular application. Typical applications include
protection for wiring
3
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harnesses, headlamps and small motors. The Company's circuit breakers are used
as protectors for 12-volt DC motors. These products are cycling, or self-
resetting, circuit breakers created for mounting in the motor and are used to
protect motors with currents of 20 amps (such as windshield wiper motors) up to
40 amps (such as power seat motors). Another line of the Company's automatically
resetting circuit breakers are installed in automotive fuse blocks or wiring
harnesses and are used to protect circuits which occasionally experience
momentary overloads (e.g., headlamps, for which fuses can present a safety
hazard) and to minimize the inconvenience of fuse replacement (e.g., cigarette
lighters, which can overload if used for other applications).
In Europe, the Company distributes a full line of circuit protection products
through RDI. These products include those manufactured by the Company and
complementary products distributed for other manufacturers.
Electronic Sensors. The Company's solar sensor, used for the automatic
climate control system in vehicles, measures the direct solar heating felt by
the automobile's occupants. The Company's solar sensor is customized for each
car model by taking into account the roof line and placement of windows.
The Company's steering wheel sensor optically measures the speed and direction
of the steering column rotation, and sends an electric signal to the car's
central processor to make adjustments in stiffness of the power steering system
of the car. The technology used in its steering wheel sensor has other
automotive applications in which the Company is pursuing.
The Company's twilight sensor signals the vehicle's headlight system to switch
from low intensity to high in twilight conditions and was developed for use in
GM's Daylight Running Lamps ("DRL") program. The Company began shipments of
twilight sensors to GM in 1996, and began shipping a variation of the twilight
sensor (Autolamp) to Ford in 1997. In 1998, the Company introduced and began
shipments of "next generation" solar/twilight sensors which combine both
functions in one package.
The Company's rain and window fog and "next generation" steering encoder
sensors are in various stages of development. The Company's rain sensor
measures precipitation on the windshield and sends a signal to adjust the
windshield wiper speed accordingly. The window fog sensor optically detects
condensation or frost on front and/or rear windows and sends a signal to adjust
the defroster before such condensation or frost is detectable by the human eye.
By eliminating frost and condensation before it has a chance to accumulate, the
driver's visibility remains unimpaired.
Electronic Ceramics. The Company's ceramic heaters are used to provide
supplemental heat in electric vehicles. The Company is also developing ceramic
supplemental automotive heaters for use in high efficient gas and diesel
vehicles as well as for instant heat applications.
Appliance Market:
The Company believes it is a leading supplier of glass enclosed circuit
breakers for the small motor appliance market. The Company also supplies ceramic
PTC thermistor based heaters to the appliance market and, through RDI,
distributes component parts manufactured by other companies. The products
distributed by RDI include capacitors, filters, and condensers.
Circuit Protection. The Company manufactures a number of different types of
circuit breakers for the appliance market. The Company's glass enclosed circuit
breakers are generally sold for applications in which quality, cycle life and
dependability are the critical factors. These products prolong motor life by
shutting off motors in the presence of excess ambient heat or current. A key
feature of the glass circuit breakers is the hermetic seal created by the glass
enclosure. This hermetic seal makes it the lowest cost type of circuit breaker
which can be totally immersed in a liquid or gas environment and still maintain
consistent operation. Typical uses
4
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include protection of compressor motors and other small motors where the breaker
is required to be mounted directly inside the motor, such as refrigerator
compressor motors, dishwasher motors and garage door opener motors. Internal
mounting in motors places the circuit breaker in close proximity to the source
of heat, allowing for faster response times under fault conditions than can be
delivered by externally mounted breakers. Internal mounting also eliminates the
need for an external mounting location and associated wiring connectors, and
facilitates greater efficiency in compressor motor design.
In 1998, the Company started supplying circuit breakers to riding toy
manufacturers. These breakers protect battery powered riding toys from heat and
current overloads.
The Company also supplies circuit breakers to recessed lighting manufacturers.
These breakers protect the fixture from heat overloads and cause the light to
blink in a fault condition.
Electronic Components. The Company supplies ceramic PTC thermistors for use
in small electric air heaters. The PTC ceramic is designed to maintain a
constant temperature, making them safer than certain other electric air heating
technologies. In addition, RDI distributes electronic components to the European
appliance industry.
Telecommunications Market:
The Company manufactures and markets PTC current limiters and dielectric
resonators for applications in the telecommunications market.
PTC Current Limiters. The Company supplies PTC current limiters for use in
modules which prevent current surges from damaging line cards (circuit boards)
in telephone companies' central office switching systems.
Dielectric Resonators. The Company supplies a line of dielectric resonators
to OEMs of wireless telecommunications equipment. Dielectric resonators are an
integral part of wireless communication filters, which capture the desired
frequencies and keep the desired frequencies from interfering with others.
These filters are typically placed at transmission sites, where space is at a
premium, and the Company therefore believes that the size of dielectric
resonator based filters, which are smaller than larger air cavity based filters,
offer a competitive advantage. The markets for these products include cellular
and PCS applications.
PCS is the term used to describe the wireless telecommunications services
that are offered by those companies that acquired or will acquire licenses for a
radio spectrum (frequency range 1850-1990 MHz) in the FCC auctions. PCS
competes directly with cellular telephone, paging and mobile radio services.
Marketing and Customers
The Company markets its products through a direct sales and service force
located in the Company's sales office near Detroit, Michigan, at the Company's
corporate headquarters in Standish, Maine and at RDI's headquarters near Paris,
France. The Company also sells and distributes its products through a number of
independent agents and distributors in Europe and Asia. In Europe, RDI acts as
a technical and value added resource to its customers.
In the automotive market, the Company sells its products primarily to parts
suppliers, including subsidiaries of automotive manufacturers, rather than
directly to the automobile manufacturer. The Company must generally market its
products to both the manufacturer (to insure the design of the automobile
incorporates the Company's products) and to the supplier of the particular
parts in which the Company's products will be incorporated. As is typical in
the automotive and appliance industries, the Company's customers buy products
through the use of purchase orders rather than long-term contracts.
5
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One of the Company's customers, GM, accounted for approximately 16%, 14% and
12% of net sales in 1998, 1997 and 1996, respectively. These sales were
primarily to two divisions of GM, Packard Electric and Delco Electronics, both
of which manufacture electrical systems for automotive companies, including GM.
No other customer accounted for more than 10% of sales in 1998, 1997 or 1996.
For domestic, foreign, and export sales and activities, see Note 16 to the
Company's Consolidated Financial Statements.
Research and Development
The Company expended $5.4 million, $4.4 million, and $3.8 million on research
and development in 1998, 1997, and 1996, respectively. The increase in research
and development expenditures from 1996 to 1998 was a result of the Company's
focus on new product development in the electronic sensor product line based on
the Company's existing optical sensing technologies. In 1998, 1997, and 1996,
the Company devoted 9.3%, 8.6%, and 8.7%, respectively, of net sales excluding
RDI, to research and development. In 1998, 1997, and 1996, the Company devoted
approximately 75% of its research and development expenditures to electronic
sensors. The Company maintains a research and development staff at its Standish,
Maine facility of 45 employees as of January 2, 1999, 33 of whom were devoted
to new sensor product development.
The following tables summarize the results of the Company's historical
research and development activities and the focus of its current research and
development activities.
<TABLE>
<CAPTION>
YEAR OF INTRODUCTION PRODUCT APPLICATION
- -------------------- ----------------------------------- -----------------------------------------
<C> <S> <C>
1991 Solar Sensor Automatic Climate Control
1993 Dielectric Resonator Wireless Telecom-Cellular
1995 Steering Wheel Sensor Power Steering Assist
1995 Dielectric Resonator Wireless Telecom-PCS
1996 Twilight Sensor Daylight Running Lamps
1997 Autolamp Sensor Headlamp On/Off
1997 Solar Sensor for Trucks Automatic Climate Control on Trucks
1997 Electric Vehicle Heaters Automobile Heaters
1997 Mini-Footprint Circuit Breaker Automotive Electrical Distribution Boxes
1998 Quadrant Sensor Four Zone Climate Control
1998 PSMB Circuit Breaker Riding Toy Applications
1998 High-Q Dielectric Enhanced PCS Applications
1998 Micro Circuit Breaker Thermostat Applications
1998 Interactive Vehicle Steering Sensor Advanced Steering/Suspension Control
1998 Solar/Twilight Sensor Dual Function Climate-Headlight Control
</TABLE>
6
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<TABLE>
<CAPTION>
DEVELOPMENT STAGE PRODUCTS APPLICATION STATUS
- ------------------------------- -------------------------------- --------------------------------------
<S> <C> <C>
Rain Sensor Wiper Function and Speed Control Testing with a North American OEM
Window Fog Sensor Defrost Control Active 2000 program with an European
Tier 1 Manufacturer
Tunnel Twilight Combines Twilight and Tunnel Testing with European OEM's
Sensors
Supplemental/Instant Heater Automatic Heater Testing with North American and
European Tier 1 Manufacturers
</TABLE>
Patents, Licenses and Trademarks
The Company owns 12 patents and has 6 pending. The Company does not consider
any single patent to be material to its business. The Company typically requires
its employees to execute appropriate non-competition and patent rights
agreements. The Control Devices logo is a registered trademark of the Company as
well as Maxi Breaker, MicroGuard, Auto-Clear, and SolarWatch. The Company is
licensed to use technology in patents and know-how owned by Dr. Dennis J. Hegyi.
Manufacturing and Supply
The Company manufactures and assembles its products at its plants in Standish
and Caribou, Maine, and San Cristobal, Dominican Republic and has certain value
added operations at its distribution subsidiary in France. The Company's
subsidiary in the Dominican Republic has been audited by representatives of
Daimler-Chrysler, Valeo and Packard Electric and has been certified as an
approved supplier by all three. In addition, the Dominican Republic subsidiary
has obtained ISO (International Standards Organization) 9002 and QS-9000, and
has been certified by OEM automotive companies as a sole source supplier for a
number of products. The Company manufactures its products using components
purchased from third parties and from parts manufactured by the Company with
various raw materials.
During and after the manufacturing process, products undergo extensive
inspection and testing at all locations to ensure quality control. The Company's
commitment to quality has resulted in the Company having received, in addition
to previously mentioned awards, General Motors' Mark of Excellence Award (the
highest attainable), Ford's Q1 quality rating, was a finalist for the 1998 PACE
Award, and was a semi-finalist for the 1999 PACE Award.
A portion of the Company's components are standard items and are available
from multiple sources. The Company also sources components produced from custom
tools or molds. These custom parts may be single sourced in some circumstances
in order to take advantage of price and quality considerations. The Company has
never had any significant supply interruptions in these components and it
believes it could develop alternative sources of supply if supply interruptions
were to occur.
Backlog consists of firm orders received from customers and distributors with
delivery dates requested by customers at some future date. At January 2, 1999,
backlog was approximately $9.0 million equaling the amount at December 27, 1997.
All backlog is expected to be filled within the next 12 months.
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Competition
The Company has many competitors with respect to all of its products, and the
automotive parts supply industry, in particular, is highly competitive. Many of
its competitors in the automotive industry are companies which are larger, more
diversified and have greater financial resources than the Company. In general,
competition in the circuit breaker market is based on price, although the
Company also seeks to compete based on product performance. The automotive
market for circuit breakers is a relatively mature, small market and the Company
competes primarily with Texas Instruments and Otter Controls, Inc. In the
appliance market for circuit breakers, the Company competes principally with
Texas Instruments. The Company also competes with suppliers of alternative
technologies, such as fuses which can be used as an alternative to circuit
breakers. Competition in the sensor market is primarily based on technology,
quality, delivery, reliability, price, functionality and engineering support.
The Company's principal competitors in this market are Eaton, Motorola, Hella,
Hamamatsu, and Nippondenso. In the ceramics market, the Company competes on the
basis of supplying niche products and on service, delivery and product
technology. Its principal competitors in this market are Kyocera, TDK, Alpha
Industries, Murata, and Siemens. In the European distribution market, the
Company competes with similar electronic distributors.
Employees
As of January 2, 1999, the Company had 988 employees, consisting of 250
employees based in Standish, 116 employees based in Caribou, one employee based
in the Company's sales office near Detroit, Michigan, 500 employees based in the
Dominican Republic, and 121 employees in France. None of the Company's
employees are currently represented by a union; RDI's employees enjoy the
benefits of a state-mandated collective bargaining agreement (Convention
Collective de la Metallurgie ) which applies to numerous French companies whose
business relates to metal products, including RDI. The Company believes its
relations with employees are good.
Environmental Matters
The Company's owned and leased facilities are subject to numerous
environmental laws and regulations concerning, among other things, emissions to
the air, discharges to surface and ground water, and the generation, handling,
storage, transportation, treatment and disposal of toxic and hazardous
substances. Under various Federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may become liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property, typically without regard to
fault.
Pursuant to the terms of an Environmental Agreement dated July 6, 1994, GTE
has retained liability and agreed to indemnify the Company for any and all
liabilities arising under CERCLA and other environmental requirements related to
contamination and cleanup of the Standish facility, treatment, storage and
disposal of hazardous materials transported offsite and remediation required by
the State of Maine Department of Environmental Protection ("MEDEP") or U.S.
Environmental Protection Agency ("EPA") not known to exist or occur prior to
July 29, 1994. GTE's remaining indemnification for these various unknown
liabilities expires on July 29, 1999. GTE has also retained liability for
claims relating to soil and groundwater contamination from the surface
impoundment and the out-of-service leachfield at the Company's Standish, Maine
facility known to exist prior to the acquisition. Such contamination is
currently being remediated at GTE's sole expense. GTE's obligation to remediate
such contamination and its indemnification for any claims relating to, which
will expire several years after the MEDEP and EPA conclude remediation has been
completed.
Except as set forth above, the Company believes that its facilities are in
compliance in all material respects with all applicable Federal, state and local
environmental laws, ordinances and regulations, as well as comparable laws and
regulations outside the United States. No assurances can be given, however, that
the current environmental condition of the Company's owned and leased facilities
are not other than as currently understood
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by the Company, or will not be adversely affected by the condition of properties
in the vicinity of the Company's owned and leased properties, or by the
activities of third parties unrelated to the Company or by former owners or
operators of the Company's owned or leased facilities, or that future laws,
ordinances or regulations will not impose any material environmental liability
on the Company.
Item 2. Properties
- ------- ----------
The Company's facilities are kept in good condition and the capacity of such
facilities is adequate for the Company's needs. The following table sets forth
certain information, as of January 2, 1999, relating to the Company's
facilities:
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION PRINCIPAL ACTIVITIES SQUARE FEET LEASED
- ------------------------- ------------------------------------------- --------------- --------------------
<S> <C> <C> <C>
Standish, Maine Corporate Headquarters; Research and 120,000 Owned
Development; Manufacture of Electronic
Sensors, Glass Enclosed Circuit Breakers,
Electronic Ceramic Devices
Caribou, Maine Manufacture of Circuit Breakers 33,000 Leased (Yearly
renewal)
San Cristobal, Manufacture of Circuit Breakers, 26,000 Leased (Expires
Dominican Republic Electronic Sensors December 2002)
Southfield, Michigan Sales Office 1,200 Leased (Expires
December 2001)
Villepinte, France RDI Headquarters, European Warehouse, 27,500 Owned
Manufacturing and Distribution.
15,000 Leased (Expires
November 2004)
</TABLE>
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Item 3. Legal Proceedings
- ------- -----------------
The Company is not engaged in any legal proceedings other than ordinary
routine litigation incidental to its business. The Company is not involved in
any pending or threatened legal proceedings which the Company believes could
reasonably be expected to have a material effect on the Company's financial
condition, liquidity or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of the fiscal year ended January 2, 1999.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------- ---------------------------------------------------------------------
(a) Market Information:
-------------------
The Common Shares of the Company commenced trading on the NASDAQ National
Market under the symbol "SNSR" on October 2, 1996. Prior to October 2, 1996
there was no established trading market for the Company's shares. The following
table sets forth quarterly market price and dividend information per share for
the Company's Common Shares, since trading commenced.
<TABLE>
<CAPTION>
Calendar Year 1998 (2) Calendar Year 1997 (1)(2) Calendar Year 1996 (1)(2)
--------------------------------- --------------------------------- ----------------------------------
Dividends Dividends Dividends
High Low Declared High Low Declared High Low Declared
---- --- -------- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $14.40 $10.10 $ - $9.40 $6.90 $ - $ - $ - $ -
Second Quarter $15.00 $11.80 0.02 7.90 6.90 - - - -
Third Quarter $14.44 $11.63 0.02 9.45 7.65 - - - -
Fourth Quarter $16.00 $8.75 0.02 13.80 9.95 - 7.80 5.40 -
</TABLE>
(1) Retroactively adjusted to reflect the 4 for 3 stock split effective December
15, 1997
(2) Retroactively adjusted to reflect the 5 for 4 stock split effective
June 15, 1998
(b) Holders:
--------
As of January 7, 1999, there were approximately 90 record holders of the
Company's Common Shares, including several holders who are nominees for an
undetermined number of beneficial owners.
(c) Dividends:
----------
The Company commenced paying cash dividends on its Common Shares in 1998.
The Company intends to continue to pay quarterly cash dividends on its Common
Shares, but the payment of dividends and the amount and timing of such dividends
will be at the discretion of the Company's Board of Directors. It is reviewed
quarterly, and will depend upon, among other things, future earnings,
operations, capital requirements, the general financial condition of the Company
and general business conditions.
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Item 6. Selected Financial Data
- ------- -----------------------
The following is a table of selected financial data for the five fiscal
years ended January 2, 1999. This data should be read in conjunction with the
Company's Consolidated Financial Statements and related notes, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information included herein.
<TABLE>
<CAPTION>
CONTROL DEVICES, INC. PREDECESSOR
----------------------------------------------------------------------------- -----------
COMPANY(2)
-----------
FIVE SEVEN
PRO FORMA(1) MONTHS MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
JANUARY 2, DECEMBER 27, DECEMBER 28, DECEMBER 29, DECEMBER 30, DECEMBER 30, JULY 29,
1999(3) 1997 1996(3) 1995 1994 1994 1994
--------- ------------ ------------ ------------ ------------ ------------ -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $ 79,979 $ 70,204 $ 60,495 $ 38,881 $ 43,842 $ 18,847 $ 24,995
Cost of sales 52,080 45,279 38,929 25,721 29,835 12,159 17,676
-------- --------- --------- ---------- ---------- --------- ---------
Gross profit 27,899 24,925 21,566 13,160 14,007 6,688 7,319
Operating expenses:
Selling, general and 12,077 10,755 9,209 3,504 4,304 2,413 1,896
administrative
Research and development 5,377 4,421 3,847 2,740 2,650 1,052 1,598
-------- --------- --------- ---------- ---------- --------- ---------
Operating income 10,445 9,749 8,510 6,916 7,053 3,223 3,825
Interest expense (income) (297) 170 1,562 1,380 1,581 657 --
-------- --------- --------- ---------- ---------- --------- ---------
Income before income taxes 10,742 9,579 6,948 5,536 5,472 2,566 3,825
Income tax provision (4) 2,878 3,676 2,673 2,078 2,153 990 1,530
-------- --------- --------- ---------- ---------- --------- ---------
Net income $ 7,864 $ 5,903 $ 4,275 $ 3,458 $ 3,319 $ 1,576 $ 2,295
======== ========= ========= ========== ========== ========= =========
Net income applicable
to common shareholders(5) $ 7,864 $ 5,903 $ 4,066 $ 3,194 $ 3,055 $ 1,466 --
======== ========= ========= ========== ========== =========
Net income per share:(5)(6)
Basic $ 0.95 $ 0.71 $ 0.77 $ 0.75 $ 0.71 $ 0.34 --
Diluted $ 0.90 $ 0.69 $ 0.77 $ 0.75 $ 0.71 $ 0.34 --
Weighted average
common shares and equivalents
outstanding:(5)(6)
Basic 8,298 8,274 5,252 4,273 4,273 4,273 --
Diluted 8,778 8,524 5,271 4,273 4,273 4,273 --
</TABLE>
<TABLE>
<CAPTION>
CONTROL DEVICES, INC.
--------------------------------------------------------------------------
JANUARY 2, DECEMBER 27, DECEMBER 28, DECEMBER 29, DECEMBER 30,
1999 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 22,563 $ 15,025 $ 10,761 $ 13,662 $ 9,255
Total assets 60,893 51,049 44,243 30,141 26,051
Long-term debt, net of 152 640 1,320 15,853 16,320
current maturities
Redeemable preferred -- -- -- 2,400 2,400
shares
Shareholders' equity 41,948 34,089 28,329 5,505 2,311
</TABLE>
11
<PAGE>
(1) Pro forma year ended December 30, 1994 amounts were prepared as if the
acquisition of the acquired Business and the initial capitalization of the
Company had occurred on January 1, 1994. These pro forma results include
adjustments for depreciation and amortization of assets acquired based on
their fair market values at the acquisition date, increased interest on
acquisition debt, additional preferred share dividends, elimination of
allocated employee benefit and administrative expenses, additional
professional fees and the related income tax effect. The unaudited pro
forma consolidated financial data does not purport to represent what the
results of operations of the Company would actually have been if the
acquisition and initial capitalization had in fact occurred on January 1,
1994 or to project the results of operations of the Company for any future
date or period.
(2) On July 29, 1994, the Company purchased the Business. The data prior to
July 29, 1994 represents the financial information of the Predecessor
Company and has been prepared by the Company as if the Business was
operated as a separate entity for the periods presented. The Predecessor
Company financial statements do not include an allocation of GTE's assets
and liabilities not specifically identifiable to the Business, including
cash and intercompany debt.
(3) The Selected Financial Data presented for the year ended December 28, 1996
includes RDI's results of operations from April 1, 1996, the date of
acquisition. The Selected Financial Data presented for the year ended
January 2, 1999 includes AEI's results of operations from June 26, 1998,
the date of acquisition.
(4) For purposes of computing income tax provision, an effective tax rate of
40% was used for the Predecessor Company results of operations because no
income taxes were allocated to the Predecessor Company.
(5) Net income per share, net income applicable to common shareholders and
weighted average number of Common Shares and equivalents outstanding are
not presented for periods prior to and including July 29, 1994 as the
Business was not operated as an independent entity during such periods.
(6) On December 15, 1997, the Company effected a 4-for-3 stock split of its
Common Shares which entitled each shareholder to receive one additional
share for each three outstanding Common Shares held of record as of the
close of business on December 1, 1997. On June 15, 1998, the Company
effected a 5-for-4 stock split of its Common Shares which entitled each
shareholder to receive one additional share for each four outstanding
Common Shares held of record as of the close of business on May 29, 1998.
As of January 2, 1999, the Company had 8,322,857, no par value, Common
Shares outstanding. All share and per share amounts in the accompanying
financial statements have been restated to give retroactive effect to the
stock splits.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
INTRODUCTION
The Company purchased the Business from GTE on July 29, 1994 for a total
purchase price of $17.9 million plus the assumption of certain liabilities. The
Company had no operations prior to that date. In April 1996, the Company
acquired all of the issued and outstanding capital stock of RDI for a total
purchase price of $9.0 million. On June 26, 1998, CDI purchased all of the
issued and outstanding stock of AEI for $2.6 million.
In October 1996, the Company closed on the sale of 3,833,332 Common Shares
in connection with its initial public offering and received net proceeds of
approximately $18.2 million, which were used generally to repay debt and redeem
preferred shares.
Since the acquisition of the Business in July 1994, the Company's primary
financial strategy has been to achieve profitable year to year growth through
new product development and acquisitions. The Company has focused its new
product development efforts in the sensor product line. The Company has
increased its research and development expenditures, which were primarily
devoted to its sensor products, from $2.7 million in 1994 to $5.4 million in
1998. During the same period, the Company's sales of sensors have grown from
$4.2 million in 1994 to $16.6 million in 1998.
In addition, the Company's financial strategy contemplates making
acquisitions which complement the Company's existing businesses. The Company's
acquisitions of RDI in April 1996 and of AEI in June 1998, have enhanced the
Company's market penetration of the automotive OEM market in Europe. RDI, which
is a European-based distributor of products of the Company and other
manufacturers, historically, due to the nature of the distribution business, has
had lower operating margins as a result of higher selling, general and
administrative expenses ( measured as a percentage of net sales ) than the
Company. Although the Company's operating income has increased as a result of
these acquisitions, when expressed as a percentage of sales, the Company's
operating income has decreased due to the lower margins associated with
distribution businesses generally.
RDI generates revenues and incurs expenses primarily in currencies
other than the U.S. dollar. The Company does not engage in currency hedging
transactions. RDI's currency of account is the French Franc. RDI's assets and
liabilities are translated into U.S. dollars using the exchange rate in effect
at the balance sheet
12
<PAGE>
date. RDI's results of operations are translated into U.S. dollars using the
average exchange rate prevailing throughout the applicable period. See Note 2 to
the Company's Financial Statements.
On January 1, 1999, eleven of the fifteen member countries of the
European Union established a fixed conversion rate between their existing
currencies ("legacy currencies") and one common currency - the Euro. The Euro
began trading on world currency exchanges and may be used in business
transactions. On January 1, 2002, new Euro-denominated bills and coins will be
issued, and legacy currencies will be completely withdrawn from circulation by
June 30 of that year. RDI's management has been actively assessing its computer
systems and overall fiscal and operational activities to ensure Euro readiness.
RDI has started adapting its computers, financial and operating systems and
equipment to accommodate Euro-denominated transactions. RDI's management is also
reviewing marketing and operational policies and procedures to ensure its
ability to continue to successfully conduct all aspects of RDI's business in
this new, price transparent market. The Company's management believes that the
Euro conversion will not have a material adverse impact on its financial
condition or results of operations.
RESULTS OF OPERATIONS
Summary Data
Management's discussion and analysis of the operating results of the
Company are based on amounts in the table set below which were derived from the
financial statements appearing elsewhere herein.
The following table presents selected financial information derived from
the Company's statements of income, expressed as a percentage of net sales for
the periods indicated.
<TABLE>
<CAPTION>
CONTROL DEVICES, INC.
----------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 2, DECEMBER 27, DECEMBER 28,
1999 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 34.9 35.5 35.7
Selling, general and administrative expenses 15.1 15.3 15.2
Research and development 6.7 6.3 6.4
Operating income 13.1 13.9 14.1
Net income 9.8 8.4 7.1
</TABLE>
YEAR ENDED JANUARY 2, 1999 ("FISCAL 1998")
COMPARED TO
YEAR ENDED DECEMBER 27, 1997 ("FISCAL 1997")
Net sales were $80.0 million in fiscal 1998, an increase of $9.8 million,
or 13.9%, as compared to fiscal 1997. Net sales increased primarily as a result
of the growth in the automotive sensor product area and growth in sales at RDI.
Sensor sales increased 30.2% to $16.6 million in fiscal 1998, as a result of
increased shipments of recently developed products. RDI distribution sales
increased 20.1% to $21.9 million in fiscal 1998, as a result of the recent
acquisition of AEI coupled with the strengthening of the European markets.
Gross profits in fiscal 1998 were $27.9 million, an increase of $3.0
million, or 11.9%, as compared to fiscal 1997. As a percentage of net sales,
gross profits in fiscal 1998 were 34.9% as compared to 35.5% in fiscal 1997. The
decrease in gross profit, as a percent of net sales, was a result of pricing
pressures and lower margins associated with new sensor products.
13
<PAGE>
Selling, general and administrative expenses in fiscal 1998 were $12.1
million, an increase of $1.3 million, or 12.3%, as compared to fiscal 1997. As a
percentage of net sales, selling, general and administrative expenses were 15.1%
in fiscal 1998 as compared to 15.3% in fiscal 1997.
Research and development expenses in fiscal 1998 were $5.4 million, an
increase of $1.0 million, or 21.6%, as compared to fiscal 1997. As a percentage
of net sales, research and development expenses were 6.7% in fiscal 1998 as
compared to 6.3% in fiscal 1997. The increase in R&D expense was primarily the
result of higher spending on prototype tooling and materials associated with new
product development efforts.
Operating income in fiscal 1998 was $10.4 million, an increase of $0.7
million, or 7.1%, as compared to fiscal 1997. As a percentage of net sales,
operating income was 13.1% in fiscal 1998 as compared to 13.9% in fiscal 1997.
The decrease in operating income, as a percentage of net sales, was primarily a
result of lower gross margins and increased R&D expenditures.
Interest income was $0.3 million in fiscal 1998, compared to $0.2 million
of interest expense in fiscal 1997. The increase was due to the reduction of
debt and increased income from cash reserves.
The provision for income tax was $2.9 million in fiscal 1998, as compared
to $3.7 million in fiscal 1997. The effective tax rate was 26.8% in fiscal 1998
as compared to a rate of 38.4% in fiscal 1997. The reduction in the effective
tax rate can be attributed to the benefit of the international reorganization,
which took place on January 1, 1998, and resulted in certain foreign based
income being taxed at lower rates.
Net income was $7.9 million in fiscal 1998, an increase of 33.2%, as
compared to $5.9 million in fiscal 1997. As a percentage of net sales, net
income was 9.8% in fiscal 1998 as compared to 8.4% in fiscal 1997.
YEAR ENDED DECEMBER 27, 1997 ("FISCAL 1997")
COMPARED TO
YEAR ENDED DECEMBER 28, 1996 ("FISCAL 1996")
Net sales were $70.2 million in fiscal 1997, an increase of $9.7 million,
or 16.0%, as compared to fiscal 1996. Net sales increased primarily as a result
of the April 1, 1996 acquisition of RDI combined with growth in sensors and
ceramics. Sensor sales increased 45.3% to $12.7 million in fiscal 1997, as a
result of increased twilight and steering sensor shipments. Ceramic sales
increased 54.4% to $7.0 million in fiscal 1997, primarily due to increased PCS
related orders.
Gross profit in fiscal 1997 was $24.9 million, an increase of $3.4 million,
or 15.6%, as compared to fiscal 1996. As a percentage of net sales, gross profit
in fiscal 1997 was 35.5% as compared to 35.7% in fiscal 1996. The decrease in
gross profit, as a percent of net sales, was a result of the additional expense
relating to the introduction of new sensor products.
Selling, general and administrative expenses in fiscal 1997 were $10.8
million, an increase of $1.5 million, or 16.8%, as compared to fiscal 1996. The
increase was primarily a result of the April 1, 1996 acquisition of RDI. As a
distributor, RDI incurs selling, general and administrative expenses higher, as
a percentage of net sales, than the Company. As a percentage of net sales,
selling, general and administrative expenses were 15.3% in fiscal 1997 as
compared to 15.2% in fiscal 1996.
Research and development expenses in fiscal 1997 were $4.4 million, an
increase of $0.6 million, or 14.9%, as compared to fiscal 1996. As a percentage
of net sales, research and development expenses were 6.3% in fiscal 1997 as
compared to 6.4% in fiscal 1996.
Operating income in fiscal 1997 was $9.7 million, an increase of $1.2
million, or 14.6%, as compared to fiscal 1996. As a percentage of net sales,
operating income was 13.9% in fiscal 1997 as compared to 14.1% in
14
<PAGE>
fiscal 1996. The increase in operating income was a result of higher sales
volume, partially offset by increased selling, general and administrative, and
research and development expenses.
Interest expense was $0.2 million in fiscal 1997, a decrease of $1.4
million as compared to fiscal 1996. The decrease was due to the reduction of
debt as a result of the initial public offering.
The provision for income tax was $3.7 million in fiscal 1997, as compared
to $2.7 million in fiscal 1996. The effective tax rate was 38.4% in fiscal 1997
as compared to a rate of 38.5% in fiscal 1996.
Net income was $5.9 million in fiscal 1997, an increase of 38.1%, as
compared to $4.3 million in fiscal 1996. The increase in net income was
primarily a result of the improvement in operating income due to higher volume
and the reduction of interest expenses. As a percentage of net sales, net income
was 8.4% in fiscal 1997 as compared to 7.1% in fiscal 1996.
SEASONALITY
The Company's performance is dependent primarily on automotive vehicle
production which is seasonal in nature. The Company's revenues tend to be
somewhat lower in the third and fourth quarters as automotive OEMs schedule
plant tooling changeovers, vacations and holiday shutdowns.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation and initial capitalization, the Company has financed
its operations and investments in property, equipment and acquisitions primarily
through cash generated from operations.
Cash, cash equivalents and marketable securities totaled $15.8 million as
of January 2, 1999 compared to $10.0 million as of December 27, 1997.
On June 26, 1998, CDI purchased all of the issued and outstanding stock of
AEI for $2.6 million.
RDI has various credit facilities available to them totaling $0.8 million
with rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered Rate. As
of January 2, 1999, RDI had no borrowings under these facilities, and as of
December 27, 1997, RDI had borrowings of $0.3 million, under these facilities.
Fleet Bank of Maine ("Fleet Bank") and the Company are parties to a loan
agreement, pursuant to which Fleet Bank has agreed to provide a $20.0 million
revolving line of credit facility to the Company to fund strategic acquisitions
and, if needed, for working capital. The facility has a maturity date of
September 30, 2000. The line of credit contains certain covenants. To date there
have been no borrowings under this line of credit facility.
The Company believes its current cash, cash equivalents and marketable
securities, together with existing credit facilities and cash flows from
operations, will be sufficient to meet the Company's cash requirements for at
least the next twelve months.
YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") issue relates to the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. Many computer systems and software products may not be able to interpret
dates after December 31, 1999 because such systems and products allow only two
digits to indicate the year in a date. As a result, these systems and products
are unable to distinguish January 1, 2000 from January 1,1900, which could have
adverse consequences on the operations of an entity and the integrity of
information processing.
15
<PAGE>
The Company's management has recognized the need to address the Year 2000 issue
within its internal operational systems as well as with suppliers and other
third parties. As with many other companies, a significant number of the
Company's information systems have required and will require modification to
render these systems Y2K compliant. The Company recognizes that failure by the
Company to timely resolve internal Y2K issues could result in an inability of
the Company to ship products, to receive raw materials, to pay for materials
received (which could delay delivery of undelivered materials), and to otherwise
process its daily business for an indeterminate period of time, each of which
could materially and adversely affect the Company's financial condition and
results of operations. However, the Company's management presently believes
these scenarios are unlikely based on the progress the Company has made in its
Y2K compliance process.
In 1997, the Company began to inventory, remediate, and test its computer
systems to assure proper operation in the year 2000 and beyond. The Company is
also surveying all suppliers to determine their compliance with the Y2K issue
and what impact, if any, their efforts will have on the Company's business. Y2K
compliance progress and status is reviewed by the Company's Board of Directors
on a quarterly basis.
Currently, the Company has completed the remediation and testing of 90% of the
identified issues. All material systems within the Company are expected to be
compliant and tested by June 30, 1999. Anticipated spending for this
modification, expected to cost approximately $100,000, will be expensed as
incurred and is not expected to have a significant impact on the Company's
ongoing results of operations.
However, if the Company and third parties, upon which it relies, are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
CAUTIONARY STATEMENT
This Form 10-K contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, changes to U.S. and foreign tax laws
and regulations, the percentage of the Company's profits generated by foreign
operations, risk of customer labor interruptions, cyclicality of automotive and
appliance industries, reliance on OEM's, and competing technologies.
16
<PAGE>
Item 8. Financial Statements and Supplemental Data
- ------- -------------------------------------------
CONTROL DEVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of January 2, 1999 and December 27, 1997 F-3
Consolidated Statements of Income for the Years Ended January 2, 1999,
December 27, 1997, and December 28, 1996
F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
January 2, 1999, December 27, 1997, and December 28, 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended January 2, 1999,
December 27, 1997, and December 28, 1996 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the shareholders of Control Devices, Inc.:
We have audited the accompanying consolidated balance sheets of Control Devices,
Inc. (an Indiana corporation) and subsidiaries as of January 2, 1999 and
December 27, 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 2, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Control Devices, Inc. and
subsidiaries as of January 2, 1999 and December 27, 1997, and the results of
their operations and cash flows for each of the three years in the period ended
January 2, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
January 22, 1999
F-2
<PAGE>
CONTROL DEVICES, INC.
---------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
January 2, December 27,
1999 1997
---------- ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 10,183 $ 5,016
Marketable securities 5,642 4,980
Receivables, less allowance for doubtful accounts of $513 and $468,
respectively 12,844 11,311
Inventories 8,712 6,414
Other current assets 1,529 1,595
---------- ----------
Total current assets 38,910 29,316
PROPERTY, PLANT AND EQUIPMENT, net 13,172 14,262
GOODWILL, net 8,811 7,471
---------- ----------
$ 60,893 $ 51,049
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 141 $ 612
Short-term debt - 320
Accounts payable 6,754 5,706
Accrued employee benefits 4,795 4,250
Accrued expenses 4,657 3,403
---------- ----------
Total current liabilities 16,347 14,291
LONG-TERM DEBT 152 640
OTHER LIABILITIES 2,446 2,029
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY:
Common Shares, no par value; 16,000,000 authorized; 8,322,857
and 8,284,451 in 1998 and 1997, respectively, issued and
outstanding 20,302 20,014
Accumulated other comprehensive income (loss) (349) (554)
Retained earnings 21,995 14,629
---------- ----------
Total shareholders' equity 41,948 34,089
---------- ----------
$ 60,893 $ 51,049
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
CONTROL DEVICES, INC.
---------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 2, December 27, December 28,
1999 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Net sales $ 79,979 $ 70,204 $ 60,495
Cost of sales 52,080 45,279 38,929
---------- ---------- ----------
Gross profit 27,899 24,925 21,566
Selling, general and administrative expenses 12,077 10,755 9,209
Research and development 5,377 4,421 3,847
---------- ---------- ----------
17,454 15,176 13,056
---------- ---------- ----------
Operating income 10,445 9,749 8,510
Interest expense (income) (297) 170 1,562
---------- ---------- ----------
Income before income taxes 10,742 9,579 6,948
Income tax provision 2,878 3,676 2,673
---------- ---------- ----------
Net income 7,864 5,903 4,275
Preferred share dividends - - 209
---------- ---------- ----------
Net income applicable to common shareholders $ 7,864 $ 5,903 $ 4,066
========== ========== ==========
Earnings per share:
Basic $ 0.95 $ 0.71 $ 0.77
Diluted $ 0.90 $ 0.69 $ 0.77
Weighted average number of common shares and
equivalents outstanding
Basic 8,298 8,274 5,252
Diluted 8,778 8,524 5,271
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Class A Class B other
Common Common Common comprehensive Retained
Shares Shares Shares Warrants income Earnings Total
------------ ---------- ----------- ----------- ------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1995 $ - $ 520 $ 145 $ 180 $ - $ 4,660 $ 5,505
Conversion of RDI Convertible
Note 892 - - - - - 892
Conversion of Class A and
Class B Common Shares
into Common Shares 665 (520) (145) - - - -
Exercise of outstanding
warrants 186 - - (180) - - 6
Issuance of Common Shares,
net of offering expenses 18,174 - - - - - 18,174
Comprehensive income:
- --------------------
Net income - - - - - 4,275 4,275
Foreign currency translation
adjustment - - - - (314) - (314)
------------ ---------- ----------- ----------- ------------------- ------------ ------------
Comprehensive income $ - $ - $ - $ - $ (314) $ 4,275 $ 3,961
Preferred share dividends - - - - - (209) (209)
------------ ---------- ----------- ----------- ------------------- ------------ ------------
Balance at December 28, 1996 $ 19,917 $ - $ - $ - $ (314) $ 8,726 $ 28,329
------------ ---------- ----------- ----------- ------------------- ------------ ------------
Issuance of Common Shares 97 - - - - - 97
Comprehensive income:
- --------------------
Net income - - - - - 5,903 5,903
Foreign currency translation
adjustment - - - - (240) - (240)
------------ ---------- ----------- ----------- ------------------- ------------ ------------
Comprehensive income $ - $ - $ - $ - $ (240) $ 5,903 $ 5,663
------------ ---------- ----------- ----------- ------------------- ------------ ------------
Balance at December 27, 1997 $ 20,014 $ - $ - $ - $ (554) $ 14,629 $ 34,089
------------ ---------- ----------- ----------- ------------------- ------------ ------------
Issuance of Common Shares 288 - - - - - 288
Payment of dividends - - - - - (498) (498)
Comprehensive income:
- --------------------
Net income - - - - - 7,864 7,864
Foreign currency translation
adjustment - - - - 205 - 205
------------ ---------- ----------- ----------- ------------------- ------------ ------------
Comprehensive income $ - $ - $ - $ - $ 205 $ 7,864 $ 8,069
------------ ---------- ----------- ----------- ------------------- ------------ ------------
Balance at January 2, 1999 $ 20,302 $ - $ - $ - $ (349) $ 21,995 $ 41,948
============ ========== =========== =========== =================== ============ ============
</TABLE>
F-5
<PAGE>
CONTROL DEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 2, December 27, December 28,
1999 1997 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income $ 7,864 $ 5,903 $ 4,275
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization 2,943 2,405 2,119
Deferred income taxes 242 (178) 708
Amortization of debt discount - - 147
Changes in assets and liabilities:
(Increase) decrease in receivables 204 (2,455) (606)
(Increase) decrease in inventories (1,361) (812) 479
(Increase) decrease in other current assets 456 (149) 237
Increase (decrease) in accounts payable 162 1,510 (881)
Increase (decrease) in accrued employee benefits (524) (290) 670
Increase (decrease) in accrued expenses 691 1,818 (564)
Increase (decrease) in other long-term liabilities 112 (38) (29)
---------------- --------------- ----------------
Cash provided by operations 10,789 7,714 6,555
---------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of AEI in 1998 and RDI in 1996 (including
transaction fees and expenses), net of cash acquired (2,042) - (7,156)
Investment in marketable securities, net (662) (4,980) -
Capital expenditures (1,436) (3,266) (2,031)
---------------- --------------- ----------------
Cash used in investing activities (4,140) (8,246) (9,187)
---------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (973) (670) (16,909)
Repayment of preferred shares - - (2,400)
Payment of dividends (498) - (583)
Net change in short-term debt (321) (104) 126
Proceeds from issuance of Common Shares and exercise
of warrants, net 288 97 18,180
---------------- --------------- ----------------
Cash used in financing activities (1,504) (677) (1,586)
---------------- --------------- ----------------
EFFECT OF EXCHANGE RATES ON CASH 22 (13) (3)
---------------- --------------- ----------------
Increase (decrease) in cash and cash equivalents 5,167 (1,222) (4,221)
CASH AND CASH EQUIVALENTS, beginning of period 5,016 6,238 10,459
---------------- --------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 10,183 $ 5,016 $ 6,238
================ =============== ================
</TABLE>
F-6
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 2, December 27, December 28,
1999 1997 1996
----- ---- ----
<S> <C> <C> <C>
Cash paid for interest $ 238 $ 272 $ 2,180
Cash paid for income taxes 1,370 2,889 2,009
</TABLE>
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING ACTIVITIES:
In April 1996, the Company purchased all of the outstanding stock of RDI
for $9.0 million. CDI paid $7.0 million in cash plus transaction fees of
$0.3 million from existing cash on hand, and delivered debt of $2.0
million. See Note 4 to the consolidated financial statements.
In June 1998, the Company purchased all of the issued and outstanding stock
of AEI for $2.6 million. See Note 5 to the consolidated financial
statements.
In October 1996, in connection with the initial public offering, the
Company converted the RDI Convertible Notes as described in Note 3 to the
consolidated financial statements into 165,257 Common Shares.
On December 15, 1997, the Company effected a 4-for-3 stock split of its
Common Shares which entitled each shareholder to receive one additional
share for each three outstanding Common Shares held of record as of the
close of business on December 1, 1997. On June 15, 1998, the Company
effected a 5-for-4 stock split of its Common Shares which entitled each
shareholder to receive one additional share for each four outstanding
Common Shares held of record as of the close of business on May 29, 1998.
All share and per share amounts in the accompanying financial statements
have been restated to give retroactive effect to the stock splits.
In 1998, the Company commenced payment of quarterly dividends on its
outstanding Common Shares equal to $0.02 per share, payments were made on
June 15, 1998, September 11, 1998, and December 18, 1998.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CONTROL DEVICES, INC.
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) ORGANIZATION AND BASIS OF PRESENTATION:
---------------------------------------
Control Devices, Inc. ("CDI"), which was organized on June 10, 1994,
designs, manufactures and markets circuit breakers, electronic ceramic
components parts and electronic sensors used by original equipment
manufacturers ("OEMs") in the automotive, appliance and telecommunications
markets. On July 29, 1994, CDI purchased certain assets and liabilities
(the "Business") of GTE Control Devices Incorporated and Dominican Overseas
Trading Company (collectively, the "Seller"), indirect wholly-owned
subsidiaries of GTE Corporation.
On April 1, 1996, CDI purchased Realisations et Diffusion pour l'Industrie
("RDI"), which distributes CDI's circuit breakers, electronic sensors and
other manufacturers products in the Northern European market from its
headquarters near Paris, France.
On June 26, 1998, CDI purchased Arnould Electro Industrie SA ("AEI"), which
distributes electronic components to the Northern European market from its
headquarters near Paris, France. In December 1998, AEI was merged into RDI
(herein after, RDI unless noted refers to RDI and AEI). The accompanying
financial statements include the results of CDI, RDI and AEI from the date
of acquisition.
The "Company" refers to CDI, RDI, AEI and CDI's other consolidated
subsidiaries.
(2) SUMMARY OF ACCOUNTING POLICIES:
-------------------------------
Principles of consolidation-
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated.
Fiscal year-
-----------
The Company's fiscal year is the 52- or 53-week period ending the Saturday
nearest to December 31. Fiscal 1998 was the 53 week period ending on
January 2, 1999. Fiscal 1997 and 1996 were the 52 week periods ending on
December 27, 1997 and December 28, 1996, respectively.
Use of 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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Foreign currency translation and transactions-
---------------------------------------------
Assets and liabilities of the Company's foreign operations are translated
into U.S. dollars using the exchange rate in effect at the balance sheet
date. Results of operations are translated using the average exchange rate
prevailing throughout the period. The effects of exchange rate fluctuations
on translating foreign currency assets and liabilities into U.S. dollars
are included in the foreign currency translation adjustment component of
shareholders' equity, while gains and losses resulting from foreign
currency transactions are included in net income.
F-8
<PAGE>
(2) SUMMARY OF ACCOUNTING POLICIES--(CONTINUED):
--------------------------------------------
Cash and cash equivalents-
-------------------------
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
Marketable securities-
---------------------
The Company's investments in marketable debt securities are diversified
among high-credit quality securities in accordance with the Company's
investment policy. Such investments are carried at cost which approximates
market value. There were no material unrealized gains or losses as of
January 2, 1999 or December 27, 1997. The following is a summary of the
investments in marketable debt securities which are classified as available
for sale and are included in current assets (in thousands):
<TABLE>
<CAPTION>
January 2, December 27,
1999 1997
----------------- -----------------
<S> <C> <C>
U.S. Treasury securities and obligations
of U.S. government agencies $ 2,742 $ 2,467
Certificates of deposit 884 1,436
Corporate debt securities 2,016 1,077
================= =================
$ 5,642 $ 4,980
================= =================
</TABLE>
Trade receivables-
-----------------
RDI's practice is to sell part of its trade receivables to finance its
business. At January 2, 1999 and December 27, 1997, such sales with
recourse amounted to $2,742,000 and $2,595,000, respectively, which have
been deducted from trade receivables. Based on historical collectibility of
trade receivables, RDI's obligations under the recourse provisions are not
material.
Inventories-
-----------
Inventories are stated at the lower of cost or market value. Cost of
inventories is determined by the first-in, first-out ("FIFO") method of
inventory valuation.
Property, plant and equipment-
-----------------------------
Property, plant and equipment is stated at cost and is depreciated using
the straight-line and various accelerated methods over the estimated useful
lives of the related plant and equipment. Ranges of the estimated useful
lives are as follows:
Machinery and equipment 3 to 15 years
Building and building equipment 40 years
Leasehold improvements are amortized over the terms of the respective
leases or the estimated useful lives of the improvements, whichever is
less. Maintenance, repairs and renewals are charged to expense as incurred;
betterments are capitalized.
F-9
<PAGE>
(2) SUMMARY OF ACCOUNTING POLICIES--(CONTINUED):
--------------------------------------------
Goodwill-
--------
As part of the acquisitions of RDI and AEI, goodwill was recorded which
represented the difference between the purchase price and the fair value of
the identifiable underlying net assets acquired and is carried as an asset,
less accumulated amortization which is calculated on a straight-line basis
over the estimated useful life of 40 years. The Company periodically
evaluates the periods over which intangible assets are amortized to
determine whether events have occurred which would require modification to
the amortization period. The Company reviews anticipated future operating
results and cash flows on an undiscounted basis in determining whether
there has been an impairment in the value of the excess of purchase price
over net assets acquired. An impairment loss would be measured as the
amount by which the carrying amount of the impaired asset exceeds the fair
value of the asset. That fair value would then become the asset's new cost
basis. Based upon its most recent analysis, the Company believes that no
material impairment exists at January 2, 1999. Amortization charged to
operations amounted to approximately $210,000, $192,000, and $145,000, for
the years ended January 2, 1999, December 27, 1997 and December 28, 1996,
respectively.
Income taxes-
------------
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
determined based on the difference between the financial statement and tax
basis of assets and liabilities using presently enacted tax rates and
regulations.
Research and development-
------------------------
Expenditures for Company-sponsored research and new product development are
expensed as incurred.
Environmental expenditures-
--------------------------
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations and that do not contribute to
current or future revenues are expensed.
Revenue recognition-
-------------------
Revenue is recognized when products are shipped.
Comprehensive income-
--------------------
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income.
This statement establishes rules for the reporting of comprehensive income
and its components. Comprehensive income consists of net income and foreign
currency translation adjustments and is presented in the Consolidated
Statements of Shareholders' Equity. The adoption of SFAS 130 had no impact
on total shareholders' equity. Prior year consolidated financial statements
have been reclassified to conform to the SFAS 130 requirements.
Earnings per share-
------------------
In 1997, the Company adopted SFAS No. 128, "Earnings per Share" ("SFAS No.
128"), and the Company's reported earnings per share for the year ended
December 28, 1996 was restated. The effect of this accounting change on
previously reported earnings per share data was to increase fiscal 1996
earnings per share by less than $0.01 from amounts previously reported.
F-10
<PAGE>
(2) SUMMARY OF ACCOUNTING POLICIES--(CONTINUED):
--------------------------------------------
Fair value of financial instruments-
-----------------------------------
The fair values of financial instruments closely approximate their carrying
values. The Company has no involvement with derivative financial
instruments.
Stock Split-
------------
On December 15, 1997, the Company effected a 4-for-3 stock split of its
Common Shares which entitled each shareholder to receive one additional
share for each three outstanding Common Shares held of record as of the
close of business on December 1, 1997. On June 15, 1998, the Company
effected a 5-for-4 stock split of its Common Shares which entitled each
shareholder to receive one additional share for each four outstanding
Common Shares held of record as of the close of business on May 29, 1998.
All share and per share amounts in the accompanying fiscal 1998, 1997, and
1996 financial statements have been restated to give retroactive effect to
the stock splits.
Reclassifications-
------------------
Certain reclassifications have been made to prior year balances to conform
to the current year presentation.
(3) PUBLIC OFFERING AND RELATED TRANSACTIONS:
-----------------------------------------
In contemplation of the public offering described below, on August 30,
1996, the shareholders of the Company approved two amendments to the
Company's Articles of Incorporation. The first amendment reclassified the
outstanding Class A Common Shares and Class B Common Shares as Common
Shares and eliminated the designations of the Class A and Class B Shares
immediately prior to the closing of the public offering. The second
amendment eliminated the 11% Cumulative Preferred Shares ("Redeemable
Preferred Shares") when all the Redeemable Preferred Shares were redeemed
in connection with the public offering.
The Company filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission, which was declared effective on October 2, 1996.
On October 8, 1996, the Company closed on the sale of 3,333,332 Common
Shares in connection with its initial public offering (the "public
offering") and received net proceeds of approximately $15.7 million. On
October 15, 1996, the Company issued 500,000 Common Shares in connection
with the exercise of the underwriters' overallotment option granted in
connection with the public offering and received net proceeds of
approximately $2.5 million.
The following transactions occurred substantially simultaneously with the
close of the public offering:
a. the exercise of the outstanding warrants to purchase 940,166 Class B
Series 1 Common Shares at less than $0.01 per share;
b. the conversion of all 1,666,660 Class B Series 1 Common Shares
outstanding after the exercise of the warrants into a like number of
Class A Common Shares;
c. the reclassification of the Class A Common Shares into Common Shares
and the elimination of the designations of Class A Common Shares and
Class B Common Shares;
d. the conversion of the RDI Convertible Notes into 165,257 Common
Shares; and
F-11
<PAGE>
(3) PUBLIC OFFERING AND RELATED TRANSACTIONS--(CONTINUED):
------------------------------------------------------
e. the repayment of debt and Redeemable Preferred Shares with the net
proceeds from the public offering.
The supplemental net income per share would have been $0.64 for the year
ended December 28, 1996, assuming the conversion of the RDI Convertible
Notes, the issuance of 3,577,480 Common Shares (without deducting
underwriters' discount or offering expenses) at the public offering price
of $5.40 per share and the application of proceeds thereof to retire the
Company's Senior Notes plus accrued interest and the Redeemable Preferred
Shares plus accrued dividends, as of the beginning of each respective
period. The supplemental net income per share does not include the results
of operations for RDI prior to April 1, 1996.
(4) ACQUISITION OF RDI:
-------------------
On April 1, 1996, CDI purchased all of the issued and outstanding stock of
RDI for $9.0 million. CDI paid $7.0 million in cash plus transaction fees
of approximately $0.3 million from existing cash on hand, delivered
Subordinated Promissory Notes ("RDI Notes") totaling $1.1 million and
delivered Automatically Converting Subordinated Promissory Notes ("RDI
Convertible Notes") totaling $0.9 million. The Company's Consolidated
Statement of Income for the year ended December 28, 1996 includes the
results of operations of RDI from the date of acquisition.
The purchase method was used to account for the acquisition. The aggregate
purchase price has been allocated to the assets and liabilities of RDI
based on fair market value.
The net assets acquired after allocating the purchase price are as follows
(in thousands):
Cash $ 132
Receivables 5,828
Inventories 3,349
Other current assets 1,187
Goodwill and other intangibles 8,013
Property, plant and equipment 2,377
Accounts payable (5,387)
Accrued expenses (4,467)
Debt (1,744)
---------
$ 9,288
=========
The unaudited pro forma results of operations for the year ended December
28, 1996, had the acquisition of RDI occurred at January 1, 1996, is
provided in the following table. The pro forma results include adjustments
for depreciation and amortization of assets acquired based on their fair
market values at the acquisition date, adjustments for additional interest
expense on acquisition debt, adjustments for the decrease in interest
expense on a note which was repaid in connection with the acquisition of
RDI, adjustments for the elimination of interest income on excess cash
balances, adjustments for the elimination of intercompany sales and profit
in inventory, and the related income tax effect. The unaudited pro forma
information does not necessarily represent what the results of operations
would have been in such period and is not intended to be indicative of
future results.
F-12
<PAGE>
(4) ACQUISITION OF RDI--(CONTINUED):
--------------------------------
<TABLE>
<CAPTION>
Year Ended
December 28,
1996
---------------------
<S> <C>
(Unausdited - In thousands, except per share amounts)
Net sales $67,119
Net income applicable to common shareholders 4,141
Earnings per share:
Basic $0.79
Diluted $0.79
Weighted average number of common
shares and equivalents outstanding
Basic 5,252
Diluted 5,271
</TABLE>
(5) ACQUISITION OF AEI:
-------------------
On June 26, 1998, CDI purchased all of the issued and outstanding stock of
AEI for $2.6 million.
The purchase method was used to account for the acquisition. In preparing
AEI's financial information, the aggregate purchase price has been
allocated to the assets and liabilities of AEI based on preliminary
estimates of fair market value and are subject to change. Any adjustments
resulting from the final purchase price allocation, which could result in
changes to the carrying values of assets and liabilities, including
goodwill, are not expected to be material to the financial statements.
The net assets acquired after allocating the purchase price are as follows
(in thousands):
Cash $ 531
Receivables 1,349
Inventories 751
Other current assets 509
Goodwill 1,553
Property, plant and equipment 101
Accounts payable (650)
Accrued expenses (1,570)
=============
$ 2,574
=============
The unaudited pro forma results of operations for the years ended January
2, 1999, December 27, 1997, and December 28, 1996, respectively, had the
acquisition of AEI occurred at January 1, 1998, January 1, 1997, and
January 1, 1996, respectively, are provided in the following table. These
pro forma results include adjustments for depreciation and amortization of
assets acquired based on their estimated fair market values at the
acquisition date, adjustments for the elimination of interest income on
excess cash balances, reduction of
F-13
<PAGE>
(5) ACQUISITION OF AEI--(CONTINUED):
--------------------------------
selling, general and administrative expenses associated with duplication of
duties, and the related income tax effect. The unaudited pro forma
information does not necessarily represent what the results of operations
would have been in such periods and is not intended to be indicative of
future results.
<TABLE>
<CAPTION>
For the years ended
January 2, December 27, December 28,
1999 1997 1996
---------------- ---------------- ---------------
(Unaudited - In thousands, except
per share amounts)
<S> <C> <C> <C>
Net sales $82,616 $75,478 $65,769
Net income applicable to common shareholders 8,027 6,229 4,601
Earnings per share:
Basic $0.97 $0.75 $0.88
Diluted $0.91 $0.73 $0.87
Weighted average number of common
shares and equivalents outstanding
Basic 8,298 8,272 5,252
Diluted 8,778 8,488 5,271
</TABLE>
(6) INVENTORIES:
------------
Classes of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
January 2, December 27,
1999 1997
----------------- -----------------
<S> <C> <C>
Raw materials and supplies $ 2,011 $ 1,345
Work - in - process 1,955 1,333
Finished goods 4,746 3,736
================= =================
$ 8,712 $ 6,414
================= =================
</TABLE>
F-14
<PAGE>
(7) PROPERTY, PLANT AND EQUIPMENT:
------------------------------
Classes of property, plant and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
January 2, December 27,
1999 1997
------ ------
<S> <C> <C>
Land 472 448
Buildings 3,433 3,404
Equipment 18,751 17,708
Leasehold improvements 287 248
---------- ----------
22,943 21,808
Accumulated depreciation (9,771) (7,546)
---------- ----------
$13,172 $14,262
========== ==========
</TABLE>
(8) DEBT:
-----
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
January 2, December 27,
1999 1997
------------ -------------
<S> <C> <C>
RDI Notes $ - $ 738
RDI fixed rate loans 293 514
RDI short-term debt - 320
------------ -------------
Total debt $ 293 $ 1,572
Less: Current portion of long-term debt 141 612
Short-term debt - 320
------------ -------------
Total long-term debt $ 152 $ 640
============= =============
</TABLE>
The notes, issued by CDI in connection with t he acquisition of RDI (the
"RDI Notes"), bore interest at 8% per annum a nd were due in three equal
annual installments commencing on April 1, 19 97. In November 1998, CDI
exercised its right to prepay the RDI notes w ithout a premium.
The RDI fixed rate loans bear interest at the weighted average rate of 7.7%
and are secured by certain assets of RDI.
Fleet Bank of Maine ("Fleet Bank") and the Company are parties to a loan
agreement, pursuant to which Fleet Bank has agreed to provide a $20.0
million revolving line of credit facility to the Company to fund strategic
acquisitions and, if needed, for working capital. The facility has a
maturity date of September 30, 2000. The facility has three interest rate
options consisting of (i) Fleet Bank's prime rate for daily rate
borrowings, (ii)
F-15
<PAGE>
(8) DEBT--(CONTINUED):
------------------
Fleet Bank's cost of funds rate plus 1.5% for borrowings of 30 days or
less, or (iii) the corresponding London Interbank Offering Rate (LIBOR)
plus 1.5% for borrowings of 30, 60, 90 or 180 days. The line of credit
contains certain financial and other covenants including but not limited
to, minimum tangible net worth, debt to net worth, and minimum cash flow
coverage. The financial covenants are to be met on a quarterly basis. The
Company is in compliance with all covenants as of January 2, 1999 and
believes that the covenants will not restrict its future operations. To
date, there have been no borrowings under this line of credit facility.
RDI has various credit facilities available to it totaling $0.8 million
with rates ranging from 0.5% to 1.0% over the Paris Inter-Bank Offered
Rate. As of January 2, 1999, RDI had no borrowings under these facilities
and as of December 27, 1997, RDI had borrowings of $0.3 million under these
facilities.
Scheduled principal payments due on debt in the next five years are as
follows (in thousands):
Total
-----
1999 $ 141
2000 70
2001 82
2002 -
2003 -
(9) EARNINGS PER COMMON SHARE:
--------------------------
Basic earnings per share were computed by dividing net income available to
common shareholders by the number of weighted average Common Shares
outstanding (8,297,840, 8,274,408 and 5,252,304 for the years ended January
2, 1999, December 27, 1997, and December 28, 1996, respectively). Diluted
earnings per share were computed by dividing net income available to common
shareholders by the weighted average number of Common Shares and dilutive
Common Share equivalents (480,220, 249,393, and 18,466, for the years ended
January 2, 1999, December 27, 1997, and December 28, 1996, respectively)
outstanding during the period. Common Share equivalents are calculated
using the treasury stock method. The reconciliation of basic and diluted
per-share computation are as follows (in thousands except per share
amounts):
F-16
<PAGE>
(9) EARNINGS PER COMMON SHARE--(CONTINUED):
---------------------------------------
<TABLE>
<CAPTION>
For the years ended
------------------------------------------------------
January 2, December 27, December 28,
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income applicable to common shareholders $ 7,864 $ 5,903 $ 4,066
================ ================ ================
Weighted average common
shares outstanding - Basic 8,298 8,274 5,252
Dilutive effect of outstanding options 480 250 19
---------------- ---------------- ----------------
Weighted average common
shares outstanding - Diluted 8,778 8,524 5,271
================ ================ ================
Earnings per share:
Basic $0.95 $0.71 $0.77
================ ================ ================
Diluted $0.90 $0.69 $0.77
================ ================ ================
</TABLE>
(10) STOCK OPTION PLANS:
--------------------
The Company reserved 500,000 Common Shares for issuance pursuant to its
1996 Stock Compensation Plan and 666,666 Common Shares for issuance
pursuant to its 1997 Stock Compensation Plan (the "Plans"). The Plans
provide for the awarding of incentive stock options, non-statutory options,
and director options, to purchase Common Shares from time to time at the
discretion of the Company. In addition, in April 1995 the Company issued to
a consultant non-qualified stock options to purchase 333,332 Common Shares
at $5.40 through March 31, 2002 (see Note 19).
F-17
<PAGE>
(10) STOCK OPTION PLANS--(CONTINUED):
---------------------------------
The following table summarizes stock option plan activity.
<TABLE>
<CAPTION>
Number
of Shares Option Price
------------- -------------------
<S> <C> <C>
Outstanding at December 29, 1995 333,332 $5.40
Granted 374,982 5.40 - 6.34
Exercised - -
-----------------------------------
Outstanding at December 28, 1996 708,314 5.40 - 6.34
Granted 459,972 7.62 - 10.80
Exercised (8,332) 5.40
-----------------------------------
Outstanding at December 27, 1997 1,159,954 5.40 - 10.80
Granted 18,328 10.00 - 14.50
Surrendered (19,998) 10.13
Exercised (24,998) 5.40 - 7.62
-----------------------------------
Outstanding at January 2, 1999 1,133,286 $5.40 - $14.50
============= ===================
</TABLE>
All option share amounts and option price amounts have been restated to
give retroactive effect to the December 15, 1997, 4-for-3 stock split and
June 15, 1998, 5-for-4 stock split of the Company's Common Shares.
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees," and related interpretations.
F-18
<PAGE>
(10) STOCK OPTION PLANS--(CONTINUED):
---------------------------------
Accordingly, had compensation cost for these plans been determined based on
the fair value at the grant dates, the Company's net income and earnings
per share would have been reduced to the following pro forma amounts (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
For the years ended
------------------------------------------------------
January 2, December 27, December 28,
1999 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net income applicable to
common shareholders As Reported: $7,864 $5,903 $4,066
Pro forma: 7,540 5,605 3,993
Earnings per share As Reported:
Basic $0.95 $0.71 $0.77
Diluted 0.90 0.69 0.77
Pro forma:
Basic $0.91 $0.68 $0.76
Diluted 0.86 0.66 0.76
</TABLE>
The fair values option grants were estimated on the date of grant using the
Black-Scholes option-pricing model on the following weighted-average
assumptions used for grants in 1998 and 1997; dividend yield of 0%,
expected volatility of 46%, 29% and 26%, respectively, expected life of 5
years or 10 years, and risk free interest rates of 5.68%, 6.35% and 6.07%,
respectively.
At January 2, 1999, the Company had 1,133,286 options outstanding at
exercise prices ranging from $5.40 to $14.50. These options had a weighted-
average exercise price of $7.63, a weighted average fair value of $3.28,
and a weighted average remaining contractual life of 6.3 years.
(11) EMPLOYEE STOCK PURCHASE PLAN:
-----------------------------
A total of 333,332 Common Shares are authorized for issuance under the
Company's Employee Stock Purchase Plan ("Employee Plan"). The Employee Plan
permits eligible employees to purchase Common Shares at the lower of 85% of
the fair market value of the Common Shares at the beginning or at the end
of each three month offering period. Pursuant to such plan, 13,450 and
4,112 Shares were sold to employees during the years ended January 2, 1999
and December 27, 1997, respectively.
F-19
<PAGE>
(12) INCOME TAXES:
-------------
The components of the provision (benefit) for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
For the years ended
-------------------------------------------------------
January 2, December 27, December 28,
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,324 $3,246 $1,661
State 226 360 481
Foreign 1,086 248 (177)
-------- -------- --------
2,636 3,854 1,965
-------- -------- --------
Deferred:
Federal 188 (251) 182
State 44 (130) 52
Foreign 10 203 474
-------- -------- --------
242 (178) 708
-------- -------- --------
$2,878 $3,676 $2,673
======== ======== ========
</TABLE>
A reconciliation of the income tax provision calculated at the federal income
tax statutory rate and the Company's effective income tax rate is as follows (in
thousands):
<TABLE>
<CAPTION>
For the years ended
--------------------------------------------------------
January 2, December 27, December 28,
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate $3,660 $3,258 $2,363
State income taxes, net of federal benefit 176 360 350
Research and development tax credits (266) (209) (92)
Foreign taxes greater (less) than federal rates (793) (106) (76)
Other, net 101 373 128
-------- -------- --------
$2,878 $3,676 $2,673
======== ======== ========
</TABLE>
F-20
<PAGE>
(12) INCOME TAXES--(CONTINUED):
--------------------------
The significant components of deferred income tax asset (liability) are as
follows (in thousands):
<TABLE>
<CAPTION>
January 2, December 27,
1999 1997
<S> <C> <C>
Deferred Tax Assets - Current:
Inventory reserves $ 122 $ 77
595 605
Accrued employee benefits 325 407
Other -------- --------
1,042 1,089
-------- --------
Deferred Tax Assets (Liabilities) - Noncurrent: (1,557) (1,454)
Depreciation 45 137
Other -------- --------
(1,512) (1,317)
-------- --------
$ (470) $ (228)
======== ========
</TABLE>
Deferred income taxes are not provided on undistributed earnings of the
Company's foreign subsidiaries because the earnings of $6,589,000 and
$625,000 for the years ended January 2, 1999 and December 27, 1997 were
considered permanently reinvested in such foreign operations. The
unrecognized tax liability on the undistributed foreign earnings was not
significant as of January 2, 1999 and December 27, 1997.
(13) EMPLOYEE BENEFITS:
------------------
CDI maintains a 401(k) savings plan for substantially all domestic
employees. Under the plan, CDI matches employee contributions subject to
the discretion of the Board of Directors. The employer contribution expense
for the years ended January 2, 1999, December 27, 1997 and December 28,
1996, was $538,000, $446,000, and $390,000, respectively. RDI maintains a
government mandated retirement plan for substantially all of its employees.
These benefits do not vest until retirement. The amount of the benefits to
be paid depends upon, among other things, the seniority and salary of the
employees at retirement date. Also, RDI maintains a government mandated
employee profit plan for all employees. The amount of the benefits are
based upon a formula which includes, among other things, net taxable
income. The liability is generally not payable for a period of five years
and is internally funded. In addition, RDI maintains an incentive plan for
certain key employees. The amount of the benefits are based upon a formula
which includes, among other things, net income. The expense for the above
plans for RDI for the years ended January 2, 1999, December 27, 1997, and
December 28, 1996 was $81,300, $28,600, and $101,000 respectively.
(14) COMMITMENTS AND CONTINGENCIES:
------------------------------
Operating Leases-
-----------------
The Company leases certain buildings, office space, automobiles and
equipment under noncancellable operating leases expiring at various dates
through December 2002. Rental expense under operating leases amounted to
$535,000, $520,000, and $531,000, for the years ended January 2, 1999,
December 27, 1997 and December 28, 1996, respectively.
F-21
<PAGE>
(14) COMMITMENTS AND CONTINGENCIES-(CONTINUED):
------------------------------------------
Operating Leases-(Continued)
----------------------------
Future minimum rental payments under leases extending for one year or more
are as follows (in thousands):
1999 $328
2000 279
2001 219
2002 146
2003 and thereafter -
Termination Benefits Agreements-
--------------------------------
In 1998, the Company entered into Executive Separation Agreements with
Messrs. Atkinson, Wood and Hauser-Kauffmann. The Separation Agreements
provide for separation pay should a Change in Control of the Corporation
occur. The Separation Agreements were unanimously approved by the non-
employee directors. Under the Separation Agreements, the executive's
employment must be terminated involuntarily (other than for serious
misconduct), or voluntarily by the executive officer for good reason, i.e.
if the executive officer is demoted, relocated, or has a reduction in
compensation, for separation pay to be available. Separation pay equals
2.90 times the executive officer's average annual compensation for the most
recent five taxable years ending before a Change in Control, and certain
benefits are also extended for three years after termination. The executive
officer is also entitled to continue to participate in the Corporation's
retirement plans for three years after termination, or if such plans
prohibit continued participation after termination, to receive benefits
equal to the incremental benefit the executive officer would have received
had his employment terminated three years after the actual date of
termination. The Corporation believes that by assuring the executive
officer of some financial security, the Separation Agreements protect the
shareholders by neutralizing any bias of the executive officers in
considering proposals to acquire the Corporation. The Corporation believes
these advantages outweigh the disadvantage of the cost of the benefits.
Legal Proceedings-
------------------
The Company has various claims and contingent liabilities arising in the
ordinary conduct of business. In the opinion of management, they are not
expected to have a material adverse effect on the financial position of the
Company.
F-22
<PAGE>
(15) RELATED PARTY TRANSACTIONS:
---------------------------
CDI-
---
Hammond, Kennedy, Whitney & Company, Inc. ("HKW") provides management
services to the Company. Certain directors of the Company are principals of
HKW and own Common Shares of the Company. The Company pays HKW monthly
management fees of $15,000 and board of directors fees. These fees amounted
to $247,800, $247,200, and $246,100, for the years ended January 2, 1999,
December 27, 1997, and December 28, 1996, respectively. In addition, fees
paid to one of the principals of HKW for professional services amounted to
$36,000, $36,000, and $94,000, for the years ended January 2, 1999,
December 27, 1997, and December 28, 1996, respectively. One member of the
Company's board of directors is the vice-president of the investment firm
that manages a portion of the Company's short term investments.
Indemnification from Seller-
----------------------------
Pursuant to the terms of an Environmental Agreement dated July 6, 1994, the
Seller has retained liability and agreed to indemnify CDI for any and all
liabilities arising under CERCLA and other environmental requirements
related to contamination and cleanup at acquired facilities, treatment,
storage and disposal of hazardous materials transported offsite and
remediation required by the State of Maine Department of Environmental
Protection or U.S. Environmental Protection Agency existing or occurring
prior to the acquisition date. The Seller has indemnified CDI against
claims pursuant to the aforementioned issues to the extent the amounts
exceed $50,000 in the aggregate. The Seller has liability for claims
relating to soil and groundwater contamination from the surface impoundment
and out-of-service leachfield at the Company's Standish facility, known to
exist prior to the acquisition, to the extent the liability exceeds
$50,000. The indemnifications provided by the Seller began to expire three
years after the acquisition date, with certain indemnifications continuing
indefinitely. Although the Company believes the Seller's indemnity is
enforceable, if the Company were unable to enforce such indemnification
obligations against the Seller, the Company could become liable for any
such retained liability. The inability to proceed against the Seller could
have a material adverse effect on the Company's financial condition and
results of operations.
(16) SEGMENT INFORMATION:
--------------------
In 1998, the Company adopted SFAS No. 131 " Disclosures About Segments of
an Enterprise and Related Information", which changes the way the Company
reports information about its operating segments. The Company's reportable
business segments provide distinctive products and services, which are
marketed through different geographic channels. Each unit is managed
separately because of their unique geographic, marketing and distribution
requirements. The Company has two reportable business segments: CDI and
RDI. CDI designs, manufactures and markets circuit breakers, electronic
sensors and electronic ceramic component parts used by OEMs in the
automotive, appliance and telecommunications markets. CDI includes both
U.S. and non-U.S. manufacturing companies involved in manufacturing,
selling and administrative functions and operations. RDI distributes CDI's
products as well as a number of electronic components in Europe such as
capacitors, connectors, circuit protection devices produced by other
manufacturers and various electronic fuses and aftermarket products. These
components are supplied to the automotive, appliance, and telecommunication
OEM markets and are sourced and stocked by RDI. The Company's accounting
policies for segments are the same as those described in the summary of
accounting policies. Management evaluates segment performance based on
segment net income. Transfers between segments are accounted for at market
value.
F-23
<PAGE>
(16) SEGMENT INFORMATION-(CONTINUED):
-------------------------------
The following presents financial information for the reportable
segments of the Company for the years ended January 2, 1999, December
27, 1997 and December 28, 1996 (in thousands).
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
------------------------------- -------------------------------- --------------------------------
CDI RDI Total CDI RDI Total CDI RDI Total
--- --- ----- --- --- ----- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales to
external
Customers $ 48,888 $ 31,091 $ 79,979 $ 44,908 $ 25,296 $ 70,204 $ 39,857 $ 20,638 $ 60,495
============================== =============================== ===============================
Intersegment
net sales 6,359 - 6,359 4,689 - 4,689 2,764 - 2,764
============================== =============================== ===============================
Operating
income 8,199 2,307 10,506 8,185 1,550 9,735 7,605 1,011 8,616
Interest
income (629) - (629) (411) - (411) (232) - (232)
Interest
expense 32 300 332 107 474 581 1,466 328 1,794
Income tax
provision 1,980 925 2,905 3,218 451 3,669 2,415 300 2,715
Net income
applicable to
------------------------------ ------------------------------- --------------------------------
common
shareholders $ 6,816 $ 1,082 $ 7,898 $ 5,271 $ 625 $ 5,896 $ 3,956 $ 383 $ 4,339
============================== =============================== ===============================
Total assets $ 38,965 $ 23,268 $ 62,233 $ 34,411 $ 17,583 $ 51,994 $ 27,069 $ 18,276 $ 45,345
Depreciation
and
amortization 2,487 456 2,943 2,041 364 2,405 1,836 283 2,119
Capital
expenditures 1,252 184 1,436 3,082 184 3,266 1,975 56 2,031
</TABLE>
F-24
<PAGE>
(16) SEGMENT INFORMATION-(CONTINUED):
------------------------------
The following presents a reconciliation of segment information to
consolidated amounts for the years ended January 2, 1999, December 27,
1997 and December 28, 1996 (in thousands).
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net sales:
---------
Total net sales of segments $ 86,338 $ 74,893 $ 63,259
Intersegment net sales (6,359) (4,689) (2,764)
-------- -------- --------
Total consolidated net sales $ 79,979 $ 70,204 $ 60,495
======== ======== ========
Operating income:
----------------
Total operating income of segments $ 10,506 $ 9,735 $ 8,616
Intersegment operating income (61) 14 (106)
-------- --------- ---------
Total consolidated operating income $ 10,445 $ 9,749 $ 8,510
======== ========= =========
Income tax provision:
--------------------
Total income tax provision of segments $ 2,905 $ 3,669 $ 2,715
Intersegment income tax provision (27) 7 (42)
--------- --------- ---------
Total consolidated income tax provision $ 2,878 $ 3,676 $ 2,673
========= ========= =========
Net income applicable to common shareholders:
--------------------------------------------
Total net income of segments $ 7,898 $ 5,896 $ 4,339
Intersegment net income (34) 7 (64)
--------- --------- ---------
Total consolidated net income $ 7,864 $ 5,903 $ 4,275
========= ========= =========
Total assets:
------------
Total assets of segments $ 62,233 $ 51,994 $ 45,345
Elimination of intersegment receivables (1,094) (756) (896)
Elimination of intersegment profit in inventory (246) (189) (206)
-------- -------- --------
Total consolidated assets $ 60,893 $ 51,049 $ 44,243
======== ======== ========
</TABLE>
For the years ended January 2, 1999, December 27, 1997, and December
28, 1996, United States export sales (principally to Europe) were
$9,469,000 (excluding intercompany sales of $6,359,000 to RDI ),
$8,218,000 (excluding intercompany sales of $4,689,000 to RDI ), and
$8,765,000 (excluding intercompany sales of $2,764,000 to RDI ),
respectively. Sales to RDI are made on substantially the same terms
and conditions as those to unrelated customers.
(17) CUSTOMER INFORMATION:
--------------------
CDI sells products primarily to OEMs on a worldwide basis, primarily
in the automotive, appliance and telecommunications industries. RDI
distributes its products primarily to OEMs in the Northern European
market. Sales are concentrated in North America and Europe with the
top 15 customers accounting for approximately 55%, 50%, and 45% of
sales in 1998, 1997, and 1996 respectively. For the years ended
January 2, 1999, December 27, 1997, and December 28, 1996, one
customer accounted for approximately $12,911,500, $9,955,700, and
$7,075,000 of sales during these periods.
F-25
<PAGE>
(18) SUPPLIER INFORMATION:
--------------------
The Company relies on a sole supplier or a limited group of suppliers
for certain key components of its products. The Company does not have
a long-term supply agreement with any of these suppliers, and operates
under purchase orders. The Company's reliance on sole or a limited
group of suppliers involves several risks, including a potential
inability to obtain an adequate supply of required components and
reduced control over pricing and timely delivery of components.
Although the timeliness, yield and quality of deliveries to date from
the Company's suppliers have been acceptable, any prolonged inability
to obtain adequate deliveries or any other circumstances that would
require the Company to seek alternative sources of supply could delay
the Company's ability to ship its products, which could damage
relationships with current and prospective customers and could,
therefore, have a material adverse effect on the Company's results of
operations.
(19) CONSULTING AGREEMENTS:
---------------------
In April 1995, the Company entered into an agreement with an
individual to provide design, marketing and consulting services to the
Company. In addition, the Company entered into a number of license
agreements with this individual. The terms of these agreements provide
for minimum cash royalty and license payments. In connection with
these agreements, the Company paid the individual a one time payment
of $200,000 in 1995 and granted a non-qualified stock option to
purchase up to 333,332 Common Shares at any time until March 31, 2002
at $5.40 per Common Share. In addition, royalty payments were
approximately $520,000, $334,000, and $247,000 for the years ended
January 2, 1999, December 27, 1997, and December 28, 1996,
respectively.
On December 27, 1998 the Company and the individual entered into an
additional license agreement which provides for minimum cash royalty
payments. On December 28, 1998 the individual and the Company
terminated the consulting services agreement signed in April of 1995
and amended the license agreements to reduce the minimum cash royalty
and license payments on certain products. In connection with the
termination of the consulting services agreement, the Company paid the
individual a one time payment of $635,553, which is included in
selling, general and administrative expense for fiscal 1998 in the
accompanying consolidated financial statements.
(20) INTERNATIONAL MANUFACTURING AND DISTRIBUTION:
--------------------------------------------
The Company has an international manufacturing subsidiary located in
San Cristobal, Dominican Republic. Included in the Company's balance
sheet at January 2, 1999, and December 27, 1997, are the net assets of
the Company's international manufacturing operations which totaled
approximately $1,785,000 and $2,017,000, respectively. This operation
manufactured products accounting for approximately 33% and 34% of the
Company's gross revenues in fiscal 1998 and fiscal 1997, respectively.
RDI distributes its products primarily to automotive OEMs in Northern
Europe. The Company's results of operations are therefore subject to
European economic conditions. RDI generates revenues and incurs
expenses primarily in currencies other than the U.S. dollar. As a
result, there is increased financial risk to the Company based on
fluctuations in currency exchange rates. Changes in exchange rates,
therefore, may have a significant effect on the Company's financial
condition and results of operations. At January 2, 1999 and December
27, 1997, the net assets of RDI, including goodwill, were
approximately $14.0 million and $9.7 million.
F-26
<PAGE>
(21) SUPPLEMENTARY BALANCE SHEET INFORMATION:
---------------------------------------
Accrued expenses consisted of the following (in thousands):
January 2, December 27,
1999 1997
----------------- -----------------
Accrued income taxes $ 1,332 $ 836
Other 3,325 2,567
---------------- ----------------
$ 4,657 $ 3,403
================ ================
Other long-term liabilities consisted of the following (in thousands):
January 2, December 27,
1999 1997
----------------- -----------------
Deferred tax liabilities $ 1,512 $ 1,317
Retirement benefits 677 496
Employee profit sharing 257 216
---------------- ----------------
$ 2,446 $ 2,029
================ ================
F-27
<PAGE>
Item 8. Supplemental Financial Data
CONTROL DEVICES, INC.
QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)
unaudited
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------------ -------------------- -------------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $19,280 $17,287 $19,846 $18,811 $18,991 $16,042 $21,862 $18,064
Cost of sales 12,621 10,814 12,523 11,766 12,228 10,456 14,708 12,243
------------------ -------------------- -------------------- -------------------
Gross profit 6,659 6,473 7,323 7,045 $ 6,763 5,586 7,154 5,821
Selling, general and administrative
expenses 2,783 2,751 2,896 3,057 3,005 2,438 3,394 2,509
Research and development 1,253 1,082 1,378 1,207 1,422 1,073 1,324 1,059
------------------ -------------------- -------------------- -------------------
4,036 3,833 4,274 4,264 4,427 3,511 4,718 3,568
------------------- -------------------- -------------------- -------------------
Operating income 2,623 2,640 3,049 2,781 2,337 2,075 2,436 2,253
Interest expense (income) (31) 87 (73) 60 (89) 92 (104) (69)
------------------- -------------------- -------------------- -------------------
Income before income taxes 2,654 2,553 3,122 2,721 2,426 1,983 2,540 2,322
Income tax provision 730 1,017 889 1,032 616 769 643 858
------------------- -------------------- -------------------- -------------------
Net income $ 1,924 $ 1,536 $ 2,233 $ 1,689 $ 1,810 $ 1,214 $ 1,897 $ 1,464
=================== ==================== ==================== ===================
Earnings per share:
Basic $ 0.23 $ 0.19 $ 0.27 $ 0.20 $ 0.22 $ 0.15 $ 0.23 $ 0.18
Diluted $ 0.22 $ 0.18 $ 0.25 $ 0.20 $ 0.22 $ 0.14 $ 0.22 $ 0.17
Weighted average number of
common shares and equivalents
outstanding
Basic 8,288 8,272 8,292 8,272 8,296 8,272 8,315 8,282
Diluted 8,753 8,460 8,790 8,450 8,795 8,539 8,774 8,615
</TABLE>
17
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------
Financial Disclosure
--------------------
None.
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Incorporated herein by reference to the information under the heading
"Election of Directors" and "Executive Officers" in the Company's Proxy
Statement with respect to the Company's Annual Meeting of Stockholders scheduled
to be held on April 16, 1999.
Item 11. Executive Compensation
----------------------
Incorporated herein by reference to the information under the headings
"Compensation of Directors", "Compensation Committee Interlocks and Insider
Participation", "Compensation of Executive Officers", "Options" and "Report of
the Compensation Committee on Executive Compensation" in the Company's Proxy
Statement with respect to the Company's Annual Meeting of Stockholders scheduled
to be held on April 16, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Incorporated herein by reference to the information under the headings
"Principal Shareholders" and "Security Ownership of Management" in the Company's
Proxy Statement with respect to the Company's Annual Meeting of Stockholders
scheduled to be held on April 16, 1999.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Incorporated herein by reference to the information under the headings
"Compensation Committee Interlocks and Insider Participation" in the Company's
Proxy Statement with respect to the Company's Annual Meeting of Stockholders
scheduled to be held on April 16, 1999.
Part IV
--------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) (1) Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this annual report.
(2) Exhibits
2 Not Applicable.
3.1 Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1.2 of Amendment No. 1 to Registration
Statement on Form S-1, Registration Statement No. 333-09379).
3.2 Code of By-Laws of the Company (Incorporated by reference to
Exhibit 3.2 of Amendment No. 1 to Registration Statement on
Form S-1, Registration Statement No. 333-09379).
18
<PAGE>
4.1 Specimen of Common Share certificate (Incorporated by reference
to Exhibit 4.1 of Amendment No. 1 to Registration Statement on
Form S-1, Registration Statement No. 333-09379).
4.2 Article III of the Articles of Incorporation of the Company
(included in Exhibit 3.1).
4.3 Code of By-laws of the Company (included in Exhibit 3.2).
4.4 Registration Rights provision of the Securities Purchase
Agreement dated July 29, 1994. (Incorporated by reference to
Exhibit 4.5 of Registration Statement on Form S-1, Registration
Statement No. 333-09379).
4.6 Rights Agreement dated May 7, 1998 between Control Devices,
Inc. and BankBoston, N.A., as Rights Agent, which includes as
Exhibit A the form of Rights Certificate and as Exhibit B the
Summary of Rights to Purchase Shares. (Incorporated by
reference to Exhibit 4 of Form 8-K filed May 21, 1998,
Commission File No. 0-21345).
4.7 Loan Agreement dated September 22, 1998 between the Company and
Fleet Bank of Maine. (Incorporated by reference to Exhibit
10.19 of Form 10-Q for the quarter ended September 30, 1998,
Commission File No. 0-21345).
9 Not Applicable.
10.1 Environmental Agreement dated July 6, 1994 among Control
Devices, Inc., GTE Products of Connecticut Corporation, GTE
Corporation, GTE Control Devices Incorporated and Dominican
Overseas Trading Company (Incorporated by reference to Exhibit
10.1 of Registration Statement on Form S-1, Registration
Statement No. 333-09379).
10.2 Lease Agreement dated December 30, 1994 between Mecon Mfg. and
Control Devices, Inc. (Incorporated by reference to Exhibit
10.2 of Form 10-K for the year ended December 28, 1996,
Commission File No. 0-21345).
10.3* 1996 Stock Compensation Plan (Incorporated by reference to
Exhibit 10.5.1 of Amendment No. 1 to Registration Statement and
Form S-1, Registration Statement No. 333-09379).
10.5 Agreement to Grant License dated April 1, 1995, between Control
Devices, Inc. and Dr. Dennis J. Hegyi (Incorporated by
reference to Exhibit 10.7 of Registration Statement on Form S-
1, Registration Statement No. 333-09379).
10.6 Option to Purchase 333,332 Class A Common Shares of Control
Devices, Inc. granted to Dr. Dennis J. Hegyi (Incorporated by
reference to Exhibit 10.8 of Registration Statement on Form S-
1, Registration Statement No. 333-09379).
10.7 Agreement dated April 1, 1995, between Control Devices, Inc.
and Dr. Dennis J. Hegyi (Incorporated by reference to Exhibit
10.9 of Registration Statement on Form S-1, Registration
Statement No. 333-09379).
10.8 License Agreement (Rain Sensor and Fog Sensor) dated April 3,
1995, between Control Devices, Inc. and Dr. Dennis J. Hegyi
(Incorporated by reference to Exhibit 10.10 of Registration
Statement on Form S-1, Registration Statement No. 333-09379).
19
<PAGE>
10.10 License Agreement (Twilight Sensor) dated April 3, 1995 between
Control Devices, Inc. and Dr. Dennis J. Hegyi (Incorporated by
reference to Exhibit 10.12 of Registration Statement on Form S-
1, Registration Statement No. 333-09379).
10.13 License Agreement dated November 6, 1989, between GTE Products
Corporation and Dennis J. Hegyi (Incorporated by reference to
Exhibit 10.15 of Amendment No. 1 to Registration Statement on
Form S-1, Registration Statement No. 333-09379).
10.14 Lease Agreement dated December 28, 1996 between the Company and
Parque Industrial Itabo, S.A. (Incorporated by reference to
Exhibit 10.14 of Amendment No. 1 to Registration Statement on
Form S-1, Registration Statement No. 333-09379).
10.15 Lease dated December 1, 1996 between the Company and Regency
Associates (Incorporated by reference to Exhibit 10.15 of Form
10-K for the year ended December 28, 1996, Commission File No.
0-21345).
10.16* 1997 Stock Compensation Plan (Incorporated by reference to
Exhibit 10.16 of Form 10-K for the year ended December 27,
1997, Commission File No. 0-21345).
10.17 Stock Purchase Agreement dated June 26,1998, by and among the
Company and of the shareholders of AEI. (Incorporated by
reference to Exhibit 10.17 of Form 10-Q for the quarter ended
June 30, 1998, Commission File No. 0-21345).
10.18* Amended Employment Agreement with Michel Hauser-Kauffmann
(Incorporated by reference to Exhibit 10.18 of Form 10-Q for
the quarter ended September 30, 1998, Commission File No. 0-
21345).
10.19* Termination Benefits Agreement with Jeffrey G. Wood
(Incorporated by reference to Exhibit 10.19 of Form 10-Q for
the quarter ended September 30, 1998, Commission File No. 0-
21345).
10.20* Termination Benefits Agreement with Bruce D. Atkinson
(Incorporated by reference to Exhibit 10.19 of Form 10-Q for
the quarter ended September 30, 1998, Commission File No. 0-
21345).
10.21 Amendment and Termination Agreement by and between Dennis J.
Hegyi and the Company, dated December 28, 1998. (Incorporated
by reference to Exhibit 99.0 of Form 8-K filed on January 8,
1999, Commission File No. 0-21345).
10.22 Termination of Consultant's Agreement by and between Dennis J.
Hegyi and the Company, dated December 28, 1998. (Incorporated
by reference to Exhibit 99.1 of Form 8-K filed on January 8,
1999, Commission File No. 0-21345).
10.23 License Agreement by and between Dennis J. Hegyi and the
Company, dated December 27, 1998. (Incorporated by reference to
Exhibit 99.2 of Form 8-K filed on January 8, 1999, Commission
File No. 0-21345).
12 Not Applicable.
13 Not Applicable.
16 Not Applicable.
20
<PAGE>
18 Not Applicable.
21.1 Subsidiaries of the Company.
22 Not Applicable.
23 Not Applicable.
24 Not Applicable.
27 Financial Data Schedule.
28 Not Applicable.
99 Not Applicable.
* Management Compensation Plans
(b) Reports on Form 8-K
The Company filed this report on form 8-K to disclose certain information
related to agreements entered into with Dennis J. Hegyi.
Pursuant to the requirements of Section 13 or 15(d) of the Security Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Control Devices, Inc.
Date: By /S/ JEFFREY G. WOOD
--------------------
Jeffrey G. Wood
Vice President, Chief Financial
Officer, Secretary and Treasurer
21
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
----------- ------- ----
<S> <C> <C>
President, Chief Executive Officer and
/S/ BRUCE D. ATKINSON Director January 26, 1999
- ------------------------------ Principal Executive Officer
Bruce D. Atkinson
/S/ RALPH R. WHITNEY, JR. Chairman of the Board January 26, 1999
- ------------------------------
Ralph R. Whitney, Jr.
Vice President, Chief
Financial January 26, 1999
/S/ Jeffrey G. Wood Officer, Secretary and Treasurer
- ------------------------------ Principal Financial Officer and
Jeffrey G. Wood Principal Accounting Officer
/S/ C. M. BRENNAN, III Director January 26, 1999
- ------------------------------
C.M. Brennan, III
/S/ JOHN D. COOKE Director January 26, 1999
- ------------------------------
John D. Cooke
/S/ FORREST E. CRISMAN, JR. Director January 26, 1999
- ------------------------------
Forrest E. Crisman, Jr.
/S/ JAMES O. FUTTERKNECHT, JR. Director January 26, 1999
- ------------------------------
James O. Futterknecht, Jr.
/S/ ALAN I. MOSSBERG Director January 26, 1999
- ------------------------------
Alan I. Mossberg
/S/ GLENN SCOLNIK Director January 26, 1999
- ------------------------------
Glenn Scolnik
</TABLE>
22
<PAGE>
Exhibit 21.1
Control Devices, Inc.
List of Subsidiaries
<TABLE>
<CAPTION>
Subsidiaries Place of Incorporation
- -------------------------------------------------------------- ------------------------------------
<S> <C>
Realisations et Diffusion pour I'Industrie ("RDI") France
CDI Holding International France
RDI Management Company, Inc. ("RDIM") Indiana
Control Devices FSC, Inc. St. Thomas U.S. Virgin Islands
CDI Netherlands B.V. Netherlands
Control Devices Inc. N.V. Curacao Netherlands Antilles
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JAN-02-1999 DEC-27-1997
<PERIOD-START> DEC-28-1997 DEC-29-1996
<PERIOD-END> JAN-02-1999 DEC-27-1997
<CASH> 10,183 5,016
<SECURITIES> 5,642 4,980
<RECEIVABLES> 13,357 11,779
<ALLOWANCES> (513) (468)
<INVENTORY> 8,712 6,414
<CURRENT-ASSETS> 38,910 29,316
<PP&E> 22,943 21,808
<DEPRECIATION> (9,771) (7,546)
<TOTAL-ASSETS> 60,893 51,049
<CURRENT-LIABILITIES> 16,347 14,291
<BONDS> 0 0
0 0
0 0
<COMMON> 20,302 20,014
<OTHER-SE> (349) (554)
<TOTAL-LIABILITY-AND-EQUITY> 60,893 51,049
<SALES> 79,979 70,204
<TOTAL-REVENUES> 79,979 70,204
<CGS> 52,080 45,279
<TOTAL-COSTS> 52,080 45,279
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (297) 170
<INCOME-PRETAX> 10,742 9,579
<INCOME-TAX> 2,878 3,676
<INCOME-CONTINUING> 7,864 5,903
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,864 5,903
<EPS-PRIMARY> 0.95 0.71
<EPS-DILUTED> 0.90 0.69
</TABLE>
