<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 333-11041
PROSPECTUS
[LOGO]
4,200,000 SHARES
CHICAGO MINIATURE LAMP, INC.
COMMON STOCK
------------
Of the 4,200,000 shares of Common Stock offered hereby, 3,065,000 shares are
being sold by Chicago Miniature Lamp, Inc. (the "Company") and 1,135,000
shares are being sold by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the net proceeds from the sale of the shares being sold by the
Selling Shareholders.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CHML". The last reported sales price of the Company's Common Stock as
reported on the Nasdaq National Market on October 9, 1996 was $30.75 per
share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $29.50 $1.475 $28.025 $28.025
- ---------------------------------------------------------------
Total (3) $123,900,000 $6,195,000 $85,896,625 $31,808,375
</TABLE>
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- -------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the offering of $600,000, payable
by the Company.
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day option to purchase up to 630,000 additional shares of Common Stock
on the same terms and conditions as set forth above to cover over-
allotments, if any. If the Underwriters exercise such option in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholders will be $142,485,000,
$7,124,250, $98,781,119 and $36,579,631, respectively. See "Principal and
Selling Shareholders" and "Underwriting."
------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them, and subject
to certain other conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
October 17, 1996, at the offices of Smith Barney Inc., 333 W. 34th Street, New
York, New York 10001.
------------
SMITH BARNEY INC.
RAYMOND JAMES & ASSOCIATES, INC.
MCDONALD & COMPANY
SECURITIES, INC.
October 10, 1996
<PAGE>
PRODUCTS
- -------------------------------------------------------------------------------
LAMPS & ASSEMBLIES FIBEROPTIC CABLES LIGHT PIPES
APPLICATIONS
- -------------------------------------------------------------------------------
SNAKELIGHT APPLIANCE AVIATION & AUTOMOTIVE
----------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical and pro forma financial statements and notes thereto
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
all references to (i) the Company are to Chicago Miniature Lamp, Inc. and its
subsidiaries, including Alba Speziallampen Holding GmbH ("CML-Alba"); and (ii)
Alba are to W. Albrecht GmbH u. Co. KG and certain other entities (collectively
"Alba") acquired by the Company effective May 1, 1996 (the "Alba Acquisition").
See "Acquisition of Alba" below. Unless otherwise indicated, the information in
this Prospectus gives effect to a three-for-two stock split in the form of a
dividend paid on August 27, 1996 and assumes that the Underwriters' over-
allotment option will not be exercised.
THE COMPANY
Chicago Miniature Lamp, Inc. is a vertically integrated manufacturer and
supplier of a wide variety of miniature lighting products comprised primarily
of value-added miniature lighting assemblies and miniature bulbs and, to a
lesser extent, miniature bulb sockets, automated bulb manufacturing equipment
and fiber optic products. The Company's lighting products are used mainly as
visual fault or status indicators and for illumination in a wide array of
products. Product applications range from "power on" indicators for small
household products, such as steam irons, electric blankets and coffee makers,
to sophisticated lighting assemblies for automobile message centers and
telecommunications status arrays. The Company's products are sold primarily to
original equipment manufacturers ("OEMs") in the automotive, electronics and
communication, appliance and aviation industries. As a result of recent foreign
acquisitions, the Company now markets its products throughout North America and
Europe.
The Company is positioning itself to provide "one stop" lighting solutions
for its customers' miniature lighting requirements. The Company's strategy is
to operate as a vertically integrated manufacturer producing both discrete
lighting components and customized lighting assemblies. Through the Company's
acquisitions of leading niche companies, the Company has the ability to design,
manufacture and assemble the majority of the components utilized in its
miniature lighting products and to provide its customers with a wide range of
value-added products and services. The operating and growth components of the
Company's business strategy are designed to enhance the Company's presence as a
leading manufacturer and supplier of miniature lighting products by augmenting
its technology, engineering and design capabilities, broadening its product
offerings, providing additional manufacturing facilities and accessing related
markets.
As a result of the Company's operating and growth strategies, net sales
increased from $9.0 million for the year ended April 30, 1992 to $57.4 million
for the year ended December 3, 1995. In addition, operating income increased
from approximately $306,000 for the year ended April 30, 1992 to $12.2 million
for the year ended December 3, 1995. The Company's net sales increased from
$24.4 million for the six months ended May 28, 1995 to $41.5 million for the
six months ended June 2, 1996, representing an increase of approximately 70%,
and operating income increased from approximately $4.7 million to $8.2 million
over the same period, representing an increase of approximately 74%. The
Company believes this growth was primarily the result of successfully
implementing the following operating and growth strategies:
OPERATING STRATEGY
The Company's operating strategy is designed to enhance the Company's
presence as a leading manufacturer and supplier of miniature lighting products
by augmenting its technology, engineering and design capabilities, broadening
its product offerings, providing additional manufacturing facilities and
accessing related markets.
3
<PAGE>
. VERTICAL INTEGRATION. The Company intends to further enhance the vertical
integration of its operations by broadening the range of lighting components
which it manufactures and uses in its miniature lighting assemblies. By
increasing the percentage of Company-manufactured components used in its
lighting assemblies, the Company achieves greater control over the quality and
cost of such assemblies. The Company's ability to manufacture a wide array of
miniature lighting components also enables the Company to make more complex,
value-added assemblies, which generally have higher average selling prices per
unit and higher margins than discrete miniature lighting components.
. TECHNOLOGY-DRIVEN PRODUCT INNOVATION. In order to anticipate the changing
needs of its customers, the Company pursues the development of technologically
advanced and innovative products. The Company encourages close working
relationships with its customers by designing and manufacturing lighting
solutions in cooperation with its customers to meet their specific needs. The
Company believes that it can expand its business by offering new products and
entering new niche markets in which it can be one of a few leading suppliers.
. IMPROVING OPERATING EFFICIENCIES. By focusing its product offerings, the
Company achieves significant manufacturing and cost efficiencies. Through
integrating and, in certain cases, realigning acquired companies, the Company
endeavors to capitalize on the consolidation and, in some instances, the
elimination of certain selling and administrative functions. In utilizing
Company produced components in its miniature lighting assemblies, the Company
can better control its manufacturing costs.
. RESPONSIVENESS AND QUALITY. The Company believes that responsiveness to
customers' "just-in-time" demands and quality are critical factors for success
in the miniature lighting industry. The Company strives to improve its
manufacturing operations by automating its manufacturing processes wherever
possible to reduce costs and increase production capacity. The Company has
achieved a preferred supplier designation from several of its most important
OEM customers, including Q-1 certification from Ford Motor Company and a
Quality Excellence award from Chrysler Corp., and is certified as a QS-9000,
ISO 9001 and Euro-Net ISO 9000 and 9001 supplier.
GROWTH STRATEGY
The Company believes that it is well positioned to continue its growth due to
several factors. The increased vertical integration of the Company has provided
it with certain cross selling opportunities as acquisitions have expanded the
Company's product line to include new, complimentary products. The Company also
intends to continue its expansion both domestically and internationally. The
Company has been able to identify and acquire established businesses that it
believes have well-developed market positions and strong reputations for
technology, quality and innovation.
. INCREASING SALES TO EXISTING AND NEW CUSTOMERS. The Company focuses on
expanding its market by designing, developing and marketing "one stop" lighting
solutions. The Company intends to position itself as a single-source provider
of miniature lighting products and value-added services for its existing and
new customers, which the Company believes will distinguish it from its
competitors. As the trend toward outsourcing continues, the Company believes
its competitive position will be enhanced due to its diverse product line and
its specialized service capabilities.
. AUTOMATING AND EXPANDING MANUFACTURING OPERATIONS. The Company continues to
automate its manufacturing operations. Through recent acquisitions, the Company
has expanded the number and type of components used in its operations and has
obtained the ability to manufacture other lighting-related applications,
including fiber optic products. The Company's high speed, bulb manufacturing
equipment capability gives it the flexibility to manufacture many categories of
bulbs used in its operations, and the Company intends to pursue the production
of light emitting diodes ("LEDs").
4
<PAGE>
. INTERNATIONAL EXPANSION. The Company has identified international markets,
primarily Europe, as a major source of potential future growth. The Company
intends to focus on Europe because of its size and similarity to the North
American marketplace. As a result of the Company's international expansion,
including certain foreign acquisitions, the Company operates in Germany,
Canada, the United Kingdom, Costa Rica and the Czech Republic.
. COMPLEMENTARY ACQUISITIONS. Within the miniature lighting and fiber optic
industries there are many well known, private companies which produce various
lighting related products. As the Company believes that it would be very
difficult and expensive to establish the name, reputation, form and function
comparable to these companies, the Company has generally used strategic
acquisitions to effect its vertical integration strategy. The Company believes
that its demonstrated ability to integrate and improve acquired businesses will
continue to provide it with significant growth opportunities.
The Company is incorporated under the laws of the State of Oklahoma. The
Company's executive offices are located at 500 Chapman Street, Canton,
Massachusetts, 02021, and its telephone number is (617) 828-2948.
ACQUISITION OF ALBA
Effective May 1, 1996, the Company acquired W. Albrecht GmbH u. Co KG and its
interest in certain other affiliated entities (collectively "Alba"). Founded in
1935, Alba is a respected European manufacturer of miniature lighting products,
including value-added miniature lighting assemblies, miniature bulbs, bases,
bulb sockets, reflectors and light pipes. Alba primarily sells its products to
the European OEMs in the automotive and electronics and communication
industries. Alba's quality assurance system is according to ISO 9001 and Euro-
Net ISO 9000 and 9001 for all departments. Alba has received "A" quality
ratings from customers such as VDO, Delco Electronics, Bosch and Eaton Corp.
and has the highest quality rating at Mercedes Benz.
The Company believes that the Alba Acquisition provides the Company with a
significant European market presence for its technology and product line and
further strengthens the Company's position as a leading manufacturer and
supplier of miniature lighting products. The Company will seek to capitalize on
the recognized name of Alba to introduce the Company's products in the European
market. In addition the Alba Acquisition establishes a platform from which the
Company may acquire, restructure and integrate additional complimentary
European companies.
Pro forma for the Recent Acquisitions (as hereinafter defined) and this
offering, the Company had approximately $105.1 million in net sales, $11.9
million in operating income and $8.0 million in net income for the year ended
December 3, 1995. Pro forma for the Alba Acquisition and this offering, the
Company had approximately $52.2 million in net sales, $8.2 million in operating
income and $5.8 million in net income for the six months ended June 2, 1996.
THE OFFERING
Common Stock being offered by the Company..... 3,065,000 shares
Common Stock being offered by the Selling
Shareholders.................................. 1,135,000 shares
Common Stock to be outstanding after the 18,997,499 shares
offering (1)..................................
Use of proceeds............................... Repay certain outstanding
indebtedness, finance the
purchase and installation
of certain manufacturing
equipment, and for general
corporate purposes,
including possible future
acquisitions.
Nasdaq National Market symbol................. CHML
- --------
(1) Excludes 450,000 shares of Common Stock reserved for issuance upon the
exercise of options currently outstanding or available for future grant
under the Company's Stock Option Plan.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------- -----------------------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(2)
---------------------------- -------- --------------- -------
2/27/94 11/27/94(3) 12/3/95 12/3/95 5/28/95 6/2/96 6/2/96
------- ----------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales............... $24,894 $31,729 $57,402 $105,093 $24,402 $41,527 $52,195
Cost of products sold... 17,860 21,113 36,726 72,072 15,790 27,243 35,440
------- ------- ------- -------- ------- ------- -------
Gross margin............ 7,034 10,616 20,676 33,021 8,612 14,284 16,755
Selling, general and ad-
ministrative expenses.. 8,028 7,777 8,462 21,112 3,913 6,109 8,573
------- ------- ------- -------- ------- ------- -------
Operating income
(loss)................. (994) 2,839 12,214 11,909 4,699 8,175 8,182
Net income (loss)....... $(1,635) $ 1,110 $ 8,465 $ 8,012 $ 2,450 $ 5,374 $ 5,813
======= ======= ======= ======== ======= ======= =======
Earnings (loss) per com-
mon share.............. $ (0.13) $ 0.09 $ 0.61 $ 0.49 $ 0.20 $ 0.34 $ 0.35
======= ======= ======= ======== ======= ======= =======
Weighted average shares
outstanding (4)........ 12,496 12,496 13,920 16,516 12,510 15,708 16,516
======= ======= ======= ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 2, 1996
------------------------
ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............................. $ (4,218) $ 77,725
Total assets........................................... 103,413 170,171
Short-term debt........................................ 27,185 12,000
Long-term debt, less current portion................... 3,354 --
Stockholders' equity................................... 43,589 128,886
</TABLE>
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(1) Gives effect to the following as if each had occurred on November 28, 1994:
(i) acquisitions completed during the year ended December 3, 1995 (the
"Fiscal 1995 Acquisitions"), (ii) the acquisition of Phoenix Lighting (U.K.)
Limited in December 1995 (the "Phoenix Acquisition"), (iii) the Alba
Acquisition, and (iv) this offering and the application of the net proceeds
to the Company therefrom. The Fiscal 1995 Acquisitions, the Phoenix
Acquisition and the Alba Acquisition are collectively referred to herein as
the "Recent Acquisitions." See "Use of Proceeds," "Business--Acquisitions"
and the Pro Forma Condensed Consolidated Financial Statements and related
notes included elsewhere in this Prospectus.
(2) Gives effect to the following as if each had occurred on December 4, 1995:
(i) the Alba Acquisition and (ii) this offering and the application of the
net proceeds to the Company therefrom. See "Use of Proceeds," "Business--
Acquisitions" and the Pro Forma Condensed Consolidated Financial Statements
of the Company and related notes included elsewhere in this Prospectus.
(3) The Company changed its financial reporting year-end from the last Sunday
in February to the Sunday closest to December 1, which resulted in a year
containing 39 weeks in 1994.
(4) See Note 2 of the Notes to the Company's Financial Statements for
information regarding the calculation of weighted average shares outstanding.
(5) Gives effect to this offering and the application of the net proceeds to
the Company therefrom as if this offering had occurred on June 2, 1996. See
"Use of Proceeds," "Business--Acquisitions" and the Pro Forma Condensed
Consolidated Financial Statements and related notes included elsewhere in
this Prospectus.
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Company's Common Stock should carefully
consider the following factors as well as the other information contained in
this Prospectus in evaluating an investment in the Company's Common Stock.
GROWTH THROUGH ACQUISITIONS
The Company's growth strategy includes acquisitions, and the Company intends
to seek additional acquisition opportunities. There can be no assurance that
the Company will be able to successfully identify suitable acquisition
candidates, secure financing on acceptable terms, complete acquisitions,
integrate acquired operations into existing operations or expand into new
markets. There can also be no assurance that future acquisitions will not have
an adverse effect upon the Company's operating results, particularly in the
fiscal quarters immediately following the completion of such acquisitions
while the operations of the acquired business are being integrated into the
Company's operations. Once integrated, acquired operations may not achieve
levels of revenues, profitability or productivity comparable with those
achieved by the Company's existing operations, or otherwise perform as
expected. In addition, the Company competes for acquisition and expansion
opportunities with companies that have substantially greater resources.
INTEGRATION OF THE ALBA ACQUISITION
The Alba Acquisition is significantly larger than the Company's previous
acquisitions and represents a substantial increase in the scope of the
Company's business. Alba's net sales for the year ended December 31, 1995 were
$24.8 million, and the Company's net sales for the year ended December 3, 1995
were $57.4 million. Successful integration of Alba's operations will depend
primarily on the Company's ability to manage Alba's manufacturing operations
and to eliminate redundancies and excess costs. There can be no assurance that
the Company can successfully integrate Alba and any failure or any inability
to do so may have a material adverse effect on the Company's results of
operations and financial condition. In addition, as a result of the Alba
Acquisition, the Company now operates in Germany and the Czech Republic and
makes sales throughout continental Europe. The Company has no previous
operating experience in such countries and there can be no assurance that the
Company can successfully operate in such countries. Further, although the
Company and its advisors conducted due diligence with respect to Alba, there
can be no assurance that this due diligence investigation uncovered all
material adverse facts relating to the business, results of operations,
financial condition and properties of Alba. The discovery of any such facts
could have a material adverse effect on the Company's results of operations
and financial condition.
DEPENDENCE ON CERTAIN INDUSTRIES
Although the Company's markets are diversified, its business is affected by
trends in the industries which use the Company's products. Pro forma for the
Alba Acquisition, for the six months ended June 2, 1996, approximately 28% and
26% of the Company's net sales were derived from the sale of miniature
lighting components to the automotive industry and the electronics and
communication industry, respectively. The automotive industry is cyclical in
nature. Any downturn in the automotive industry or the electronics and
communication industry could have a material adverse effect on the portion of
the Company's business attributable to such industry as well as an adverse
effect on the Company's results of operations and financial condition taken as
a whole.
DEPENDENCE ON FOREIGN SUPPLIERS
One of the major components used by the Company in its lighting assemblies
is LEDs. Since the Company does not currently manufacture LEDs, it must
purchase all of the LEDs it uses or sells. The Company acquires LEDs from
several sources. All LEDs used by the Company are currently manufactured in
the Pacific Rim. Any event adversely affecting the supply of LEDs could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business--Manufacturing."
7
<PAGE>
FOREIGN OPERATIONS
The Company currently manufactures and sells products in certain foreign
countries, primarily Germany, the United Kingdom and Canada. The manufacturing
costs, profit margins and competitive position of the Company are consequently
affected by the strength of the currencies in countries where it manufactures
goods relative to the strength of the currencies in the countries where its
products are sold. The Company's results of operations and financial condition
may be adversely affected by fluctuations in foreign currencies and by
translations of the financial statements of the Company's foreign subsidiaries
from local currencies into U. S. dollars. In addition, the Company from time
to time enters into forward currency contracts under which the Company is
required to settle each contract at a future date by exchanging a fixed amount
of U.S. dollars or other currency for a fixed amount of a denominated
currency. Consequently, to the extent the value of the denominated currency
fluctuates relative to the U.S. dollar or such other currency, the Company's
financial condition could be materially, adversely affected upon settlement of
such contracts depending on a number of factors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and Note 6 of Notes to the Company's Financial Statements.
Further, the Company's international operations are generally subject to
various risks that are not present in domestic operations, including
restrictions on dividends and repatriation of funds.
COMPETITION
The industry in which the Company operates is highly competitive. Most of
the Company's competitors offer products in some but not all of the markets
served by the Company. The Company competes primarily on the basis of price,
product quality, design and engineering, customer service and delivery.
Competitors range from large, diversified companies, some of which have
substantially greater financial resources than the Company, to small brokers
representing Pacific Rim manufacturers. There can be no assurance that the
Company will be able to continue to compete successfully in its industry.
DISCRETION IN USE OF PROCEEDS
A significant portion of the net proceeds of this offering will be added to
the Company's working capital and will be available for general corporate
purposes, including potential acquisitions. As of the date of this Prospectus,
the Company cannot specify with certainty the particular uses for such net
proceeds to be added to its working capital and accordingly management will
have broad discretion in the application of such net proceeds. The Company
currently has no agreements, arrangements or understandings with respect to
any particular acquisition, and there can be no assurance that any acquisition
will be completed. See "Use of Proceeds." "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Business--Growth Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company will continue to be dependent to a significant extent upon the
efforts and abilities of its Chief Executive Officer and principal
shareholder, Mr. Frank M. Ward. The loss of the services of Mr. Ward could
have a material adverse effect on the Company. In view thereof, the Company
has entered into a three-year employment contract with Mr. Ward. See
"Management--Executive Compensation."
CONTROL BY PRINCIPAL SHAREHOLDER AND CHIEF EXECUTIVE OFFICER
Upon completion of this offering, Mr. Ward, together with members of his
immediate family, will beneficially own approximately 53.8% of the outstanding
shares of Common Stock. As a result, Mr. Ward, together with such family
members, will be able to elect the entire Board of Directors, control the vote
on all matters submitted to a shareholder vote and effectively control the
Company. See "Principal and Selling Shareholders."
8
<PAGE>
NO DIVIDENDS ANTICIPATED
The Company intends to retain all future earnings for use in the development
of its business and does not anticipate paying any cash dividends in the
foreseeable future. In addition, dividend payments may also be restricted by
financial covenants contained in the Company's credit facilities. See
"Dividend Policy."
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
From time to time after this offering, there may be significant volatility
in the market price for the Common Stock. Operating results of the Company,
changes in general economic conditions and the financial markets, or other
developments affecting the Company or its competitors could cause the market
price for the Common Stock to fluctuate substantially. See "Price Range of
Common Stock" and "Dividends."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 18,997,499 shares of
Common Stock outstanding. Of these shares, all of the 4,200,000 shares sold in
this offering and 4,076,243 shares of Common Stock currently outstanding will
be freely tradable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
10,721,256 shares are deemed "restricted shares" as defined by Rule 144 under
the Securities Act. Of such shares, 10,557,103 shares are currently eligible
for sale pursuant to Rule 144, subject to certain restrictions, and 14,153 and
150,000 shares will become eligible for sale pursuant to Rule 144, subject to
certain restrictions in January 1997 and May 1998, respectively. Sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of stock options) in the public market, or the perception that such sales
could occur, could adversely affect the prevailing market price for the Common
Stock and the ability of the Company to raise capital through a public
offering of its equity securities. Certain of the Company's executive officers
and directors and the Selling Shareholders, who will beneficially own in the
aggregate 10,622,006 shares of Common Stock following the completion of this
offering, have agreed not to offer, sell, offer to sell, solicit an offer to
buy, contract to sell, pledge or grant any option to purchase or otherwise
transfer or dispose (or announce any of the foregoing) of any shares of Common
Stock, or any securities convertible into or exercisable for Common Stock,
without the prior written consent of Smith Barney Inc. for a period of 180
days after the date of this Prospectus. See "Shares Eligible for Future Sale."
9
<PAGE>
PRICE RANGE OF COMMON STOCK
Since the effective date of the Company's initial public offering on June
16, 1995, the Company's Common Stock has been traded on the Nasdaq National
Market under the symbol "CHML." The initial public offering price was $8.33
per share. The following table sets forth for the periods indicated the high
and low sales prices of the Company's Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
----------- ------ ------
<S> <C> <C>
Third Quarter (1)....................... $11.33 $ 8.67
Fourth Quarter.......................... 13.83 10.50
FISCAL 1996
-----------
First Quarter........................... $19.83 $13.33
Second Quarter.......................... 28.17 18.33
Third Quarter........................... 30.75 19.00
Fourth Quarter (2)...................... 30.75 25.00
</TABLE>
- --------
(1) For the period from the Company's initial public offering on June 16, 1995
through August 27, 1995 (the end of the third quarter of the year ended
December 3, 1995).
(2) For the period from September 2, 1996 through October 9, 1996.
The last reported sales price of the Company's Common Stock on October 9,
1996 on the Nasdaq National Market was $30.75 per share. The Company believes
that as of October 9, 1996, the number of beneficial owners of the Company's
Common Stock was approximately 1,900.
DIVIDEND POLICY
The Company does not intend to pay dividends in the foreseeable future as it
intends to retain any earnings for the operation and expansion of its
business. In addition, the payment of cash dividends by the Company may be
subject to certain restrictions under its loan agreements. Any determination
to pay dividends in the future will be at the discretion of the Company's
Board of Directors and will be dependent upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant at that time by the Company's Board of Directors. In addition,
dividend payments may also be governed in the future by financial covenants
set by lenders.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,065,000 shares of
Common Stock offered by it hereby are estimated to be approximately $85.3
million (approximately $98.2 million if the Underwriters' over-allotment
option is exercised in full), after deduction of underwriting discounts and
commissions and expenses payable by the Company estimated at $600,000. The
Company will not receive any proceeds from the sale of shares of Common Stock
by the Selling Shareholders.
Of these net proceeds, the Company will use approximately $10.2 million to
re-pay a portion of the indebtedness outstanding under the Company's credit
facilities, which indebtedness was incurred primarily to finance the cash
portion of the purchase price of the acquisition of Electro Fiberoptics, Inc.
("Fiberoptics") and Alba and certain capital expenditures. Indebtedness
outstanding under the credit facilities bears interest at the prime rate
(8.25% per annum as of August 23, 1996) and matures on December 30, 1997.
Amounts repaid by the Company under its credit facilities will be available
for reborrowing. The Company also intends to use a portion of the net proceeds
to pay approximately $8.3 million of certain indebtedness assumed in
connection with the acquisition of Badalex and Alba. As of August 15, 1996,
such indebtedness had an average interest rate of approximately 7.2% per annum
and maturities ranging from on demand to between July 31, 1998 and March 30,
2005. See Notes to Alba's and Badalex's Financial Statements included
elsewhere in this Prospectus. The Company intends to use approximately (i)
$15.0 million of the net proceeds to equip a facility for, or to acquire a
business primarily engaged in, the production of LEDs and (ii) $15.0 million
of the net proceeds to develop or purchase equipment to increase its
production of incandescent bulbs and to increase automation at certain of the
Company's manufacturing facilities. The remaining net proceeds will be added
to the Company's working capital and will be available for general corporate
purposes, including possible future acquisitions. Although the Company intends
to seek additional acquisition and joint venture opportunities, it currently
has no agreements, arrangements or understandings with respect to any
particular acquisition or joint venture, and there can be no assurance that
any acquisitions or joint ventures will be completed.
Pending the Company's use of the net proceeds of this offering, the Company
will make short-term investments in interest-bearing savings accounts,
certificates of deposit, United States Government obligations, money market
accounts, interest bearing securities or other insured short-term, interest-
bearing investments.
11
<PAGE>
CAPITALIZATION
The following table sets forth at June 2, 1996 (i) the consolidated long-
term debt and capitalization of the Company and (ii) the consolidated long-
term debt and capitalization of the Company as adjusted to give effect to this
offering and the application of the net proceeds to the Company therefrom as
described under "Use of Proceeds." This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 2, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term notes payable................................... $ 26,894 $ 12,000
Current portion of long-term debt.......................... 291 --
-------- --------
Total short-term debt.................................... $27,185 $12,000
======== ========
Long-term debt, less current portion....................... $ 3,354 $ --
Stockholders' equity:
Common Stock, $.01 par value;
20,000,000 shares authorized;
15,854,903 shares issued and
outstanding; 18,919,903 shares
issued and outstanding,
as adjusted(1)........................................... 159 190
Additional paid-in capital................................ 27,077 112,343
Retained earnings......................................... 16,215 16,215
Foreign currency translation adjustment................... 138 138
-------- --------
Total stockholders' equity............................... 43,589 128,886
-------- --------
Total capitalization..................................... $ 46,943 $128,886
======== ========
</TABLE>
- --------
(1) Excludes 450,000 shares of Common Stock reserved for issuance upon the
exercise of options currently outstanding or available for future grant
under the Company's Stock Option Plan.
12
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of the Company for, and as of the end of, the
year ended December 3, 1995 have been derived from the consolidated financial
statements of the Company, which have been audited by Ernst & Young LLP. The
selected financial data of the Company for, and as of the end of, the nine
months ended November 27, 1994 have been derived from the consolidated
financial statements of the Company, which have been audited by Arthur
Andersen LLP. The selected financial data of the Company for, and as of the
end of, the years ended February 27, 1994 and February 28, 1993 have been
derived from the combined financial statements of the Company, which have been
audited by Arthur Andersen LLP. The selected financial data of the Company
for, and as of the end of, the year ended April 30, 1992 have been derived
from the unaudited combined financial statements of the Company. The selected
financial data of the Company for the six-month periods ended May 28, 1995 and
June 2, 1996 have been derived from the unaudited consolidated financial
statements of the Company. The unaudited financial statements for the year
ended April 30, 1992 and the six month periods ended May 28, 1995 and June 2,
1996 include all adjustments, consisting of normal recurring accruals that the
Company considers necessary for a fair presentation of its financial position
and results of operations for these periods. The results of operations for the
six months ended June 2, 1996 are not necessarily indicative of results that
may be expected for the full year. The following data should be read in
conjunction with the Company's Financial Statements and Notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS YEAR SIX MONTHS
YEAR ENDED(1) ENDED ENDED ENDED
-------------------------- ----------- ------- ---------------
4/30/92 2/28/93 2/27/94 11/27/94(2) 12/3/95 5/28/95 6/2/96
------- ------- -------- ----------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA (3):
Net sales............... $9,031 $12,223 $ 24,894 $31,729 $57,402 $24,402 $41,527
Cost of products sold... 6,363 9,075 17,860 21,113 36,726 15,790 27,243
------ ------- -------- ------- ------- ------- -------
Gross margin.......... 2,668 3,148 7,034 10,616 20,676 8,612 14,284
Selling, general and ad-
ministrative expenses.. 2,362 2,322 8,028 7,777 8,462 3,913 6,109
------ ------- -------- ------- ------- ------- -------
Operating income
(loss)............... 306 826 (994) 2,839 12,214 4,699 8,175
Interest (income) ex-
pense, net............. (121) 323 502 936 803 803 323
Other (income) expense,
net.................... 25 86 (92) (7) (47) 8 (16)
------ ------- -------- ------- ------- ------- -------
Income (loss) before
provision
(benefit) for income
taxes.................. 402 417 (1,404) 1,910 11,458 3,888 7,868
Provision (benefit) for
income
taxes (4).............. 192 (552) 231 800 2,993 1,438 2,494
------ ------- -------- ------- ------- ------- -------
Net income (loss)..... $ 210 $ 969 $ (1,635) $ 1,110 $ 8,465 $ 2,450 $ 5,374
====== ======= ======== ======= ======= ======= =======
Earnings (loss) per com-
mon share.............. $ 0.02 $ 0.08 $ (0.13) $ 0.09 $ 0.61 $ 0.20 $ 0.34
====== ======= ======== ======= ======= ======= =======
Weighted average shares
outstanding (5)........ 12,496 12,496 12,496 12,496 13,920 12,510 15,708
====== ======= ======== ======= ======= ======= =======
Cash dividends per com-
mon
share (6).............. $ -- $ 0.02 $ -- $ -- $ -- $ -- $ --
====== ======= ======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
4/30/92(1) 2/28/93(1) 2/27/94(1) 11/27/94(2) 12/3/95 5/28/95 6/2/96
---------- ---------- ---------- ----------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (3):
Working capital (defi-
cit)................... $2,259 $4,549 $(1,507) $ (270) $9,923 $6,224 $ (4,218)
Total assets............ 8,135 13,374 14,644 32,929 59,630 40,435 103,413
Short-term debt......... 2,355 2,443 3,849 9,114 65 2,106 27,185
Long-term debt, less
current
portion................ 2,420 5,893 3,628 9,015 3,147 18,156 3,354
Stockholders' equity.... 2,178 3,077 1,435 2,673 34,921 5,295 43,589
</TABLE>
13
<PAGE>
- --------
(1) Reflects the results of operations and financial position of Xenell Corp.,
a predecessor to the Company ("Xenell"), for its year ended April 30,
1992. The results of operations and financial position of Xenell and the
Company are combined for the Company's years ended February 28, 1993 and
February 27, 1994.
(2) The Company changed its financial reporting year-end from the last Sunday
in February to the Sunday closest to December 1, which resulted in a year
containing 39 weeks in 1994.
(3) Revenues, expenses, assets, and liabilities are significantly affected by
the number and timing of acquisitions made by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business--Acquisitions," and the Pro Forma Condensed
Consolidated Financial Statements and related notes included elsewhere in
this Prospectus.
(4) Between May 1, 1992 and January 1, 1994, Xenell was taxed as an "S"
corporation under the Internal Revenue Code, as amended (the "Code").
Provision (benefit) for income taxes during such period reflects the
provision (benefit) for income taxes attributable to certain other
companies taxed as "C" corporations under the Code and consolidated with
the Company's results of operations during such period. See Note 5 of
Notes to the Company's Financial Statements.
(5) See Note 2 of Notes to the Company's Financial Statements for information
regarding the calculation of weighted average shares outstanding.
(6) Reflects cash dividends paid by Xenell to Mr. Frank M. Ward, the Company's
Chief Executive Officer and founder, during the period in which Xenell was
taxed as an "S" corporation under the Code.
14
<PAGE>
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The selected pro forma condensed consolidated financial data presented below
for the year ended December 3, 1995 and for, and as of the end of, the six
months ended June 2, 1996 are derived from the unaudited Pro Forma Condensed
Consolidated Financial Statements included elsewhere in this Prospectus. The
pro forma condensed consolidated statement of operations data for the year
ended December 3, 1995 gives effect to the following as if each had occurred
on November 28, 1994: (i) the Recent Acquisitions and (ii) this offering and
the application of the net proceeds to the Company therefrom. The pro forma
condensed consolidated statement of operations data for the six months ended
June 2, 1996 gives effect to the following as if each had occurred on December
4, 1995: (i) the Alba Acquisition and (ii) this offering and the application
of the net proceeds to the Company therefrom. The pro forma condensed
consolidated balance sheet data as of June 2, 1996 gives effect to this
offering and the application of the net proceeds to the Company therefrom as
if this offering had occurred on June 2, 1996. The pro forma condensed
consolidated financial data do not purport to be indicative of the combined
results of operations that actually would have occurred if the transactions
described above had been effected at the dates indicated or to project future
results of operations for any period. See the Pro Forma Condensed Consolidated
Financial Statements and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 3, 1995 JUNE 2, 1996
----------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $105,093 $ 52,195
Cost of products sold..................... 72,072 35,440
-------- ---------
Gross margin............................ 33,021 16,755
Selling, general and administrative ex-
penses................................... 21,112 8,573
-------- ---------
Operating income........................ 11,909 8,182
Interest (income) expense, net............ 140 (302)
Other (income) expense, net............... (13) (64)
-------- ---------
Income before provision for income taxes.. 11,782 8,548
Provision for income taxes................ 3,770 2,735
-------- ---------
Net income.............................. $ 8,012 $ 5,813
======== =========
Earnings per common share................. $ 0.49 $ 0.35
======== =========
Weighted average shares outstanding....... 16,516 16,516
======== =========
<CAPTION>
JUNE 2,
1996
--------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 77,725
Total assets................................................ 170,171
Short-term debt............................................. 12,000
Long-term debt, less current portion........................ --
Stockholders' equity........................................ 128,886
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and Notes thereto included elsewhere in this
Prospectus.
GENERAL
In 1985, Mr. Frank Ward acquired all of the outstanding shares of capital
stock of Xenell, which had been engaged primarily in the business of
manufacturing neon lighting bulbs and assemblies since 1976. Mr. Ward caused
Chicago Miniature Lamp, Inc., an Oklahoma corporation ("CML") to be organized
in October 1992 for the purpose of acquiring Chicago Miniature Lamp, Inc., a
Delaware corporation ("CML-Delaware"), a distributor of miniature lighting
components. From 1992 to 1994, CML and Xenell were under the common control of
Mr. Ward and effective December 31, 1993, Xenell was merged into CML. In April
1993, the Company acquired the business and product lines of Glolite Sales,
Ltd. ("Glolite"), a manufacturer of miniature neon and incandescent bulbs and
string lighting products. In May 1994, the Company acquired Industrial
Devices, Inc. ("IDI"), a value-added assembly manufacturer. In March 1995, the
Company acquired Plastomer Inc. ("Plastomer"), a Canadian value-added producer
of plastic sockets and assemblies. The Company used a portion of the net
proceeds of its initial public offering in June 1995 to re-pay substantially
all the debt incurred in connection with these acquisitions.
Following the completion of the Company's initial public offering in June
1995, the Company acquired (i) Fredon Industrial Development, Inc. ("Fredon"),
a tool, die and mold maker; (ii) STT Holdings Limited and certain other
affiliated entities ("Badalex"), a manufacturer of automated bulb-making
equipment; (iii) Fiberoptics, a manufacturer of high tech fiber optic products
and glass and plastic fibers; (iv) Phoenix Lighting (U.K.) Limited
("Phoenix"), a manufacturer of halogen and specialty lamps; and (v) Alba, a
manufacturer of miniature lighting products. These additional acquisitions
were financed with available cash, cash flow from operations and bank
borrowings.
The Fiscal 1995 Acquisitions include the acquisitions of Plastomer, Fredon,
Badalex and Fiberoptics. The Recent Acquisitions include the Fiscal 1995
Acquisitions, the Phoenix Acquisition and the Alba Acquisition.
In 1994, the Company changed its financial reporting year-end from the last
Sunday in February to the Sunday closest to December 1, which resulted in a
year containing 39 weeks in 1994.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
the Company's Statements of Operations expressed as a percentage of net sales:
<TABLE>
<CAPTION>
NINE
YEAR MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED
------- -------- ------- --------------
2/27/94 11/27/94 12/3/95 5/28/95 6/2/96
------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold........... 71.7 66.5 64.0 64.7 65.6
----- ----- ----- ----- -----
Gross margin.................... 28.3 33.5 36.0 35.3 34.4
Selling, general and administra-
tive expenses.................. 32.3 24.5 14.7 16.0 14.7
----- ----- ----- ----- -----
Operating income (loss)......... (4.0) 9.0 21.3 19.3 19.7
Interest (income) expense....... 2.0 3.0 1.4 3.4 0.8
Other (income) expense.......... (0.4) 0.0 (0.1) 0.0 0.0
----- ----- ----- ----- -----
Income (loss) before provision
(benefit) for income taxes..... (5.6) 6.0 20.0 15.9 18.9
Provision (benefit) for income
taxes.......................... 0.9 2.5 5.2 5.9 6.0
----- ----- ----- ----- -----
Net income (loss)............... (6.5)% 3.5% 14.8% 10.0% 12.9%
===== ===== ===== ===== =====
</TABLE>
16
<PAGE>
SIX MONTHS ENDED MAY 28, 1995 COMPARED TO SIX MONTHS ENDED JUNE 2, 1996
Net sales increased from $24.4 million for the six months ended May 28, 1995
to $41.5 million for the six months ended June 2, 1996. This increase was
primarily attributable to the Recent Acquisitions, growth in market share and
customer development. The Recent Acquisitions accounted for $11.2 million of
the increase in net sales. With the exception of Plastomer, the Recent
Acquisitions were not included in the operations of the Company for the six
months ended May 28, 1995.
Gross margin increased from $8.6 million for the six months ended May 28,
1995 to $14.3 million for the six months ended June 2, 1996, due primarily to
the increase in sales volume. Gross margin as a percentage of net sales
decreased from 35.3% for the six months ended May 28, 1995 to 34.4% for the
six months ended June 2, 1996, due to a change in product mix and the impact
of lower margins at the companies acquired in the Recent Acquisitions.
Selling, general and administrative expenses increased from $3.9 million for
the six months ended May 28, 1995 to $6.1 million for the six months ended
June 2, 1996. This increase was largely due to the Recent Acquisitions. As a
percentage of net sales, selling, general and administrative expenses
decreased from 16.0% for the six months ended May 28, 1995 to 14.7% for the
six months ended June 2, 1996, primarily as a result of increased sales.
Interest expense, net decreased from $803,000 for the six months ended May
28, 1995 to $323,000 for the six months ended June 2, 1996, primarily as a
result of the reduction of outstanding debt in June 1995, with a portion of
the net proceeds from the Company's initial public offering, available cash
and cash flow from operations. This reduction in debt was somewhat offset by
new debt incurred to finance certain acquisitions.
As a result of the above, income before provision for income taxes increased
from $3.9 million for the six months ended May 28, 1995 to $7.9 million for
the six months ended June 2, 1996. As a percentage of net sales, income before
provision for income taxes increased from 15.9% for the six months ended May
28, 1995 to 18.9% for the six months ended June 2, 1996.
For the six months ended June 2, 1996, the Company recorded a tax provision
of $2.5 million on pre-tax income of $7.9 million, for an effective rate of
32% compared to 37% in the six-month period ended May 28, 1995. The lower tax
rate was primarily due to the establishment of foreign operations and the
resulting impact of lower effective income taxes in those countries.
NINE MONTHS ENDED NOVEMBER 27, 1994 COMPARED TO YEAR ENDED DECEMBER 3, 1995
Net sales increased from $31.7 million for the nine months ended November
27, 1994 to $57.4 million for the year ended December 3, 1995. This increase
in sales was due primarily to a growth of market share and customer
development resulting mainly from the integration of IDI's operations for a
full year compared to seven months of the previous nine month period and the
acquisition of Plastomer which accounted for sales of $7.1 million for 1995.
The elimination of low margin product sales somewhat offset the increase in
net sales for the year ended December 3, 1995.
Gross margin as a percentage of net sales increased from 33.5% for the nine
months ended November 27, 1994 to 36.0% for the year ended December 3, 1995,
primarily as a result of improved production planning, inventory control,
increased manufacturing efficiencies due to restructuring of the acquired
companies, purchasing economies resulting in lower raw material costs and a
reduction in low margin sales. This increase was offset by lower margins of
Plastomer which was included in the Company's operations since March 1995.
Plastomer's margins improved toward the end of the year as the operational
changes subsequent to the March 1995 acquisition became effective.
Selling, general and administrative expenses as a percentage of net sales
decreased from 24.5% for the nine months ended November 27, 1994 to 14.7% for
the year ended December 3, 1995. In the nine months ended November 27, 1994,
the Company incurred an expense of $700,000, or 2.2% of net sales, in
connection with legal services rendered for settlement of certain litigation
and supplemental accounting services rendered in connection with the
acquisition of IDI. Compensation to the Company's Chief Executive Officer was
17
<PAGE>
approximately $2.0 million, or 6.3% of net sales, during the nine months ended
November 27, 1994 compared to $360,000, or 0.6% of net sales, for the year
ended December 3, 1995. Compensation to the Chief Executive Officer has been
set under his employment agreement at $250,000 for fiscal 1996 and 1997. The
remaining decrease in selling, general and administrative expenses as a
percentage of net sales during the year ended December 3, 1995 was primarily
related to spreading the selling, general and administrative costs over a
higher sales base. This decrease was somewhat offset by the additional selling
and general and administrative expenses as a percentage of net sales resulting
from the Plastomer acquisition. The negative effect of Plastomer's higher rate
of selling, general and administrative expenses as a percentage of net sales
was largely eliminated by the end of fiscal 1995 as a result of restructuring.
Interest expense, net as a percentage of net sales decreased from 3.0% for
the nine months ended November 27, 1994 to 1.4% for the year ended December 3,
1995 as a result of the reduction of outstanding debt in June 1995 with a
portion of the net proceeds from the Company's initial public offering,
available cash and cash flow from operations.
As a result of the above, income before provision for income taxes increased
from $1.9 million for the nine months ended November 27, 1994 to $11.5 million
for the year ended December 3, 1995. As a percentage of net sales, income
before provision for income taxes increased from 6.0% for the nine months
ended November 27, 1994 to 20.0% for the year ended December 3, 1995.
For the year ended December 3, 1995, the Company recorded a tax provision of
$3.0 million on a pre-tax income of $11.5 million for an effective rate of
26%. For the nine months ended November 27, 1994, the Company recorded a tax
provision of $800,000 on pre-tax income of $1.9 million for an effective rate
of 42%. The reduction in the effective tax rate was due primarily to the
establishment of foreign operations and the resulting impact of lower
effective income taxes in those countries.
YEAR ENDED FEBRUARY 27, 1994 COMPARED TO NINE MONTHS ENDED NOVEMBER 27, 1994
Net sales increased from $24.9 million for the year ended February 27, 1994
to $31.7 million for the nine months ended November 27, 1994. The increase in
sales volume was due primarily to the acquisition of IDI in May 1994, which
added seven months of IDI sales, totaling $13.2 million during the nine months
period ended November 27, 1994. Included in the net sales for the year ended
February 27, 1994 and for the nine months ended November 27, 1994 are sales of
incandescent bulbs to General Electric Co. ("GE") of $5.4 million and $1.5
million, respectively. The Company primarily purchased the bulbs overseas and
packaged them for sale by GE. The Company's profit margin associated with this
product line diminished, and in December 1994 the Company scaled back this
operation.
Gross margin as a percentage of net sales increased from 28.3% for the year
ended February 27, 1994 to 33.5% for the nine months ended November 27, 1994,
primarily as a result of increased manufacturing efficiencies and purchasing
economies resulting in lower raw material costs. These cost efficiencies were
offset somewhat by the low margins associated with the resale of purchased
incandescent bulbs. In addition, the nine months ended November 27, 1994
included the operations of IDI for seven months. For such seven month period,
IDI's gross margin was approximately 35%.
Selling, general and administrative expenses as a percentage of net sales
was 32.3% for the year ended February 27, 1994 and 24.5% for the nine months
ended November 27, 1994. During the year ended February 27, 1994, the Company
incurred an expense of $1.0 million, or 4.0% of net sales, in connection with
the settlement of certain litigation. In the nine months ended November 27,
1994, the Company incurred professional-related expenses totaling
approximately $700,000, or 2.2% of net sales, associated with legal services
rendered in settling a lawsuit and supplemental accounting services rendered
in connection with the acquisition of IDI. Compensation to the Company's Chief
Executive Officer as a percentage of net sales was 13.1% for the year ended
February 27, 1994 and 6.3% for the nine months ended November 27, 1994. While
the Company was privately owned by Mr. Ward, he withdrew approximately $3.2
million as compensation during the year ended February 27, 1994, compared to
$2.0 million during the nine months ended November 27, 1994.
18
<PAGE>
The remaining increase in selling, general and administrative expenses as a
percentage of net sales during the nine months ended November 27, 1994 was
related primarily to seven months of selling, general and administrative costs
of IDI, which were included in the Company's nine-month period.
Interest expense as a percentage of net sales increased from 2.0% for the
year ended February 27, 1994 to 3.0% for the nine months ended November 27,
1994 as a result of additional borrowings by the Company under its credit
facility to fund the Company's acquisition of IDI and from increased interest
expense.
Primarily as a result of the increase in gross margin and the reduction in
compensation paid to the Chief Executive Officer, income (loss) before
provision for income taxes increased $3.3 million from a loss of $1.4 million
for the year ended February 27, 1994 to income of $1.9 million for the nine
months ended November 27, 1994. As a percentage of net sales, income (loss)
before provision for income taxes increased from (5.6%) for the year ended
February 27, 1994 to 6.0% for the nine months ended November 27, 1994.
For the nine months ended November 27, 1994, the Company recorded a tax
provision of $800,000 on pre-tax income of $1.9 million for an effective rate
of 42%. For the year ended February 27, 1994, the Company recorded a tax
provision of $231,000 on a pre-tax loss of $1.4 million due to additional
deferred tax provisions caused by the termination of Xenell's "S" Corporation
status on January 1, 1994. See Note 5 of Notes to the Company's Financial
Statements included elsewhere in this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in June 1995, the Company financed its
operations primarily with cash from operations and bank borrowings secured by
Company assets and guarantees by Mr. Frank Ward. In June 1995, the Company
completed its initial public offering pursuant to which the Company issued and
sold 3,195,000 shares of its Common Stock and received net proceeds of
approximately $23.7 million. The Company used such net proceeds primarily to
reduce its outstanding indebtedness.
Net cash provided by operating activities was $8.1 million for the year
ended December 3, 1995, and the Company's investing activities totalled $14.9
million. The investing activities included (i) the Fiscal 1995 Acquisitions,
in connection with which the Company paid (net of cash acquired) $10.3
million, (ii) capital expenditures of $2.5 million and (iii) purchases of
short-term cash investments of $2.1 million. Net cash provided by financing
activities aggregated $6.2 million. Proceeds from borrowings and proceeds from
the initial public offering totaled $32.7 million, with repayments under the
Company's credit facilities aggregated $26.5 million.
Net cash used in operating activities was $5.4 million for the six months
ended June 2, 1996, and the Company's investing activities totalled $13.3
million. The investing activities primarily included the Alba Acquisition, in
connection with which the Company paid approximately DM 13.1 million (or $8.5
million) in cash, assumed certain liabilities totaling approximately DM 7.5
million (or $4.9 million) and issued 150,000 shares of the Company's Common
Stock. Net cash provided by financing activities included $22.5 million in net
borrowings under the Company's credit facilities.
In fiscal 1995, the Company entered into a bank financing agreement. The
agreement provides a $5.0 million operating line of credit and a $30.0 million
loan facility for acquisitions and capital expenditures, both of which are
subject to a defined borrowing base limitation. In addition, under the bank
financing agreement, the Company has an $8.0 million letter of credit
facility. Borrowings under the bank financing agreement mature December 30,
1997 and interest accrues at the prime rate (8.25% per annum as of August 23,
1996). As of June 2, 1996, the Company had available borrowings of
approximately $11.4 million under the bank financing agreement (subject to the
defined borrowing base limitation) and had outstanding borrowings of
approximately $4.8 million under the operating line of credit and $16.8
million under the acquisition facility. As of June 2, 1996, letters of credit
issued under the credit facility totaled approximately $4.7 million.
In August 1996, the Company obtained a commitment for an amended bank
financing agreement. The new $65.0 million credit facility is expected to
include (i) a $25.0 million operating revolving line of credit to support
19
<PAGE>
letters of credit and borrowings for the working capital needs of the Company
and its subsidiaries in the United States and Canada (the "Domestic Line of
Credit"); (ii) a $10.0 million revolving line of credit for the working
capital needs of certain foreign subsidiaries of the Company (the "Foreign
Line of Credit"); and (iii) a $30.0 million non-revolving acquisition line of
credit. Borrowings under the new credit facility will be subject to a defined
borrowing base. The Domestic Line of Credit and the Foreign Line of Credit are
expected to mature in July 1998. With respect to loans made under the
acquisition line of credit, interest will be payable for the first 18 months
and thereafter such borrowings will be amortized over a period of five years.
Interest rates on borrowings under the new credit facility will vary, at the
Company's option, from rates equal to the bank's prime rate or various
Eurocurrency rates plus a specified number of basis points.
The Company from time to time enters into forward currency contracts under
which the Company is required to settle each contract at a future date by
exchanging a fixed amount of U.S. dollars or other currency for a fixed amount
of a denominated currency. Consequently, to the extent the value of the
denominated currency fluctuates relative to the U.S. dollar or such other
currency, the Company's financial condition could be materially affected upon
settlement of such contracts depending on a number of factors. The Company
believes that these factors, which include, among others, the aggregate amount
of the contracts, the Company's ability to enter into offsetting contracts
prior to settlement of such contracts and the Company's ability to use U.S.
dollars or other foreign currency generated through the Company's operations
to settle its contracts, may help the Company to mitigate its exposure to
potential losses under these contracts. See "Risk Factors--Foreign Operations"
and Note 6 of Notes to the Company's Financial Statements.
The Company believes that the net proceeds from this offering, cash from
operations and borrowings available under the Company's credit facility will
be sufficient to meet the Company's working capital and capital expenditure
needs for the foreseeable future.
20
<PAGE>
BUSINESS
Chicago Miniature Lamp, Inc. is a vertically integrated manufacturer and
supplier of a wide variety of miniature lighting products comprised primarily
of value-added miniature lighting assemblies and miniature bulbs and, to a
lesser extent, miniature bulb sockets, automated bulb manufacturing equipment
and fiber optic products. The Company's lighting products are used mainly as
visual fault or status indicators and for illumination in a wide array of
products. Product applications range from "power on" indicators for small
household products such as steam irons, electric blankets and coffee makers to
sophisticated lighting assemblies for automobile message centers and
telecommunications status arrays. The Company's products are sold primarily to
OEMs in the automotive, electronics and communication, appliance and aviation
industries. As a result of recent foreign acquisitions, the Company now
markets its products throughout North America and Europe.
Many OEMs have adopted and are becoming increasingly reliant upon the
outsourcing of customized assemblies, and the Company believes this trend will
continue as OEMs attempt to: (i) reduce time to market; (ii) reduce capital
investment; (iii) gain access to leading technological solutions; and (iv)
reduce inventory. The Company is positioning itself to provide "one stop"
lighting solutions to its customers' miniature lighting requirements.
Companies which operate in the miniature lighting market have generally been
small, specialized producers of individual components, including light
sources, sockets, housings, lenses and wiring harnesses. The Company's
strategy is to operate as a vertically integrated manufacturer producing both
discrete lighting components and customized lighting assemblies. Through the
Company's acquisition of leading niche companies, the Company has the ability
to design, manufacture and assemble the majority of the components utilized in
its miniature lighting products and to provide its customers with a wide range
of value-added products and services. The degree of vertical integration
employed in the Company's operations has enabled it to differentiate itself
from its competitors.
As a result of the Company's operating and growth strategies, net sales
increased from $9.0 million for the year ended April 30, 1992 to $57.4 million
for the year ended December 3, 1995. In addition, operating income increased
from approximately $306,000 for the year ended April 30, 1992 to $12.2 million
for the year ended December 3, 1995. The Company's net sales increased from
$24.4 million for the six months ended May 28, 1995 to $41.5 million for the
six months ended June 2, 1996, representing an increase of approximately 70%,
and operating income increased from approximately $4.7 million to $8.2 million
over the same period, representing an increase of approximately 74%. The
Company believes this growth was primarily the result of successfully
implementing the following operating and growth strategies:
OPERATING STRATEGY
The Company's operating strategy is designed to enhance the Company's
presence as a leading manufacturer and supplier of miniature lighting products
by augmenting its technology, engineering and design capabilities, broadening
its product offerings, providing additional manufacturing facilities and
accessing related markets.
Vertical Integration. The Company intends to further enhance the vertical
integration of its operations by broadening the range of lighting components
which it manufactures and uses in its miniature lighting assemblies. As the
Company increases the percentage of Company-manufactured components used in
its lighting assemblies, it achieves greater control over the quality of such
assemblies and improves the cost-effectiveness of its operations. The
Company's ability to manufacture a wide array of miniature lighting components
also enables the Company to make more complex, value-added assemblies, which
generally have higher average selling prices per unit and higher margins than
discrete lighting components. The Company's vertical integration also improves
manufacturing flexibility, enabling the Company to respond quickly to
customers' specialized needs and shifts in demand.
21
<PAGE>
Technology-driven Product Innovation. Miniature lighting products and the
related manufacturing technology are becoming increasingly sophisticated,
making it difficult for OEMs to maintain the necessary technical expertise
needed for product development. Through the acquisition of various niche
companies operating within the miniature lighting and fiber optic industries,
the Company's technology expertise has expanded. The Company has utilized its
technical expertise to develop close working relationships with its OEM
customers by designing and manufacturing lighting solutions in cooperation
with such customers to meet their specific needs. In addition, the Company
closely monitors developing technologies within the industry and its sales
data to determine whether to pursue manufacturing new lighting products. For
example, in December 1995, the Company acquired Electro Fiberoptics, Inc.
("Fiberoptics"), a manufacturer of fiber optic products. The Company is
currently exploring further opportunities for the development and integration
of various fiber optic products. The Company believes that it can expand its
business by offering new products and entering new niche markets in which it
can be one of a few leading suppliers. Diversification in products and markets
will continue to be a key component of the Company's operating strategy. See
"Risk Factors--Growth through Acquisitions; Dependence on Certain Industries."
Improving Operating Efficiencies. The Company has realized various cost
savings in connection with integrating acquired companies. Specifically, the
Company has successfully realigned acquired companies by focusing their
manufacturing operations on selected lighting products, primarily those
products which have higher profit margins and stronger growth prospects. In
connection with such realignment, the Company has adjusted the product mix
manufactured by acquired companies in an effort to improve the profitability
of such companies, which has had the short-term effect in certain cases of
reducing the net sales of such acquired companies. Additionally, the Company
has been able to consolidate certain administrative functions. For example,
the Company's customer base has generally overlapped the customer base of
these acquired businesses and, as a result, the Company has been able to serve
most of the customers of the acquired companies with its existing sales force,
reducing selling expenses as a percentage of net sales. Further, the Company's
ability to use components it manufactures in its miniature lighting assemblies
provides cost savings. The Company can also capitalize on its purchasing power
for those products which it does not manufacture.
Responsiveness and Quality. The Company believes that responsiveness to
customers' "just-in-time" demands and quality are critical factors for success
in the miniature lighting industry. The Company strives to improve its
manufacturing operations by automating its manufacturing processes wherever
possible to reduce costs and increase production capacity. By custom designing
manufacturing equipment, the Company has the ability to automate single, labor
intensive steps within an assembly line operation as well as an entire product
assembly line. In addition, the Company has developed the technology to
monitor and control its production performance. As a result of these
initiatives, the Company has achieved a preferred supplier designation for
several of its most important OEM customers, including Q-1 certification from
Ford Motor Company, a Quality Excellence award from Chrysler Corp., and is
certified as a QS-9000, ISO 9001 and Euro-Net ISO 9000 and 9001 supplier.
GROWTH STRATEGY
The Company believes that it is well positioned to continue its growth due
to several factors. The increased vertical integration of the Company has
provided it with certain cross selling opportunities as acquisitions have
expanded the Company's product line to include new, complimentary products.
Further, the Company has high speed, bulb manufacturing equipment capability
which allows it to manufacture many of the categories of bulbs utilized in its
operations (except for LEDs). The Company also intends to continue its
expansion both domestically and internationally. The Company has been able to
identify and acquire established businesses that it believes have well-
developed market positions and strong reputations for technology, quality and
innovation. The Company believes that its market and financial strength,
knowledge of the industry and its participants, and continued execution of its
operating strategy will help to create opportunities for continued growth.
22
<PAGE>
Increasing Sales to Existing and New Customers. The Company focuses on
expanding its market by designing, developing, and marketing "one stop"
lighting solutions. Historically, OEMs have had to contract with separate
companies to secure bulbs, wires, plastics, and assemblies for visual
indicators and illuminated products. The Company fulfills its customers'
outsourcing and "just-in-time" inventory needs by rapidly providing
innovative, cost-effective lighting solutions for the tooling, molding, and
assembling of specialized lighting components. The Company believes that its
"one stop" strategy has enabled it to establish strategic relationships with
significant OEM customers to jointly develop new product solutions. The result
has been new growth opportunities with customers like American Telephone &
Telegraph Co., Black & Decker Corp., Cabletron Systems, Inc. and Lithonia
Lighting (a division of National Services Industries, Inc.).
Automating and Expanding Manufacturing Operations. As miniature lighting
products have become more technically advanced, the Company's manufacturing
operations have become increasingly automated. The Company intends to continue
its vertical integration by designing, manufacturing and assembling a greater
percentage of the components assimilated in its miniature lighting products.
Through the acquisition of Badalex, the Company now has the capability of
designing and producing high speed, bulb manufacturing equipment. This
equipment will give the Company the flexibility to manufacture many of the
categories of bulbs used in its operations. The Company intends to further
expand its manufacturing operations to include the production of new
components such as LEDs. Currently, the Company purchases, from several
sources, all of the LEDs used in its miniature lighting assemblies and sold as
discrete products. The Company intends to use a portion of the net proceeds of
this offering to equip a facility for, or to acquire a business primarily
engaged in, the production of LEDs. See "Risk Factors--Dependence on Foreign
Suppliers" and "Use of Proceeds."
International Expansion. The Company has identified international markets,
primarily Europe, as a major source of potential future growth. The Company
intends to focus on Europe because of its size and similarity to the North
American marketplace. The Company believes that the acquisition of Alba has
provided the Company with a significant European market presence and a
platform from which to acquire, restructure and integrate additional
complementary European companies. The Company will seek to capitalize on the
recognized and respected names of Alba and Badalex to introduce the Company's
products in the European market. In addition, due to its international
expansion, the Company has the ability to meet the needs of its customers'
foreign operations. The Company plans to continue to seek additional
acquisitions throughout Europe in an effort to mirror its domestic strategy,
thereby attempting to consolidate the fragmented European miniature lighting
industry. See "Risk Factors--Foreign Operations."
Complementary Acquisitions. Within the miniature lighting and fiber optic
industries there are many well known, private companies which produce various
lighting related products. As the Company believes that it would be very
difficult and expensive to establish the name, reputation, form and function
comparable to these companies, the Company has generally used strategic
acquisitions to effect its vertical integration strategy. The Company
continues to seek acquisitions that will augment its technology, engineering
and design capabilities, broaden its product offerings, and provide additional
manufacturing facilities and access to related markets. The Company believes
that its extensive knowledge of the fragmented miniature lighting and fiber
optic industries provides an important competitive advantage in identifying
domestic and international acquisition opportunities. Additionally, the
Company believes that its demonstrated success in integrating and improving
acquired businesses will continue to provide the Company with significant
growth opportunities. See "Risk Factors--Growth through Acquisitions."
23
<PAGE>
ACQUISITIONS
The following table sets forth the acquisitions which have been consummated
by the Company since January 1992:
<TABLE>
<CAPTION>
DATE OF
BUSINESS ACQUISITION TYPE OF OPERATION LOCATION
- ------------------------ ------------- --------------------------------- ----------------
<S> <C> <C> <C>
Chicago Miniature Lamp, October 1992 Distributor of miniature lighting Buffalo Grove,
Inc.................... components Illinois
Glolite Sales, Ltd...... April 1993 Manufacturer of miniature neon Pauls Valley,
and incandescent bulb and string Oklahoma
lighting products
Industrial Devices, May 1994 Designer and manufacturer of Hackensack,
Inc.................... miniature lighting products New Jersey
Plastomer Inc........... March 1995 Manufacturer and supplier of Barrie, Ontario,
miniature lighting assemblies Canada
and bulb sockets
Fredon Industrial Devel- August 1995 Machine tooling and die Newton,
opment, Inc............ making New Jersey
STT Holdings Limited November 1995 Manufacturer of bulb making Byfleet, Surrey,
(1).................... machine equipment United Kingdom
Electro Fiberoptics, December 1995 Manufacturer of fiber optic Marlboro,
Inc.................... products Massachusetts
Phoenix Lighting (U.K.) December 1995 Manufacturer of halogen and Coalville,
Limited................ specialty bulbs Leicestershire,
United Kingdom
Alba (2)................ May 1996 Manufacturer of miniature Bamberg,
lighting products Germany
</TABLE>
- --------
(1) The Company acquired substantially all of the assets of (i) STT Holdings
Limited, which included two of its subsidiaries (STT Badalex Limited and
STI Lighting Limited), and (ii) PRT Shipping Limited.
(2) In connection with the Alba Acquisition, the Company acquired (i) W.
Albrecht GmbH u. Co. KG ("Alba-Germany"), (ii) Alba Light Design GmbH
("Alba-Light Design"), (iii) Alba Lamps, Inc. ("Alba-USA"), and (iv)
certain other affiliated entities. The Company also acquired a majority
interest in A&S Electric, spol.s.r.o. ("Alba-CZ") and Alba Technology (M)
Sdn. Bhd. ("Alba-Malaysia").
Although the Company intends to seek additional acquisition and joint
venture opportunities, it currently has no agreements, arrangements or
understandings with respect to any particular acquisition or joint venture,
and there can be no assurance that any acquisitions or joint ventures will be
completed. See "Risk Factors--Growth Through Acquisitions."
INDUSTRY OVERVIEW
The lighting industry is a large, mature market, which is characterized by
the long life cycle of its lighting products. The miniature lighting market is
a specialized subset of the overall lighting industry, which exhibits slow
product obsolescence, stable underlying demand and moderate growth. While the
lighting industry is dominated by General Electric Co., Philips Electronics,
N. V., and Osram (Siemens AG), the miniature lighting industry is fragmented
with many private companies. Purchasers of miniature light bulbs are primarily
OEMs in the automotive, electronics and communications, appliance and aviation
industries, whose products require a wide variety of illumination. Generally,
miniature light bulbs are inserted into lighting assemblies that may be used
in circuit board and panel mount applications that can be incorporated into a
wide variety of OEM products.
24
<PAGE>
There has been increased acceptance by OEMs of the use of lighting
manufacturing specialists for the production of miniature lighting assemblies.
Many OEMs have adopted and are becoming increasingly reliant upon the
outsourcing of customized assemblies, and the Company believes this trend will
continue as OEMs attempt to: (i) reduce time to market; (ii) reduce capital
investment; (iii) gain access to leading technological solutions; and (iv)
improve inventory management.
PRODUCTS AND MARKETS
The Company's value-added capabilities and services range from the simple
addition of leadwires, terminals, resistors and/or insulating tubing to
discrete bulbs and LEDs to the production of complex information modules that
combine bulbs, housings, and cable assemblies. The lighting sources used by
the Company in its lighting assemblies are LEDs and miniature incandescent and
neon bulbs. Such lighting sources and sockets are also sold as discrete items.
The type of lighting source used in an application is typically dependent on
user preference and voltage availability. Neon bulbs offer long life, utilize
very little energy, provide very limited light output and are used in 110-volt
applications. Incandescent bulbs provide the brightest illumination but have
relatively short lives and utilize the most energy. LEDs offer extremely long
life, low energy consumption and good shock and vibration resistance but have
relatively limited light output. Further, miniature incandescent bulbs and
LEDs are typically limited to low voltage applications (5-10 volts).
Substantially all of the neon bulbs sold or used by the Company are
manufactured by the Company, whereas a substantial portion of all the
incandescent bulbs and all of the LEDs used in the Company's assemblies or
sold as discrete miniature items are currently purchased from third parties.
The Company intends to use a portion of the net proceeds from this offering to
equip a facility for, or to acquire a business primarily engaged in, the
production of LEDs as well as to develop or purchase equipment to increase its
production of incandescent bulbs. See "Use of Proceeds."
The Company has increasingly focused its marketing efforts on major OEMs
that have a need for customized, value-added assemblies. The majority of the
Company's miniature lighting assemblies are used primarily in circuit board
and panel mount applications that can be incorporated into a wide variety of
OEM products. The Company's product lines consist of standard, modified
standard and customized products. OEMs generally purchase standard, modified
standard and customized, value-added products, whereas distributors primarily
purchase standard products.
The chart below sets forth, pro forma for the Recent Acquisitions, the
percentage of net sales by product category of the Company for the six months
ended June 2, 1996:
[ARTWORK]
25
<PAGE>
The Company's miniature lighting products serve a broad range of markets and
are used in applications from "power-on" indicators for small household
appliances to sophisticated lighting assemblies for automobile message centers
and telecommunications status arrays. For the year ended December 3, 1995 (pro
forma for the Recent Acquisitions) and the six months ended June 2, 1996 (pro
forma for the Alba Acquisition), approximately 83% of the Company's net sales
were to OEMs. The chart below sets forth the percentage of net sales of
miniature lighting products by market and application for the six months ended
June 2, 1996:
[ARTWORK]
<TABLE>
<CAPTION>
MARKET APPLICATION
---------------------------------------- ---------------------------------------
<S> <C>
Automotive.............................. Bulb sockets, panel and switch
backlighting, system status indicators,
reading lights, vanity lights, and
illuminators for vehicle cavities.
Electronics and communication........... Computer and hardware, local area
network ("LAN") equipment,
telecommunications equipment, electric
signage, switches and indicators,
commercial lighting, industrial
controls, and home entertainment
equipment.
Distribution............................ Industrial, marine, aviation and
electronic distributors resell the
Company's products to a wide variety of
OEMs and directly to the maintenance
and replacement market.
Industrial.............................. Incandescent and fluorescent bulb
manufacturing equipment and various
types of automated processing
equipment.
Appliance............................... Washers, dryers, refrigerators, toaster
ovens, steam irons, coffee makers,
power hand tools, and electric
blankets.
</TABLE>
The remaining 11% of net sales represent sales of fiber optic products,
government sales of lighting products, and miscellaneous non-lighting
products.
26
<PAGE>
MANUFACTURING
The Company's manufacturing operations are integrated in that the Company
designs, engineers, manufactures, assembles and sells its lighting products.
This enables the Company to control product cost more effectively, help ensure
quality and offer its customers a wide array of products and services. The
Company's manufacturing facilities have diverse capabilities including:
plastic injection molding; production of complex molds, assembly fixtures and
dies; wire cutting, stripping and metal stamping; and various assembly
operations. In addition to the manufacture of value-added assemblies, the
Company's manufacturing capabilities include bulb forming and cutting, socket
manufacturing, drawing glass and plastic fiber, bulb equipment manufacturing
and producing halogen and other specialty bulbs.
The Company has specialized design and engineering capabilities which it
uses to improve its manufacturing process wherever possible by automating
single, labor intensive operations as well as entire product assembly lines.
Much of the Company's automated manufacturing equipment is custom designed by
its engineers and is proprietary. The Company fabricates most of its own
equipment and many parts are machined in-house and customized to perform
specific functions. The Company develops and uses automated material handling,
testing and packaging systems, and the Company has fully automated the
manufacture of neon and incandescent bulbs, the housings into which such bulbs
and LEDs are placed and bulb sockets. By automating its operations, the
Company has been able to reduce its manufacturing costs, thereby enabling it
to be competitive with products imported from the Pacific Rim.
The Company uses both internally-produced and purchased components in its
assemblies. The Company purchases its raw materials, including plastic, brass,
glass tubing, filaments, gases, electrodes, wire and resistors for use in the
manufacture of bulbs, lenses and assemblies. All such raw materials are
readily available and are generally purchased from a variety of suppliers.
However, some customers require the Company to purchase materials from one or
more designated suppliers. The Company is not dependent upon one source for
any of its materials.
All LEDs used by the Company are currently imported from the Pacific Rim.
However, the Company intends to utilize approximately $15.0 million of the net
proceeds from this offering to equip a facility for, or to acquire a company
primarily engaged in, the production of LEDs. See "Use of Proceeds."
To help control costs on labor-intensive assembly operations, the Company,
during 1995, formed a subsidiary, IDI Internacional, S.A., located in Costa
Rica to perform certain manufacturing operations. Manufacturing operations at
this facility include wire cutting, stripping, assembly and test functions.
The Company's subsidiary operates as an Export Company with Free Zone Status,
which exempts it from Costa Rican import and export duties for production
materials, machinery, equipment and other assets necessary to operate its
business.
SALES AND MARKETING
The Company sells its lighting products through a direct sales force
consisting of 40 persons with primary responsibility for major OEM accounts
and through independent sales representative organizations, with approximately
180 sales people who are responsible for sales in designated geographic
territories in the United States, Canada and Europe. The Company's sales and
engineering personnel interface directly with OEM engineers at the design
level. Data derived by the Company in connection with the sale of its products
is analyzed by the Company and used to decide whether to manufacture or
purchase a particular component. The Company also sells its products through a
comprehensive network of 73 electronic and electrical distributors who resell
to a wide variety of OEM customers and to the maintenance and replacement
market.
The Company advertises in most major electronic trade publications. To help
ensure positive results of its advertising programs, the Company has developed
a lead fulfillment and tracking program that monitors opportunities for the
internal sales force, the sales representatives and distributors. The Company
also publishes full-line catalog/data books in North America and Europe, which
it supplements from time to time.
27
<PAGE>
CUSTOMERS
There has been a trend on the part of OEM customers to consolidate their
list of qualified suppliers to companies that can meet quality and service
standards, have a broad product portfolio and design capability, and offer
competitive prices. The Company's strategy is to provide the broadest
selection of quality miniature lighting products in the markets in which it
competes. In the automotive market the Company's quality control systems are
particularly important. The Company has achieved a preferred supplier
designation for several of its most important OEM customers. These include
preferred status from Ford Motor through Q-1 certification and a Quality
Excellence award from Chrysler Corp. The Company is also certified as a QS-
9000, ISO 9001 and Euro-Net ISO 9000 and 9001 supplier. In addition, the
Company believes that the long-standing and widely recognized trade names of
Chicago Miniature Lamp and its subsidiaries, Industrial Devices, Badalex and
Alba, enhance the Company's ability to reach the secondary market through its
network of distributors.
No customer accounted for 10% or more of the Company's net sales for the
year ended December 3, 1995 or the six months ended June 2, 1996. Some of the
Company's lighting product customers, and the industries in which they
operate, include:
AUTOMOTIVE ELECTRONICS AND COMMUNICATION
. Acustar . American Telephone & Telegraph
. Delco Electronics Co.
. Ford Motor Company . AST Research, Inc.
. United Technologies Corp. . Cabletron Systems, Inc.
APPLIANCE . Standard Microsystems
Corporation
DISTRIBUTORS
. Black & Decker Corp. . California Switch & Signal,
. The Hoover Company Inc.
. Mr. Coffee, Inc. . LaSalle Electric Supply Co.
. Sunbeam Oster Company, Inc. . Newark Electronics
INDUSTRIAL . Sager Electronics
. Osram (Siemens AG)
. Philips Electronics, N.V.
. General Electric Co.
. Toshiba
INTERNATIONAL OPERATIONS
Approximately 23% and 26% of the Company's net sales and operating income,
respectively, for the year ended December 3, 1995 were outside the United
States. Pro forma for the Recent Acquisitions, approximately 43% and 20% of
the Company's net sales and operating income, respectively, for the year ended
December 3, 1995 were outside the United States, and net sales attributable to
the Company's European operations aggregated approximately $28.4 million or
27% of the Company's net sales. The Company currently has manufacturing
facilities in Germany, Canada, the United Kingdom, Costa Rica and the Czech
Republic. See "Business-- Acquisitions." As a result of its foreign sales and
facilities, the Company's operations are subject to risks of doing business
abroad. See "Risk Factors--Foreign Operations."
28
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 3, 1995
-----------------
PRO
ACTUAL FORMA(1)
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net Sales:
United States........................................ $ 44,340 $ 59,448
Canada............................................... 7,064 11,197
Europe............................................... -- 28,450
Other International.................................. 5,998 5,998
-------- --------
Total.............................................. $ 57,402 $105,093
======== ========
Operating Income (loss):
United States........................................ $ 9,034 $ 9,412
Canada............................................... 707 1,084
Europe............................................... -- (1,151)
Other International.................................. 2,473 2,473
-------- --------
Total.............................................. $ 12,214 $ 11,818
======== ========
Identifiable Assets (2):
United States........................................ $ 30,560 $ 30,560
Canada............................................... 9,429 9,429
Europe............................................... 10,287 38,248
Other International.................................. 7,104 7,104
-------- --------
Total.............................................. $ 57,380 $ 85,341
======== ========
</TABLE>
- --------
(1) Gives effect to the Recent Acquisitions as if they had occurred on
November 28, 1994.
(2) At December 3, 1995.
ACQUISITION OF ALBA
Effective May 1, 1996, in connection with the Alba Acquisition, the Company
acquired (i) W. Albrecht GmbH u. Co. KG ("Alba-Germany"), (ii) Alba Light
Design GmbH ("Alba-Light Design"), (iii) Alba Lamps, Inc. ("Alba-USA"), and
(iv) certain other affiliated entities. The Company also acquired a majority
of interest in A&S Electric, spol. s.r.o. ("Alba-CZ") and Alba Technology (M)
Sdn. Bhd. ("Alba-Malaysia"). The aggregate consideration for the Alba
Acquisition consisted of approximately DM 13.1 million (or $8.5 million) in
cash, 150,000 shares of Common Stock of the Company (valued at $3.3 million),
and the assumption of certain liabilities totaling approximately DM 7.5
million (or $4.9 million). The Alba Acquisition was accounted for under the
purchase method of accounting.
Founded in 1935, Alba is a respected European manufacturer of miniature
lighting products, including value-added miniature lighting assemblies,
miniature bulbs, bases, bulb sockets, reflectors and light pipes. Most of the
bulbs that Alba supplies are permanently soldered and expected to last for the
life of the device in which they are installed. Additionally, miniature bulbs
have been specifically developed for PC-board applications and are surface
mounted devices ("SMD's"). The SMD bulbs are blistered on tape and reel or
supplied in tubes for automatic installation. Alba also offers miniature bulbs
in certain standard colors, and it can meet customer specific color
requirements with its colored silicon rubber caps. Alba provides metal and
plastic bases and has the ability to produce customized plastic bases. Alba
recently developed a computer simulation program for designing light pipe and
light guiding elements for backlighting displays, switches, controls and other
instruments. Alba's lighting calculation software ART (ALBA-Ray-Tracing) can
accept customers specifications in 3D CAD format. The program calculates light
distribution at the desired points of the light pipe. By simulation of rays
from the light source, the ray paths are visualized and can be used for design
optimization. Iterative
29
<PAGE>
modifications can be made via computer until the efficiency of the light pipe
design is optimized. Alba develops a light pipe design in close cooperation
with its customer based on customer specifications.
For the year ended December 31, 1995, Alba had net sales of $24.8 million,
an operating loss of $138,000 and a net loss of $604,000. The Company believes
that Alba's operating loss for the year ended December 31, 1995 reflects
unusually high executive compensation paid to the owners of Alba during the
time in which Alba was operated as a private company. Pro forma for the Recent
Acquisitions, the Company had net sales of $105.1 million, operating income of
$11.9 million and net income of $8.0 million for the year ended December 3,
1995. Pro forma for the Alba Acquisition, the Company had net sales of $52.2
million, operating income of $8.2 million and net income of $5.8 million for
the six months ended June 2, 1996. See Pro Forma Condensed Consolidated
Financial Statements and related notes included elsewhere in this Prospectus.
The Company believes that the Alba Acquisition provides the Company with a
significant European market presence for its technology and product line and
strengthens the Company's position as a leading manufacturer and supplier of
miniature lighting products. The Company will seek to capitalize on the
recognized name of Alba to introduce the Company's products in the European
market. In addition the Alba Acquisition establishes a platform from which the
Company may acquire, restructure and integrate additional complementary
European companies.
Alba's product line includes miniature lighting components comprised
primarily of value-added miniature lighting assemblies and, to a lesser
extent, discrete miniature products, including miniature bulbs, bases, bulb
sockets, reflectors and light guides. For the year ended December 31, 1995,
approximately 79% of Alba's net sales were derived from the sale of miniature
lighting assemblies, and the remaining 21% of net sales were attributable to
discrete miniature lighting products.
Alba's miniature lighting products serve primarily the automotive and
electronics and communication industries. For the year ended December 31, 1995
approximately 56.9% and 40.9% of Alba's net sales were derived from the sale
of miniature lighting components to the automotive industry and the
electronics and communication industry, respectively. For the year ended
December 31, 1995, approximately 97.8% of Alba's net sales were to OEMs, and
approximately 70% of Alba's net sales were in Europe.
Alba is ISO 9000 and 9001 certified and has received "A" quality ratings
from customers such as VDO, Delco Electronics, Bosch and Eaton Corp. and has
the highest quality rating at Mercedes Benz. No customer accounted for 10% or
more of Alba's net sales for the year ended December 31, 1995.
COMPETITION
The industry in which the Company operates is highly competitive. Most of
the Company's competitors offer products in some but not all of the markets
served by the Company. The Company competes primarily on the basis of price,
product quality, design and engineering, customer service and delivery.
Competitors range from large, diversified companies, some of which have
substantially greater financial resources than the Company, to small brokers
representing Pacific Rim manufacturers. Management believes that the Company's
vertical integration and automation, together with its broad product line,
market experience and comprehensive service combine to give the Company a
competitive advantage over other third-party producers and over in-house
production by OEMs. There can be no assurance that the Company will be able to
continue to compete successfully in its industry. See "Risk Factors--
Competition."
The Company's major competitors in the electronics market include Dialight
Corporation, Lite-On, Packard Co. and Data Display Corp. In the automotive
market, the Company occupies a niche for miniature interior lighting, with
competition from Northern Engraving and Eaton Corp. for message modules and
General Electric, Wagner Electric and Toshiba for lamped and unlamped sockets.
In the appliance market, the Company's major competitor is Jemco. In the bulb
equipment manufacturing market, the Company's major competitors are Falma
(Swiss) and major bulb manufacturers who fabricate their own equipment.
30
<PAGE>
BACKLOG
Backlog consists of contracts or purchase orders with delivery dates
scheduled within the next twelve months. At December 3, 1995, the Company's
backlog was approximately $19.3 million compared to approximately $10.1
million at November 27, 1994. Pro forma for the Alba Acquisition, the
Company's backlog was approximately $30.7 million at June 2, 1996. Because
orders may be canceled or rescheduled, the Company believes that backlog is
not always an accurate indicator of results of operations for specific future
periods.
ENVIRONMENTAL REGULATIONS
The Company uses a radioactive gas in its manufacture of neon bulbs, and
maintains a U.S. Nuclear Regulatory Commission license for the use of such
gas. The Company must comply with federal, state and local regulations
pertaining to the storage and discharge of radioactive materials. In view of
the low dosage of radioactivity in the gas used, the requirements for
compliance with these regulations do not, and the Company anticipates will
not, have any material adverse effect upon its capital expenditures, results
of operations or financial condition.
In addition, the Company has implemented an environmental management system
to reduce noise, waste and water pollution below the levels required by
European Community regulations. The Company's compliance is controlled through
a voluntary environmental audit. The results of the audit for CML-Alba are
registered by the local Chamber of Commerce (Reg. No. DE-S-106-00002) and made
available to the public.
EMPLOYEES
As of June 2, 1996, the Company employed a total of 1,266 persons of whom
444 were employed in the United States, 317 in Germany, 71 in Canada, 150 in
the United Kingdom, 180 in Costa Rica and 104 in the Czech Republic.
Manufacturing and engineering operations engaged 1,142 employees, sales
engaged 40 employees and administration and finance engaged 84 employees.
Approximately 152 employees at the Company's New Jersey facility are covered
by a collective bargaining agreement with the Bakery, Confectionery and
Tobacco Workers International Union, Local No. 3 which expires in June 1997.
Approximately 51 employees at the Company's Canadian facility are covered by a
collective bargaining agreement with United Rubber, Cork, Linoleum and Plastic
Workers of America which expires in March 1997. Approximately 200 employees at
the Company's Germany facility are covered by certain agreements by and
between IG Metall Nordbayern and a coalition of employers located in the
geographical region. Management believes that its relationship with its
employees is good.
PROPERTIES
United States. The Company's domestic facilities are located in Illinois,
Massachusetts, New Jersey, and Oklahoma. In Buffalo Grove, Illinois, the
Company leases a 15,600 sq. ft. warehouse facility which includes 5,000 sq.
ft. of office space. In Marlboro, Massachusetts, Fiberoptics owns a 42,000 sq.
ft. manufacturing facility. In Hackensack, New Jersey, IDI leases a 45,000 sq.
ft. manufacturing facility, which includes approximately 10,000 sq. ft. of
warehouse and 7,500 sq. ft. of office space, and a 14,200 sq. ft. facility
located across the street from the manufacturing facility. In Newton, New
Jersey, Fredon owns a 7,000 sq. ft. manufacturing facility. In Wynnewood,
Oklahoma, the Company owns a 30,000 sq. ft. manufacturing and warehouse
facility, which includes 6,000 sq. ft. of warehouse space and 3,000 sq. ft. of
office space. In Pauls Valley, Oklahoma, the Company owns a 40,000 sq. ft.
manufacturing facility, which includes approximately 16,000 sq. ft. of
warehouse space and 5,000 sq. ft. of office space, and leases a 40,000 sq. ft.
warehouse facility. The Company also leases an executive office in Canton,
Massachusetts, and a purchasing office in Sunnyvale, California, from which
the Company obtains overseas supplies and products.
Europe. In the United Kingdom, Badalex leases a 53,000 sq. ft. manufacturing
facility located in Byfleet, Surrey. The sublease expires on May 1, 2010, with
a right to terminate on April 30, 2005. Phoenix owns a 30,000 sq. ft.
manufacturing facility in Coalville, Leicestershire. CML-Alba owns a 61,900
sq. ft. manufacturing facility, which includes approximately 18,300 sq. ft. of
office space, in Bamberg, Germany and a 7,500 sq. ft. manufacturing facility
in Hranice u Ase, the Czech Republic.
31
<PAGE>
Canada. Plastomer owns a 75,000 sq. ft. manufacturing and warehouse
facility, which includes approximately 30,000 sq. ft. of warehouse space and
7,000 sq. ft. of office space, located in Barrie, Ontario.
Central America. IDI Internacional S.A., a subsidiary of IDI, owns a 19,000
sq. ft. manufacturing facility, which includes approximately 2,000 sq. ft. of
warehouse space and 500 sq. ft. of office space, located near San Jose, Costa
Rica.
LEGAL PROCEEDINGS
On June 20, 1996, Fernsite Limited (formerly STT Badalex Limited), STT
Holdings Limited, STT Lighting Limited, and PRT Shipping Limited
(collectively, the "UK Plaintiffs") filed a claim in the English High Court of
Justice, Chancery Division, against Badalex, a subsidiary of the Company,
alleging that pursuant to the November 10, 1995 purchase agreement whereby
Badalex acquired substantially all of the assets of the UK Plaintiffs, Badalex
is required to pay liabilities of approximately 375,000 British pounds to
certain creditors. The Company believes that Badalex does not have any
obligation to make such payments under the terms of the purchase agreement. In
addition, Badalex has filed a counterclaim against the UK Plaintiffs alleging
a breach of certain warranties and representations made by the UK Plaintiffs
in the purchase agreement. The trial of the United Kingdom litigation
commenced in October 1996, and although the Company cannot predict its
outcome, the Company believes that such litigation will not have a material
adverse effect on the results of operations or financial condition of the
Company.
On September 27, 1996, PRT Group Limited, Fernsite Limited and STT Holdings
Limited (the "US Plaintiffs") filed another action in the Massachusetts
Superior Court against the Company and two of its officers, Frank M. Ward and
Ronald S. Goldstein, alleging that the preliminary prospectus dated August 29,
1996, relating to this offering, contained financial statements for STT
Badalex Limited for the period January 1, 1995 through November 10, 1995 (the
"STT Badalex Audited Financial Statements") which were false and misleading in
that (a) the auditor's report was addressed to, and indicated that the STT
Badalex Audited Financial Statements were those of management of STT Badalex
Limited, now known as Fernsite Limited, and (b) the STT Badalex Audited
Financial Statements indicated that STT Badalex Limited was in materially
worse financial condition than it actually was for the period covered by such
statements. The US Plaintiffs claim that the STT Badalex Audited Financial
Statements and certain correspondence by the Company to the auditors of STT
Badalex Limited in the United Kingdom were libelous and contained false and
defamatory statements which have damaged the business reputations of the US
Plaintiffs. The US Plaintiffs have further alleged that the conduct of the
Company and its officers constitute an unfair and deceptive trade practice and
unfair competition. The US Plaintiffs seek a preliminary and permanent
injunction against using the STT Badalex Audited Financial Statements,
compensation for their alleged damages, and treble damages plus costs and
attorneys fees. The amount of damages claimed by the US Plaintiffs has not
been specified, but the US Plaintiffs have claimed that such damages are
substantially in excess of $25,000. The Massachusetts litigation is in its
early stage and the Company and the other defendants have not yet filed their
response to the US Plaintiffs' Complaint. While the prospectus has been
amended since the filing of the Massachusetts lawsuit, amendments to certain
sections contained herein should not be interpreted in any respect as
admissions with respect to the U.S. Plaintiffs' claims. The Company intends to
vigorously defend the action, and although the Company cannot predict its
outcome, the Company believes that the Massachusetts litigation will also not
have a material adverse effect on the results of operations or financial
condition of the Company.
In addition, the Company has been involved from time to time in litigation
in the normal course of business. The Company is not aware of any pending or
threatened legal proceedings that will have a material adverse affect on the
Company.
32
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL
The following table sets forth information regarding the directors,
executive officers and certain key personnel of the Company:
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AGE POSITION WITH THE COMPANY
- --------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Frank M. Ward.................... 52 Chairman of the Board of Directors, President and
Chief Executive Officer
Ronald S. Goldstein (1).......... 48 Chief Financial Officer, Secretary and Director
Donald J. MacCrindle............. 38 Executive Vice President--Sales and Marketing
Richard F. Parenti............... 42 Vice President--Finance and Treasurer
Thomas I. Kanaya................. 59 Vice President--International Operations and
Director
Michael J. Giani................. 68 Vice President--Special Projects, IDI, and Director
Werner A. Arnold................. 43 President--CML-Alba, and Director
Donald S. Dewsnap (1)(2)(3)...... 61 Director
Richard E. Ingram (1)(2)(3)...... 55 Director
<CAPTION>
CERTAIN KEY PERSONNEL
- ---------------------------------
<S> <C> <C>
Paul A. Flynn.................... 37 Vice President--Sales and Marketing
Julian P. Grenfell............... 59 Managing Director--Badalex
Daniel S. Savocchia.............. 47 Director of Sales Operations
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Stock Option Committee
DIRECTORS AND EXECUTIVE OFFICERS
Frank M. Ward has served as President, Chief Executive Officer and Director
of the Company and Xenell since 1985. Prior to 1985, Mr. Ward was President of
Xenell Marketing Corporation, an organization formed to manage the product
development, marketing and distribution of the products of Xenell. Mr. Ward
received a Bachelor of Science degree in Electrical Engineering from
Northeastern University and has completed post graduate studies in physics and
metallurgy.
Ronald S. Goldstein has served as Chief Financial Officer and Secretary of
the Company since September 1995. Mr. Goldstein is a Certified Public
Accountant and, prior to joining the Company, served as a principal in the
accounting firm of R. J. Gold & Co., which is located in Needham,
Massachusetts. Prior to joining R. J. Gold & Co., Mr. Goldstein was a
shareholder, officer and director of Greenfield, Goldstein, Green & Berger.
Such companies served as the outside accountant for the Company from 1978 to
1994. Mr. Goldstein was elected a director of the Company in March 1995. Mr.
Goldstein received a Bachelor of Science in Accounting and a Masters of
Business Administration from Boston University.
Donald J. MacCrindle joined CML-Delaware in June 1986, and, upon the
acquisition of CML-Delaware by the Company in October 1992, became an
Executive Vice President of the Company responsible for sales and marketing.
Mr. MacCrindle's previous responsibilities with CML-Delaware included
engineering, quality assurance and management of sales. Prior to his
employment with CML-Delaware, Mr. MacCrindle was employed by Littelfuse, Inc.
for ten years as a sales engineer and a product marketing manager.
Richard F. Parenti joined CML-Delaware in October 1987, and served as
controller from 1988 to 1992 when CML-Delaware was acquired by the Company. He
was appointed Vice President-Finance in 1992 and Treasurer of the Company in
May 1996. Prior to joining CML-Delaware, Mr. Parenti was employed by ADP in
various accounting manager positions. In 1976, Mr. Parenti earned a Bachelor
of Business Administration degree in accounting from Loyola University,
Chicago.
33
<PAGE>
Thomas I. Kanaya has been Vice President of International Operations for the
Company and Xenell since 1987. His primary responsibility is purchasing
component parts from the Pacific Rim and maintaining a relationship with the
Pacific Rim suppliers. Prior to his employment with the Company, he was
President of Asahi International, a primary supplier of lighting materials to
the United States and Europe. He was elected as a director of the Company in
March 1995. Mr. Kanaya earned his degree in Business from the Hokkaido
University of Education, Hokkaido, Japan.
Michael J. Giani is a Vice President of IDI, a subsidiary of the Company
acquired in 1994. Since joining IDI in 1974, Mr. Giani has served in various
capacities including Director, Vice President and Secretary of IDI. As Vice
President of IDI, Mr. Giani's responsibilities have included operations and
purchasing. Mr. Giani is presently responsible for special projects at IDI.
Mr. Giani was elected as a Director of the Company in September 1995.
Werner A. Arnold is the President of CML-Alba, a subsidiary of the Company
formed in May 1996 to consummate the acquisition of Alba. From 1994 to 1996,
Mr. Arnold served as President and Chief Executive Officer of Alba-Germany.
From 1985 to 1993, he served as General Manager and Executive Vice President
of Engineering, Sales and Marketing of Alba. Mr. Arnold also served as an
officer and director of certain affiliates of Alba. Mr. Arnold has a Masters
in Engineering from Technical University of Munich, Germany. Mr. Arnold was
elected as a Director of the Company in June 1996.
Donald S. Dewsnap has been Chairman of Norlico Corp. since 1977, a supplier
of engineered chemical dispense systems to industrial users. Prior thereto he
was involved in industrial research at Arthur D. Little Corp. and spent
fourteen years with GTE Sylvania Lighting Division in various product
marketing, management and sales engineering positions. Mr. Dewsnap was elected
a director of the Company in March 1995. Mr. Dewsnap holds a Bachelor of Arts
degree from Merrimack College.
Richard E. Ingram has been the Chairman of the Board of Builder Marts of
America, Inc., a national distributor of lumber and building materials, since
November 1988, and he was its Chief Executive Officer until November 1993. He
is a founding director of Carolina First Corporation, the holding company for
Carolina First Bank, and Ingram Enterprises, Inc., a real estate development
and investment banking company. He is also a director of Synalloy Corporation,
Columbia Lumber, a retail lumber business, and Tel-Pan Communications, Inc., a
long distance provider in Panama. He has served on the Policy Advisory Board
of the Joint Center for Urban Studies at Harvard University. Mr. Ingram is a
graduate of the American Institute of Banking and the University of North
Carolina Executive Program. Mr. Ingram was elected a director of the Company
effective August 1, 1996.
Directors are elected annually by the shareholders for terms of one year and
until their successors are elected and qualified. Officers serve at the
discretion of the Board of Directors.
The Company currently pays its non-employee and non-affiliated directors an
annual fee of $10,000 for attendance at meetings of the Board of Directors or
committees thereof. All directors are reimbursed for their reasonable expenses
in connection with the performance of their duties.
CERTAIN KEY PERSONNEL
Paul A. Flynn has served as Vice President-Sales and Marketing since 1994.
From 1992 to 1994, Mr. Flynn was the Director of Sales and Marketing for IDI.
Prior to such time, he was the National Sales Manager of IDI from 1987 to
1992. Mr. Flynn earned a Bachelor of Arts degree in marketing from Fairfield
University.
Julian P. Grenfell is the Managing Director of Badalex, a subsidiary of the
Company, acquired in November 1995. Prior to his employment with the Company,
he was the Technical Director of STT Badalex Limited from 1993 to 1995 and the
Technical Director of the Sale Tilney Technology PLC from 1982 to 1993. Mr.
Grenfell earned a Bachelor of Science degree in Electrical Engineering from
the University of Cape Town.
34
<PAGE>
Daniel S. Savocchia joined the Company in May 1996 as Director of Sales
Operations. From 1988 to May 1996, Mr Savocchia was the President of Alba-USA,
and from 1975 to 1987, he was the Director of Marketing and Sales for CML-
Delaware. Mr. Savocchia earned a Bachelor of Science degree in Business
Administration from Elmhurst College and a Masters degree in Business
Administration from Loyola University.
COMMITTEES
The Board of Directors has established a Compensation Committee, a Stock
Option Committee and an Audit Committee. The members of the Compensation
Committee and the Stock Option Committee are Donald S. Dewsnap and Richard E.
Ingram. The Compensation Committee reviews general policy matters relating to
compensation and benefits of employees generally and has responsibility for
reviewing and approving compensation and benefits for all executive officers
of the Company. The Stock Option Committee administers the Company's Stock
Option Plan and recommends grants of the specific options under the Stock
Option Plan.
The members of the Audit Committee are Ronald S. Goldstein, Donald S.
Dewsnap and Richard E. Ingram. The Audit Committee has general responsibility
for accounting and audit activities of the Company and its subsidiaries. The
Audit Committee annually reviews the qualifications of the independent
certified public accountants, makes recommendations to the Board as to their
selection, reviews the scope, fees and results of their audit and approves
their non-audit services and related fees. The Audit Committee meets
periodically with management and with the Company's independent auditors to
determine the adequacy of internal controls and other financial reporting
matters.
EXECUTIVE COMPENSATION
The following tables set forth certain information relating to the
compensation earned by the Chief Executive Officer of the Company and each of
the other most highly compensated executive officers of the Company whose
total cash compensation for the year indicated exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
------------------- ---------------------
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(#)
- --------------------------- ---- ------------------- ---------------------
<S> <C> <C> <C>
Frank M. Ward
President and Chief Execu-
tive Officer.............. 1995 $ 360,000 --
1994(1) $2,000,000 --
Donald J. MacCrindle
Executive Vice President... 1995 $ 112,538 30,000
1994(1) $ 73,957 --
</TABLE>
- --------
(1) For the nine-month period ended November 27, 1994.
35
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE
APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM
------------------------------------------ -----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#) IN YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Frank M. Ward........... -- -- -- -- -- --
Donald J. MacCrindle.... 15,000 4.35% $ 8.33 6/13/05 $ 78,600 $199,200
15,000 4.35% $10.75 8/10/05(2) $101,400 $257,100
</TABLE>
- --------
(1) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. Options vest at
the rate of 33.33% for each of the first three years after grant and
terminate ten years from the date of grant.
(2) Options all vested on date of grant and terminate ten years from date of
grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
NAME YEAR-END AT YEAR-END($)(1)
- ---- ---------------------- ---------------------
<S> <C> <C>
Frank M. Ward...................... -- --
Donald J. MacCrindle............... 15,000 $42,450 Exercisable
15,000 $78,750 Unexercisable
</TABLE>
- --------
(1) Calculated based on the last reported sales price of $13.58 per share of
Common Stock as reported on the Nasdaq National Market on December 3, 1995.
EMPLOYMENT AGREEMENT
In December 1994, the Company entered into a three-year employment agreement
with Mr. Ward. The agreement provided for a salary of $360,000, $420,000 and
$480,000 for fiscal years 1995 through 1997, respectively. At the request of
Mr. Ward, the employment agreement has been amended to reduce his salary to
$250,000 for each of the fiscal years 1996 and 1997. The agreement also
provides for the reimbursement of Mr. Ward's reasonable and necessary expenses
in carrying out his duties as Chief Executive Officer, including an automobile
and related expenses. Under the agreement, Mr. Ward is also entitled to
receive all employee benefits under any retirement, pension, profit-sharing,
insurance and other plans that are in effect or that may be later adopted. In
the event of any disability that renders Mr. Ward incapable of performing his
normal duties with the Company that continues for a period of one year, the
Company may, at its option, terminate the employment contract.
In connection with the Alba Acquisition, the Company entered into three-year
employment agreements with Mr. Werner A. Arnold and Mr. Daniel S. Savocchia.
After the first three-year term, the agreements can be extended annually for
additional one-year terms. Mr. Arnold will be paid an annual salary of DM
225,000 and has received stock options to purchase an aggregate of 75,000
shares of Common Stock, which options have an exercise price of $24.33 per
share and vest at the rate of 20% per year commencing May 30, 1997. Mr.
Savocchia will be paid an annual salary of $100,000 and will receive a car
allowance of $450 per month. Mr. Savocchia has received stock options to
purchase an aggregate of 30,000 shares of Common Stock, which options have an
exercise price of $24.33 per share and vest at the rate of 20% per year
commencing May 30, 1997. The
36
<PAGE>
agreement with Mr. Arnold also provides for reimbursement of reasonable and
necessary business expenses. Under the employment agreements, Messrs. Arnold
and Savocchia are entitled to receive all employee benefits, rights and
privileges under any retirement, pension, profit-sharing, insurance, hospital
or other plans that may now be in effect or that may be later adopted. In the
event of disability that renders either Mr. Arnold or Savocchia incapable of
performing his normal duties for a period of six consecutive months, the
Company may terminate such employee's employment by giving him notice in
writing. In the event of such termination, Mr. Savocchia is entitled to (i)
his then-current salary for the six-month period commencing with such
disability or (ii) the unexpired term of his employment, whichever is less.
Each employment agreement is also terminable by either party for cause. The
agreements also contain non-compete clauses that prohibit Messrs. Arnold and
Savocchia from competing with the Company for a period of five years following
termination of their employment with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the creation of the Compensation Committee on March 27, 1995,
executive compensation decisions were made by the Company's Chief Executive
Officer, Frank M. Ward. During the entire period from the beginning of fiscal
1995 through March 27, 1995, Mr. Ward was employed under the employment
agreement described under the summary compensation table and Mr. Ward did not
participate in any executive compensation decisions affecting himself,
although he did request that his salary be reduced to $250,000 for fiscal
years 1996 and 1997.
CERTAIN TRANSACTIONS
The Company leases on a month-to-month basis approximately 2,200 sq. ft. of
office space in Canton, Massachusetts from Frank M. Ward, the President, Chief
Executive Officer and a director of the Company. Rent expense on this facility
was $60,000 for the fiscal year ended February 27, 1994, $45,000 for the nine-
months ended November 27, 1994, $60,000 for the fiscal year ended December 3,
1995 and $36,000 for the six months ended June 2, 1996, respectively.
Management believes the rent to be comparable to the rent that would be paid
to an unrelated party. In addition, during the year ended December 3, 1995,
the Company made cash advances to Mr. Ward in the largest aggregate amount of
$74,000. These advances did not bear interest and have been repaid in full.
In February 1994, the Company purchased its manufacturing facility located
in Pauls Valley, Oklahoma from Mr. Ward for $575,000. The facility had been
previously leased from Mr. Ward for $205,000 and $190,000 for the fiscal years
ended February 28, 1993, and February 27, 1994, respectively. The purchase
price equalled the approximate depreciated historical cost to Mr. Ward as of
the sale date. Management believes that such price was less than its fair
market value at such time. Also, in February 1994, Mr. Ward sold to the
Company for $141,000 certain machinery and equipment that he had purchased in
1991. The sale price equalled Mr. Ward's cost. The Company financed the
purchase of the property and equipment by issuing a promissory note payable to
Mr. Ward. This note has been paid in full.
A portion of the net proceeds of the Company's initial public offering on
June 16, 1995 was used to pay $17.5 million of the outstanding indebtedness
under the Company's Amended and Restated Credit Agreement, thereby reducing
the obligation of Frank M. Ward under his guaranty of such indebtedness. The
Amended and Restated Credit Agreement has been further amended following the
Company's initial public offering, and Mr. Ward's guaranty has been released.
Ronald S. Goldstein, the Chief Financial Officer and a director of the
Company, is a Certified Public Accountant and, during a part of fiscal 1995,
was a principal in the accounting firm of R. J. Gold & Co. For the fiscal year
ended December 3, 1995, R. J. Gold & Co. was paid approximately $138,000 for
accounting services. In addition, on January 3, 1995, the Company issued to
Mr. Goldstein 14,153 shares of its Common Stock for consulting services
rendered by him. The shares were valued at such time at approximately $4.24
per share or $60,000. For the years ended February 28, 1993 and 1994, the
Company paid accounting fees of approximately $60,000 and $63,000,
respectively, to accounting firms with whom Mr. Goldstein was associated.
37
<PAGE>
Mr. Werner A. Arnold, President of CML-Alba and a director of the Company,
together with his wife and her father (collectively, the "Arnold Family") were
the direct or indirect owners of Alba, and they sold their ownership interests
in Alba to the Company in May 1996. In connection with the Alba Acquisition,
and certain affiliated entities, the Company paid to the Arnold Family
approximately DM 13.1 million (or approximately $8.5 million) in cash, assumed
certain liabilities totaling approximately DM 7.5 million (or approximately
$4.9 million) and issued 150,000 shares of the Company's Common Stock (valued
at approximately $21.67 per share or of $3.3 million).
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock by (i) each person who is known by the Company
to be the beneficial owner of more than 5% of the Company's outstanding shares
of Common Stock, (ii) each director and executive officer of the Company,
(iii) all directors and executive officers of the Company as a group, and (iv)
the Selling Shareholders. Unless otherwise indicated, each of the shareholders
listed below has sole voting and investment power with respect to the shares
of Common Stock beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO BENEFICIALLY
OFFERING SHARES OWNED AFTER OFFERING
------------------------ BEING ---------------------
NAME AND ADDRESS(1) NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ------------------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Frank M. Ward........... 10,894,600(2) 68.4% 685,000 10,209,600 53.8%
individually and as
trustee
500 Chapman Street
Canton, MA 02021
Patrick J. Cox, Trustee 517,500 3.3 450,000 67,500 *
.......................
The Frank M. Ward
Charitable Remainder
Unitrust
Ronald S. Goldstein(3).. 110,757 * -- 110,757 *
Donald J.
MacCrindle(4).......... 25,100 * -- 25,100 *
Richard F. Parenti(5)... 21,200 * -- 21,200 *
Thomas I. Kanaya........ 69,149 * -- 69,149 *
Michael J. Giani(6)..... 27,000 * -- 27,000 *
Werner A. Arnold........ 165,000 1.0 -- 165,000 *
Donald S. Dewsnap....... 13,950 * -- 13,950 *
Richard E. Ingram....... 12,000 * -- 12,000 *
All directors and
executive officers
as a group (9
persons)............... 11,338,756 71.2% 685,000 10,653,756 56.1%
</TABLE>
- --------
* Less than 1%
(1) The address of the Company's directors and officers is Chicago Miniature
Lamp, Inc., 500 Chapman Street, Canton, Massachusetts 02021.
(2) Includes 9,043,570 shares beneficially owned by Frank M. Ward and Eileen
M. Ward as joint tenants with right of survivorship and 1,851,030 shares
deemed to be beneficially owned by Frank M. Ward, as trustee under certain
trust agreements for each of his five children dated May 23, 1995 (the
"Trust Agreements"). The Trust Agreements terminate upon each child reaching
the age of 35 (the first of such trusts will terminate in 2005).
(3) Reflects 75,000 shares issuable upon the exercise of presently exercisable
stock options beneficially owned by Mr. Goldstein and granted pursuant to
the Company's Stock Option Plan.
(4) Reflects 5,000 shares issuable upon the exercise of presently exercisable
stock options beneficially owned by Mr. MacCrindle and granted pursuant to
the Company's Stock Option Plan.
(5) Reflects 5,000 shares issuable upon the exercise of presently exercisable
stock options beneficially owned by Mr. Parenti and granted pursuant to the
Company's Stock Option Plan.
(6) Reflects 24,000 shares issuable upon the exercise of presently exercisable
stock options beneficially owned by Mr. Giani and granted pursuant to the
Company's Stock Option Plan.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's Restated Certificate of Incorporation authorizes the Company
to issue up to 20,000,000 shares of Common Stock, $.01 par value per share.
After giving effect to the offering, the Company will have 18,997,499 shares
of Common Stock issued and outstanding. Subject to the rights of the holders
of any outstanding shares of preferred stock and any restrictions that may be
imposed by any lender on the Company, holders of Common Stock are entitled to
receive such dividends, if any, as may be declared by the Board of Directors
out of funds legally available for such purpose. Upon the liquidation,
dissolution or winding-up of the Company, after payment in full of creditors
and any liquidation preference payable to the holders of any Preferred Stock,
the remaining assets of the Company will be distributed ratably to the holders
of the Common Stock, in proportion to the number of shares held by them.
Holders of Common Stock are entitled to one vote per share on all matters
submitted a vote of the shareholders. Because holders of Common Stock do not
have cumulative voting rights in the election of directors, the holders of a
majority of the shares of Common Stock represented at a meeting can elect all
the directors. Holders of Common Stock do not have preemptive rights to
subscribe for or purchase any additional shares of capital stock issued by the
Company. All outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby will be when issued, duly authorized, validly issued,
fully paid and nonassessable.
The holders of Common Stock are not entitled to preemptive or similar
rights. No holder of Common Stock is entitled as a matter of right to
subscribe for or purchase (i) any shares of capital stock of the Company of
any class whatsoever, (ii) warrants, options or rights of the Company, or
(iii) securities convertible into, or carrying warrants, options or rights to
subscribe for or purchase, capital stock of the Company of any class
whatsoever.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the issuance
of up to 5,000,000 shares of Preferred Stock, $.01 par value ("Preferred
Stock"). No shares of Preferred Stock are outstanding, but the Board of
Directors is empowered by the Company's Restated Certificate of Incorporation
to designate and issue from time to time one or more series of Preferred Stock
without shareholder approval. The Board of Directors has the power to
establish the preferences, limitations and optional or other special rights of
each series of Preferred Stock so issued. Because the Board of Directors has
the power to establish the preferences and rights of each series of Preferred
Stock, it may afford the holders of any series of Preferred Stock preferences
and rights, voting otherwise, senior to the rights of holders of Common Stock.
The Board of Directors, without approval of the holders of Common Stock, could
issue Preferred Stock with voting rights that could adversely affect the
voting power of holders of Common Stock. The issuance of Preferred Stock could
be used to delay or prevent a change in control of the Company opposed by the
Board of Directors. The Company has no present intention to issue any shares
of Preferred Stock.
Under the Company's Certificate of Incorporation, the Board of Directors is
authorized to divide the Preferred Stock into one or more series with such
designations, assigned values, preferences and relative, participating,
optional or other rights, qualifications, limitations or restrictions thereof
as provided in the adopting resolution or resolutions providing for the issue
of such series.
TRANSFER AGENT
The transfer agent for the Common Stock is the American Stock Transfer &
Trust Company, New York, New York.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 18,997,499 shares of
Common Stock outstanding. Of these shares, all of the 4,200,000 shares sold in
this offering and 4,076,243 shares of Common Stock currently outstanding will
be freely tradable without restriction or further registration under the
Securities Act. The remaining 10,721,256 shares are deemed "restricted shares"
under Rule 144 under the Securities Act. Of such shares, 10,557,103 are
currently eligible for sale pursuant to Rule 144, and 14,153 and 150,000
shares will become eligible for sale pursuant to Rule 144 in January 1997 and
May 1998, respectively, in each case subject to the volume, manner of sale and
informational requirements described below.
In general, Rule 144 allows a shareholder (including persons who may be
deemed "affiliates" of the Company under Rule 144) who has beneficially owned
restricted shares for at least two years to sell a number of shares of Common
Stock within any three-month period that does not exceed the greater of (i)
one percent of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
immediately preceding the date on which notice of sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are also subject to certain requirements as to the manner and notice of sale
and the availability of public information about the Company. A shareholder
(or shareholder whose shares are aggregated) who is not an "affiliate" of the
Company at any time during the 90 days immediately preceding a sale, and who
has beneficially owned his shares for at least three years (as computed under
Rule 144), is entitled to sell shares under Rule 144 without regard to the
volume and manner of sale limitations described above. Shares properly sold in
reliance upon Rule 144 to persons who are not "affiliates" are thereafter
freely tradable without restrictions or registration under the Securities Act.
As defined in Rule 144, an "affiliate" of an issuer is a person who directly,
or indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, such issuer.
The Commission has recently proposed amendments to Rule 144 which, if
adopted, would entitle a person to sell shares in reliance on Rule 144
beginning one year from the later of the date of acquisition of the shares
from the Company or from an affiliate of the Company. In addition, such
proposed amendments would permit a person who is not deemed an affiliate of
the Company to sell shares in reliance on Rule 144(k) beginning two years from
the date of acquisition of the shares from the Company or from an affiliate of
the Company. The Company is unable to predict whether these amendments will be
adopted.
Certain of the Company's executive officers and directors and the Selling
Shareholders, who will beneficially own an aggregate of 10,622,006 shares of
Common Stock following the completion of this offering, and the Company have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Smith Barney Inc., offer, sell,
offer to sell, solicit an offer to buy, contract to sell, pledge or grant any
option to purchase or otherwise transfer or dispose (or announce any of the
foregoing) of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, except, in the case of the
Company, for the issuance of stock options under stock option plans in
existence on the date hereof or the issuance or sale of Common Stock by the
Company upon exercise of outstanding stock options or rights to purchase
Common Stock under the Company's stock purchase plan.
Further, the Company has filed a registration statement on Form S-8 under
the Securities Act with respect to shares of Common Stock that may be sold
pursuant to the Company's 1995 Stock Option Plan. As a result, shares of
Common Stock issued under such plan upon the exercise of stock options will
generally be available for sale in the public market.
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares for future sales, will
have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock (including shares issued upon the
exercise of stock options) in the public market, or the perception that such
sales could occur, could adversely affect the prevailing market price for the
Common Stock and the ability of the Company to raise capital through a public
offering of its equity securities.
40
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Shareholders have agreed
to sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Smith Barney Inc. ............ 1,050,000
Raymond James & Associates,
Inc. ........................ 1,049,000
McDonald & Company Securities,
Inc. ........................ 1,049,000
Advest, Inc. ................. 46,000
The Chicago Corporation....... 46,000
Dominick & Dominick,
Incorporated................. 46,000
Donaldson, Lufkin & Jenrette
Securities
Corporation.................. 74,000
Gabelli & Company, Inc. ...... 46,000
Gerard Klauer Mattison & Co.,
L.L.C. ...................... 46,000
Goldman, Sachs & Co. ......... 74,000
Janney Montgomery Scott
Inc. ........................ 46,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Edward D. Jones & Co., L.P. .. 46,000
Merrill Lynch, Pierce, Fenner
& Smith
Incorporated................. 74,000
Moors & Cabot, Inc. .......... 46,000
Morgan Stanley & Co.
Incorporated................. 74,000
Murphey, Marseilles, Smith &
Nammack, Inc. ............... 46,000
Oppenheimer & Co., Inc. ...... 74,000
PaineWebber Incorporated...... 74,000
Parker/Hunter Incorporated.... 46,000
Prudential Securities
Incorporated................. 74,000
Tucker Anthony Incorporated... 74,000
---------
Total....................... 4,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares are subject to approval of
certain legal matters by counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Raymond James & Associates,
Inc. and McDonald & Company Securities, Inc. are acting as Representatives,
propose initially to offer part of the shares of Common Stock directly to the
public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess
of $.85 per share below the public offering price. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $.10 per share to
other Underwriters or to certain other dealers. After the initial public
offering of such shares, the public offering price and such concessions may be
changed by the Underwriters.
The Company and the Selling Shareholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase
up to an aggregate of 630,000 additional shares of Common Stock at the public
offering price set forth on the cover page hereof, less underwriting discounts
and commissions. Of the 630,000 additional shares of Common Stock that may be
purchased by the Underwriters pursuant to this option, up to 459,750
additional shares may be sold by the Company and up to 170,250 additional
shares may be sold by the Selling Shareholders. If the Underwriters exercise
such option, the additional shares will be purchased from the Company and the
Selling Shareholders on a pro rata basis based on the number of such
additional shares subject to sale by the Company and the Selling Shareholders.
The Underwriters may exercise such option to purchase additional shares solely
for the purpose of covering over-allotments, if any, incurred in connection
with the sale of the shares offered hereby. To the extent that such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares in such table.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
41
<PAGE>
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified market
makers on the Nasdaq National Market may have engaged in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934 during the two-
business-day period before commencement of offers or sales of the Common
Stock. Passive market making transactions must comply with applicable volume
and price limits and be identified as such. In general, a passive market maker
may display its bid at a price not in excess of the highest independent bid
for such security; if all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.
Certain of the Company's executive officers and directors and the Selling
Shareholders, who will beneficially own an aggregate of 10,622,006 shares of
Common Stock following the completion of this offering, and the Company have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Smith Barney Inc., offer, sell,
offer to sell, solicit an offer to buy, contract to sell, pledge or grant any
option to purchase or otherwise transfer or dispose (or announce any of the
foregoing) of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, except, in the case of the
Company, for the issuance of stock options under stock option plans in
existence on the date hereof or the issuance or sale of Common Stock by the
Company upon exercise of outstanding stock options or rights to purchase
Common Stock under the Company's stock purchase plan.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Shareholders by Baker & Hoster, Tulsa, Oklahoma.
Certain legal matters in connection with this offering are being passed upon
for the Company by Schifino & Fleischer, P. A., Tampa, Florida and for the
Underwriters by King & Spalding, New York, New York.
EXPERTS
The consolidated financial statements and related financial statement
schedule of Chicago Miniature Lamp, Inc. and subsidiaries at December 3, 1995,
and for the year then ended appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, and
the information under the caption "Selected Financial Data" for the year ended
December 3, 1995 appearing in the Prospectus and Registration Statement have
been derived from consolidated financial statements audited by Ernst & Young
LLP, as set forth in their report thereon appearing elsewhere herein. Such
consolidated financial statements and related financial schedule and selected
financial data are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company for and as of the end
of the nine months ended November 27, 1994 and the combined financial
statements of the Company for and as of the end of the year ended February 27,
1994 appearing in this Prospectus and Registration Statement have been audited
by Arthur Andersen LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein. Such financial statements are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
The combined financial statements of Alba for and as of the years ended
December 31, 1995 and 1994 appearing in this Prospectus and Registration
Statement have been audited by Schitag Ernst & Young, Deutsche Allgemeine
Treuhand AG, independent auditors, as set forth in their report thereon
appearing elsewhere herein. Such financial statements are included herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
42
<PAGE>
The financial statements of Badalex Limited (formerly the operations of STT
Badalex Limited) for and as of the eleven months ended November 10, 1995
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Plastomer for and as of the years ended December
30, 1994 and 1993 appearing in this Prospectus and Registration Statement have
been audited by Hards Pearson, independent auditors, as set forth in their
reports thereon appearing elsewhere herein. Such financial statements are
included herein in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
In November 1995, the Company's Board of Directors decided to retain Ernst &
Young LLP as its independent public accountants and dismissed the Company's
former auditors, Arthur Andersen LLP. The former auditors' report on the
Company's financial statements for the nine months ended November 27, 1994 and
for the years ended February 27, 1994 and February 28, 1993 did not contain an
adverse opinion or disclaimer of opinion and were not modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
with the former auditors on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure or with respect
to the Company's financial statements for the nine months ended November 27,
1994 or for the years ended February 27, 1994 and February 28, 1993 or for the
subsequent interim period to the date of dismissal, which, if not resolved to
the former auditors' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their report. Prior
to retaining Ernst & Young LLP, the Company had not consulted Ernst & Young
LLP regarding accounting principles.
AVAILABLE INFORMATION
A registration statement (the "Registration Statement") under the Securities
Act, has been filed with the Securities and Exchange Commission, Washington,
D. C. 20549, with respect to the Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement
and exhibits and schedules thereto, certain portions having been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Section of the
Commission, 450 Fifth Avenue, N. W., Judiciary Plaza, Washington, D. C. 20549;
and at the regional offices of the Commission at 7 World Trade Center, New
York New York 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N. W.,
Judiciary Plaza, Washington D. C. 20549 at prescribed rates.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Introduction to Pro Forma Condensed Consolidated Financial Statements..... F- 3
Pro Forma Condensed Consolidated Balance Sheet as of June 2, 1996......... F- 4
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended
June 2, 1996............................................................. F- 5
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 3, 1995................................................... F- 6
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES:
Report of Independent Auditors, Ernst & Young LLP......................... F- 7
Report of Independent Public Accountants, Arthur Andersen LLP............. F- 8
Financial Statements:
Consolidated Balance Sheets--November 27, 1994, December 3, 1995, and
June 2, 1996 (unaudited)............................................... F- 9
Combined Statement of Operations for the year ended February 27, 1994
and Consolidated Statements of Operations for the nine months ended
November 27, 1994, year ended December 3, 1995, and six months ended
May 28, 1995 and June 2, 1996 (unaudited) ............................. F-10
Combined Statement of Stockholders' Equity for the year ended February
27, 1994 and Consolidated Statements of Stockholders' Equity for the
nine months ended November 27, 1994, year ended December 3, 1995, and
six months ended June 2, 1996 (unaudited) ............................. F-11
Combined Statement of Cash Flows for the year ended February 27, 1994
and Consolidated Statements of Cash Flows for the nine months ended
November 27, 1994, year ended December 3, 1995, and six months ended
May 28, 1995 and June 2, 1996 (unaudited) ............................. F-12
Notes to Financial Statements........................................... F-13
PLASTOMER, INC.
Review Engagement Report.................................................. F-25
Financial Statements:
Interim Balance Sheet as at June 2, 1996 (unaudited).................... F-26
Interim Statement of Income for the six months ended June 2, 1996
(unaudited)............................................................ F-27
Interim Statement of Retained Earnings for the six months ended June 2,
1996 (unaudited)....................................................... F-28
Interim Statement of Cash Flows for the six months ended June 2, 1996
(unaudited)............................................................ F-29
Notes to the Interim Financial Statements............................... F-30
Auditors' Report.......................................................... F-34
Financial Statements:
Balance Sheet as at December 3, 1995.................................... F-35
Statement of Income for the 244 days ended December 3, 1995............. F-36
Statement of Retained Earnings for the 244 days ended December 3, 1995.. F-37
Statement of Cash Flows for the 244 days ended December 3, 1995......... F-38
Notes to the Financial Statements....................................... F-39
Auditors' Report.......................................................... F-43
Financial Statements:
Balance Sheet as at December 30, 1994 and 1993.......................... F-44
Statement of Income for the years ended December 30, 1994 and 1993...... F-45
Statement of Retained Earnings for the years ended December 30, 1994 and
1993................................................................... F-46
Statement of Cash Flows for the years ended December 30, 1994 and 1993.. F-47
Notes to the Financial Statements....................................... F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
ALBA GROUP
Report of Independent Auditors............................................ F-52
Financial Statements:
Combined Balance Sheets as of December 31, 1995 and 1994 and April 30,
1996 (unaudited)....................................................... F-53
Combined Income Statements for the years ended December 31, 1995 and
1994 and four months ended April 30, 1996 (unaudited).................. F-54
Notes to the Combined Financial Statements.............................. F-55
BADALEX LIMITED (FORMERLY THE OPERATIONS OF STT BADALEX LIMITED)
Report of Independent Auditors............................................ F-60
Balance Sheet as of November 10, 1995..................................... F-61
Statement of Operations for the period from January 1, 1995 to November
10, 1995................................................................. F-62
Statement of Stockholders' Equity for the period from January 1, 1995 to
November 10, 1995........................................................ F-63
Statement of Cash Flows for the period from January 1, 1995 to November
10, 1995................................................................. F-64
Notes to Financial Statements............................................. F-65
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
Consolidated Profit and Loss Account for the year ended 31 December 1994
(unaudited).............................................................. F-68
Consolidated Balance Sheet as of 31 December 1994 (unaudited)............. F-69
Statement of Total Recognized Gains and Losses for the year ended 31
December 1994 (unaudited)................................................ F-70
Principal Accounting Policies (unaudited)................................. F-71
Notes to the Financial Statements (unaudited)............................. F-73
</TABLE>
F-2
<PAGE>
CHICAGO MINIATURE LAMP, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to
this offering and the application of the net proceeds to the Company therefrom
as if they had occurred on June 2, 1996. The unaudited Pro Forma Condensed
Consolidated Statement of Operations for the six months ended June 2, 1996
gives effect to the following as if each had occurred on December 4, 1995: (i)
the Alba Acquisition, (ii) the acquisition of Phoenix Lighting (the Phoenix
Acquisition), and (iii) this offering and the application of the net proceeds
to the Company therefrom. The unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 3, 1995 gives effect to
the following as if each had occurred on November 28, 1994: (i) the Alba
Acquisition, (ii) the Fiscal 1995 Acquisitions, (iii) the Phoenix Acquisition,
and (iv) this offering and application of the net proceeds to the Company
therefrom.
The unaudited Pro Forma Condensed Consolidated Financial Statements are
based on (i) Chicago Miniature Lamp, Inc.'s audited Consolidated Statement of
Operations for the year ended December 3, 1995, unaudited Consolidated
Statement of Operations for the six months ended June 2, 1996 and unaudited
Consolidated Balance Sheet as of June 2, 1996, (ii) unaudited Statements of
Operations for the Fiscal 1995 Acquisitions and the Phoenix Acquisition and
(iii) Alba's audited Combined Income Statement for the year ended December 31,
1995 and unaudited Combined Income Statement for the four months ended April
30, 1996.
The Alba Acquisition was accounted for under the purchase method of
accounting. The total purchase price for the acquisition was allocated to
tangible and identifiable intangible assets and liabilities based on
management's estimate of their fair values with the excess of cost over net
assets acquired allocated to goodwill.
The unaudited Pro Forma Condensed Consolidated Financial Statements do not
purport to be indicative of the combined results of operations that actually
would have occurred if the transactions described above had been effected at
the dates indicated or to project future results of operations for any period.
The unaudited Pro Forma Condensed Consolidated Financial Statements should be
read in conjunction with Chicago Miniature Lamp, Inc.'s Consolidated Financial
Statements and Alba's Combined Financial Statements and respective related
notes thereto included elsewhere in this Prospectus.
F-3
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 2, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Cash and cash equivalents................... $ 7,831 $ -- $ 7,831
Investments................................. -- 66,758 (1) 66,758
Accounts receivable, net of allowance for
doubtful accounts.......................... 17,644 -- 17,644
Inventories................................. 16,573 -- 16,573
Prepaid expenses and other.................. 1,043 -- 1,043
-------- -------- --------
Total current assets.................... 43,091 66,758 109,849
Property, plant and equipment, net.......... 49,473 -- 49,473
Other long-term assets...................... 10,849 -- 10,849
-------- -------- --------
Total assets............................ $103,413 $ 66,758 $170,171
======== ======== ========
Short-term notes payable.................... $ 26,894 $(14,894)(2) 12,000
Current portion of long-term debt........... 291 (291)(2) --
Accounts payable and accrued expenses....... 20,124 -- 20,124
-------- -------- --------
Total current liabilities............... 47,309 (15,185) 32,124
Long-term debt, less current portion........ 3,354 (3,354)(2) --
Other long-term liabilities................. 9,161 -- 9,161
Stockholders' equity........................ 43,589 85,297 (3) 128,886
-------- -------- --------
Total liabilities and stockholders'
equity................................. $103,413 $ 66,758 $170,171
======== ======== ========
</TABLE>
- --------
(1) Cash anticipated to be retained from the net proceeds of this offering
after the repayment of $18,539,000 of debt.
(2) Reflects the repayment of debt from a portion of the net proceeds from
this offering.
(3) Represents the receipt of the estimated net proceeds of this offering.
F-4
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 2, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ALBA
COMPANY ACQUISITION (1) ADJUSTMENTS PRO FORMA
------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales................... $41,527 $10,668 $ -- $52,195
Cost of products sold....... 27,243 8,146 51 (2) 35,440
------- ------- ------ -------
Gross margin.............. 14,284 2,522 (51) 16,755
Selling, general and
administrative expenses.... 6,109 2,938 (474)(3) 8,573
------- ------- ------ -------
Operating income.......... 8,175 (416) 423 8,182
Interest (income) expense,
net........................ 322 141 (765)(4) (302)
Other (income) expense...... 15 (49) -- (64)
------- ------- ------ -------
Income (loss) before income
taxes...................... 7,868 (508) 1,188 8,548
Income taxes................ 2,494 46 195 (5) 2,735
------- ------- ------ -------
Net income................ $ 5,374 $ (554) $ 993 $ 5,813
======= ======= ====== =======
Earnings per common share... $ 0.34 $ .35
======= =======
Weighted average shares
outstanding................ 15,708 16,516(6)
======= =======
</TABLE>
- --------
(1) Information obtained from Alba's unaudited Combined Income Statements for
the four months ended April 30, 1996, translated into U.S. dollars at the
average rate of U.S. $1.00=DM 1.523.
(2) Depreciation has been adjusted to reflect revised estimated useful lives
and revaluation of fixed assets to fair market value as if the Alba
Acquisition had occurred on December 4, 1995.
(3) Gives effect for adjustments to Alba's selling, general and administrative
expenses resulting from the implementation of the Company's acquisition
plans to reduce sales commissions and the number of employees and realign
certain operations.
(4) Interest expense applicable to $18,539,000 of debt outstanding is
eliminated because this portion of bank debt is assumed to be repaid at
the beginning of the period.
(5) Income tax expense has been adjusted to reflect a pro forma consolidated
effective tax rate of approximately 32%.
(6) Pro forma weighted average shares outstanding give effect to 150,000
shares issued in connection with the Alba Acquisition and 661,517 shares
issued in this offering to raise net proceeds equal to $18,539,000 as if
the acquisition and this offering had occurred on December 4, 1995.
F-5
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 3, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA FOR FISCAL 1995
ADJUSTMENTS AND
ALBA FOR ALBA FISCAL 1995 PHOENIX PHOENIX OFFERING
COMPANY ACQUISITION(1) ACQUISITION ACQUISITIONS(5) ACQUISITION(5) ACQUISITIONS PRO FORMA ADJUSTMENTS
------- -------------- ----------- --------------- -------------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... $57,402 $24,769 $ -- $16,788 $ 6,134 $ -- $105,093 $ --
Cost of products
sold.............. 36,726 17,161 158 (2) 13,523 6,575 (2,071)(6) 72,072 --
------- ------- ------ ------- ------- ------ -------- ------
Gross margin.... 20,676 7,608 (158) 3,265 (441) 2,071 33,021 --
Selling, general
and administrative
expenses. ........ 8,462 7,746 (1,138)(3) 7,389 743 (2,090)(7) 21,112 --
------- ------- ------ ------- ------- ------ -------- ------
Operating
income.......... 12,214 (138) 980 (4,124) (1,184) 4,161 11,909 --
Interest expense,
net............... 803 317 -- 550 -- -- 1,670 (1,530)(9)
Other income...... (47) 41 -- (7) -- -- (13) --
------- ------- ------ ------- ------- ------ -------- ------
Income before
income taxes.... 11,458 (496) 980 (4,667) (1,184) 4,161 10,252 1,530
Income taxes...... 2,993 108 48 (4) 65 -- (606)(8) 2,607 1,163 (10)
------- ------- ------ ------- ------- ------ -------- ------
Net income...... $ 8,465 $ (604) $ 932 $(4,732) $(1,184) $4,767 $ 7,645 $ 367
======= ======= ====== ======= ======= ====== ======== ======
Earnings per
common share...... $ 0.61
=======
Weighted average
shares
outstanding....... 13,920
=======
<CAPTION>
PRO FORMA
--------------
<S> <C>
Net sales......... $105,093
Cost of products
sold.............. 72,072
--------------
Gross margin.... 33,021
Selling, general
and administrative
expenses. ........ 21,112
--------------
Operating
income.......... 11,909
Interest expense,
net............... 140
Other income...... (13)
--------------
Income before
income taxes.... 11,782
Income taxes...... 3,770
--------------
Net income...... $ 8,012
==============
Earnings per
common share...... $ 0.49
==============
Weighted average
shares
outstanding....... 16,516 (11)
==============
</TABLE>
- ----
(1) Information obtained from Alba's audited Consolidated Combined Income
Statement for the year ended December 31, 1995, translated into U.S.
dollars at the rate of U.S. $1.00 = DM 1.53.
(2) Depreciation has been adjusted to reflect revised estimated useful lives
and revaluation of fixed assets to fair market value as if the Alba
Acquisition had occurred on November 28, 1994.
(3) Gives effect to the Alba Acquisition and adjustments to selling, general
and administrative expenses resulting from the implementation of the
Company's acquisition plans to reduce sales commissions and the number of
employees and realign certain operations.
(4) Income tax expense has been adjusted to reflect the expected additional
income tax expense resulting from the Pro Forma adjustments. The
adjustment gives effect to an effective tax rate of approximately 32%.
(5) Operating results of each of the Fiscal 1995 Acquisitions are included in
the Company's consolidated financial statements from the respective dates
of acquisition.
(6) Gives effect to the Fiscal 1995 Acquisitions and Phoenix Acquisition for
decreases in material costs totalling approximately $1,557,000 resulting
from the implementation of the Company's acquisition plans to eliminate
related party purchases. Additionally, depreciation has been decreased by
$514,000 to reflect revised estimated useful lives and revaluation of
fixed assets to fair market value as if the acquisitions had occurred on
November 28, 1994.
(7) Gives effect to the Fiscal 1995 Acquisitions and Phoenix Acquisition for
decreases in selling, general and administrative payroll costs totalling
$2,375,000 resulting from the implementation of the Company's acquisition
plans to reduce the number of employees. In addition the adjustment
reflects amortization of intangible assets recorded in connection with
the Fiscal 1995 and Phoenix Acquisitions totalling $285,000. Goodwill is
amortized over 40 years and the useful lives of other intangible assets
range from 3 to 25 years.
(8) Income tax expense has been adjusted to reflect the expected income tax
benefit resulting from the pro forma adjustments. The adjustment reflects
a pro forma effective tax rate of 32% for the Fiscal 1995 and Phoenix
Acquisitions.
(9) Interest expense applicable to $18,539,000 of debt outstanding is
eliminated because this portion of bank debt is assumed to be repaid at
the beginning of the period.
(10) Income tax expense has been adjusted to reflect a pro forma consolidated
effective tax rate of approximately 32%.
(11) Weighted average shares outstanding reflect the shares outstanding as of
the June 1995 initial public offering totalling 15,704,903 shares and
give effect to 150,000 shares issued in connection with the Alba
Acquisition and 661,517 shares issued in this offering to raise net
proceeds equal to $18,539,000 to be used to retire outstanding debt as if
the transactions had occurred on November 28, 1994.
F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Chicago Miniature Lamp, Inc.
We have audited the accompanying consolidated balance sheet of Chicago
Miniature Lamp, Inc. and subsidiaries as of December 3, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements of Plastomer, Inc., a wholly-owned subsidiary, which statements
reflect total assets of $9,570,000 as of December 3, 1995, and total revenues
of $7,064,000 for the period from March 30, 1995 (date of acquisition) to
December 3, 1995. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to data
included for Plastomer, Inc., is based solely on the report of the other
auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
1995 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Chicago Miniature Lamp, Inc.
and subsidiaries at December 3, 1995, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
In our opinion based on our audit and the report of other auditors, the
information set forth in the selected financial data as of and for the year
ended December 3, 1995, appearing on pages 13 and 14, is fairly stated in all
material respects in the relation to the consolidated financial statements
from which it has been derived. The selected financial data for the years
ended February 28, 1993 and February 27, 1994 and the nine months ended
November 27, 1994 were derived from financial statements audited by other
auditors, and we do not express an opinion on that data.
Ernst & Young LLP
Chicago, Illinois
January 15, 1996
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chicago Miniature Lamp, Inc.:
We have audited the accompanying consolidated balance sheets of Chicago
Miniature Lamp, Inc. and subsidiary as of November 27, 1994, and the related
statements of operations, stockholders' equity and cash flows for the nine
months ended November 27, 1994 and the year ended February 27, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chicago Miniature Lamp,
Inc. and subsidiary as of November 27, 1994 and February 27, 1994, and the
results of their operations and their cash flows for the nine months ended
November 27, 1994 and the year ended February 27, 1994, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
December 23, 1994 (except for
Notes 2(j), 3, 7 and 10 for which
the date is February 27, 1995)
F-8
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 27, DECEMBER 3, JUNE 2,
1994 1995 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 4,558 $ 4,005 $ 7,831
Investments.............................. -- 2,102 --
Accounts receivable, less allowances for
doubtful accounts of $358, $118 and $285
at November 27, 1994, December 3, 1995
and June 2, 1996, respectively.......... 5,666 10,249 17,644
Income tax receivable.................... 164 109 --
Inventories.............................. 5,232 8,018 16,573
Prepaid income taxes..................... 96 -- --
Prepaid expenses and other............... 276 661 1,043
------- ------- --------
Total current assets...................... 15,992 25,144 43,091
Property, plant and equipment:
Land..................................... 90 684 3,526
Buildings and improvements............... 1,877 5,308 9,977
Machinery and equipment.................. 9,224 15,193 32,091
Molds.................................... 3,684 4,560 5,001
Furniture and fixtures................... 312 497 3,126
------- ------- --------
15,187 26,242 53,721
Less: Accumulated depreciation........... 1,656 3,189 4,248
------- ------- --------
13,531 23,053 49,473
Other assets:
Goodwill, net of accumulated
amortization............................ 2,699 4,257 4,253
Other intangible assets, net of
accumulated amortization................ 647 6,903 6,444
Other.................................... 60 173 152
------- ------- --------
Total assets.............................. $32,929 $59,530 $103,413
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes payable................. $ 7,072 $ -- $ 26,894
Current portion of long-term debt........ 2,042 65 291
Accounts payable......................... 3,353 7,488 8,831
Payable to stockholder................... 1,079 -- --
Accrued income taxes payable............. 698 2,547 2,661
Other accrued expenses................... 2,018 5,121 8,632
------- ------- --------
Total current liabilities................. 16,262 15,221 47,309
Long-term debt, less current portion...... 9,015 3,147 3,354
Other liabilities:
Deferred income taxes.................... 3,633 4,798 4,619
Other long-term liabilities.............. 1,346 1,443 4,468
Minority interest........................ -- -- 74
------- ------- --------
Total other liabilities................... 4,979 6,241 9,161
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value--
Authorized--20,000,000 shares--Issued
and outstanding--12,495,750, 15,704,903
and 15,854,903 shares at November 27,
1994, December 3, 1995 and June 2, 1996
respectively............................ 125 158 159
Additional paid-in capital............... 161 23,883 27,077
Foreign currency translation adjustment.. -- 39 138
Retained earnings........................ 2,387 10,841 16,215
------- ------- --------
Total stockholders' equity................ 2,673 34,921 43,589
------- ------- --------
Total liabilities and stockholders'
equity................................... $32,929 $59,530 $103,413
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED ---------------------
FEBRUARY 27, NOVEMBER 27, DECEMBER 3, MAY 28, JUNE 2,
1994 1994 1995 1995 1996
------------ -------------- -------------- ---------- ----------
(COMBINED) (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 24,894 $ 31,729 $ 57,402 $ 24,402 $ 41,527
Cost of products sold... 17,860 21,113 36,726 15,790 27,243
---------- ---------- ---------- ---------- ----------
Gross margin............ 7,034 10,616 20,676 8,612 14,284
Selling, general, and
administrative
expenses............... 7,458 7,412 8,029 3,679 5,871
Amortization of
intangibles............ 570 365 433 234 238
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. (994) 2,839 12,214 4,699 8,175
Other (income) expenses:
Interest expense,
net.................. 502 936 803 803 322
Other, net............ (92) (7) (47) 8 (15)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... (1,404) 1,910 11,458 3,888 7,868
Income taxes............ 231 800 2,993 1,438 2,494
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (1,635) $ 1,110 $ 8,465 $ 2,450 $ 5,374
========== ========== ========== ========== ==========
Earnings (loss) per
common share........... $ (.13) $ .09 $ .61 $ .20 $ .34
========== ========== ========== ========== ==========
Weighted-average shares
outstanding............ 12,495,750 12,495,750 13,920,113 12,509,907 15,708,204
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
---------------- ADDITIONAL CURRENCY
NUMBER OF PAR PAID-IN TRANSLATION RETAINED
SHARES VALUE CAPITAL ADJUSTMENT EARNINGS
---------- ----- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at February 28,
1993........................ 9,266,400 $101 $ -- $-- $ 2,907
Net loss..................... -- -- -- -- (1,635)
S corporation cash
dividends................... -- -- -- -- (6)
Merger of CML and Xenell..... 3,090,352 34 34 -- --
---------- ---- ------- ---- -------
Balance at February 27,
1994........................ 12,356,752 135 34 -- 1,266
Net income................... -- -- -- -- 1,110
Stock issued to employees.... 138,998 1 127 -- --
---------- ---- ------- ---- -------
Balance at November 27,
1994........................ 12,495,750 136 161 -- 2,376
Net income................... -- -- -- -- 8,465
Issuance of common stock:
Initial public offering net
of offering costs......... 2,700,000 18 19,540 -- --
Exercise of underwriter's
option on over allotment
shares.................... 495,000 4 4,122 -- --
Other stock issuance....... 14,153 -- 60 -- --
Translation adjustment (net
of deferred taxes of $24)... -- -- -- 39 --
---------- ---- ------- ---- -------
Balance at December 3, 1995.. 15,704,903 158 23,883 39 10,841
Net income (unaudited)....... -- -- -- -- 5,374
Translation adjustment (net
of deferred taxes of $179)
(unaudited)................. -- -- -- 99 --
Issuance of common stock for
the Alba Acquisition
(unaudited)................. 150,000 1 3,194 -- --
---------- ---- ------- ---- -------
Balance at June 2, 1996
(unaudited)................. 15,854,903 $159 $27,077 $138 $16,215
========== ==== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED ------------------
FEBRUARY 27, NOVEMBER 27, DECEMBER 3, MAY 28, JUNE 2
1994 1994 1995 1995 1996
------------ -------------- -------------- -------- --------
(COMBINED) (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $(1,635) $ 1,110 $ 8,465 $2,450 $5,374
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 896 1,049 1,901 800 1,576
Deferred income
taxes................ 228 329 (20) 1 (179)
Minority interest..... -- -- -- -- 10
Stock issued to
employees in lieu of
cash................. -- 128 60 -- --
Changes in operating
assets and
liabilities:
Accounts
receivable......... (1,528) 713 (1,728) 248 (4,222)
Inventories......... (690) 300 (623) 70 (5,260)
Prepaid expenses and
other.............. 727 (52) (272) (104) (105)
Accounts payable.... 1,410 (87) (95) (303) (1,051)
Accrued expenses.... 1,150 (598) (579) (726) (32)
Accrued and prepaid
income taxes....... 49 285 2,267 865 (1,644)
Payable to
stockholder........ 616 463 (1,079) (1,079) --
Other long-term
liabilities........ -- 82 (155) (46) 38
Other............... -- -- (15) 87 120
------- ------- -------- ------- --------
Net cash provided by
(used in) operating
activities............. 1,223 3,722 8,127 2,263 (5,375)
INVESTING ACTIVITIES
Purchases of property,
plant, and equipment... (1,661) (476) (2,465) (1,358) (4,478)
Acquisitions, net of
cash acquired.......... (2,000) (8,496) (10,347) (3,441) (10,899)
Purchases of held-to-
maturity investments... -- -- (2,102) -- --
Decrease in short-term
investments............ 1,605 -- -- -- 2,102
------- ------- -------- ------- --------
Net cash used in
investing activities... (2,056) (8,972) (14,914) (4,799) (13,275)
FINANCING ACTIVITIES
Net borrowings
(repayments) of line of
credit................. (1,449) 4,292 (7,055) 1,390 22,496
Proceeds from
borrowings............. 1,500 18,775 9,046 -- --
Payments of long-term
debt................... (911) (13,259) (19,441) (975) (20)
Proceeds from issuance
of common stock--Net of
offering costs......... -- -- 23,684 -- --
Payment of offering
costs.................. -- -- -- (674) --
S corporation cash
dividends.............. (6) -- -- -- --
------- ------- -------- ------- --------
Net cash provided by
(used in) financing
activities............. (866) 9,808 6,234 (259) 22,476
------- ------- -------- ------- --------
Net increase (decrease)
in cash and cash
equivalents............ (1,699) 4,558 (553) (2,795) 3,826
Cash and cash
equivalents, beginning
of period.............. 1,699 -- 4,558 4,558 4,005
------- ------- -------- ------- --------
Cash and cash
equivalents, end of
period................. $ -- $ 4,558 $ 4,005 $ 1,763 $ 7,831
======= ======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for:
Interest.............. $ 787 $ 850 $ 1,155 $ 411 $ 170
======= ======= ======== ======= ========
Income taxes.......... $ 166 $ -- $ 629 $ -- $ 2,992
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS ENDED MAY 28, 1995 AND JUNE
2, 1996 ARE UNAUDITED)
1. ORGANIZATION AND ACQUISITIONS
Chicago Miniature Lamp, Inc., (an Oklahoma corporation) and subsidiaries
(collectively, the Company) manufacture and sell miniature lighting products
and related electronic components to original equipment manufacturers and
distributors.
In October 1992, the Company purchased all of the capital stock of Chicago
Miniature Lamp, Inc., a Delaware company--CML (Delaware). Frank M. Ward and
members of his family owned all of the outstanding shares of common stock of
the Company and Xenell Corp. On February 28, 1993, CML (Delaware) was
liquidated into the Company. On December 31, 1993, Xenell Corp. was merged
into the Company with the Company continuing as the surviving corporation. In
connection with the acquisition of CML (Delaware), the Company entered into a
three-year noncompete and certain other agreements with the former owner of
CML (Delaware). The total purchase price for the transaction was $2,946,000 in
cash, net of cash acquired. The Company assumed liabilities of $2,092,000 in
connection with this acquisition.
On April 7, 1993, the Company acquired certain of the assets of Glolite
Sales, LTD. (Glolite) for cash. Glolite was engaged in the same line of
business as the Company. In connection with the acquisition, the Company
obtained a seven-year noncompete and a three-year consulting agreement from
the former owner of Glolite. The total purchase price for the transaction was
$2,000,000.
On May 9, 1994, the Company acquired all of the capital stock of Industrial
Devices, Inc. (IDI) (a New Jersey corporation) for $8,496,000 in cash, net of
cash acquired. The Company assumed liabilities of $6,478,000 in connection
with this acquisition. The transaction was partly financed by long-term debt.
IDI manufactures miniature lighting assemblies.
In March 1995, the Company initiated operations at IDI Internacional, S.A.,
a subsidiary of IDI, located in Costa Rica. Operations at this facility
include the manufacture of value-added lighting assemblies.
On March 30, 1995, IDI acquired all of the capital stock of Plastomer Inc.
(Plastomer), a Canadian company, for $5,000,000 Canadian in cash. The foreign
currency exchange rate as of March 30, 1995, was 0.713 U.S. dollars to one
Canadian dollar. Plastomer manufactures injection molded components for the
automotive industry.
In August 1995, IDI acquired all of the capital stock of Fredon Development
Industries, Inc. (Fredon) for $2,245,000 in cash.
On November 10, 1995, the Company, through its wholly owned subsidiary
Badalex Limited (Badalex), acquired substantially all of the assets of STT
Badalex Limited, STI Lighting Limited, PRT Shipping Limited, and STT Holdings
Limited, all companies formed under the laws of England. Total consideration
for the acquisition was approximately $7,200,000. Badalex designs and
manufactures lamp machinery.
On December 1, 1995, the Company acquired all of the outstanding stock of
Electro Fiberoptics, Inc. for $1,600,000 in cash. This acquisition was made
through the Company's wholly owned subsidiary, CML Fiberoptics, Inc.
(Fiberoptics).
In December 1995, the Company through Badalex acquired certain assets of
Phoenix Lighting (UK) Limited for approximately $2,400,000 in cash.
In addition, effective May 1, 1996, the Company acquired all the outstanding
equity of W. Albrecht GmbH U.Co. KG (Germany) and Alba Lamps, Inc. (USA) and
certain of their affiliates (collectively Alba) for
F-13
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
approximately $8.5 million in cash see Note 4, 150,000 shares of common stock
of the Company, and the assumption of approximately $4.9 million of bank debt.
Alba is a manufacturer and supplier of miniature lamps, value-added assemblies
and instrument backed lighting systems.
For financial reporting purposes, each acquisition was accounted for as a
purchase, and the purchase price was allocated to assets acquired and
liabilities assumed based on the estimated fair market value existing at the
date of acquisition. The Badalex allocation is based on preliminary
information and is subject to adjustment. The Company is refining its
estimates of the value of intangibles acquired by Badalex. The excess of
purchase price over fair market value of net assets acquired is reflected in
the accompanying consolidated balance sheets as goodwill. The Company-Xenell,
related-party merger represented a merger of entities under common control
accounted for at historical cost in a manner similar to a pooling of
interests.
For income tax reporting purposes, the CML (Delaware), IDI, Plastomer,
Fredon, and Fiberoptics transactions were acquisitions of stock. As a result,
the tax bases of assets and liabilities carry over from amounts previously
reported for income tax purposes. Deferred taxes have been provided in the
accompanying consolidated balance sheets for the temporary differences between
the tax and financial reporting bases of the assets acquired and liabilities
assumed.
Based on unaudited data, the following table presents selected financial
information for the Company and its subsidiaries on a pro forma basis,
assuming the companies had been combined since February 28, 1994 (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED
NOVEMBER 27 DECEMBER 3 JUNE 2
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................. $87,150 $105,093 $52,195
Net income................................. 1,199 8,012 5,813
Net income per share....................... .09 .49 .35
</TABLE>
The pro forma results are not necessarily indicative of future operations or
the actual results that would have occurred had the acquisitions been made as
of February 28, 1994.
BASIS OF PRESENTATION
The financial statements of the Company as of June 2, 1996 and for the six-
month periods ended May 28, 1995 and June 2, 1996, and all information
subsequent to December 3, 1995 are unaudited. All adjustments and accruals
(consisting of normal recurring adjustments) have been made which, in the
opinion of management, are necessary for a fair presentation of the financial
position and operating results of the interim periods presented.
The interim financial statements are condensed and do not include all the
information and disclosures necessary for a full interim financial statement
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation/Combination
The accompanying consolidated financial statements as of June 2, 1996,
December 3, 1995 and November 27, 1994, include the accounts of the Company
and its subsidiaries. The financial statements for the year ended February 27,
1994, include the combined results of operations, cash flows, and financial
position of Xenell, CML, and Glolite from their respective dates of
acquisitions. All significant intercompany balances and transactions have been
eliminated from the consolidated financial statements.
F-14
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fiscal Year
In 1994, the Company changed its financial reporting year-end to the Sunday
nearest to December 1 of each year. Previously, the fiscal year ended the
Sunday closest to February 28. Accordingly, the consolidated statements of
operations for the periods ended December 3, 1995 and November 27, 1994,
contain 53 weeks and 39 weeks, respectively. The year ended February 27, 1994
contains 52 weeks.
Investments
Management determines the appropriate classification of investments at the
time of purchase and reevaluates such designations as of each balance sheet
date. Investments are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and
accretion is included in interest income. Investments, held-to-maturity,
consist of federal securities with an estimated fair value of $2,102,000 at
December 3, 1995. All have contractual maturity dates in 1996.
Inventories
Inventories are stated at the lower of cost, determined by the first in,
first out (FIFO) method, or market. Inventories consist of the following
(dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 27 DECEMBER 3 JUNE 2
1994 1995 1996
----------- ---------- -------
<S> <C> <C> <C>
Raw materials.............................. $1,750 $3,320 $ 5,823
Work in process............................ 390 1,115 4,049
Finished goods............................. 3,092 3,583 6,701
------ ------ -------
$5,232 $8,018 $16,573
====== ====== =======
</TABLE>
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Buildings and improvements....................................... 25-39 years
Machinery and equipment.......................................... 12-25 years
Molds............................................................ 10-20 years
Furniture and fixtures........................................... 5-10 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated useful lives of the assets or the remaining lease
term.
The Company's depreciation method and estimated useful lives were
retroactively revised in connection with the November 27, 1994 consolidated
financial statements in order to more fairly allocate the cost of the assets
over their period of actual service. Previously, the Company had used
accelerated tax depreciation methods and lives for financial reporting.
F-15
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting for the Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the asset's carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt Statement No. 121 in the first quarter of
1997, and based on current circumstances, does not believe the effect of
adoption will be material.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets acquired related to the business acquisitions
described in Note 1. Goodwill is amortized on a straight-line basis over 40
years. Accumulated amortization is approximately $90,000 and $177,000 at
November 27, 1994 and December 3, 1995, respectively. Amortization expense was
approximately $32,000, $47,000 and $100,000 for the year ended February 27,
1994, the nine months ended November 27, 1994 and the year ended December 3,
1995, respectively. The Company periodically assesses whether a change in
circumstances has occurred subsequent to an acquisition which would indicate
whether the future useful life of an asset should be revised. The Company
considers the future earnings potential of the acquired business in assessing
the recoverability of goodwill.
Other Intangible Assets
Other intangible assets include the fair value of engineering technology,
patents, noncompete, and other agreements associated with the acquisitions
described in Note 1. The intangibles are being amortized using the straight-
line method over their respective useful lives or contract periods, which
range from 3 to 25 years. Accumulated amortization is approximately $1,026,000
and $1,418,000 at November 27, 1994 and December 3, 1995, respectively.
Amortization expense was approximately $538,000, $319,000 and $380,000 for the
year ended February 27, 1994, for the nine months ended November 27, 1994, and
for the year ended December 3, 1995, respectively.
Stock-Based Compensation
Stock-based compensation awards are accounted for under APB Opinion No. 25
"Accounting for Stock Issued to Employees." In October 1995, the FASB issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." The Company will be required to comply with this
Statement in 1997 and has yet to determine its impact.
Income Taxes
The Company accounts for income taxes using the liability method. Deferred
income taxes are recognized based on the expected future tax consequences of
differences between the financial statement and tax bases of assets and
liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Foreign Currency Translation
Transactions arising in foreign currencies have been translated at rates of
exchange in effect at the dates of the transactions. Gains or losses during
the year have been included in net income. Assets and liabilities of
F-16
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
foreign affiliates are translated at current exchange rates, and income
statement accounts are translated at the average daily rates during the
period. Related translation adjustments are reported as a component of
stockholders' equity.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Stock Splits and Recapitalization
The balance sheet as of November 27, 1994, and all share and per share
information have been restated to reflect two stock splits effected in the
form of stock dividends and a 99-for-1 recapitalization on December 1, 1994.
The stock dividends were 18-for-1 in October 1994 and 0.716-for-1 in February
1995.
On August 5, 1996, the Company approved a three-for-two stock split of its
outstanding common stock to be effected in the form of a 50% stock dividend.
The dividend was paid on August 27, 1996 to shareholders of record August 16,
1996.
Earnings (Loss) Per Common Share
Pursuant to certain Securities and Exchange Commission requirements,
earnings (loss) per common share have been computed giving retroactive effect
to the stock dividends and recapitalization described above and as if the
shares issued to key employees in the period ended November 27, 1994, had been
outstanding for all periods.
3. CHIEF EXECUTIVE OFFICER COMPENSATION AND RELATED PARTY TRANSACTIONS
The accompanying consolidated statements of operations include the following
charges related to services provided by the chief executive officer (the CEO)
and principal stockholder (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 27, NOVEMBER 27, DECEMBER 3,
1994 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Compensation.......................... $3,251 $2,000 $360
Rent for corporate headquarters....... 60 45 60
Rent for Oklahoma plant............... 190 -- --
</TABLE>
The Company has an amended employment agreement with the CEO and principal
stockholder under which his compensation will be $250,000 for each of the
fiscal years 1996 and 1997 (previously $420,000 and $480,000, respectively).
The Oklahoma plant that was leased by the CEO to the Company through
February 1994 was sold to the Company on February 25, 1994 for $575,000, the
CEO's approximate depreciated historical cost as of the sale date. The fair
market value of the plant, as determined by an independent appraisal, exceeded
the sale price by a considerable amount. The Company financed the purchase
with a loan payable to the CEO, which was subsequently repaid.
Also on February 25, 1994, the CEO sold to the Company for $141,000 certain
machinery and equipment that the CEO had purchased in October 1991. The sale
price equaled the CEO's cost of the equipment. This purchase was also financed
by a loan payable to the CEO, which was subsequently repaid.
F-17
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Amounts (payable to) due from the CEO and principal stockholder were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 27 DECEMBER 3
1994 1995
----------- ----------
<S> <C> <C>
Accrued compensation................................. $(1,000) $--
Stockholder loan..................................... (79) --
Advance to stockholder............................... -- 74
------- ----
$(1,079) $ 74
======= ====
</TABLE>
4. DEBT
Debt consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 27 DECEMBER 3
1994 1995
----------- ----------
<S> <C> <C>
Operating revolving loan, due December 30, 1996,
unless extended, interest payable monthly at prime
(8.5% at December 3, 1995)........................ $ 7,055 $2,628
Promissory note, interest at the lender's average
cost of short-term funds (6.96% at December 3,
1995) plus 2.25%, currently repayable in monthly
installments of Canadian $7,300 plus interest, due
May 15, 1997...................................... -- 584
Term note.......................................... 10,998 --
Note payable to a bank............................. 76 --
------- ------
18,129 3,212
Less: Current portion.............................. 9,114 65
------- ------
$ 9,015 $3,147
======= ======
</TABLE>
As of December 3, 1995 the Company's revolving credit agreement provided for
borrowings up to $5,000,000 under an operating revolving loan and $30,000,000
under acquisition loans, subject to the lesser of $35,000,000 and a collateral
borrowing base, as defined in the amended credit agreement and up to
$1,000,000 under a letter of credit revolving loan. In August 1996, the
agreement was amended to provide up to $8,000,000 under the letter of credit
revolving loan and the maturity date was extended to December 30, 1997.
As of November 27, 1994 and December 3, 1995, the Company had borrowed
$7,055,000, and $2,628,000, respectively, of the $7,299,000 and $25,068,000,
respectively, available under the loan agreement's borrowing base. Letters of
credit totaling $264,000 and $831,000, were outstanding at November 27, 1994
and December 3, 1995, respectively, none of which had been drawn upon.
In conjunction with the acquisition of Alba (see Note 1) the Company
borrowed $8 million denominated in Japanese Yen under the acquisition facility
portion of the credit agreement. The loan is payable on November 29, 1996 with
interest at the rate of approximately 3.25%.
Additionally, in August 1996, the Company borrowed another $8 million
denominated in Japanese Yen under the acquisition facility portion of the
credit agreement to refinance U.S. dollar denominated amounts borrowed under
the credit facility. The loan is payable in August 1997 with interest at the
rate of 3.35%.
Amounts borrowed may remain outstanding until due by their terms provided
that: (a) they are supported by the borrowing base, and (b) the Company is in
compliance with the various restrictive covenants described below. As of
November 27, 1994 and December 3, 1995, the Company was in compliance with the
terms of its amended credit agreement. Loans under the credit agreement
(Revolving Loan, Letter of Credit Loan and Acquisition Loan) are
collateralized by substantially all of the Company's property and assets.
F-18
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company is required to comply with a number of affirmative and negative
covenants under the credit agreement. Among other things, the credit agreement
requires the Company to satisfy certain financial tests and ratios (including
interest coverage ratios, net worth-related ratios, and net worth
requirements).
As of December 3, 1995 annual debt principal payments required were as
follows (dollars in thousands):
<TABLE>
<S> <C>
1996.................................................................. $ 65
1997.................................................................. 3,147
------
$3,212
======
</TABLE>
5. INCOME TAXES
The following is a summary of the provision for income taxes (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 27 NOVEMBER 27 DECEMBER 3
1994 1994 1995
----------- ----------- ----------
<S> <C> <C> <C>
Federal:
Current.............................. $ 3 $309 $2,278
Deferred............................. 205 294 77
---- ---- ------
208 603 2,355
State:
Current.............................. 1 162 408
Deferred............................. 22 35 (26)
---- ---- ------
23 197 382
Foreign:
Current.............................. -- -- 152
Deferred............................. -- -- 104
---- ---- ------
-- -- 256
---- ---- ------
$231 $800 $2,993
==== ==== ======
</TABLE>
Between May 1, 1992 and January 1, 1994, Xenell Corp. income was taxed under
Section 1362 Subchapter (S corporation) of the Internal Revenue Code, which
provides that in lieu of corporate income taxes, each stockholder is taxed on
their pro rata share of the Company's taxable income. Therefore, there is no
provision for current federal income taxes on Xenell's income during this 20-
month period. Xenell paid dividends to the stockholder to reimburse the
stockholder for the approximate amount of income taxes related to the
S corporation. Xenell's deferred tax liabilities ($449,000) that existed on
April 30, 1992, were credited to the deferred tax provision in the period that
S corporation status was elected; similarly, deferred tax liabilities
($543,000) that had to be reinstated on the balance sheet on January 1, 1994,
when the S corporation status was terminated, were charged to the deferred tax
provision in the period that includes that date.
The Company's manufacturing facility in Costa Rica is operated under a tax
holiday, which expires in 2005. The impact of this tax holiday was an increase
to net income of $742,000 or $.05 per share for the year ended December 3,
1995.
F-19
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the provision (benefit) for income taxes computed
at statutory rates and the amount reflected in the accompanying statements of
operations is as follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 27 NOVEMBER 27 DECEMBER 3
1994 1994 1995
----------- ----------- ----------
<S> <C> <C> <C>
Computed federal tax provision (benefit) at
statutory rates............................ $(477) $649 $3,896
Increase (decrease) in taxes resulting from:
Amortization of goodwill.................. 12 17 24
State income taxes, net of federal
benefit.................................. (26) 115 252
Change in S corporation status............ 543 -- --
Impact of S corporation income not
taxable.................................. 192 -- --
Lower effective income taxes of other
countries................................ -- -- (841)
Other..................................... (13) 19 (338)
----- ---- ------
$ 231 $800 $2,993
===== ==== ======
</TABLE>
The significant items comprising the deferred income taxes are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 27 DECEMBER 3
1994 1995
----------- ----------
<S> <C> <C>
Assets:
Reserves............................................... $ 346 $ 193
Other.................................................. 64 492
------ ------
Total assets............................................. 410 685
------ ------
Liabilities:
Accelerated tax depreciation........................... 3,626 5,197
Other.................................................. 417 286
------ ------
Total liabilities........................................ 4,043 5,483
------ ------
$3,633 $4,798
====== ======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Litigation
The consolidated statements of operations for the nine months ended November
27, 1994 and year ended February 27, 1994, included a $1,000,000 and $180,000
charge, respectively, in selling, general, and administrative expenses to
settle lawsuits brought against the Company by former employees for breach of
contract and other claims. Included in other accrued expenses at November 27,
1994, is $616,000 related to this litigation.
F-20
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Forward Currency Contracts
In May 1996, the Company entered into two forward currency contracts for $8
million each denominated in Japanese Yen and German Marks. Unless the Company
elects to close the contracts prior to the settlement dates in October 1996
and June 1997, the Company will exchange the equivalent Japanese Yen and
German Marks for the fixed $8 million each at the current exchange rate.
Leases
The Company leases certain facilities and equipment under operating lease
and sublease agreements that expire at various dates from the current year to
2010. As of December 3, 1995, the aggregate minimum future commitments under
leases are as follows (dollars in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1996............................................................... $ 713
1997............................................................... 847
1998............................................................... 714
1999............................................................... 698
2000............................................................... 698
Thereafter......................................................... 5,018
------
$8,688
======
</TABLE>
Rent expense for the year ended December 3, 1995, the nine months ended
November 27, 1994 and the year ended February 27, 1994, was $593,000,
$431,000, and $477,000, respectively.
7. STOCK COMPENSATION AND STOCK OPTION PLAN
On May 16, 1994, the Company issued approximately 1.1% of its then-
outstanding shares of common stock to four key employees in partial
consideration for services rendered. The Company recorded a compensation
charge of $128,000 to selling, general, and administrative expenses in the
statement of operations for the nine months ended November 27, 1994. The
amount of charge was based on the stock's estimated fair market value on May
16, 1994.
In January 1995, the Company's Board of Directors approved a stock option
plan for up to 750,000 shares of common stock. The plan provides for the
granting of both incentive stock options (as defined in section 422 of the
Internal Revenue Code) and nonqualified stock options. Options may be granted
under the plan on such terms and at such prices as determined by the Board of
Directors, except that the per share exercise price of incentive stock options
cannot be less than the fair market value of the common stock on the date of
grant. Each option will be exercisable after the period or periods specified
in the option agreement, but no option may be exercisable after the expiration
of 10 years from the date of grant.
In fiscal 1995, the Company granted 345,000 of the options to key employees
with exercise prices varying between $8.33 per share and $11.83 per share. No
options were exercised during 1995 or 1996, and as of December 3, 1995, 97,500
options were exerciseable.
8. SIGNIFICANT CUSTOMER
The Company had sales to a major customer that accounted for 22% of net
sales in the fiscal year ended February 27, 1994. There were no such
significant customers for the year ended December 3, 1995 or the nine-month
period ended November 27, 1994.
F-21
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFIT PLANS
Defined-Contribution Plan
IDI has a 401(k) defined-contribution plan (the 401(k) Plan) that is
available to all nonunion employees who have met certain length-of-service
requirements. Participants can voluntarily contribute their compensation (up
to a maximum amount as defined in the plan agreement) to the 401(k) Plan. IDI
may also elect to make a contribution. IDI's expense under the 401(k) Plan was
approximately $15,000 and $41,000 for the periods ended November 27, 1994, and
December 3, 1995, respectively. Effective November 30, 1995, the Company
suspended all contributions to the 401(k) Plan.
Defined-Benefit Plans
IDI and Fredon sponsor separate noncontributory, defined-benefit pension
plans (the Plans) in which IDI union employees and substantially all Fredon
employees are eligible to participate. Benefits are based on years of service
and compensation. The most recent valuation of the plans were July 31, 1995,
and October 31, 1995, for Fredon and IDI, respectively. The IDI plan for 1994
and the Plans' 1995 combined funded status and the amounts recognized in the
accompanying consolidated balance sheets are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
NOVEMBER 27 DECEMBER 3
1994 1995
----------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations
Accumulated benefit obligation:
Vested benefits................................... $340 $1,000
Nonvested benefits................................ 17 51
---- ------
357 1,051
Effect of future salary increases................... 20 64
---- ------
Projected benefit obligation........................ 377 1,115
Plan assets at fair value, primarily corporate bonds
and U.S. government obligations.................... 362 981
---- ------
Plan assets less than projected benefit obligation.. (15) (134)
Unrecognized transition amount...................... (37) 97
Unrecognized net (gain) loss........................ 21 51
Unamortized prior service cost...................... 16 18
---- ------
Prepaid (accrued) pension cost...................... $(15) $ 32
==== ======
</TABLE>
The components of net periodic pension cost are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
NOVEMBER 27 DECEMBER 3
1994 1995
----------- ----------
<S> <C> <C>
Service cost.......................................... $26 $ 99
Interest cost on projected benefit obligation......... 16 67
Actual return on plan assets.......................... (6) (71)
Net amortization and deferral......................... (15) 12
--- ----
Net pension cost...................................... $21 $107
=== ====
</TABLE>
The discount rate used in determining the present value of the projected
benefit obligation was 7.5%, the expected long-term rate of return on assets
was 9%, and the assumed rate of increase in future compensation levels was 5%.
F-22
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Plastomer maintains a defined-benefit pension plan which provided retirement
benefits for essentially all employees. The plan is subject to an actuarial
valuation every three years. The most recent valuation was January 1, 1994,
which indicated a surplus of $39,000. The pension expense for the period ended
December 3, 1995, was $96,000 and consists entirely of service costs.
10. CAPITAL STOCK
In December 1994, the Company amended its Articles of Incorporation to
increase the authorized shares of common stock from 75,000 shares to
20,000,000 shares and change the common stock's par value from $1.00 to $.01
per share. This change has retroactively been reflected in the November 27,
1994 balance sheet.
In January 1995, the Company also revised its Articles of Incorporation to
authorize the issuance of 5,000,000 shares of preferred stock, $.01 par value.
No shares of preferred stock have been issued.
At June 2, 1996, 750,000 shares of common stock have been reserved for
future issuance upon the exercise of stock options. On October 9, 1996, the
number of shares of common stock reserved for future issuance under the stock
option plan was reduced to 450,000.
11. GEOGRAPHIC SEGMENT INFORMATION
Prior to February 1995, the Company's operations were solely in the United
States. As described in Note 1, the Company made acquisitions during fiscal
1995 in Canada, the United Kingdom, and Costa Rica.
Financial information as of and for the year ended December 3, 1995 and as
of and for the six months ended June 2, 1996, summarized by geographic area,
is as follows (dollars in thousands):
<TABLE>
<CAPTION>
UNITED OTHER
STATES CANADA EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED
------- ------- ------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 3, 1995
TOTAL REVENUES
Unaffiliated customers.. $44,340 $ 7,064 $ -- $ 5,998 $ -- $ 57,402
Interarea transfers..... -- 138 -- -- (138) --
------- ------- ------- ------- ----- --------
Total................... 44,340 7,202 -- 5,998 (138) 57,402
Income from operations.. 9,034 707 -- 2,473 -- 12,214
ASSETS
Identifiable assets..... 30,560 9,429 10,287 7,104 -- 57,380
Corporate assets........ 2,150 -- -- -- -- 2,150
------- ------- ------- ------- ----- --------
Total assets............ $32,710 $ 9,429 $10,287 $ 7,104 $ -- $ 59,530
======= ======= ======= ======= ===== ========
JUNE 2, 1996
TOTAL REVENUES
Unaffiliated customers.. $22,750 $ 6,427 $ 8,614 $ 3,736 $ -- $ 41,527
Interarea transfers..... 198 (90) -- -- (108) --
------- ------- ------- ------- ----- --------
Total................... 22,948 6,337 8,614 3,736 (108) 41,527
Income from operations.. 2,241 1,335 2,494 2,105 -- 8,175
ASSETS
Identifiable assets..... 36,294 10,047 45,935 11,137 -- 103,413
Corporate assets........ -- -- -- -- -- --
------- ------- ------- ------- ----- --------
Total assets............ $36,294 $10,047 $45,935 $11,137 $ -- $103,413
======= ======= ======= ======= ===== ========
</TABLE>
F-23
<PAGE>
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The assets in Europe represent assets acquired in a business combination at
the end of fiscal 1995.
Canadian interarea transfers primarily represent shipments of work in
process and finished goods inventory to domestic operations. These interarea
shipments are made at transfer prices which approximate prices charged to
unaffiliated customers and have been eliminated from consolidated net
revenues. Corporate assets consist primarily of investments.
F-24
<PAGE>
REVIEW ENGAGEMENT REPORT
To the Shareholders of
Plastomer Inc.
We have reviewed the interim balance sheet of Plastomer Inc. as at June 2,
1996 and the interim statements of income, retained earnings and cash flows
for the six months then ended. Our review was made in accordance with
generally accepted standards for review engagements and accordingly consisted
primarily of enquiry, analytical procedures and discussion related to
information supplied to us by the company.
A review is substantially less in scope than an audit, conducted in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, nothing has come to our attention that causes us to
believe that these interim financial statements are not, in all material
respects, in accordance with generally accepted accounting principles.
Hards Pearson
Chartered Accountants
Barrie, Canada,
July 4, 1996.
F-25
<PAGE>
PLASTOMER INC.
INTERIM BALANCE SHEET
AS AT JUNE 2, 1996 UNAUDITED--SEE REVIEW ENGAGEMENT REPORT
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
ASSETS
CURRENT
Cash................................................................. 498,665
Accounts receivable.................................................. 2,936,250
Inventory [note 3]................................................... 2,563,245
Prepaid expenses..................................................... 58,720
----------
TOTAL CURRENT ASSETS................................................. 6,056,880
Fixed assets [note 4]................................................ 6,371,613
Goodwill [note 5].................................................... 1,277,712
----------
13,706,205
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued charges................................. 2,658,427
Income taxes payable................................................. 227,882
Due to parent company................................................ 250,520
Due to related party................................................. 1,195,902
Current portion of long-term debt [note 6]........................... 88,000
----------
TOTAL CURRENT LIABILITIES............................................ 4,420,731
Accrued start-up costs............................................... 561,049
Long-term debt [note 6].............................................. 661,600
Deferred income taxes................................................ 1,578,146
----------
TOTAL LIABILITIES.................................................... 7,221,526
----------
SHAREHOLDERS' EQUITY
Capital stock [note 7]............................................... 5,000,000
Retained earnings.................................................... 1,484,679
----------
TOTAL SHAREHOLDERS' EQUITY........................................... 6,484,679
----------
13,706,205
==========
</TABLE>
See accompanying notes.
F-26
<PAGE>
PLASTOMER INC.
INTERIM STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 2, 1996 UNAUDITED--SEE REVIEW ENGAGEMENT REPORT
<TABLE>
<CAPTION>
CANADIAN
$
---------
<S> <C>
NET SALES............................................................ 8,245,590
Direct materials and labour.......................................... 4,688,886
---------
Contributions to overhead............................................ 3,556,704
---------
OVERHEAD COSTS
Manufacturing expenses............................................... 1,296,299
Depreciation......................................................... 214,759
---------
1,511,058
Inventory change and capitalized variances........................... (214,496)
---------
1,296,562
---------
GROSS MARGIN......................................................... 2,260,142
Distribution costs................................................... 63,638
Tooling income....................................................... (15,892)
---------
GROSS PROFIT......................................................... 2,212,396
Administration....................................................... 395,612
---------
Income before interest, management fees and taxes ................... 1,816,784
Interest on long-term debt........................................... 31,607
Management fees...................................................... 340,000
---------
Income before income taxes........................................... 1,445,177
---------
Provision for income taxes
Current............................................................ 466,525
Deferred........................................................... 47,972
---------
514,497
---------
NET INCOME FOR THE PERIOD............................................ 930,680
=========
</TABLE>
See accompanying notes
F-27
<PAGE>
PLASTOMER INC.
INTERIM STATEMENT OF RETAINED EARNINGS
SIX MONTHS ENDED JUNE 2, 1996 UNAUDITED--SEE REVIEW ENGAGEMENT REPORT
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
Retained earnings, beginning of period............................... 553,999
Net income for the period............................................ 930,680
---------
Retained earnings, end of period..................................... 1,484,679
=========
</TABLE>
See accompanying notes
F-28
<PAGE>
PLASTOMER INC.
INTERIM STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 2, 1996 UNAUDITED--SEE REVIEW ENGAGEMENT REPORT
<TABLE>
<CAPTION>
CANADIAN
$
---------
<S> <C>
OPERATING ACTIVITIES
Net income for the period............................................ 930,680
Add charges to income not resulting in a current outlay of cash
Depreciation and amortization...................................... 233,972
Deferred income taxes.............................................. 49,972
Net loss on disposal of fixed assets............................... 153
---------
1,212,777
Decrease in accrued start-up costs................................... (94,880)
Net change in non-cash working capital balances [note 8]............. (525,418)
---------
CASH PROVIDED BY OPERATING ACTIVITIES................................ 592,479
---------
FINANCING ACTIVITIES
Increase in due to parent company.................................... (628,915)
Increase in due to related party..................................... 340,000
Repayment of promissory note......................................... (43,800)
---------
CASH USED IN FINANCING ACTIVITIES.................................... (332,715)
---------
INVESTING ACTIVITIES
Proceeds on disposal of fixed assets................................. 2,186
Purchase of fixed assets............................................. (677,597)
---------
CASH USED IN INVESTING ACTIVITIES.................................... (675,411)
---------
NET DECREASE IN CASH DURING THE PERIOD............................... (415,647)
Cash, beginning of period............................................ 914,312
---------
CASH, END OF PERIOD.................................................. 498,665
=========
</TABLE>
See accompanying notes
F-29
<PAGE>
PLASTOMER INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
JUNE 2, 1996 UNAUDITED--SEE REVIEW ENGAGEMENT REPORT
1. OPERATIONS
The company is a manufacturer and supplier of miniature light socket
assemblies to the automotive industry. The assemblies are used primarily for
instrument clusters, warning lights, climate control modules and courtesy
lights.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the company have been prepared in accordance
with generally accepted accounting principles, on a consistent basis during
the period. The following is a summary of the more significant accounting
policies:
Inventory
Inventory is valued at the lower of cost or net realizable value. Cost has
been determined on the first-in, first-out basis. Net realizable value for
finished goods has been defined as standard selling price less normal profit
margin. Net realizable value for raw materials has been defined as net
replacement cost.
Fixed assets
Based on purchase accounting the fixed assets are stated at the lower of
appraised value, as determined by appraisals dated April 5, 1995 and May 3,
1995, less accumulated depreciation and net recoverable amount. Additions
after this date are stated at the lower of cost less accumulated depreciation
and net recoverable value. Depreciation is provided on the straight-line basis
over the following periods:
<TABLE>
<S> <C>
Building....................................................... 35 years
Machinery and equipment........................................ 5-20 years
Moulds and dies................................................ 10 years
Software....................................................... 5 years
</TABLE>
Investment tax credits
The company reduces the cost of related fixed assets by the investment tax
credits claimed in the year.
Goodwill
Goodwill is recorded at cost less accumulated amortization. Amortization is
provided on the straight-line basis over a period of 40 years.
Pension costs
Current and past service costs are expensed as incurred and funded as
required by actuarial valuation. Past service costs relating to an amendment
in the Pension Plan are amortized over the expected average remaining service
life of the company's employees.
F-30
<PAGE>
PLASTOMER INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS--(CONTINUED)
JUNE 2, 1996 UNAUDITED--SEE REVIEW ENGAGEMENT REPORT
Translation of foreign currency
Transactions arising in foreign currencies [principally United States
dollars] have been translated at rates of exchange in effect at the dates of
the transactions. Monetary items denominated in foreign currencies have been
translated at rates of exchange in effect at the balance sheet date. Gains or
losses during the period have been included in net income.
3. INVENTORY
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
Raw Materials....................................................... 1,931,460
Work-in-progress and finished goods................................. 703,919
Capitalized manufacturing variances................................. (73,767)
Tooling............................................................. 1,633
---------
2,563,245
=========
</TABLE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
--------- ------------ ---------
<S> <C> <C> <C>
Land........................................... 75,000 -- 75,000
Buildings...................................... 1,500,000 50,000 1,450,000
Machinery and equipment........................ 4,166,252 337,352 3,828,900
Moulds and dies................................ 1,070,584 101,602 968,982
Software....................................... 61,448 12,717 48,731
--------- ------- ---------
6,873,284 501,671 6,371,613
========= ======= =========
</TABLE>
5. GOODWILL
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
Cost................................................................ 1,323,602
Accumulated amortization............................................ (45,890)
---------
1,277,712
=========
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
ROYNAT INC.
Promissory note, interest at RoyNat Inc.'s average cost of
short-term funds plus 2.25%, currently repayable in monthly
instalments of $7,300 plus interest, due May 15, 1997.......... 749,600
Less current portion of long-term debt.......................... (88,000)
-------
661,600
=======
</TABLE>
F-31
<PAGE>
PLASTOMER INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS--(CONTINUED)
JUNE 2, 1996 UNAUDITED--SEE REVIEW ENGAGEMENT REPORT
6. LONG-TERM DEBT (CONTINUED)
Principal payments on the above obligations until maturity are as follows:
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
1996............................................................. 43,800
1997............................................................. 36,500
On maturity...................................................... 669,300
-------
749,600
=======
</TABLE>
The company negotiated a $1,500,000 mortgage facility with RoyNat Inc. at
the lender's average cost of funds plus 2.25%. A $2,000,000 demand debenture
representing a first fixed and floating charge over the company's land,
buildings, machinery and equipment, a floating charge over all other assets,
subject to priority agreements executed with the Bank of Montreal with repect
to accounts receivable and inventory, and assignments of fire and life
insurance have been pledged as security for this loan.
7. CAPITAL STOCK
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
Authorized
Unlimited voting, 6% non-cumulative, redeemable,
retractable Class AA special shares.............................
Unlimited common shares..........................................
Issued and fully paid............................................
5,000,000 common shares.......................................... 5,000,000
=========
</TABLE>
8. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
Accounts receivable............................................. (294,753)
Income taxes receivable......................................... 136,047
Inventory....................................................... (1,106,866)
Prepaid expenses................................................ (24,064)
Accounts payable and accrued charges............................ 536,336
Income taxes payable............................................ 227,882
----------
(525,418)
==========
</TABLE>
Decreases in assets and increases in liabilities result in a source of
funds. Increases in assets and decreases in liabilities result in a use of
funds and are indicated by brackets.
9. PENSION PLAN
The company maintains a defined benefit pension plan which provides
retirement benefits for essentially all employees. The plan is subject to an
actuarial valuation every three years. The most recent valuation was
January 1, 1994 which indicated a surplus of $39,204. The pension expense for
1996 is as follows:
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
Current service cost............................................. 24,818
======
</TABLE>
F-32
<PAGE>
PLASTOMER INC.
NOTES TO THE INTERIM FINANCIAL STATEMENTS--(CONTINUED)
JUNE 2, 1996 UNAUDITED--SEE REVIEW ENGAGEMENT REPORT
10. RELATED PARTY TRANSACTIONS
During the period Industrial Devices, Inc. issued invoices on the company's
behalf. Chicago Miniature Lamp, Inc. a United States corporation, paid certain
expenditures on behalf of the company.
Sales are made to both related parties on terms that are substantially the
same as to independent customers.
A management fee is paid quarterly to Chicago Miniature Lamp, Inc.
11. OPERATING LEASES
Minimum lease payments over the next two years with respect to operating
leases are as follows:
<TABLE>
<CAPTION>
CANADIAN $
----------
<S> <C>
1996............................................................. 55,180
1997............................................................. 4,063
------
59,243
======
</TABLE>
F-33
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Plastomer Inc.
We have audited the balance sheet of Plastomer Inc. as at December 3, 1995
and the statements of income, retained earnings and cash flows for the 244
days then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 3, 1995 and the
results of its operations and the changes in its financial position for the
period then ended in accordance with generally accepted accounting principles
in the United States.
Hards Pearson
Chartered Accountants
Barrie, Canada,
December 22, 1995.
F-34
<PAGE>
PLASTOMER INC.
BALANCE SHEET
AS AT DECEMBER 3
<TABLE>
<CAPTION>
1995
CANADIAN $
----------
<S> <C>
ASSETS
CURRENT
Cash................................................................. 914,312
Accounts receivable.................................................. 2,641,497
Income taxes receivable.............................................. 136,047
Inventory [note 3]................................................... 1,456,379
Prepaid expenses..................................................... 34,656
----------
TOTAL CURRENT ASSETS................................................. 5,182,891
Fixed assets [note 4]................................................ 5,913,236
Goodwill [note 5].................................................... 1,294,803
----------
12,390,930
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued charges................................. 2,122,091
Due to related party................................................. 175,630
Current portion of long-term debt [note 6]........................... 1,647,707
----------
TOTAL CURRENT LIABILITIES............................................ 3,945,428
Accrued start-up costs............................................... 655,929
Long-term debt [note 6].............................................. 705,400
Deferred income taxes................................................ 1,530,174
----------
TOTAL LIABILITIES.................................................... 6,836,931
----------
SHAREHOLDERS' EQUITY
Capital stock [note 7]............................................... 5,000,000
Retained earnings.................................................... 553,999
----------
TOTAL SHAREHOLDERS' EQUITY........................................... 5,553,999
----------
12,390,930
==========
</TABLE>
See accompanying notes
F-35
<PAGE>
PLASTOMER INC.
STATEMENT OF INCOME
244 DAYS ENDED DECEMBER 3
<TABLE>
<CAPTION>
1995
CANADIAN $
----------
<S> <C>
NET SALES........................................................... 9,491,312
Direct materials and labour......................................... 5,044,746
---------
Contributions to overhead........................................... 4,446,566
---------
OVERHEAD COSTS
Manufacturing expenses.............................................. 1,829,278
Depreciation........................................................ 315,753
---------
2,145,031
Inventory change and capitalized variances.......................... 218,409
---------
2,363,440
---------
GROSS MARGIN........................................................ 2,083,126
Distribution costs.................................................. 80,258
Tooling income...................................................... (19,024)
---------
GROSS PROFIT........................................................ 2,021,892
Selling and marketing............................................... 31,441
Administration...................................................... 354,705
---------
Income before interest, fees and taxes.............................. 1,635,746
Interest on long-term debt.......................................... 71,475
Management fee...................................................... 680,272
---------
Income before income taxes.......................................... 883,999
---------
Provision for income taxes
Current........................................................... 188,893
Deferred.......................................................... 141,107
---------
330,000
---------
NET INCOME FOR THE PERIOD........................................... 553,999
=========
</TABLE>
See accompanying notes
F-36
<PAGE>
PLASTOMER INC.
STATEMENT OF RETAINED EARNINGS
244 DAYS ENDED DECEMBER 3
<TABLE>
<CAPTION>
1995
CANADIAN $
----------
<S> <C>
RETAINED EARNINGS, BEGINNING OF PERIOD............................... --
Net income for the period............................................ 553,999
-------
RETAINED EARNINGS, END OF PERIOD..................................... 553,999
=======
</TABLE>
See accompanying notes
F-37
<PAGE>
PLASTOMER INC.
STATEMENT OF CASH FLOWS
244 DAYS ENDED DECEMBER 3
<TABLE>
<CAPTION>
1995
CANADIAN $
----------
<S> <C>
OPERATING ACTIVITIES
Net income for the period........................................... 553,999
Add charges to income not resulting in a current outlay of cash
Depreciation and amortization..................................... 345,406
Deferred income taxes............................................. 141,107
Net loss on sale of fixed assets.................................. 1,307,964
----------
2,348,476
Net increase in accrued start-up costs.............................. 655,929
Net change in non-cash working capital balances [note 8]............ (1,970,858)
----------
CASH PROVIDED BY OPERATING ACTIVITIES............................... 1,033,547
----------
FINANCING ACTIVITIES
Net proceeds of shareholder loans................................... 1,559,707
Net proceeds of promissory note..................................... 793,400
----------
Cash provided by financing activities............................... 2,353,107
----------
INVESTING ACTIVITIES
Deferred taxes recorded upon amalgamation........................... 1,389,067
Proceeds of share capital issuance.................................. 5,000,000
Assets received on amalgamation..................................... (7,403,324)
Goodwill recorded on amalgamation................................... (1,323,602)
Purchase of fixed assets............................................ (467,930)
Proceeds on disposal of fixed assets................................ 333,447
----------
CASH USED IN INVESTING ACTIVITIES................................... (2,472,342)
----------
NET INCREASE IN CASH DURING THE PERIOD.............................. 914,312
Cash, beginning of period........................................... --
----------
CASH, END OF PERIOD................................................. 914,312
==========
</TABLE>
See accompanying notes
F-38
<PAGE>
PLASTOMER INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 3, 1995
(CANADIAN DOLLARS)
1. OPERATIONS
The company is a manufacturer and supplier of miniature light socket
assemblies to the automotive industry. The assemblies are used primarily for
instrument clusters, warning lights, climate control modules and courtesy
lights.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the company have been prepared in accordance
with generally accepted accounting principles, on a consistent basis during
the period. The following is a summary of the more significant accounting
policies:
Amalgamation
On March 31, 1995, Industrial Devices Inc., a United States corporation,
acquired Plastomer Inc. At that time 1112637 Ontario Inc., 1124655 Ontario
Inc. and Plastomer Inc. were amalgamated.
Inventory
Inventory is valued at the lower of cost or net realizable value. Cost has
been determined on the first-in, first-out basis. Net realizable value for
finished goods has been defined as standard selling price less normal profit
margin. Net realizable value for raw materials has been defined as net
replacement cost.
Fixed assets
Based on purchase accounting the fixed assets are stated at the lower of
appraised value, as determined by appraisals dated April 5, 1995 and May 3,
1995, less accumulated depreciation and net recoverable amount. Additions
after this date are stated at the lower of cost less accumulated depreciation
and net recoverable value. Depreciation is provided on the straight-line basis
over the following periods:
<TABLE>
<S> <C>
Building.......................................................... 35 years
Machinery and equipment........................................... 5-18 years
Moulds and dies................................................... 10 years
Software.......................................................... 5 years
</TABLE>
Investment tax credits
The company reduces the cost of related fixed assets by the investment tax
credits claimed in the year.
Goodwill
Goodwill is recorded at cost less accumulated amortization. Amortization is
provided on the straight-line basis over a period of 40 years.
Pension costs
Current and past service costs are expensed as incurred and funded as
required by actuarial valuation. Past service costs relating to an amendment
in the Pension Plan are amortized over the expected average remaining service
life of the company's employees.
F-39
<PAGE>
PLASTOMER INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Translation of foreign currency
Transactions arising in foreign currencies (principally United States
dollars) have been translated at rates of exchange in effect at the dates of
the transactions. Monetary items denominated in foreign currencies have been
translated at rates of exchange in effect at the balance sheet date. Gains or
losses during the year have been included in net income.
3. INVENTORY
<TABLE>
<CAPTION>
1995
---------
$
<S> <C>
Raw materials......................................................... 980,157
Work-in-progress and finished goods................................... 437,082
Capitalized manufacturing variances................................... 25,673
Tooling............................................................... 13,467
---------
1,456,379
=========
</TABLE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
1995
--------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
--------- ------------ ---------
<S> <C> <C> <C>
Land........................................... 75,000 -- 75,000
Buildings...................................... 1,500,000 28,571 1,471,429
Machinery and equipment........................ 3,763,193 192,751 3,570,442
Moulds and dies................................ 806,920 58,476 748,444
Software....................................... 55,116 7,195 47,921
--------- ------- ---------
6,200,229 286,993 5,913,236
========= ======= =========
</TABLE>
5. GOODWILL
<TABLE>
<CAPTION>
1995
---------
$
<S> <C>
Cost................................................................. 1,323,602
Accumulated amortization............................................. (28,799)
---------
1,294,803
=========
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995
----------
$
<S> <C>
RoyNat Inc.
Promissory note, interest at RoyNat Inc.'s average cost of short-
term funds plus 2.25%, currently repayable in monthly instalments
of $7,300 plus interest, due May 15, 1997......................... 793,400
Shareholder loan
Non-interest bearing............................................... 1,559,707
----------
2,353,107
Less current portion of long-term debt............................. (1,647,707)
----------
705,400
==========
</TABLE>
F-40
<PAGE>
PLASTOMER INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Principal payments on the above obligations until maturity are as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
1996.................................................................... 87,600
1997.................................................................... 36,500
On maturity............................................................. 669,300
-------
793,400
=======
</TABLE>
The company negotiated a $1,500,000 mortgage facility with RoyNat Inc. at
the lender's average cost of funds plus 2.25%. A $2,000,000 demand debenture
representing a first fixed and floating charge over the company's land,
buildings, machinery and equipment, a floating charge over all other assets,
subject to priority agreements executed with the Bank of Montreal with respect
to accounts receivable and inventory, and assignments of fire and life
insurance have been pledged as security for this loan.
7. CAPITAL STOCK
<TABLE>
<CAPTION>
1995
$
---------
<S> <C>
AUTHORIZED
Unlimited voting, 6% non-cumulative, redeemable, retractable Class
AA special shares.................................................. --
Unlimited common shares............................................. --
ISSUED AND FULLY PAID
5,000,000 common shares............................................. 5,000,000
=========
</TABLE>
Upon amalgamation the company converted 100 common shares of 1124655 Ontario
Inc. into 100 common shares of the new entity, the outstanding capital of
1112637 Ontario Inc. and Plastomer Inc. were returned for cancellation without
repayment.
On April 1, 1996 the company issued a further 4,999,900 common shares to
Industrial Devices Inc. for $4,999,900.
8. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
<TABLE>
<CAPTION>
1995
$
----------
<S> <C>
Accounts receivable................................................. (2,641,497)
Income taxes receivable............................................. (136,047)
Inventory........................................................... (1,456,379)
Prepaid expenses.................................................... (34,656)
Accounts payable and accrued charges................................ 2,122,091
Due to related party................................................ 175,630
----------
(1,970,858)
==========
</TABLE>
Decreases in assets and increases in liabilities result in a source of
funds. Increases in assets and decreases in liabilities result in a use of
funds and are indicated by brackets.
F-41
<PAGE>
PLASTOMER INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
9. PENSION PLAN
The company maintains a defined benefit pension plan which provides
retirement benefits for essentially all employees. The plan is subject to an
actuarial valuation every three years. The most recent valuation was January
1, 1994 which indicated a surplus of $39,204. The pension expense for 1995 is
as follows:
<TABLE>
<CAPTION>
1995 $
------
<S> <C>
Current service cost..................................................... 96,506
======
</TABLE>
10. RELATED PARTY TRANSACTIONS
During the year Industrial Devices Inc. issued invoices on the company's
behalf. Chicago Miniature Lamp Inc., a United States corporation, paid certain
expenditures on behalf of the company.
Sales are made to both related parties on terms that are substantially the
same as to independent customers.
F-42
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Plastomer Inc.
We have audited the balance sheets of Plastomer Inc. as at December 30, 1994
and 1993 and the statements of income, retained earnings and cash flows for
the years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 30, 1994 and
1993 and the results of its operations and the changes in its financial
position for the years then ended in accordance with generally accepted
accounting principles in Canada.
Hards Pearson
Chartered Accountants
Barrie, Canada
February 28, 1995
F-43
<PAGE>
PLASTOMER INC.
BALANCE SHEET
AS AT DECEMBER 30, 1994 AND 1993
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1994 1993
$ $
--------- ---------
<S> <C> <C>
ASSETS
CURRENT
Accounts receivable......................................... 2,262,994 2,709,923
Income taxes receivable..................................... 167,464 --
Inventory [note 3].......................................... 1,615,170 1,484,139
Prepaid expenses............................................ 29,676 44,239
--------- ---------
Total current assets.................................... 4,075,304 4,238,301
Investment tax credits receivable........................... 150,839 --
Fixed assets [note 4]....................................... 1,952,582 2,109,736
--------- ---------
6,178,725 6,348,037
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness [note 5].................................. 1,041,285 680,939
Accounts payable and accrued charges........................ 1,674,593 2,485,831
Income taxes payable........................................ -- 44,266
Deferred revenue............................................ -- 18,667
Current portion of long-term debt [note 6].................. 87,600 87,600
--------- ---------
Total current liabilities............................... 2,803,478 3,317,303
Long-term debt [note 6]..................................... 2,086,167 2,323,085
Deferred income taxes....................................... 133,267 --
--------- ---------
Total liabilities....................................... 5,022,912 5,640,388
--------- ---------
SHAREHOLDERS' EQUITY
Capital stock [note 7]...................................... 100 100
Retained earnings........................................... 1,155,713 707,549
--------- ---------
Total shareholders' equity.............................. 1,155,813 707,649
--------- ---------
6,178,725 6,348,037
========= =========
</TABLE>
See accompanying notes.
F-44
<PAGE>
PLASTOMER INC.
STATEMENT OF INCOME
YEARS ENDED DECEMBER 30, 1994 AND 1993
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1994 1993
$ $
---------- ----------
<S> <C> <C>
SALES..................................................... 17,837,097 15,021,886
Cost of goods............................................. 15,329,213 12,724,732
---------- ----------
Gross margin.......................................... 2,507,884 2,297,154
---------- ----------
EXPENSES
Accounting................................................ 211,702 215,630
Administrative............................................ 572,486 443,411
Computer.................................................. 124,830 123,853
Engineering............................................... 193,605 131,897
Interest on long-term debt................................ 182,152 198,040
Other interest............................................ 65,070 31,139
Personnel................................................. 87,368 79,061
Selling and marketing..................................... 199,504 202,522
Tooling................................................... 43,582 51,900
Warehouse................................................. 182,316 188,302
---------- ----------
1,862,615 1,665,755
---------- ----------
Income before income taxes................................ 645,269 631,399
Provision for income taxes................................
Current................................................. 197,105 200,000
Deferred................................................ -- --
---------- ----------
197,105 200,000
---------- ----------
Income before the following............................... 448,164 431,399
Utilization of loss carryforwards......................... -- 159,788
---------- ----------
Net income for the year............................... 448,164 591,187
========== ==========
</TABLE>
See accompanying notes.
F-45
<PAGE>
PLASTOMER INC.
STATEMENT OF RETAINED EARNINGS
YEARS ENDED DECEMBER 30, 1994 AND 1993
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1994 1993
$ $
--------- -------
<S> <C> <C>
Retained earnings, beginning of year.......................... 707,549 116,362
Net income for the year....................................... 448,164 591,187
--------- -------
Retained earnings, end of year................................ 1,155,713 707,549
========= =======
</TABLE>
See accompanying notes.
F-46
<PAGE>
PLASTOMER INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 30, 1994 AND 1993
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1994 1993
$ $
---------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income for the year................................. 448,164 591,187
Add (deduct) charges (credits) to income not resulting
in a current outlay (receipt) of cash
Depreciation.......................................... 692,598 342,961
Deferred income taxes................................. 133,268 --
Gain on sale of fixed assets.......................... (10,022) --
Net change in non-cash working capital balances [note
8]................................................... (711,174) (219,046)
---------- --------
Cash provided by operating activities................. 552,834 715,102
---------- --------
FINANCING ACTIVITIES
Repayment of shareholder and related party loans...... (149,319) (65,000)
Repayment of promissory note.......................... (87,600) (87,600)
---------- --------
Cash used in financing activities..................... (236,919) (152,600)
---------- --------
INVESTING ACTIVITIES
Investment tax credits................................ (150,839) --
Investment tax credits applied to fixed assets........ 648,486 --
Purchase of fixed assets.............................. (1,183,930) (928,692)
Proceeds on disposal of fixed assets.................. 10,022 20,420
---------- --------
Cash used in investing activities..................... (676,261) (908,272)
---------- --------
Net increase in bank indebtedness during the year..... (360,346) (345,770)
Bank indebtedness, beginning of year.................. (680,939) (335,169)
---------- --------
Bank indebtedness, end of year........................ (1,041,285) (680,939)
========== ========
</TABLE>
See accompanying notes.
F-47
<PAGE>
PLASTOMER INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 30, 1994
(CANADIAN DOLLARS)
1. OPERATIONS
The company's principal operation is the manufacturing of injection moulded
components for the automotive industry. The company is incorporated under the
laws of the Province of Ontario, Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the company have been prepared in accordance
with generally accepted accounting principles, on a basis consistent with that
of the preceding year. The following is a summary of the more significant
accounting policies in Canada:
Inventory
Inventory is valued at the lower of cost or net realizable value. Cost has
been determined on the first-in, first-out basis. Net realizable value for
finished goods has been defined as standard selling price less normal profit
margin. Net realizable value for raw materials has been defined as net
replacement cost.
Fixed assets
Fixed assets are stated at the lower of cost less accumulated depreciation
and net recoverable amount. Depreciation is provided on the straight-line
basis over the following periods:
<TABLE>
<S> <C>
Building....................................................... 20 years
Portable office buildings...................................... 5-10 years
Machinery and equipment........................................ 3-10 years
Software....................................................... 3-4 years
</TABLE>
Investment tax credits
The company reduces the cost base of related fixed assets by the investment
tax credits claimed in the year.
Deferred revenue
Advance payments from mold sales are deferred when received and recognized
as revenues when the project is completed.
Pension costs
Current and past service costs are expensed as incurred and funded as
required by actuarial valuation. Past service costs relating to an amendment
in the Pension Plan are amortized over the expected average remaining service
life of the company's employees.
Translation of foreign currency
Transactions arising in foreign currencies [principally United States
dollars] have been translated at rates of exchange in effect at the dates of
the transactions. Monetary items denominated in foreign currencies have been
translated at rates of exchange in effect at the balance sheet date. Gains or
losses during the year have been included in net income.
F-48
<PAGE>
PLASTOMER INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORY
<TABLE>
<CAPTION>
1994 1993
$ $
--------- ---------
<S> <C> <C>
Raw materials and finished goods............................ 633,298 698,397
Finished goods and work-in-progress......................... 803,341 570,608
Tooling..................................................... 178,531 215,134
--------- ---------
1,615,170 1,484,139
========= =========
</TABLE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
1994 1993
-------------------------------- ---------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
$ $ $ $
--------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Land............................... 50,000 -- 50,000 50,000
Buildings [including portable
office buildings]................. 388,917 282,793 106,124 117,004
Machinery and equipment............ 5,599,398 3,858,655 1,740,743 1,916,196
Software........................... 167,779 112,064 55,715 26,536
--------- --------- --------- ---------
6,206,094 4,253,512 1,952,582 2,109,736
========= ========= ========= =========
</TABLE>
5. BANK INDEBTEDNESS
<TABLE>
<CAPTION>
1994 1993
$ $
--------- --------
<S> <C> <C>
THE BANK OF MONTREAL
Cash..................................................... (111,567) (156,556)
Operating loan, with interest at prime plus .25% due on
demand.................................................. 1,152,852 837,495
--------- --------
1,041,285 680,939
========= ========
</TABLE>
As security for its operating loan, the company has pledged a general
security agreement, priority agreements executed with RoyNat Inc. with respect
to accounts receivable and inventory, an assignment of fire insurance and
postponements of shareholder and related party loans.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1993
$ $
--------- ---------
<S> <C> <C>
ROYNAT INC.
Promissory note, interest at RoyNat Inc.'s average cost
of short-term funds plus 2.25%, currently repayable in
monthly installments of $7,300 plus interest, due May
15, 1997................................................ 1,273,700 1,361,300
SHAREHOLDER AND RELATED PARTY LOANS
Non-interest bearing notes, due thirteen months after
demand.................................................. 300,186 300,186
10% interest bearing notes, due thirteen months after
demand.................................................. 599,881 749,199
--------- ---------
2,173,767 2,410,685
Less current portion of long-term debt................... (87,600) (87,600)
--------- ---------
2,086,167 2,323,085
========= =========
</TABLE>
F-49
<PAGE>
PLASTOMER INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Principal payments on the above obligations for each of the next four years
are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1995............................................................ 87,600
1996............................................................ 87,600
1997............................................................ 1,098,500
1998 and thereafter............................................. 900,067
---------
2,173,767
=========
</TABLE>
Fixed and floating charge debentures are pledged as security for the
shareholder and related party loans.
The company negotiated a $1,500,000 mortgage facility with RoyNat Inc. at
the lender's average cost of funds plus 2.25%. A $2,000,000 demand debenture
presenting a first fixed and floating charge over the company's land,
buildings, machinery and equipment, a floating charge over all other assets,
subject to priority agreements executed with the Bank of Montreal with respect
to accounts receivable and inventory, and assignments of fire and life
insurance have been pledged as security for this loan.
7. CAPITAL STOCK
<TABLE>
<CAPTION>
1994 1993
$ $
---- ----
<S> <C> <C>
AUTHORIZED
100,000 common shares...........................................
ISSUED AND FULLY PAID
100 common shares............................................... 100 100
=== ===
</TABLE>
8. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
<TABLE>
<CAPTION>
1994 1993
$ $
-------- ----------
<S> <C> <C>
Accounts receivable....................................... 446,929 (1,050,345)
Income taxes receivable................................... (167,464) 3,614
Inventory................................................. (131,031) (335,003)
Prepaid expenses.......................................... 14,563 16,004
Accounts payable and accrued charges...................... (811,238) 1,105,751
Income taxes payable...................................... (44,266) 44,266
Deferred revenue.......................................... (18,667) (3,333)
-------- ----------
(711,174) (219,046)
======== ==========
</TABLE>
Decreases in assets and increases in liabilities result in a source of
funds. Increases in assets and decreases in liabilities result in a use of
funds and are indicated by brackets.
F-50
<PAGE>
PLASTOMER INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
9. PENSION PLAN
The company maintains a defined benefit pension plan which provides
retirement benefits for essentially all employees. The plan is subject to an
actuarial valuation every three years. The most recent valuation was
January 1, 1994 which indicated a surplus of $39,204. The pension expenses for
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
$ $
------- ------
<S> <C> <C>
Current service cost....................................... 100,224 83,273
Amortization of funded 1987 liability...................... 10,252 6,775
Amortization of unfunded liability......................... -- 1,330
------- ------
110,476 91,378
======= ======
</TABLE>
Included in last year's prepaid expenses is an amount of $10,252 related to
the 1987 funding of the actuarial liability resulting from the 1987 plan
amendment which has been fully amortized this year.
10. OPERATING LEASES
Minimum lease payments over the next three years with respect to operating
leases are as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
1995.............................................................. 88,421
1996.............................................................. 55,180
1997.............................................................. 4,063
-------
147,664
=======
</TABLE>
11. COMPARATIVE FIGURES
Certain of the prior year's figures have been reclassified to conform with
the current year's presentation.
F-51
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying combined balance sheets of W. Albrecht GmbH
& Co. KG, BSC Arnold GmbH & Co. KG, W. Albrecht Grundstucksgesellschaft GmbH &
Co. GbR, ALBA Speziallampen GmbH, Arnold GmbH, ALBA Light Design GmbH, Alba
Lamps Inc., ALBA Technology (M) Sdn, Bnd, and A&S Electric s.r.o.,
(collectively "the ALBA Group") as of December 31, 1995 and 1994, and the
related combined income statements for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Germany and in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the ALBA
Group at December 31, 1995 and 1994 and the combined results of their
operations for the years then ended, in conformity with accounting principles
generally accepted in Germany.
Accounting principles generally accepted in Germany vary in certain respects
from generally accepted accounting principles in the United States of America.
Application of generally accepted accounting principles in the United States
of America would have affected results of operations for each of the two years
in the period ended December 31, 1995, and shareholders' equity as of December
31, 1995 and 1994, as summarized in the notes to the combined financial
statements.
Stuttgart, Germany
June 11, 1996
Schitag Ernst & Young
Deutsche Allgemeine Treuhand AG
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
F-52
<PAGE>
ALBA GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
APRIL 30, ----------------------
1996 1995 1994
----------- ---------- ----------
DM DM DM
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
A. Fixed Assets
I.Intangible Assets...................... 20,537 16,199 7,780
II.Tangible Assets
Land, land rights and buildings........ 2,000,457 2,092,691 2,175,824
Technical equipment and machines....... 2,226,423 2,154,412 2,271,609
Other equipment, factory and office
equipment............................. 3,988,810 4,038,310 4,121,644
Payments on account and assets under
construction.......................... 1,723,993 1,193,550 934,093
B. Current Assets
I.Inventories
Raw materials and supplies............. 1,950,466 2,188,674 2,112,208
Work in process and finished goods..... 3,034,753 3,051,338 2,250,209
II.Receivables and Other Assets
Trade receivables...................... 3,920,648 4,034,947 3,236,753
Other assets........................... 88,601 120,441 38,590
III.Securities........................... 60,000 169,006 303,609
IV.Cash and Banks........................ 478,706 711,211 675,365
C. Prepaid Expenses........................ 237,306 206,775 7,926
---------- ---------- ----------
19,730,700 19,977,554 18,135,610
========== ========== ==========
EQUITY AND LIABILITIES
A. Equity
I.Share capital.......................... 3,607,744 3,608,194 3,608,138
II.Retained earnings..................... 210,865 218,844 276,723
III.Minority interest.................... 66,591 42,957 35,135
IV.Partner accounts...................... (2,065,712) (1,507,726) (460,189)
B. Silent partnership contributions
I.Capital................................ 1,356,000 1,356,000 1,356,000
II.Variable partner accounts............. (963,776) (770,350) (510,153)
C. Accruals
Pension accruals....................... 4,853,909 4,777,509 4,552,397
Tax accruals........................... 78,662 23,228 16,779
Other accruals......................... 1,757,498 1,199,592 600,123
D. Liabilities
Liabilities to banks................... 7,387,450 7,926,250 5,097,241
Trade payables......................... 1,984,015 1,686,990 356,370
Other liabilities...................... 1,457,454 1,416,066 3,207,046
---------- ---------- ----------
19,730,700 19,977,554 18,135,610
========== ========== ==========
</TABLE>
F-53
<PAGE>
ALBA GROUP
COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
FOUR MONTHS YEARS ENDED DECEMBER 31,
ENDED APRIL 30, --------------------------
1996 1995 1994
--------------- ------------ ------------
DM DM DM
(UNAUDITED)
<S> <C> <C> <C>
1Net Sales....................... 13,000,610 37,897,216 33,916,843
2Increase/decrease in
inventories...................... (366,492) 801,129 (1,615,297)
3Other operating income.......... 59,793 159,099 340,622
4Cost of materials
a)cost of raw materials, etc. .. (4,061,644) (12,198,357) (7,357,260)
b)cost of purchased services.... (286,531) (275,632) (202,484)
5Personnel expenses
a)wages and salaries............ (5,222,754) (15,882,689) (15,611,985)
b)social security; pension
costs.......................... (1,349,371) (4,061,857) (3,764,762)
6Depreciation.................... (561,589) (1,655,430) (2,061,135)
7Other operating expenses........ (1,710,756) (4,994,479) (4,893,036)
8Gain or loss on securities...... -- (63,334) 24,121
9Other interest and similar
income........................... 6,330 48,993 21,035
10Other interest and similar
expenses......................... (177,993) (533,889) (512,951)
---------- ------------ ------------
11Results from ordinary
activities....................... (670,397) (759,230) (1,716,289)
12Extraordinary income............ -- 0 1,313,274
---------- ------------ ------------
(670,397) (759,230) (403,015)
13Taxes........................... (103,177) (165,430) (158,181)
---------- ------------ ------------
14Net Loss........................ (773,574) (924,660) (561,196)
========== ============ ============
</TABLE>
F-54
<PAGE>
ALBA GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
GERMANY AND THE UNITED STATES OF AMERICA
The accompanying combined financial statements have been prepared in
conformity with accounting principles generally accepted in Germany ("German
GAAP"). Those principles differ in certain respects from accounting principles
generally accepted in the United States of America ("US GAAP"). Application of
US GAAP would have affected the reported results from operations for the four
month period ended April 30, 1996 (unaudited) and for each of the two years in
the period ended December 31, 1995 and the reported shareholders' equity as of
April 30, 1996 (unaudited), December 31, 1995 and December 31, 1994. The
significant differences between the accounting principles applied and those
which would be applied under US GAAP are summarized below.
Statements of Shareholders' Equity and Cash Flows
Statements of shareholders' equity and cash flows are required to be
presented under US GAAP. The shareholders' equity and cash flow statements are
not required by German GAAP.
Fixed Assets
Special accelerated depreciation for tax purposes has been recorded in the
accounts and deducted from the book value of fixed assets. Under US GAAP this
depreciation would not be recorded in the combined financial statements.
The Group designs and constructs certain machines for use in the production
of its products. Interest has not been capitalized as a component of the cost
of manufacture of this machinery, as would be required under US GAAP.
A further difference results from the regulations regarding the accounting
for leased equipment. The equipment and related obligation, for which the
monthly payments are being expensed in accordance with German GAAP would be
capitalized under US GAAP.
Inventories
Certain manufacturing overhead and indirect costs are not being capitalized
but charged to expense in the current period. For US GAAP purposes, the
production related manufacturing overhead costs would be included in the
inventory valuation.
Minority Interest
Minority interest would not be reported within the equity section of the
balance sheet under US GAAP.
Silent Partner Contributions
Silent partner contributions represent certain partners net share of ALBA
Group's accumulated income or losses and capital contributions. Under US GAAP,
such amounts would be classified in the equity section of the balance sheet.
Pension Accrual
Under US GAAP, pension accruals are calculated and disclosed in accordance
with Statement of Financial Accounting Standards No. 87, Employers Accounting
for Pensions ("SFAS 87"). German GAAP requires
F-55
<PAGE>
ALBA GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
accruals for pension commitments entered into on or after January 1, 1987
using methods and assumptions prescribed by German tax regulations, which may
differ from SFAS 87.
Deferred taxes
Since German GAAP generally follows tax law, few situations dictate the
recording of deferred taxes. As a result of the significant differences noted
above, deferred taxes would be required to be recorded under US GAAP.
GENERAL REMARKS
The combined financial statements of the ALBA Group ("the Group") were
prepared voluntarily for the first time for fiscal year 1994, as if the
entities were required to be combined. The classification used in the income
statements reflect the total cost method, in accordance with (S)275 Par. 2
HGB.
The operational currency is the German Mark. The functional currency of
foreign entities included in the combined financial statements is the local
currency of the entity. All assets and liabilities are translated using the
current exchange rates as of April 30, 1996 (unaudited), December 31, 1995 or
December 31, 1994. The equity is translated using the historical exchange
rate. Revenues and expenses are translated using the 1996 (unaudited), 1995 or
1994 weighted-average rate.
The balance sheet and income statement as of and for the four months ended
April 30, 1996 are unaudited, but in the opinion of management include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation.
Combined Group
The ALBA Group ("the Group") consists of a partnership, two limited
partnerships, (the general partners of which are limited liability
corporations), and six additional limited liability corporations, four of
which are wholly owned.
The combined financial statements of the Group consist of the consolidated
financial statements of W. Albrecht GmbH & Co. KG and Subsidiaries and the
individual financial statements of the other Group companies.
The companies included in the combined financial statements are as follows:
GROUP COMPANIES
<TABLE>
<CAPTION>
OWNERSHIP
%
---------
<S> <C>
PARTNERSHIP
W. Albrecht Grundstucksgesellschaft GmbH & Co. GbR, Bamberg,
Germany........................................................... 100
LIMITED PARTNERSHIPS
W. Albrecht GmbH & Co. KG, Bamberg, Germany........................ 100
BSC Arnold GmbH & Co. KG, Bamberg, Germany......................... 100
LIMITED LIABILITY CORPORATIONS
ALBA Speziallampen, GmbH, Bamberg, Germany......................... 100
Arnold GmbH, Bamberg, Germany...................................... 100
ALBA Light Design GmbH, Bamberg, Germany........................... 100
Alba Lamps Inc., Chicago, Illinois, USA............................ 100(A)
ALBA Technology (M) Sdn, Bnd, Malaysia............................. 70
A&S Electric s.r.o., Hranice u Ase, Czech Republic................. 60
</TABLE>
F-56
<PAGE>
ALBA GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(A) Includes a 50% ownership previously held by a third party which was
purchased by the Group in April, 1996. 100% of Alba Lamps Inc. financial
position and results of operations as of and for the four month period
ended April 30, 1996 (unaudited) and as of and for the years ended
December 31, 1995 and 1994 are included in the accompanying combined
financial statements.
CONSOLIDATION AND COMBINATION POLICIES
Consolidation of W. Albrecht GmbH & Co. KG and its subsidiaries, A&S
Electric s.r.o. and ALBA Light Design GmbH, is performed using the book value
method. The other affiliated companies have been combined with the above
consolidation to form the ALBA Group.
Intercompany revenues, expenses and related profits and losses between Group
companies have been eliminated. Intercompany profits included in inventory of
KDM 12 and KDM 40 at December 31, 1995 and 1994, respectively, have been
eliminated.
Goodwill of KDM 6 arising out of the capital consolidation has been charged
to retained earnings as required by (S) 309 HGB.
ACCOUNTING AND VALUATION POLICIES
Accounting and valuation methods are applied consistently to all the
individual Group companies.
Intangible assets are capitalized at acquisition cost and amortized over
their respective useful lives.
Tangible assets are presented at acquisition cost, net of accumulated
depreciation. Assets are depreciated over their estimated useful lives using
the straight-line method. The useful lives used in determining depreciation
rates are: buildings 20 years; machinery and equipment 4 to 10 years;
automobiles 5 years; other factory and office equipment 6 years. Insignificant
assets are fully depreciated in the year of acquisition.
Inventories are recorded and maintained using a perpetual inventory system
which is updated continuously as items are purchased and sold. Inventories are
valued at the lower of cost or market.
Trade receivables and other assets
Trade receivables and other assets are presented at their nominal value, net
of specific and general (1%) reserves for uncollectible amounts.
Accruals
Accruals have been provided for all known risks and obligations and are
based on the estimated amount of expected claims.
Liabilities
Liabilities have been presented at the repayment amount.
COMMENTARY TO THE COMBINED BALANCE SHEETS
Inventories
Inventories are valued at the lower of cost or market. The FIFO inventory
cost method is applied to value inventories. An obsolescence reserve of KDM
110 and KDM 21 has been provided as of December 31, 1995 and December 31,
1994, respectively.
F-57
<PAGE>
ALBA GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The cost of goods manufactured includes material costs, direct labor and a
portion of the manufacturing overhead, such as depreciation on machines and
equipment, electricity, heat, water and production waste.
Trade receivables and other assets
Receivables and other assets are due within one year. The provision for bad
debts amounts to KDM 287 at December 31, 1995 and KDM 75 at December 31, 1994.
Minority Interest
Minority interest consists of the 40% interest in A&S Electric s.r.o and 30%
in ALBA Technology (M) Sdn, Bnd not held by the Group.
Pension accruals
Pension accruals were calculated by a German actuary Herbert E.G. Hofer,
Mulheim an der Ruhr. The pension accruals are consistent with tax regulations.
A discount rate of 6% was used by the actuary to determine the accrual ((S) 6
EStG--Income tax law).
Other Accruals
Other accruals include amounts for all known risks and obligations of the
Group. Included are accruals for anniversary bonuses, unpaid vacations,
overtime, maternity leave, and warranties.
Liabilities
Liabilities as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
MATURITY
------------------------------------
WITHIN BETWEEN OVER
BALANCE 1 YEAR 1 AND 5 YEARS 5 YEARS
KDM KDM KDM KDM
------- ------ ------------- -------
<S> <C> <C> <C> <C> <C>
Liabilities to banks................ 1994 5,097 3,164 268 1,665
1995 7,926 3,325 2,695 1,906
Trade payable....................... 1994 356 356
1995 1,687 1,687
Other liabilities................... 1994 3,207 3,207
1995 1,416 1,416
</TABLE>
The liabilities due to banks are partially secured by the Group's land and
buildings to the amount of KDM 5,000.
Contingent Liabilities and other Commitments
Contingent liabilities in accordance with (S) 251 HGB arise from guarantees
of bank liabilities in the amount of KDM 90 and KDM 33 at December 31, 1995
and 1994, respectively.
Commitments under leasing and rental agreements amount to KDM 1,377 and KDM
382 as of December 31, 1995 and December 31, 1994.
F-58
<PAGE>
ALBA GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
COMMENTARY TO THE COMBINED INCOME STATEMENTS
Revenues of the Group result primarily from the sale of lamps and lamp
systems.
Combined sales are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
KDM KDM
------ ------
<S> <C> <C>
BY PRODUCT:
Butt sealed....................................................... 16,862 17,018
Bead sealed....................................................... 6,712 6,895
Subminiature lamps................................................ 6,152 5,991
Merchandise....................................................... 5,499 1,772
Other............................................................. 2,672 2,241
------ ------
Total............................................................. 37,897 33,917
====== ======
BY REGION:
Domestic.......................................................... 20,157 17,878
Other European Community.......................................... 5,320 6,240
Other Europe...................................................... 1,092 1,388
North America..................................................... 9,873 6,875
Other............................................................. 1,455 1,536
------ ------
Sales............................................................. 37,897 33,917
====== ======
</TABLE>
The significant components of other operational expenses include energy
costs and accounting, legal and consulting fees.
During 1994, the employees agreed to accept the suspension of future pension
benefit increases. The reduction of the accrual, in the amount of KDM 1,307,
is reflected in extraordinary income.
OTHER DISCLOSURES
The Group had, on average, 341 employees during 1995 and 361 in 1994.
Total special tax depreciation taken in 1994 amounted to KDM 387. None was
taken in 1995.
CHIEF EXECUTIVE OFFICER
Mr. Werner Arnold is the Chief Executive Officer of all the German entities.
Bamberg, June 1996
F-59
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Badalex Limited
We have audited the accompanying balance sheet of Badalex Limited (formerly
the operations of STT Badalex Limited), as described in note 1, as of November
10, 1995 and the related statements of operations, stockholders' equity, and
cash flows for the period from January 1, 1995 to November 10, 1995. These
financial statements are the responsibility of Badalex Limited's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides 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 Badalex Limited (formerly the
operations of STT Badalex Limited) at November 10, 1995 and the results of its
operations and its cash flows for the period from January 1, 1995 to November
10, 1995 in conformity with U.S. generally accepted accounting principles.
Ernst & Young
Reading, United Kingdom
August 28, 1996
F-60
<PAGE>
BADALEX LIMITED (FORMERLY THE OPERATIONS OF STT BADALEX LIMITED)
BALANCE SHEET
<TABLE>
<CAPTION>
NOVEMBER 10,
1995
-----------------
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents................................... (Pounds) 446,333
Trade receivable............................................ 272,115
Other receivables........................................... 333,428
Inventories................................................. 1,600,604
Prepaid Expenses............................................ 97,258
-----------------
Total Current Assets.................................. 2,749,738
Property, Plant and Equipment--net ......................... 610,520
Design technology, less amortization of (Pounds)101,667..... 298,333
-----------------
Total assets................................................ (Pounds)3,658,591
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts............................................. (Pounds) 475,857
Accounts Payable
Trade..................................................... 1,080,960
Other..................................................... 2,351,058
Payments on account......................................... 1,726,474
Accrued expenses............................................ 1,410,512
Current portion of finance leases........................... 67,855
-----------------
Total Current Liabilities............................. 7,112,716
Long Term Debt
Obligations under finance leases............................ 103,857
Stockholders' Equity
Ordinary shares, par value (Pounds)1 each:
Authorised 250,000 shares
Issued and outstanding 250,000 shares..................... 250,000
Accumulated deficit....................................... (3,807,902)
-----------------
(3,557,982)
-----------------
Total liabilities and stockholders' equity.................. (Pounds)3,658,591
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
BADALEX LIMITED (FORMERLY THE OPERATIONS OF STT BADALEX LIMITED)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1995 TO
NOVEMBER 10, 1995
------------------
<S> <C>
Net sales of goods......................................... (Pounds) 3,243,216
Cost of goods sold......................................... 3,071,656
------------------
171,560
Selling administrative and general expenses................ 3,162,924
------------------
OPERATING LOSS............................................. (2,991,364)
Interest (Expenses)/Income................................. (137,248)
------------------
LOSS BEFORE INCOME TAXES................................... (3,128,612)
Income Taxes............................................... --
------------------
NET LOSS................................................... (Pounds)(3,128,612)
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
BADALEX LIMITED (FORMERLY THE OPERATIONS OF STT BADALEX LIMITED)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
--------------- ------------------ ------------------
<S> <C> <C> <C>
Balance at January 1,
1995................... (Pounds)250,000 (Pounds) (679,370) (Pounds) (429,370)
Net Loss................ -- (3,128,612) (3,128,612)
--------------- ------------------ ------------------
Balance at November 10,
1995................... (Pounds)250,000 (Pounds)(3,807,982) (Pounds)(3,557,982)
=============== ================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
BADALEX LIMITED (FORMERLY THE OPERATIONS OF STT BADALEX LIMITED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1995 TO
NOVEMBER 10, 1995
------------------
<S> <C>
OPERATING ACTIVITIES
Net Loss.................................................. (Pounds)(3,128,612)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and Amortization............................ 154,726
Changes in operating assets and liabilities:
Trade receivable......................................... 508,203
Other receivables........................................ (224,493)
Inventory................................................ 69,694
Prepaids................................................. (36,427)
Accounts payable......................................... 744,831
Other liabilities........................................ 1,306,010
------------------
NET CASH USED IN OPERATING ACTIVITIES.................... (606,068)
INVESTING ACTIVITIES
Purchase of property and equipment........................ (463,818)
------------------
NET CASH USED IN INVESTING ACTIVITIES..................... (463,818)
------------------
DECREASE IN CASH AND CASH EQUIVALENTS..................... (1,069,886)
Cash and cash equivalents at beginning of period.......... 1,516,219
------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ (Pounds) 446,333
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
BADALEX LIMITED (FORMERLY THE OPERATIONS OF STT BADALEX LIMITED)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Badalex Limited (the Company) is incorporated and operates in the United
Kingdom and its principal business is designing, manufacturing and marketing
machinery to be used to manufacture light bulbs.
Chicago Miniature Lamp, Inc. through its wholly-owned subsidiary, Badalex
Limited, acquired the business, substantially all of the assets, and assumed
certain liabilities of STT Badalex Limited on November 10, 1995. Badalex
Limited was incorporated for the purpose of that and certain insignificant
acquisitions. The accompanying financial statements, which relate to the
former operations of STT Badalex Limited, have been prepared by the management
of Badalex Limited in accordance with U.S. generally accepted accounting
principles solely for the registration of Chicago Miniature Lamp, Inc.
securities with the Securities and Exchange Commission.
Financial statements prepared and filed in the United Kingdom for statutory
reporting purposes will be in accordance with United Kingdom generally
accepted accounting principles and may significantly differ from financial
statements prepared under U.S. generally accepted accounting principles.
REVENUE RECOGNITION
Sales and revenues recognition is based on the passage of ownership, usually
with shipment of product.
INVENTORIES
Inventories are valued at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property, plant and equipment is accounted for on the basis of cost.
Provisions for depreciation are computed on a straight-line basis at annual
rates calculated to amortize the cost of depreciable properties over their
estimated useful lives.
INTANGIBLE ASSETS
Intangible assets include design technology which is being amortized using
the straight-line method over its estimated useful life.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include trade accounts receivable, bank
overdrafts, accounts payable, and capital leases. The fair values of all
financial instruments were not materially different from their carrying
values.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
The Company uses the liability method of accounting for income taxes, as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
F-65
<PAGE>
BADALEX LIMITED (FORMERLY THE OPERATIONS OF STT BADALEX LIMITED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CASH EQUIVALENTS
Cash equivalents represent highly liquid investments with a maturity of
three months or less when purchased.
NOTE 2--INVENTORIES
<TABLE>
<CAPTION>
NOVEMBER 10,
1995
-----------------
<S> <C>
Work in progress.............................................. (Pounds)1,481,870
Finished goods................................................ 118,734
-----------------
(Pounds)1,600,604
=================
</TABLE>
NOTE 3--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
NOVEMBER 10,
1995
---------------
<S> <C>
Plant & Machinery.............................................. (Pounds)200,000
Office Fixtures & Fittings..................................... 216,288
Motor Vehicles................................................. 117,611
Leasehold Improvements......................................... 343,402
---------------
877,301
Less reserve for depreciation and amortization................. 266,781
---------------
(Pounds)610,520
===============
</TABLE>
NOTE 4--LONG-TERM LEASES
The company has capital leases for automobiles and office equipment.
Amortization is included in depreciation expenses. The future minimum rental
payments, by year and in total for all capital leases as of November 10, 1995
are as follows:
<TABLE>
<CAPTION>
OPERATING FINANCING
LEASES LEASES
-------------- ---------------
<S> <C> <C>
1996.......................................... (Pounds)75,000 (Pounds) 83,597
1997.......................................... 252,000 68,033
1998.......................................... 31,063
1999.......................................... 9,512
2000.......................................... 4,756
---------------
Total Minimum Lease Payments.................. 196,961
Less amounts representing interest............ (25,249)
---------------
Present Value of Minimum Lease Payments. (Pounds)171,172
===============
</TABLE>
Rental expense for facilities amounted to (Pounds)96,277 for the period
ended November 10, 1995.
Automobiles and office equipment include the following leased property under
capital leases:
<TABLE>
<S> <C>
Automobiles.................................................... (Pounds)117,611
Office Equipment............................................... 115,224
Accumulated Depreciation....................................... (83,412)
---------------
(Pounds)149,423
===============
</TABLE>
F-66
<PAGE>
BADALEX LIMITED (FORMERLY THE OPERATIONS OF STT BADALEX LIMITED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--BENEFIT PLANS
The Company has a pension plan that enables substantially all employees who
meet eligibility requirements to make voluntary contributions in the form of
withholdings from salary. The Company makes matching contributions at a rate
approximating 20% of a participant's contributions. The Company incurred
compensation expense of (Pounds)105,383 during the period ended November 10,
1995 related to the plan.
NOTE 6--SIGNIFICANT CUSTOMER
The Company operates in one business segment, that of a machine
manufacturer. One customer accounted for revenues of approximately (Pounds)1.8
million.
NOTE 7--DEFERRED INCOME TAXES
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes. Significant components of the deferred tax asset not provided within
the accounts is as follows:
<TABLE>
<S> <C>
Accelerated Capital Allowances.................................. (Pounds)11,735
Disallowed Provisions........................................... 100,255
Losses.......................................................... 1,039,496
--------------
1,151,486
Valuation Allowance............................................. (1,151,486)
--------------
(Pounds) --
==============
</TABLE>
NOTE 8--RELATED PARTIES
Included within the other receivable balance and the other accounts payable
is (Pounds)132,263 and (Pounds)1,798,252, respectively, which are due from and
to affiliated companies of STT Badalex Limited.
F-67
<PAGE>
FINANCIAL STATEMENTS
FERNSITE LIMITED
(FORMERLY STT BADALEX LIMITED)
The following unaudited balance sheets at December 31, 1994 and 1993 and
unaudited profit and loss accounts and notes to the unaudited financial
statements for the years ended December 31, 1994 and 1993 of Fernsite Limited
(formerly STT Badalex Limited) have been prepared from information previously
filed with the Securities and Exchange Commission. Such information was
purported to be prepared in accordance with applicable auditing standards for
United Kingdom statutory reporting purposes and are not comparable to the 1995
audited financial statements of Badalex Limited (formerly the operations of STT
Badalex Limited), which have been prepared in accordance with U.S. generally
accepted accounting principles. The references in the following unaudited
financial statements to applicable accounting standards are references to those
standards applicable for United Kingdom statutory reporting purposes.
F-68
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
PROFIT AND LOSS ACCOUNT (UNAUDITED)
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993
<TABLE>
<CAPTION>
NOTE 1994 1993
---- ---------------- --------------
(Pounds) (Pounds)
<S> <C> <C> <C>
Turnover............................... 1 3,742,146 2,629,647
Cost of sales.......................... (3,018,870) (1,714,194)
---------------- --------------
Gross profit........................... 723,276 915,453
Administrative expenses................ (1,192,199) (812,158)
---------------- --------------
Operating (loss)/profit................ (468,923) 103,295
Net interest........................... 2 (71,055) 238
---------------- --------------
(Loss)/profit on ordinary activities
before taxation....................... 3 (539,978) 103,533
Tax on (loss)/profit on ordinary
activities............................ 4 50,300 (48,250)
---------------- --------------
(Loss)/profit for the financial year
deducted from reserves................ 11 (Pounds)(489,678) (Pounds)55,283
================ ==============
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-69
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
BALANCE SHEET AS OF 31 DECEMBER 1994 AND 1993 (UNAUDITED)
<TABLE>
<CAPTION>
NOTE 1994 1993
---- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets......... 5 (Pounds)6,483,454 (Pounds)598,839
Current assets
Stocks.................. 6 (Pounds)546,220 (Pounds)1,130,787
Debtors................. 7 1,149,430 766,279
Cash at bank and in
hand................... 1,516,217 100,562
--------------- -----------------
3,211,867 1,997,628
Creditors: amounts
falling due within one
year................... 8 (3,968,539) (2,291,184)
--------------- -----------------
Net current
liabilities............ (756,672) (293,556)
Creditors: amounts
falling due after one
year................... 9 (69,510) --
----------------- ---------------
Total assets less
current liabilities.... (Pounds)5,657,272 (Pounds)305,283
================= ===============
Capital and reserves
Called up share
capital................ 10 250,000 250,000
Revaluation reserve..... 11 5,841,667 --
Profit and loss
account................ 11 (434,395) 55,283
----------------- ---------------
Shareholders' funds..... 12 (Pounds)5,657,272 (Pounds)305,283
================= ===============
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-70
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES (UNAUDITED)
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------------- --------------
(Pounds) (Pounds)
<S> <C> <C>
(Loss)/profit for the financial year........ (489,678) 55,283
Unrealized surplus on revaluation of certain
assets..................................... 5,841,667 --
----------------- --------------
Total recognized gains and losses for the
year....................................... (Pounds)5,351,989 (Pounds)55,283
================= ==============
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-71
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
PRINCIPAL ACCOUNTING POLICIES (UNAUDITED)
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost convention except that
certain fixed assets are shown at their revalued amounts.
The principal accounting policies of the company, other than revaluation of
certain fixed assets have remained unchanged from the previous year and are
set out below.
TURNOVER
Turnover is the total amount receivable by the company for goods supplied
and services provided, excluding VAT and trade discounts.
In the case of long-term contracts, turnover reflects the contract activity
during the period and represents the proportion of total contract value which
costs incurred to date bear to total expected contract costs.
DEPRECIATION
Depreciation is calculated to write down the cost or valuation less
estimated residual value of all tangible fixed assets by equal annual
installments over their expected useful lives. The rates generally applicable
are:
<TABLE>
<S> <C>
Plant and machinery -- 2 or 5 years
Office fixtures and fittings -- 2 years
Motor vehicles -- 2 years
Design and technology -- 10 years
</TABLE>
LONG-TERM CONTRACTS
The attributable profit on long-term contracts is recognized once their
outcome can be assessed with reasonable certainty. The profit recognized
reflects the proportion of work completed to date on the project.
Costs associated with long-term contracts are included in stock to the
extent that they cannot be matched with contract work accounted for as
turnover. Long-term contract balances included in stocks are stated at cost,
after provision has been made for any foreseeable losses.
Full provision is made for losses on all contracts in the year in which the
loss is first foreseen.
STOCKS
Stocks are stated at the lower of cost and net realizable value.
DEFERRED TAXATION
Deferred tax is provided for under the liability method using the tax rates
estimated to arise when the timing differences reverse and is accounted for to
the extent that it is probable that a liability or asset will crystallise.
Unprovided deferred tax is disclosed as a contingent liability.
Debit balances arising in respect of advance corporation tax on dividends
payable or proposed are carried forward to the extent that they are expected
to be recoverable.
F-72
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
PRINCIPAL ACCOUNTING POLICIES (UNAUDITED)
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the exchange rate
ruling at the date of the transaction. Monetary assets and liabilities in
foreign currencies are translated at the rates of exchange ruling at the
balance sheet date.
CONTRIBUTIONS TO PENSION FUNDS
Defined contributions scheme
These pension costs charged against profits represent the amount of the
contributions payable to the scheme in respect of the accounting period.
LEASED ASSETS
Assets held under finance leases and hire purchase contracts are capitalised
in the balance sheet and depreciated over their expected useful lives. The
interest element of leasing payments represents a constant proportion of the
capital balance outstanding and is charged to the profit and loss account over
the period of the lease.
All other leases are regarded as operating leases and the payments made
under them are charged to the profit and loss account on a straight-line basis
over the lease term.
F-73
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993
1 TURNOVER AND LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Turnover and loss on ordinary activities before taxation are attributable to
the company's principal activities. Disclosure or turnover and profit by class
of business has not been made as the directors consider that such disclosure
would be prejudicial to the interests of the company.
The analysis of turnover and loss before taxation by geographical market has
not been disclosed.
The loss on ordinary activities is stated after:
<TABLE>
<CAPTION>
1994 1993
----------------- ---------------
(Pounds) (Pounds)
<S> <C> <C>
Depreciation.............................. 109,130 69,113
Amortisation of goodwill.................. -- 50,000
Other operating lease rentals............. 28,335 174,907
Pension costs............................. 65,723 29,992
Auditors' remuneration.................... -- 8,000
================= ===============
2 NET INTEREST
<CAPTION>
1994 1993
----------------- ---------------
(Pounds) (Pounds)
<S> <C> <C>
Interest payable on bank loans, overdrafts
and other loans.......................... (83,599) (785)
Interest receivable....................... 12,544 1,023
----------------- ---------------
Net interest (payable)/receivable......... (Pounds) (71,055) (Pounds) 238
================= ===============
3 DIRECTORS AND EMPLOYEES
Staff costs during the year were as follows:
<CAPTION>
1994 1993
----------------- ---------------
(Pounds) (Pounds)
<S> <C> <C>
Wages and salaries........................ 980,173 587,454
Social security costs..................... 100,027 68,328
Other pension costs....................... 65,723 29,992
----------------- ---------------
(Pounds)1,145,923 (Pounds)685,774
================= ===============
</TABLE>
The average number of employees of the company during the period was 53
(1993-94)
<TABLE>
<CAPTION>
1994 1993
NUMBER NUMBER
------ ------
<S> <C> <C>
Design............................................................ 7 6
Manufacturing..................................................... 22 19
Sales............................................................. 11 9
Administrative.................................................... 13 11
--- ---
53 45
=== ===
</TABLE>
Remuneration in respect of directors was as follows:
<TABLE>
<S> <C> <C>
Management remuneration.......................... (Pounds)121,596 (Pounds)85,346
=============== ==============
</TABLE>
F-74
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993
The emoluments of the directors, excluding pension contributions, were as
follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
The highest paid director....................... (Pounds)48,056 (Pounds)35,746
============== ==============
</TABLE>
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
Other directors
(Pounds)0 to (Pounds)5,000........................................ 6 2
(Pounds)5,001 to (Pounds)10,000................................... -- 1
(Pounds)15,001 to (Pounds)20,000.................................. -- 1
(Pounds)20,001 to (Pounds)21,000.................................. 1 --
(Pounds)30,001 to (Pounds)35,000.................................. -- 1
(Pounds)40,001 to (Pounds)45,000.................................. 1 --
=== ===
</TABLE>
4 TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
The tax charge is based on the profit for the period and represents:
<TABLE>
<CAPTION>
1994 1993
--------------- --------------
<S> <C> <C>
Corporation tax (credit)/charge at 49%.......... (Pounds)(50,300) (Pounds)48,250
=============== ==============
</TABLE>
5 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
OFFICE
PLANT & FIXTURES &
TOTAL MACHINERY FITTINGS MOTOR VEHICLES DESIGN TECHNOLOGY
----------------- --------------- -------------- -------------- -----------------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Cost
At 1 January 1994....... 667,952 200,000 47,952 20,000 400,000
Additions............... 154,557 -- 64,941 89,616 --
Surplus on revaluation.. 5,820,000 -- -- -- 5,820,000
Disposals............... (7,000) -- -- (7,000) --
----------------- --------------- -------------- -------------- -----------------
At 31 December 1994..... 6,635,509 200,000 112,893 102,616 6,220,000
----------------- --------------- -------------- -------------- -----------------
Depreciation
At 1 January 1994....... 69,113 29,792 12,237 5,417 21,667
Provided in the period.. 109,130 55,000 32,558 21,572 --
Eliminated on
revaluation............ (21,667) -- -- -- (21,667)
Disposals............... (4,521) -- -- (4,521) --
----------------- --------------- -------------- -------------- -----------------
At 31 December 1994..... 152,055 84,792 44,795 22,468 --
----------------- --------------- -------------- -------------- -----------------
Net book amount at 31
December 1994.......... (Pounds)6,483,454 (Pounds)115,208 (Pounds)68,098 (Pounds)80,148 (Pounds)6,220,000
================= =============== ============== ============== =================
Net book amount at 31
December 1993.......... (Pounds)598,839 (Pounds)170,208 (Pounds)35,715 (Pounds)14,583 (Pounds)378,333
================= =============== ============== ============== =================
</TABLE>
Design and technology assets include technical drawings and patterns and
castings for production. At 1 January 1994 the value attributed to drawings
was (Pounds)400,000 and these were being depreciated over their estimated
useful life in accordance with the company's accounting policy for fixed
assets.
F-75
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993
At 31 December 1994 the technical drawings were revalued by the directors.
The basis of the valuation was estimated replacement value and the surplus
arising of (Pounds)5,695,000 has been transferred to the revaluation reserve.
In addition, a valuation of (Pounds)525,000 was placed on patterns and
castings for production and this has also been transferred to the revaluation
reserve.
The figures stated above include assets held under finance leases is
follows:
<TABLE>
<CAPTION>
OFFICE MOTOR
EQUIPMENT VEHICLES
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Net book amount at 31 December 1994......... 47,818 77,170
Net book amount at 31 December 1993......... -- --
Depreciation provided in the year........... 3,678 12,447
================= =================
6 STOCK
<CAPTION>
1994 1993
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Work in progress............................ 420,547 972,354
Finished goods and goods for resale......... 125,673 158,433
----------------- -----------------
(Pounds) 546,220 (Pounds)1,130,787
================= =================
7 DEBTORS
<CAPTION>
1994 1993
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Trade debtors............................... 879,922 141,246
Amounts owed by group undertakings.......... 64,715 85,518
Amounts recoverable on contracts............ 97,605 --
VAT debtor.................................. 21,292 20,259
Corporation tax............................. 2,050 --
Prepayment and accrued income............... 60,831 502,018
Other debtors............................... 23,015 17,238
----------------- -----------------
(Pounds)1,149,430 (Pounds)766,279
================= =================
</TABLE>
8 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Overdrafts.................................. 154,330 35,889
Payments on account......................... 1,712,235 95,911
Trade creditors............................. 516,112 266,627
Social security and other taxes............. 40,086 31,874
Current taxation............................ -- 48,250
Amounts owed to group undertakings.......... 815,766 91,386
Accruals and deferred income................ 365,410 516,781
Deferred purchase consideration............. 306,312 1,204,466
Obligations due under finance lease......... 37,108 --
Other creditors............................. 21,180 --
----------------- -----------------
(Pounds)3,968,539 (Pounds)2,291,184
================= =================
</TABLE>
F-76
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993
9 CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR
<TABLE>
<CAPTION>
1994 1993
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Obligations under finance lease............................... 69,510 --
====== =======
</TABLE>
10 SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
Authorised
250,000 ordinary shares of (Pounds)1 each...... (Pounds)250,000 (Pounds)250,000
=============== ===============
Allotted, called up and fully paid
250,000 ordinary shares of (Pounds)1 each...... (Pounds)250,000 (Pounds)250,000
=============== ===============
</TABLE>
11 OTHER RESERVES
<TABLE>
<CAPTION>
REVALUATION PROFIT AND LOSS
RESERVE ACCOUNT
----------------- ----------------
(Pounds) (Pounds)
<S> <C> <C>
At 1 January 1994........................... -- 55,283
Loss for the period......................... -- (489,678)
Surplus on revaluation of assets............ 5,841,667 --
----------------- ----------------
At 31 December 1994......................... (Pounds)5,841,667 (Pounds)(434,395)
================= ================
</TABLE>
During the year the directors revalued certain assets as disclosed in note 5.
12 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1994 1994 1993
--------- ----------------- ---------------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
(Loss)/profit for the financial
period........................... (489,678) 55,283
Issue of shares................... -- 250,000
Surplus on revaluation:
--Technical drawings............ 5,316,667
--Patterns and castings for
production..................... 525,000
---------
5,841,667 --
----------------- ---------------
Net increase in shareholders'
funds............................ 5,351,989 305,283
Shareholders' funds at 1 January
1994............................. 305,283 --
----------------- ---------------
Shareholders' funds at 31 December
1994............................. (Pounds)5,657,272 (Pounds)305,283
================= ===============
</TABLE>
13 CAPITAL COMMITMENTS
There were no capital commitments at 31 December 1994 or 31 December 1993.
F-77
<PAGE>
FERNSITE LIMITED (FORMERLY STT BADALEX LIMITED)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993
14 CONTINGENT LIABILITIES
There were no contingent liabilities at 31 December 1994 or 31 December
1993.
15 PENSIONS
Defined contribution scheme
The company does not operate a pension scheme but it does make defined
contributions to the personal pension plans of its employees.
16 TRANSACTION WITH A DIRECTOR
Fees of (Pounds)16,656 were paid to Dawnlink Limited, a company in which N J
Robson has an interest, in respect of consultancy services provided to STT
Projects Limited.
17 ULTIMATE PARENT UNDERTAKING
The directors consider that the ultimate parent undertaking of this company
is PRT Group Limited, which is registered in England and Wales and heads the
largest group of undertakings for which group accounts have been drawn up.
The smallest group of undertakings for which group accounts have been drawn
up is that headed by STT Holdings Limited which is registered in England and
Wales.
18 POST BALANCE SHEET EVENT
The trade accounts and certain assets of STT Badalex Limited were sold on 10
November 1995.
F-78
<PAGE>
MANUFACTURING TECHNOLOGIES
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3-D CAD CAM DESIGN PLASTIC MOLDING & INJECTION
LAMP MAKING EQUIPMENT QUALITY CONTROL
QUALITY AWARDS
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<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Price Range of Common Stock.............................................. 10
Dividend Policy.......................................................... 10
Use of Proceeds.......................................................... 11
Capitalization........................................................... 12
Selected Financial Data.................................................. 13
Selected Pro Forma Condensed Consolidated Financial Data ................ 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 16
Business................................................................. 21
Management............................................................... 33
Certain Transactions..................................................... 37
Principal and Selling Shareholders....................................... 38
Description of Capital Stock............................................. 39
Shares Eligible for Future Sale.......................................... 40
Underwriting............................................................. 41
Legal Matters............................................................ 42
Experts.................................................................. 42
Relationship with Independent Accountants................................ 43
Available Information.................................................... 43
Index to Financial Statements............................................ F-1
</TABLE>
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4,200,000 SHARES
[LOGO]
CHICAGO MINIATURE LAMP, INC.
COMMON STOCK
--------
PROSPECTUS
OCTOBER 10, 1996
--------
SMITH BARNEY INC.
RAYMOND JAMES & ASSOCIATES, INC.
MCDONALD & COMPANY
SECURITIES, INC.
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