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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended NOVEMBER 30, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _________ to _________
Commission File Number: 0-5848
CHICAGO MINIATURE LAMP, INC.
(Exact Name of Registrant as Specified in Its Charter)
OKLAHOMA 73-1412000
(State of Incorporation) (IRS Employer Identification No.)
500 CHAPMAN STREET, CANTON, MASSACHUSETTS, 02021
(Address of Principal Executive Offices, Zip Code)
(781) 828-2948
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 6, 1998, there were approximately 29,489,183 shares
outstanding of the registrant's Common Stock, par value $.01 per share, its only
class of common stock, and the aggregate market value of the Common Stock held
by non-affiliates of the registrant (approximately 13,948,384 shares) was
approximately $446,345,500, as computed by reference to the Nasdaq closing price
of such common equity, $32.00, as of the same date.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement pursuant to Section 14(a) of the Securities Exchange
Act of 1934 for use in connection with the registrant's 1998 Annual Meeting of
Shareholders.
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The discussion in this Report contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ significantly
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this Report.
Statements contained in this Report that are not historical facts are
forward-looking statements that are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. A number of important factors
could cause the Company's actual results for 1998 and beyond to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. These factors include, without limitation, those listed
below in "Risk Factors."
RISK FACTORS
GROWTH THROUGH ACQUISITIONS
The Company's growth strategy has historically been driven by
acquisitions. While 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 businesses
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.
INTERNATIONAL OPERATIONS
The Company operates manufacturing and other facilities in more than 30
countries and sells its products worldwide. As a result of its international
operations, the Company is subject to risks associated with operating in foreign
countries, including devaluations and fluctuations in currency exchange rates,
imposition of limitations on conversion of foreign currencies into dollars or
remittance of dividends and other payments by foreign subsidiaries, imposition
or increase in withholding and other taxes on remittances and other payments by
foreign subsidiaries, hyperinflation in certain foreign countries and imposition
or increase of investment and other restrictions by foreign governments.
Although such risks have not had a material adverse effect on the Company, no
assurance can be given that such risks will not have a material adverse effect
on the Company in the future.
COMPETITION
The global lighting industry in which the Company operates is highly
competitive. The Company competes primarily on the basis of brand awareness,
price, product quality, design and engineering, customer service and
distribution strength. Competitors range from large global diversified companies
such as Philips Electronic N.V. ("Philips"), General Electric Corp. ("General
Electric"), Siemens A.G. ("Siemens") and its North American subsidiary,
Osram-Sylvania, Inc. ("Osram"), Matsushita Corp. and Toshiba Corp., to small
brokers representing Pacific Rim manufacturers. Many of these competitors
offer products which are substantially identical to those offered by the
Company. As a result of these competitive pressures, there can be no assurance
that the Company will be able to increase prices in the future.
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Price increases by the Company, price reductions by competitors, decisions by
the Company with regard to maintaining profit margins rather than market share,
or other competitive or market factors or strategies could adversely affect the
Company's market share or results of operations. Competition could prevent the
institution of price increases or could require price reductions or increased
spending on research and development and marketing and sales which could
adversely effect the Company's results of operations.
SOURCE OF RAW MATERIALS
The Company purchases approximately 90% of its incandescent glass
shells from a joint venture consisting of Philips and Osram and approximately
80% of its fluorescent glass tubing from Osram pursuant to long term agreements
with significant notice periods. Other raw materials are generally available
from a number of suppliers. Many of these raw materials are commodities, the
prices of which may fluctuate over time. Any interruption in the supply of
incandescent glass shells or fluorescent glass tubing or significant
fluctuations in the prices of other raw materials could have an adverse effect
on the Company's operations.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent to a significant extent upon the efforts and
abilities of its President, Chief Executive Officer and principal shareholder,
Mr. Frank M. Ward, as well as Mr. Norman Scoular, President and Chief Executive
Officer of Sylvania Lighting International, B.V., the Company's principal
subsidiary. The loss of the services of either Mr. Ward or Mr. Scoular could
have a material adverse effect on the Company.
CONTROL BY PRINCIPAL SHAREHOLDER AND CHIEF EXECUTIVE OFFICER
Mr. Ward, together with trusts established for members of his immediate
family, beneficially owns approximately 51.7% of the outstanding shares of
Common Stock of the Company. As a result, Mr. Ward, together with such trusts,
is able to elect the entire Board of Directors, control the vote on all matters
submitted to a shareholder vote and effectively control the Company.
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 are restricted by
financial covenants contained in the Company's credit facilities.
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
From time to time, 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.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company believes itself to be one of the six largest global
lighting companies in the world and one of only three major international
producers to offer lamps, fixtures and ballasts. Through its acquisition-driven
growth strategy, the Company is realizing its goal of becoming one of the
world's largest broadly integrated lighting systems suppliers to the industrial,
commercial and consumer markets. Prior to 1997, the Company was primarily a
vertically integrated manufacturer and supplier of miniature lighting products.
In January 1997, the Company significantly expanded its operations with the
acquisition of Gustav Bruckner GmbH ("Bruckner"), which engineers, designs and
manufactures automated miniature lamp-making equipment, and Valmont Electric,
Inc. ("Power Lighting Products"), a manufacturer and supplier of lighting
ballasts. Additionally, in September 1997, the Company completed the purchase of
Sylvania Lighting International, B.V., a significant global lighting company and
the third largest lighting company in Europe ("SLI"). SLI, together with
Bruckner and Power Lighting Products, are collectively referred to herein as
"The 1997 Acquisitions." The SLI acquisition constituted the largest and most
important of the acquisitions made by the Company to date. See "ACQUISITIONS."
With the integration of SLI, the Company is able to offer a complete
range of lighting products throughout the world. The Company's product
categories include lamps, fixtures, miniature lighting assemblies and ballasts.
The Company offers incandescent, fluorescent, compact fluorescent, high
intensity discharge ("HID"), halogen, special, and miniature lamps to its
customers. The Company's fixture range is comprised of accent/decorative and
commercial/industrial fixtures. Accent and decorative fixtures range from simple
downlights and spotlights to high performance lighting fixtures for art
galleries and museums; its commercial/industrial fixtures are dominated by
fluorescent ceiling mounted fixtures. Miniature lighting assemblies manufactured
by the Company are used in various product applications, including automobile
message centers, and aviation and telecommunications status arrays. Magnetic and
electronic lighting ballasts, designed and manufactured by the Company, supply
power to start and operate fluorescent and HID lamps and signage products (neon
displays).
The Company has positioned itself to provide "one stop" lighting
solutions for its customers' lighting requirements. The Company's strategy is to
operate as a vertically integrated manufacturer producing both discrete lighting
components and high value-added integrated lighting products. Through its
acquisitions, the Company has gained the ability to offer its global customers
extensive design, engineering, and manufacturing capabilities, while providing
local, responsive service. With operations in more than 30 countries located
within the Americas, Europe, Australia and Asia, the Company's customers include
architects, designers, contractors, wholesalers, retailers and original
equipment manufacturers ("OEMs").
Primarily as a result of the Company's successful growth and operating
strategies, net sales increased from $57.4 million for the year ended December
3, 1995 to $330.0 million for the year ended November 30, 1997. In addition,
operating income increased from $12.2 million for the year ended December 3,
1995 to $27.4 million for the year ended November 30, 1997. For the year ended
November 30, 1997, giving effect to The 1997 Acquisitions on a pro forma basis,
the Company's net sales and operating income was $755.4 and $46.5 million,
respectively. In addition, for the year ended November 30, 1997, giving effect
to The 1997 Acquisitions on a pro forma basis, approximately 80.9% and 81.6% of
the Company's net sales and operating income, respectively, were outside the
United States.
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GROWTH STRATEGY
Recent acquisitions and a joint venture have greatly increased the
Company's stature as a major international lighting manufacturer. The Company
believes that it is now well positioned to continue its growth due to several
factors. Management believes that its industry knowledge, experience
consummating and integrating acquisitions and its access to capital, will
facilitate the Company's expansion both domestically and worldwide. Acquisitions
have provided the Company with certain cross selling opportunities by expanding
the Company's product line to include new, complimentary products and by giving
the Company access to new markets in which to sell existing products. Internal
growth will be driven by increasing sales to existing and new customers,
continued geographic expansion, and the leveraging of new technologies to
participate in the highest growth and highest margin segments of the lighting
market.
Complimentary Acquisitions and Joint Ventures. Within the lighting
industry there are many well known companies which produce various lighting
related products. The Company has used strategic acquisitions and alliances to
effect its vertical and horizontal integration strategies. Acquisitions are
selected based upon their ability to augment the Company's technology,
engineering and design capabilities, broaden its product offerings, increase
manufacturing facilities, access related global markets, and provide cost
reduction opportunities and other operational synergies. The Company believes
that its extensive knowledge of the fragmented areas of the lighting industry
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. The
Company has recently entered into an agreement to acquire a niche market
lighting company for approximately $25 million. Although the Company intends to
seek additional acquisition and joint venture opportunities, it currently has no
other agreements, arrangements or understandings with respect to any particular
acquisition or joint venture, and there can be no assurance that any other
acquisitions or joint ventures will be completed.
Increasing Sales to Existing and New Customers. The Company focuses on
expanding its market by designing, developing, and marketing "one stop" lighting
solutions, a strategy through which the Company seeks to exploit cross selling
opportunities between customers of existing and acquired businesses. Through its
European acquisitions, especially SLI and W. Albrecht GmbH u.Co.KG ("Alba"), the
Company has gained a substantial international presence in the lighting
industry. The Company is seeking to capitalize on the global distribution
networks and recognized and respected names of Sylvania* and Alba to introduce
the Company's ballast and miniature lighting products overseas. Moreover, the
Company's foreign operations have broad product lines of consumer and industrial
lamps and fixtures which the Company intends to market domestically. In
addition, the Company plans to aggressively market complimentary products such
as ballasts, manufactured by Power Lighting Products, which can be used with
linear and compact fluorescent and HID lighting products manufactured by SLI.
The Company believes that its "one stop" strategy has enabled it to establish
strategic relationships with its customers and provides an excellent opportunity
for the Company to increase its sales to existing and new customers.
Diverse Geographic Operations. An important element of the Company's
growth strategy is to continue to establish manufacturing operations in areas of
high customer density or where manufacturing efficiencies can be realized. The
Company's operations are currently located in the Americas, Europe, Australia
and to a lesser extent the Asia market. The Company intends to continue to
expand its operations as necessary to better serve its existing customers'
objectives regarding cost, shipping location,
- --------------------
* In general lighting the Company owns and has the exclusive right to use the
"Sylvania" trademark in all countries of the world except the United States,
Canada and Mexico.
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frequency of interaction with manufacturing specialists and local requirements
of end-market countries and to develop new business.
OPERATING STRATEGY
The Company's operating strategy is designed to enhance its
international presence as a leading designer, manufacturer and supplier of
lighting products in its related markets and to increase profitability through
continued vertical integration and automation, product innovation, significant
cost reduction programs and its focus on superior product quality and customer
service.
Vertical Integration and Automation. The Company intends to further
enhance its presence in the lighting industry by continuing the vertical
integration of its operations by broadening the range of lighting components
which it manufactures and uses in its lighting products. As the Company
increases the percentage of Company-manufactured components used in its lighting
products, it achieves greater control over the quality of such products and
improves the cost-effectiveness of its operations. The Company's ability to
manufacture a wide array of lighting components also facilitates the production
of more complex, value-added products, 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. As lighting products have become more technically advanced,
the Company has increasingly automated its manufacturing operations. By custom
designing and manufacturing its own equipment, the Company has the ability to
automate single, labor intensive steps within an assembly line operation as well
as entire product assembly lines. The Company intends to continue to expand
the automation at its manufacturing facilities in order to reduce the costs of
producing its lighting products and to increase production and quality.
Management believes that increased automation should further improve the
Company's ability to meet customers' demand for "just-in-time" delivery of
products. Also, by maintaining its own lamp making machinery capabilities, the
Company further enhances its cost control and speed in introducing automation
for new products.
Technology-driven Product Innovation. Lighting products and the related
manufacturing technology are becoming increasingly sophisticated. Through the
acquisition of various niche companies operating within the lighting industry,
the Company's technology expertise has expanded. The Company has utilized its
technical expertise to develop close working relationships with its 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 which new lighting products to introduce. In January 1997, the Company
entered into a joint venture agreement with Schott Corporation ("Schott"), a
major global glass manufacturer, to expand both companies' fiberoptic
activities in North America. Through its acquisition of SLI, the Company has
gained access to SLI's significant expertise in product and process innovation
in various areas including lamp photometric performance, energy-efficiency and
miniaturization and product life extension as well as in the reduction or
elimination of use of environmentally hazardous materials. The Company believes
that it can expand its business by offering new products and
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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.
Improving Operating Efficiencies. The Company has realized various cost
savings in connection with the integration of acquired companies. Cost reduction
initiatives have included the consolidation of certain administrative functions,
vertical integration with existing operations and leveraging of combined
purchasing power. Sales personnel have, for example, been reduced in instances
in which the Company's existing customer base has overlapped the customer base
of acquired businesses. Vertical integration, through the substitution of
components manufactured by the Company for those previously purchased by
acquired companies from outside suppliers, will provide additional cost savings.
The Company has also capitalized on its purchasing power for those materials and
products which it does not manufacture. In connection with such integration, the
Company has adjusted, in some cases, the product mix manufactured by acquired
companies in an effort to improve profitability; such actions have had the
short-term effect in certain cases of reducing the net sales of such acquired
companies. Given that the recently acquired businesses have been operating at
significantly lower operating margins than the Company's base business, these
acquisitions have resulted in temporary contraction of consolidated operating
margins. The recent acquisition of SLI with the extensive geographical and
physical infrastructure of manufacturing, sales and administrative facilities
worldwide provides a significant opportunity for improved operating
efficiencies.
Responsiveness and Quality. The Company believes that responsiveness to
customers' demands and the need to supply quality products are critical factors
for success in the lighting industry. The Company's ability to conceive, design,
trial, test and tool up for a new product launch in a very short period of time
is a significant competitive advantage for the Company. Management has developed
"Competency Centers" within its manufacturing facilities. These Competency
Centers support specialist engineering teams which work in an integrated manner
with marketing and manufacturing specialists. In addition, the Company has
developed the technology to monitor and control its production performance. As a
result of these initiatives, the Company's miniature lighting assemblies have
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. In addition, the Company has received
certifications as a QS-9000, ISO 9001 and Euro-Net ISO 9000 and 9001 supplier.
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ACQUISITIONS
The following table sets forth the acquisitions which have been
consummated by the Company since October 1992:
<TABLE>
<CAPTION>
DATE OF
BUSINESS ACQUISITION TYPE OF OPERATION LOCATION
- -------- ----------- ----------------- --------
<S> <C> <C> <C>
Chicago Miniature Lamp, Inc. October 1992 Distributor of miniature lighting Buffalo Grove,
components Illinois, USA
Glolite Sales, LTD. April 1993 Manufacturer of miniature neon Pauls Valley,
and incandescent bulb and string Oklahoma, USA
lighting products
Industrial Devices, Inc. ("IDI") May 1994 Designer and manufacturer of Hackensack,
miniature lighting products New Jersey, USA
Plastomer Inc. March 1995 Manufacturer and supplier of Barrie, Ontario,
("CML Canada") miniature lighting assemblies Canada
and bulb sockets
Fredon Industrial August 1995 Manufacturer of machine tools Newton,
Development, Inc. ("Fredon") and dies New Jersey, USA
STT Holdings Limited November 1995 Engineering and designer Byfleet, Surrey,
("Badalex")(1) of lamp making equipment United Kingdom
Electro Fiberoptics, Inc December 1995 Manufacturer of fiber optic Marlboro,
("CML Fiberoptics") products Massachusetts,
USA
Phoenix Lighting (U.K.) Limited December 1995 Manufacturer of halogen and Coalville,
("CML Europe") specialty lamps Leicestershire,
United Kingdom
W. Albrecht GmbH u. Co. KG May 1996 Manufacturer of miniature Bamberg,
("Alba")(2) 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").
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<TABLE>
<CAPTION>
DATE OF
BUSINESS ACQUISITION TYPE OF OPERATION LOCATION
- -------- ----------- ----------------- --------
<S> <C> <C> <C>
Gustav Bruckner GmbH January 1997 Engineer designer and Coburg,
("Bruckner") manufacturer of automated Germany
lamp-making equipment
Valmont Electric, Inc. January 1997 Manufacturer of magnetic El Paso,
("Power Lighting Products") and electronic ballasts Texas, USA
Sylvania Lighting September 1997 Designer and manufacturer of Geneva,
International, B.V. ("SLI") integrated lighting systems Switzerland
including lamps and fixtures
Solium, Inc. ("Solium") November 1997 Designer and manufacturer of Randolph,
electronic ballasts Massachusetts, USA
</TABLE>
JOINT VENTURE
On January 29, 1997 the Company entered into a joint venture agreement
with Schott to form a company to be owned 51% by the Company and 49% by Schott.
The purpose of the joint venture is to expand each company's respective
fiberoptic activities in North America. Schott, headquartered in Mainz, Germany,
is one of the world's largest manufacturers of optical and technical glasses for
commercial, industrial, scientific, and consumer markets.
INDUSTRY OVERVIEW
The lighting industry is a large, mature market, which is characterized
by the long life cycle of its lighting products. The global lighting industry
consists of many firms, ranging from large, multinational, multiproduct,
publicly owned companies to small, single-product, private firms. Participation
in the industry is marked by the presence of three dominant firms and the
maturity of market segments. The three leading global lighting companies are
General Electric, Osram and Philips. While these companies are active in all of
the major sectors of the lamp industry, concentration levels vary by sector and
region. SLI is the third largest lighting company in Europe. The lamp market is
highly concentrated whereas the miniature lighting market and the fixture
markets are highly fragmented. The ballast market is concentrated and consists
of several large companies including Power Lighting Products. Smaller firms have
found or created niches in certain markets which have been defined by specific
competencies, technologies or differentiated products. Some specialized areas,
such as normal line voltage halogens, compact fluorescents and metal halides,
have recently experienced a rapid rate of growth.
The lamp market exhibits a large degree of stability and maturity,
because much of the demand is generated by replacement needs. Management
believes that trends toward more efficient, longer life lamps will continue to
reduce the absolute number of units sold but that increases in the average price
per unit should more than offset the decline and result in overall growth of the
market. Increased usage and applications will depend largely on economic growth,
especially housing starts and new vehicle sales. However, economic development
in areas such as Eastern Europe and Central and South America should provide
accelerated growth opportunities. Aggregate sales of lamps have demonstrated
moderate
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cyclicality and seasonality. The fourth quarter tends to be the industry's
strongest demand period, given abbreviated daylight hours and increased holiday
light usage.
Three forces are converging that should influence the increased global
use of lamps in the coming years:
- More companies in both manufacturing and the service sector,
run overtime in the evenings or operate second and third
shifts at night.
- Vendors are aggressively marketing more energy-efficient and
user-friendly lamps; customers are responding by purchasing
such lamps, even though they cost more than the old lamps.
- Increased world demand by developing countries for lighting
products, including Eastern Europe, Central and South
America and Asia.
PRODUCTS AND MARKETS
Prior to 1997, nearly two-thirds of the Company's net revenues were
attributable to miniature lighting assemblies, with miniature discrete bulbs and
light emitting diodes ("LED's") accounting for the bulk of the remainder. The
Company's product category profile has changed dramatically with the addition of
SLI and Power Lighting Products. The following sets forth the percentage of net
sales by product category for the years ended December 1, 1996, and November 30,
1997, and, giving effect to The 1997 Acquisitions on a pro forma basis for the
year ended November 30, 1997.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
PRODUCT 12/01/96 11/30/97 11/30/97
- ------- ---------- ---------- ----------
(ACTUAL) (ACTUAL) (PRO FORMA)
<S> <C> <C> <C>
Lamps 27% 38% 52%
Fixtures 15 24
Lighting Assemblies 59 21 9
Ballasts 23 12
Other 14 3 3
--- --- ---
Total 100% 100% 100%
</TABLE>
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The Company sells its products globally under a variety of brand names
in over 30 countries. Its flagship brand Sylvania* is one of the world's leading
lighting brands covering a full line of lamps, industrial and commercial
fixtures, and specialty products. Other lamp and fixture lines include Concord,
architectural and display lighting; Claude, consumer and industrial/commercial
lamps and fixtures; Lumiance, display lighting fixtures; Linolite, residential
and commercial task lighting fixtures; and Le Dauphin, high fashion table
fixtures. Miniature lighting assemblies are sold under the Chicago Miniature
Lamp (U.S.) and Alba (Germany) labels. Ballasts are sold under the Power
Lighting Products brand label. While the Company predominantly sells its
products under its own brands, it also sells under its customers' brands, a
practice which is common in the retail sector. SLI also sells to other lighting
companies under their labels.
The Company's manufacturing and developmental activities are focused on
the following product areas:
- ENERGY-EFFICIENT, LONG LIFE COMPACT FLUORESCENT LAMPS with
novel features and improved performance characteristics. SLI
continues to address the market's demand for affordable,
retrofit energy-saving products with longer life.
- ENERGY-SAVING, TUNGSTEN HALOGEN LAMPS using normal line
voltage. These lamps have the capability of replacing
standard incandescent, incandescent reflector lamps and low
voltage tungsten halogen lamps. They also eliminate the need
for costly transformers. SLI has demonstrated leadership in
this category with the 1994 introduction of a new range of
"high voltage" halogen reflector lamps, known as Hi-Spot, and
supplemented in 1996 with a miniature 50 millimeter, line
voltage lamp, for which over 100 leading fixture companies
have introduced products.
- HIGH INTENSITY DISCHARGE LAMPS for general lighting as well
as for specialist applications, particularly film, TV studio,
theater and audio-visual use. In general lighting, SLI has
demonstrated its innovation by the 1995 introduction of
twin-arc high pressure sodium (SHP) and mercury-free SHP
lamps.
- ENERGY-SAVING TRIPHOSPHOR FLUORESCENT LAMPS in standard
lengths with improved lumen maintenance, which increase
the useful life of the lamps.
- METAL HALIDE LAMPS combine superior energy efficient
illumination with long lamp life, excellent color rendition
and compact lamp size. It is the fastest growing segment of
the domestic lighting market.
- TREND-SETTING ACCENT FIXTURES which track both the
requirements of the market place, and the emergence of new
concept lamps, notably line voltage halogen, metal halide and
compact fluorescent. New fixtures have been launched in
response to new legislation, requiring low glare in the area
of visual display units, as well as lower wattage per square
meter of illuminated surface.
- INDUSTRIAL/COMMERCIAL LIGHTING FIXTURES to suit the changing
performance and aesthetic requirement of commercial markets.
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- MINIATURE LIGHTING ASSEMBLIES used mainly as visual fault or
status indication and for illumination in sophisticated
lighting assemblies for automobile message centers and
telecommunication status array.
- MAGNETIC AND ELECTRONIC BALLASTS supply power to start and
operate fluorescent, compact fluorescent and HID lamps and
signage products (neon displays). Patented Solium ballast
technology allows three way switching and dimming capabilities
to compact fluorescent lamps.
The Company's customer profile has also changed materially since the
acquisition of SLI. The Company's customers currently include architects,
designers, contractors, wholesalers, retailers, distributors and OEM's whereas
prior to The 1997 Acquisitions, the Company's primary market for its miniature
lighting products were the OEM's in the electronics and communications,
automotive, appliance and aviation industries. The Company does not believe that
any one customer accounts for more than 5% of net sales. The Company's main
customer base for lamps and industrial/commercial fixtures is the wholesale
channel (approximately 65% of the Company's revenue, of which more than 10% is
through international electrical wholesalers such as Rexel, Sonepar and
Hagemeyer). The retail market for lamps is characterized by a small number of
large accounts and is under competitive and pricing pressure from suppliers
located in the Pacific Rim, especially in compact fluorescent lamps, which
provide an attractive combination of high unit price and low freight cost. The
professional installer market is important to the Company for lamps and accent
fixture products. These products, which the Company sells under the Concord and
Lumiance brands often require specification approval.
MANUFACTURING
The Company's manufacturing operations are vertically integrated
through design, engineering, manufacturing, assembly and sales. This integration
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 capabilities include lamp forming and cutting, socket
manufacturing, drawing glass and plastic fiber, lamp equipment manufacturing,
plastic injection molding, production of complex molds and dies, and various
assembly operations. The Company manufactures approximately 90% of its own
products.
The Company operates within Competency Centers, which specialize in the
manufacturing of different lamp and fixture products - fluorescent lamps in
Germany; specialty incandescent lamps and industrial/commercial fixtures in
France; HID, halogen and standard incandescent lamps in Belgium; compact
fluorescent lamps and accent fixtures in the UK and accent fixtures in the
Netherlands. The Company has also arranged its marketing, design and process
engineering efforts on the Competency Center basis. The product marketing
director is based at the Competency Center site and works with the plant manager
and the engineering team.
The Company has specialized design and engineering capabilities which
it uses to improve its manufacturing process by automating single, labor
intensive operations as well as entire product assembly lines. Most of the
Company's automated manufacturing equipment is custom designed by its own
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 it has automated the manufacture of its various
lamps, fixtures and miniature lighting assemblies. By automating its operations,
the Company has been able to reduce
11
<PAGE> 13
its manufacturing costs, thereby enabling it to be competitive with products
produced worldwide.
The Company uses both internally-produced and purchased components in
its products. The Company purchases approximately 90% of its incandescent glass
shells from a joint venture consisting of Philips and Osram and 80% of its
fluorescent glass tubing from Osram. Any interruption in the supply of
incandescent shells or fluorescent tubing could have an adverse effect on the
Company's operations. The Company purchases certain of its raw materials,
including plastic, metals, glass, copper, filaments, gases, electrodes,
electronic components, wire and resistors for use in the manufacture of lamps,
fixtures, ballasts and assemblies. All such raw materials are readily available
and are generally purchased from a variety of independent, non-competing
suppliers. All LEDs used by the Company in its lighting assemblies are currently
imported from the Pacific Rim. The Company intends to equip a facility for, or
to acquire a business primarily engaged in, the production of LEDs.
The Company has developed a high level of skills in the design and
construction of high-speed automated equipment and has combined this with
materials management efficiency in its manufacturing facilities. The Company has
25 manufacturing facilities in 13 countries, including 4 facilities in the U.S.
RESEARCH AND DEVELOPMENT
Prior to the acquisition of SLI, the Company devoted little of its
resources to research and development. SLI's research and development, in recent
years, has been focused on product and process innovation, applying proven
lighting technologies, rather than in the exploration of new lighting
techniques. Much of SLI's focus has been directed toward improvements in
material science to improve lamp photometric performance, energy-efficiency and
miniaturization as well as to lengthen the life of its products and reduce or
eliminate the use of environmentally hazardous materials. Through a technical
agreement, in effect from January 1993 to September 1997, SLI was entitled to
royalty free use of Osram's worldwide intellectual property including patents,
research and development, product and process know-how for use outside the
United States, Canada and Mexico. Commencing in September 1997, SLI continues to
have the right to use all of the information and know-how acquired up to 1997
(but not to receive new Osram technology and know-how) within its existing
business outside the United States, Canada and Mexico. While the Company cannot
use the Sylvania name in the United States, Canada and Mexico, this restriction
will not prohibit the Company from selling a broad range of lighting products,
which are not dependent upon Osram technology. Additionally, the Company has
developed its own competency in lighting technologies and manufacturing
processes and has successfully produced innovations such as line voltage halogen
products and sensor operated compact fluorescent lamps. The Company's research
and development expenditures were $1,926,000 in the fiscal year ended November
30, 1997 and $7,584,000 in fiscal 1997, giving effect to The 1997 Acquisitions
on a pro forma basis. Certain of the Company's competitors are significantly
larger than the Company and devote a substantial amount of money to research and
development.
SALES AND MARKETING
The Company sells its lighting products through a direct sales force,
sales representatives and distribution companies. The Company employs
approximately 1,021 people in sales and marketing, with 674 in Europe, 124 in
the U.S., 97 in Australia, 80 in Central and South America and 46 in Asia. In
addition, the Company's sales force is augmented with independent sales
representative organizations, with approximately 677 sales people responsible
for sales in designated geographic territories in the United States, Canada and
Europe.
The Company advertises in most major electronic and electrical trade
publications. To help ensure positive results of its advertising programs, the
Company has developed a lead fulfillment and tracking program
12
<PAGE> 14
that monitors opportunities for the internal sales force, the sales
representatives and distributors. The Company also publishes full-line
catalog/data books and CD Roms for use by its customers.
INTERNATIONAL OPERATIONS
Approximately 60.9% and 68.6% of the Company's net sales and operating
income, respectively, for the year ended November 30, 1997 were outside the
United States. Giving effect to The 1997 Acquisitions on a pro forma basis,
approximately 80.9% and 81.6% of the Company's net sales and operating income,
respectively, were outside the United States. The Company currently operates in
more than thirty countries located in the Americas, Europe, Australia and
Asia. As a result of its foreign sales and facilities, the Company's
operations are subject to the risks of doing business abroad.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/03/95 12/01/96 11/30/97 11/30/97
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales:
United States .......................... $ 44,340 $ 49,843 $129,120 $144,611
Canada .......................... 7,064 13,084 14,605 14,605
Europe .......................... -0- 22,801 135,719 459,328
Asia/Pacific .......................... -0- -0- 15,698 62,552
Central and
South America .......................... 5,998 8,443 34,894 74,268
-------- -------- -------- --------
Total .......................... $ 57,402 $ 94,171 $329,959 755,364
Operating Income:
United States .......................... $9,034 $7,038 $8,582 8,582
Canada .......................... 707 2,683 3,039 3,039
Europe .......................... -0- 4,574 6,880 22,973
Asia/Pacific .......................... -0- -0- 1,145 3,500
Central and
South America .......................... 2,473 4,177 7,716 8,436
-------- -------- -------- --------
Total .......................... $ 12,214 $ 18,472 $ 27,362 $ 46,530
Identifiable Assets(1):
United States .......................... $ 30,560 $ 41,255 $107,228 $107,228
Canada .......................... 9,429 9,887 10,459 10,459
Europe .......................... 10,287 50,080 429,418 429,418
Asia/Pacific .......................... -0- -0- 32,602 32,602
Central and
South America .......................... 7,104 11,314 51,405 51,405
-------- -------- -------- --------
Total .......................... $ 57,380 $112,536 $631,112 $631,112
</TABLE>
- --------------------
(1) At December 3, 1995, December 1, 1996 and November 30, 1997.
THE 1997 ACQUISITIONS
Bruckner
In January 1997, the Company through its subsidiary Alba, acquired all of the
capital stock of Bruckner. Bruckner engineers, designs and manufactures
automated miniature lamp-making equipment at its manufacturing facility in
Coburg, Germany. The purchase price was approximately $1.7 million which was
paid from the cash proceeds received from the Company's public offering which
occurred in October 1996.
Power Lighting Products.
On January 30, 1997, the Company consummated the purchase of all of the
outstanding capital stock of Power Lighting Products. Power Lighting Products is
a manufacturer of magnetic and electronic ballasts for the linear and compact
fluorescent, sign and HID lighting markets. The purchase price was approximately
13
<PAGE> 15
$22 million and the source of funds was cash proceeds from the Company's
public offering which occurred in October 1996.
Power Lighting Products was established in 1987 when Valmont
Industries, Inc. purchased the business and certain assets of the ballast
division of General Electric. Power Lighting Products is currently a significant
supplier of both magnetic and electronic ballasts with approximately a 10% share
of a total U.S. market estimated at $900 million to $1 billion. Revenues for
1996 approximated $93.0 million and the company reported an operating loss of
approximately $600,000 for such year. Lighting ballasts (magnetic and
electronic) supply power to start and operate linear and compact fluorescent,
HID lamps and signage products (neon displays). Magnetic ballasts use an older
and well established technology and have a less expensive initial cost than
electronic ballasts. Despite higher initial cost, electronic ballasts are
gaining market share as they provide reduced energy consumption and longer lamp
life. In recent years, lighting retrofit projects driven by energy efficiency
regulations and utility rebates have accelerated the increasing market share of
electronic ballasts. Power Lighting Products provides the Company with
relationships with major OEM's. Sales to OEM's account for approximately 60% of
Power Lighting Products sales. These OEM's also represent sales opportunities
for many of the Company's other products. Power Lighting Products sells
approximately 30% of its products through electric distributors and 10% directly
to the "Do-It-Yourself" retail store market. The Company views these
distribution channels as a major part of its future domestic marketing strategy
as it expands its range of products.
SLI
On September 8, 1997, the Company consummated the purchase of all of
the outstanding shares of capital stock of SLI, a privately held company
headquartered in Geneva, Switzerland for $161.5 million cash, financed with the
Company's internal cash and a $250.0 million credit facility provided by
BankBoston. Originally founded in the United States, SLI has been in the
business of producing lamps since 1900. GTE acquired the business in 1959 at
which time the company did business exclusively in the United States. The
company expanded into Europe in 1961 with its photoflash product ("flash cube")
which is used with cameras. Between 1966 and 1985, GTE grew the worldwide
operations of SLI, setting up plants in Central and South America between 1966
and 1979 and opening operations in Australia and Asia during the 1970's. In the
1980's the Company made two acquisitions; Claude, a French lamp and fixture
manufacturer and Rotaflex, a European fixture manufacturer. In 1993, GTE sold
SLI, excluding the North American business, to a group of private investors. GTE
sold its North American business, including the trade name "Sylvania" for use
in North America, to Osram.
SLI is an integrated designer, manufacturer and seller of lighting
systems which are comprised of lamps and fixtures. SLI manufactures and offers a
wide range of lamps (incandescent, fluorescent, compact fluorescent, HID,
halogen, and special lamps) and a substantially complete range of fixtures to
meet the lighting needs of its customers, which include architects, designers,
consultants, installers, contractors, wholesale distributors, OEMs, large
industrial users and retailers. SLI's product portfolio is sold under several
brands, most notably the "Sylvania" name, for which SLI has rights in all
regions with the exception of North America and Mexico. For its year ended
December 31, 1996 SLI reported revenues of approximately $610.0 and operating
income of approximately $12.0 million. SLI manufactures approximately 90% of all
its product requirements in-house through 13 plants in 9 countries; 8 plants are
in Europe, three are in Central and South America and two in Australia. SLI
conducts its operations in over 30 countries through sales and distribution
facilities. SLI did not have a miniature lighting line, and its products did not
overlap those of the Company. Management believes that SLI is complimentary from
both a product line and geographical standpoint.
The acquisition of SLI, a large user of ballasts with no ballast
manufacturing capability, is expected to produce significant synergistic effects
for the Company and its Power Lighting Products subsidiary. The recent
acquisition of Solium in November 1997, with its unique
14
<PAGE> 16
and patented electronic ballast design and technology, is also expected
to create additional benefits for the Company.
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 brand
awareness, price, product quality, design and engineering, customer service and
distribution strength. The lamp manufacturing industry is dominated by Philips,
Osram and General Electric. Typically in the larger global markets, Philips,
Osram and General Electric each have a market share in excess of 25%. The
Company believes that it is the third largest lighting company in Europe, behind
Philips and Osram, with an estimated 11% European market share. The fixture and
miniature lighting assembly markets are highly fragmented with many suppliers.
The ballast market is concentrated by several large companies including Power
Lighting Products. Its competitors include MagneTek, Advance Transformer (a
division of Philips) and Motorola. Some of the Company's competitors have
substantially greater resources than the Company.
BACKLOG
A substantial portion of the Company's business, servicing the
wholesale and retail channels, is done on a daily basis, and therefore the
Company does not have more than a few days of backlog.
ENVIRONMENTAL REGULATIONS
The Company has invested heavily and progressively in capital and
operating costs in complying with or in anticipation of regulatory and
non-regulatory environmental requirements. SLI has worked with a leading
international environmental consultant, in evaluating potential environmental
liabilities at all SLI manufacturing locations relating to possible soil, air
and/or ground water contamination. A program of improvement projects was
initiated to achieve compliance with international standards. An environmental
management system is now in place at all of the SLI manufacturing locations.
The Company uses a radioactive gas in its manufacture of neon bulbs in
the United States, 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.
EMPLOYEES
As of November 30, 1997, the Company employed approximately 7,408
employees of whom 3,545 were employed in Europe, 591 in the U.S., 82 in Canada,
2,879 in Central and South America, 227 in Australia and 84 in Asia.
Manufacturing and engineering operations employed 5,927 people, sales and
marketing employed 1,021 people, and administration and finance employed 460
people. Union recognition and collective bargaining arrangements are in place in
8 countries (including the United States), covering a total of approximately
3400 persons (144 in the United States). These agreements are with various labor
unions and consortiums and expire at various dates. Management believes that it
has a good relationship with its unionized and non-unionized employees.
15
<PAGE> 17
ITEM 2. PROPERTIES
Manufacturing operations are carried on at manufacturing plants located
in the following countries:
<TABLE>
<CAPTION>
Location Sq. Ft. Product
-------- ------- -------
<S> <C> <C>
United States
Texas 108,000* magnetic and electronic ballasts
Oklahoma 30,000* miniature neon lamps and assemblies
New Jersey 59,200* miniature lighting assemblies, injection molding of
housings and lenses
New Jersey 7,000* molds, tool and die
France
Lyon 235,000 specialty incandescent lamps
St. Etienne 105,000 industrial/commercial fluorescent fixtures
St. Marcellin 42,000 table lighting fixtures
Germany
Erlangen 255,000* linear fluorescent lamps
Alba 54,400* miniature lamp manufacturing and assembly
Bruckner 17,000* manufacturer of automated lamp making equipment
Czech Republic
Hranice u Ase 7,500* miniature lamp assembly
United Kingdom
Newhaven 7,900* architectural fixtures
Shipley 110,000* miniature linear fluorescent and compact fluorescent lamps
Badalex 53,000* manufacturing of automated lamp making equipment
Belgium
Tienen 308,000* HID lamps, halogen lamps for low and line voltage
and general lighting service ("GLS") lamps
Netherlands
Haarlem 45,000* display fixtures
Brazil
Vinhedo 74,000* incandescent glass shells and fluorescent glass tubes
Santo Amaro 390,000 incandescent and fluorescent low and line voltage
and GLS lamps
Mexico
Juarez 163,000* magnetic and electronic ballasts
Colombia
Bogota 55,000* linear fluorescent lamps
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Location Sq. Ft. Product
-------- ------- -------
<S> <C> <C>
Costa Rica
San Jose 75,000* starters and glow bottles
San Jose 19,000* miniature lighting assemblies
Australia
Gosford 72,000 high bay industrial fixtures
Brookvale 17,000 suspended linear fixtures
Canada
Ontario 75,000* socket and socket lamp assemblies
</TABLE>
* Includes warehouse space.
The Company also has sales offices in over thirty countries located
throughout the world.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no meetings of shareholders during the fourth quarter of the
fiscal year covered by this report.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT.
The following table sets forth the names and ages of all executive
officers of the Registrant, including all positions and offices with the
Registrant held by such person, and the period during which he/she has served as
such.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Frank M. Ward 53 President and Chief Executive Officer
Norman Scoular 45 President and Chief Executive Officer of SLI
Richard F. Parenti 44 Vice President-Finance and
Chief Accounting Officer
Linda A. Moulton 42 Treasurer
</TABLE>
Each of the executive officers listed above serves at the pleasure of
the Board of Directors for a term until his or her successor is duly elected and
qualified. The following is a summary of the business experience during the past
five years of each of the Company's executive officers.
Frank M. Ward has served as President and Chief Executive Officer and
Director of the Company and its predecessor, Xenell Corporation ("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
17
<PAGE> 19
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.
Norman Scoular has been President and CEO of SLI since its inception in
1993, and currently oversees SLI's lamp and fixture operations. He has spent the
majority of his business career in various senior management posts with European
electrical product based groups, including Philips, GEC and F.K.I. He has a
General Engineering degree from Herriot Watt University and is a chartered
accountant.
Richard F. Parenti joined the Company in October 1987, and held the
position of controller from 1988 to 1992. He was appointed Vice
President-Finance in 1992. Since 1992 he has served as a senior financial
officer of the Company. Mr. Parenti has a Bachelor of Business Administration
degree in accounting from Loyola University, Chicago.
Linda A. Moulton joined the Company as treasurer in December 1997
coming from State Street Bank (Boston), where since 1993 she headed the Large
Corporations Department, which was made up of a group of lending professionals
that concentrated on specialized companies with sales exceeding $150 million.
Prior thereto, from 1990-1993, she was a Vice-President and a manager of the
Boston branch of The Daiwa Bank, Ltd. Ms. Moulton has been in banking and
finance for more than 15 years. She has a Bachelor of Science degree in
Psychology from Brown University and a Masters Degree in International Affairs
from Columbia University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
From the effective date of the Company's initial public offering on
June 16, 1995, the Company's Common Stock has been and continues to be traded on
the over-the-counter market and is included for quotation on the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"). There was no public market for the Company's Common
Stock prior to June 16, 1995, when it was listed on NASDAQ's National Market
System.
The following table sets forth the range of high and low bid
information for the Company's Common Stock for the period from the initial
public offering through the Fourth Quarter of fiscal 1997. Such information has
been adjusted for stock splits, the most recent of which was a 3 for 2 split in
the form of a dividend, payable to the stockholders of record as of February 23,
1998.
<TABLE>
<CAPTION>
Fiscal 1995 High Low
----------- ---- ---
<S> <C> <C>
Partial Third Quarter* $7.55 $ 5.78
Fourth Quarter 9.22 7.00
Fiscal 1996
-----------
First Quarter 13.22 8.89
Second Quarter 18.78 12.22
Third Quarter 20.50 12.67
Fourth Quarter 22.67 16.67
Fiscal 1997
-----------
First Quarter 29.50 11.08
</TABLE>
18
<PAGE> 20
[S] [C] [C]
Second Quarter 16.67 11.33
Third Quarter 21.56 15.50
Fourth Quarter 25.67 18.00
* For the period from the initial public offering on June 16, 1995 through
August 27, 1995.
The market information above is derived from quotations on the National
Market System of NASDAQ. Such market quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions.
As of February 25, 1998, the approximate number of holders of record of
the Company's Common Stock was 112 and the number of beneficial holders,
including individual participants in security position listings with clearing
agencies, was estimated at approximately 4,000.
DIVIDENDS
The Company has not paid any cash dividends to date and does not
anticipate or contemplate paying cash dividends in the foreseeable future. In
addition, the Company is prohibited from paying cash dividends by its credit
facilities. It is the present intention of management of the Company to utilize
all available funds for working capital and expansion of its operations.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data of the Company for, and as of the end of,
the years ended November 30, 1997, December 1, 1996 and December 3, 1995 have
been derived from the audited 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 audited consolidated financial statements of the Company.
The selected financial data of the Company for, and as of the end of, the year
ended February 27, 1994 and February 28, 1993 have been derived from the audited
combined financial statements of the Company. The following data should be read
in conjunction with the Company's Financial Statements and Notes included
elsewhere in this Report.
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------------
Nine
Months Year Year Year
Year Ended Ended Ended Ended Ended
2/27/94(1) 11/27/94(2) 12/3/95 12/1/96 11/30/97
---------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Statement Data(3):
Net sales $ 24,894 $ 31,729 $ 57,402 $ 94,171 $ 329,959
Cost of products sold 17,860 21,113 36,726 61,147 231,933
--------- --------- --------- --------- ---------
Gross margin 7,034 10,616 20,676 33,024 98,026
Selling, general and administrative
expenses 8,028 7,777 8,462 14,552 65,549
Restructuring -- -- -- -- 5,115
--------- --------- --------- --------- ---------
Operating income (loss) (994) 2,839 12,214 18,472 27,362
Interest expense, net 502 936 803 301 1,156
Other (income) expense, net (92) (7) (47) (1,294) (2,326)
--------- --------- --------- --------- ---------
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C>
Income (loss) before provision
(benefit) for income taxes (1,404) 1,910 11,458 19,465 28,532
Provision (benefit) for income
taxes(4) 231 800 2,993 6,029 7,591
--------- --------- --------- --------- ---------
Net Income (loss) $ (1,635) $ 1,110 $ 8,465 $ 13,436 $ 20,941
========= ========= ========= ========= =========
Net Income (loss) per common share $ (0.09) $ 0.06 $ 0.41 $ 0.55 $ 0.73
========= ========= ========= ========= =========
Weighted average shares
outstanding(5) 18,744 18,744 20,880 24,357 28,761
Cash dividends per common
share(6) $ 0.02 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
2/27/94 11/27/94 12/3/95 12/1/96 11/30/97
------- -------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data(3):
Working capital $ (1,507) $ (270) $ 9,923 $ 98,308 $ 117,606
Total assets 14,644 32,929 59,530 212,002 651,661
Short-term debt 3,849 9,114 65 25,174 14,821
Long-term debt, less current portion 3,628 9,015 3,147 5,607 185,434
Stockholders' equity 1,435 2,673 34,921 151,164 166,051
</TABLE>
(1) The results of operations and financial positions of Xenell and the
Company are combined for the Company's year ended 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,".
(4) Between February 28, 1993 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.
(5) See Note 2 of Notes to the Company's Financial Statements for stock split
information.
(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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company is a leading, vertically integrated designer, manufacturer
and seller of lighting systems, which are comprised of lamps, fixtures, and
ballasts. Through its 13 acquisitions completed since 1992, the Company has
grown from a specialized manufacturer of neon lamps and miniature lighting
assemblies into a full range supplier of lamps (incandescent, fluorescent,
compact fluorescent, HID, halogen, miniature incandescent, neon, LED's and
special lamps), a near full range supplier of fixtures and fiber optic lighting
systems and a full range supplier of magnetic and electronic ballasts. The
Company believes that it is one of the six largest global lighting companies and
one of only three major international producers to offer an integrated package
of lamps, fixtures and ballasts. The Company serves a diverse, international
customer base, has 25 manufacturing plants in 13 countries and operates
throughout the world.
20
<PAGE> 22
The Company was established in 1985, and completed its initial public
offering ("IPO") in June 1995 and a subsequent offering of Common Stock in
October 1996. An important part of the Company's initial development has been
its geographic and product range expansion through acquisitions. Since its IPO
and prior to The 1997 Acquisitions, the Company completed the following
acquisitions:
- Fredon, a tool, die and mold maker;
- Badalex, an engineering and design builder of automated
lamp-making equipment;
- CML Fiberoptics, an established producer of high tech
fiber optic products and manufacturer of glass and plastic
fibers;
- CML Europe, a U.K. manufacturer of halogen and specialty
lamps;
- Alba, a German manufacturer of miniature and subminiature
lamps and value added assemblies.
Such acquisitions, together with pre-IPO 1995 acquisition of CML
Canada, a manufacturer and supplier of miniature lighting assemblies and bulb
sockets, are hereinafter referred to as "Prior Acquisitions."
In January 1997, the Company acquired Bruckner which engineers, designs
and manufactures automated miniature lamp-making equipment and Power Lighting
Products, a manufacturer of magnetic and electronic ballasts for the linear and
compact fluorescent, sign, and HID lighting markets. In September 1997, the
Company acquired 100% of the outstanding stock of SLI, a privately held company
based in Geneva, Switzerland, for $161.5 million in cash, its largest
acquisition to date. SLI is one of the world's premier full-line lighting
companies, manufacturing and marketing six well respected lamp, fixture, and
specialized lighting brands throughout the world, except for North America.
Both the Prior Acquisitions and The 1997 Acquisitions were funded with
a combination of the proceeds from the Company's Common Stock offerings, bank
borrowings and cash flow from operations.
The Company's acquisition strategy has a significant impact on year to
year comparisons of revenues and earnings. The fiscal year ended November 30,
1997 includes operating results for eleven months of Bruckner, ten months of
Power Lighting Products and three months of SLI. The operating results for the
fiscal year ended December 1, 1996 includes the full year results of Badalex,
CML Europe, CML Fiberoptics, and seven months of Alba. The operating results for
the fiscal year ended December 3, 1995 includes eight months of CML Canada and
three months of Fredon.
The following discussion and analysis of the results of operations for
the twelve months ended November 30, 1997 should be read in conjunction with the
Consolidated Financial Statements of the Company with accompanying notes. Except
for historical matters contained herein, the matters discussed herein are
forward-looking statements and are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements reflect assumptions and involve risks and uncertainties which may
affect Chicago Miniature Lamp, Inc.'s business and prospects and cause actual
results to differ materially from these forward-looking statements and should be
read in conjunction with the "Risk Factors" section of this Report on Form 10-K.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items
in the Company's Consolidated Statements of Income expressed as a percentage of
net sales:
21
<PAGE> 23
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
----- ----- -----
12/3/95 12/1/96 11/30/97
------- ------- --------
<S> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0%
Cost of products sold................... 64.0 64.9 70.3
----- ----- -----
Gross margin..................... 36.0 35.1 29.7
Selling, general and
administrative expenses.......... 14.7 15.4 19.8
Restructuring costs .................... 1.6
----- ----- -----
Operating Income................. 21.3 19.7 8.3
Interest expense, net................... 1.4 .3 .4
Other (income) expense.................. (0.1) (1.3) (.7)
----- ----- -----
Income before provision
for income taxes................. 20.0 20.7 8.6
Provision for income
taxes............................ 5.2 6.4 2.3
----- ----- -----
Net income....................... 14.8% 14.3% 6.3%
===== ===== =====
</TABLE>
Year ended November 30, 1997 compared to year ended December 1, 1996
Net sales increased from $94.2 million for the year ended December 1,
1996 to $330.0 million for the year ended November 30, 1997. This increase was
primarily attributable to The 1997 Acquisitions and to a lesser extent, growth
in market share and customer development. The 1997 Acquisitions accounted for
$223.7 million of the increase in net sales. The Company's strategy of
integrating acquisitions can affect sales comparisons as existing capacity is
utilized for internal purposes.
Gross margin increased from $33.0 million for the year ended December
1, 1996, to $98.0 million for the year ended November 30, 1997, due primarily to
the increase in sales volume attributed The 1997 Acquisitions. Gross margin, as
a percentage of net sales, decreased from 35.1%, for the year ended December 1,
1996, to 29.7%, for the year ended November 30, 1997, due to the impact of lower
margins at the companies acquired in The 1997 Acquisitions, primarily the Power
Lighting Products ballast business which has traditionally been a lower margin
business in relationship to the Company's other products. The 1997 Acquisitions
gross margin, as a percentage of The 1997 Acquisitions sales, was 28% since
acquisition. This gross margin percentage is expected to improve as
restructuring plans developed at the time of acquisition are implemented.
However, the Company's gross margin percentage is subject to the impact of
seasonality and product mix.
Selling, general and administrative expenses increased from $14.6
million for the year ended December 1, 1996 to $65.5 million for the year ended
November 30, 1997. This increase was largely due to the impact of The 1997
Acquisitions. As a percentage of net sales, selling, general and administrative
expenses increased from 15.4%, for the year ended December 1, 1996, to 19.8%,
for the year ended November 30, 1997, primarily as a result of The 1997
Acquisitions. The Company's strategy is to decrease selling, general and
administrative expense of The 1997 Acquisitions through restructuring plans
which are currently being implemented. Additionally, the Company intends to
further utilize the selling, general and administrative infrastructure of The
1997 Acquisitions as a base for further sales growth.
In the fiscal year ended November 30, 1997, the Company approved a
restructuring plan which resulted in a non-recurring charge of $5.1 million. The
restructuring plan was put into effect to consolidate
22
<PAGE> 24
certain operations, reduce operating cost structures and improve future
operating results. The provision relates to the consolidation of certain North
American and European operations and includes costs associated with the excess
of net book value over estimated recoverable value for certain assets, severance
payments and the probable closure or transfer of certain assets. The Company
believes this restructuring, along with restructuring plans developed and
accrued for at the time of the SLI purchase, better positions the integration of
SLI into the Company. Reference Note 8 of the Notes to the Company's
Consolidated Financial Statements.
Interest expense, net, increased from $301,000, for the year ended
December 1, 1996, to $1,156,000, for the year ended November 30, 1997, primarily
as a result of the new and existing bank financing in connection with the SLI
acquisition on September 8, 1997. Interest income of approximately $4.1 million
was generated, for the year ended November 30, 1997, primarily from the
investment of $98.3 million in proceeds from the Company's secondary offering in
October 1996. A portion of these proceeds were used during the year for The 1997
Acquisitions ($65.0 million), the repurchase of common stock ($8.7 million) and
for other capital expenditures.
Other income increased from $1,294,000, in the year ended December 1,
1996, to $2,326,000, in the year ended November 30, 1997. This increase includes
a $985,000 gain from the sale of a 49% interest in CML Fiberoptics to Schott
Corporation in connection with the formation of the Schott CML Fiberoptics joint
venture. The remainder of the increase and substantially all of the remaining
balance of Other Income for the year ended November 30, 1997 is the result of
recording the effects of foreign exchange transactions. The Company, which has
substantial foreign operations and activity, enters into foreign currency
contracts to protect the Company from the risk that sales and purchases of
products in foreign currencies will be adversely affected by changes in exchange
rates. The Company does not hold or issue financial instruments for trading
purposes.
As a result of the above, income before provision for income taxes,
increased from $19.5 million, for the year ended December 1, 1996, to $28.5
million, for the year ended November 30, 1997. As a percentage of net sales,
income before provision for income taxes, decreased from 20.7%, for the year
ended December 1, 1996, to 8.6%, for the year ended November 30, 1997.
For the year ended November 30, 1997, the Company recorded a tax
provision of $7.6 million on a pre-tax income of $28.5 million, for an effective
rate of 26.6%, compared to a 31.0% rate on $19.5 million for the year ended
December 1, 1996. The lower effective tax rate in the current year is due to the
impact of income in countries with lower effective tax rates and realization of
tax attributes, including net operating loss carry forwards, acquired in the SLI
acquisition. A lower than U.S. statutory effective tax rate is expected to
continue for several years. Reference Note 5 of the Company's Consolidated
Financial Statements.
Year ended December 1, 1996 compared to year ended December 3, 1995
Net sales increased from $57.4 million, for the year ended December 3,
1995, to $94.2 million, for the year ended December 1, 1996. This increase in
sales was primarily attributable to the Prior Acquisitions, growth in market
share and continued customer development. The Prior Acquisitions accounted for
$29.8 million of the increase in net sales. A number of the Company's Prior
Acquisitions were not included in the operations of the Company for the year
ended December 3, 1995. The Company's strategy of integrating prior acquisitions
can affect sales comparisons as existing capacity is utilized for internal
purposes.
Gross margin increased from $20.7 million, for the year ended December
3, 1995, to $33.0 million, for the year ended December 1, 1996, due primarily to
the increase in sales volume. Gross margin, as a percentage of net sales,
decreased from 36.0% for the year ended December 3, 1995 to 35.5%, for the year
23
<PAGE> 25
ended December 1, 1996, due to a change in product mix and the impact of lower
margins at the companies acquired in the Prior Acquisitions.
Selling, general and administrative expenses increased from $8.5
million, for the year ended December 3, 1995, to $14.6 million, for the year
ended December 1, 1996. This increase was largely due to the Prior Acquisitions.
As a percentage of net sales, selling, general and administrative expenses
increased from 14.7%, for the year ended December 3, 1995, to 15.4%, for the
year ended December 1, 1996, primarily as a result of the integration of the
Prior Acquisitions. The Company's strategy is to improve upon and utilize the
selling, general and administrative infrastructure of the Prior Acquisitions as
a base for further sales growth.
Interest expense, net, decreased from $803,000, for the year ended
December 3, 1995, to $301,000, for the year ended December 1, 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 and cash flow from
operations. This reduction in debt was offset by new debt incurred to finance
certain acquisitions. Interest income of approximately $600,000 was generated
from the investment of the proceeds from the secondary offering which occurred
in October, 1996.
Other income increased from $47,000, in the year ended December 3,
1995, to $1,294,000, in the year ended December 1, 1996. Substantially all of
this increase in income results from recording the effects of foreign exchange
transactions. The Company, which has substantial foreign operations and
activity, enters into foreign currency contracts to protect the Company from the
risk that sales and purchases of products in foreign currencies will be
adversely affected by changes in exchange rates. Additionally, the Company made
yen denominated borrowings at favorable interest rates, which debt was marked to
market at the existing exchange rates, as of the reporting dates, and resulted
in an unrealized gain of $440,000 in 1996. The Company does not hold or issue
financial instruments for trading purposes.
As a result of the above, income before provision for income taxes,
increased from $11.5 million, for the year ended December 3, 1995, to $19.5
million, for the year ended December 1, 1996. As a percentage of net sales,
income before provision for income taxes, increased from 20.0%, for the year
ended December 3, 1995, to 20.7%, for the year ended December 1, 1996.
For the year ended December 1, 1996, the Company recorded a tax
provision of $6.0 million on a pre-tax income of $19.5 million for an effective
rate of 31% compared to 26% in the year ended December 3, 1995. The higher tax
rate in the current year is due to the increase in pre-tax income generated in
countries with higher tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's major uses of cash have historically been for
acquisitions, working capital to support sales growth and ongoing capital
expenditures for facilities and equipment improvement. Sources of cash have
typically included operating cash flow, bank borrowings and proceeds from the
sale of common stock. In October, 1996, the Company completed a secondary
offering pursuant to which the Company issued and sold 5,287,125 shares of its
Common Stock and received net proceeds of approximately $98.3 million. The
Company used the net proceeds of this offering to reduce debt, and to expand its
manufacturing infrastructure primarily through acquisitions and capital
expenditures.
The Company's cash on hand as, of November 30, 1997, was $73.4 million.
Net cash provided by operating activities was $31.7 million, for the year ended
November 30, 1997, and the cash used in investing activities totaled $189.3
million. The investing activities primarily included the Bruckner and Power
Lighting Products acquisitions, which together totaled approximately $25.0
million and the SLI acquisition in connection with which
24
<PAGE> 26
the Company paid approximately $161.5 million in cash. Net cash provided by
financing activities aggregated $121.9 million, which included $132.4 million in
net borrowings under the Company's credit facilities and repurchases of common
stock totaling $8.7 million.
In connection with the SLI acquisition (Reference Note 1 in the Notes
to the Company's Consolidated Financial statements) on September 8, 1997, the
Company entered into a new bank financing agreement. The agreement provides for
a $250 million, secured, revolving credit facility, which includes (i) a $50.0
million foreign currency facility; and (ii) a $15 million letter of credit
facility. These credit facilities mature in August, 2002.
On September 8, 1997, the Company used $40.0 million of internal cash
on hand and drew approximately $121.5 million under the revolving credit
facility to finance the acquisition of SLI. Additionally, the Company drew $61.9
million to refinance indebtedness of the Company and its English and German
subsidiaries and to pay certain expenses incurred in connection with the SLI
acquisition.
As of November 30, 1997, the Company had available borrowings of
approximately $66.6 million under the bank financing agreement. The face amount
of letters of credit issued under the bank financing agreement totaled
approximately $3.4 million.
The Company conducts business in countries outside of the United
States which exposes the Company to fluctuations in foreign currency exchange
rates. The Company may enter into short-term forward exchange contracts to
hedge this risk according to its outlook on future exchange rates;
nevertheless, fluctuations in foreign currency exchange rates could have an
adverse effect on the Company's business.
The Company believes that 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.
SEASONALITY
In view of the acquisition of SLI, it is expected that the Company's
operations will experience certain seasonal patterns. Generally, SLI's sales
have been highest in the fourth quarter of each year due to abbreviated
daylight hours and increase holiday light usage.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have a time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year
25
<PAGE> 27
2000 and thereafter. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
The Company will utilize both internal and external resources to
reprogram, or replace, and test the software for the Year 2000 modifications.
The Company anticipates completing the Year 2000 project within one year but not
later than December 31, 1998, which is prior to any anticipated impact on its
operating systems. The total cost of the Year 2000 project is estimated at
$500,000 and is being funded through operating cash flows. The project cost
associated with new software acquired at the time of the SLI and Power Lighting
Products acquisitions does not impact the Company's Year 2000 project cost
estimate. The remaining costs attributable to these new software purchases are
estimated to total approximately $2 million.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertanties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is found immediately following
the signature page of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Reference is made to the Company's definitive proxy statement for the
1998 annual shareholders meeting involving the election of directors, which will
be filed with the Commission within 120 days after the end of the fiscal year
covered by this Report. The information required by this Item and contained in
such definitive proxy statement is incorporated herein by reference. Reference
is also made to Item 4A in Part I of this Report with respect to the executive
officers of Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the Company's definitive proxy statement for the
1998 annual shareholders meeting involving the election of directors, which will
be filed with the Commission within 120 days after the end of the fiscal year
covered by this Report.
26
<PAGE> 28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the Company's definitive proxy statement for the
1998 annual shareholders meeting involving the election of directors, which will
be filed with the Commission within 120 days after the end of the fiscal year
covered by this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the Company's definitive proxy statement for the
1998 annual shareholders meeting involving the election of directors, which will
be filed with the Commission within 120 days after the end of the fiscal year
covered by this Report.
27
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
1. Financial Statements filed as part of this Report:
(a) Chicago Miniature Lamp, Inc. and subsidiaries
Report of Independent Auditors-Ernst &Young LLP
Consolidated Balance Sheets of Registrant dated November 30,
1997 and December 1, 1996
Consolidated Statements of Income of Registrant for the fiscal
years ended November 30, 1997, December 1, 1996 and December
3, 1995
Consolidated Statements of Stockholders' Equity for the fiscal
years ended November 30 1997, December 1, 1996 and December 3,
1995
Consolidated Statements of Cash Flows of Registrant for the
fiscal years ended November 30, 1997, December 1,1996 and
December 3, 1995
Notes to Consolidated Financial Statements of Registrant
(b) CML Canada, Inc.
Report of Hards Pearson
Balance Sheets of CML Canada dated November 30, 1997 and
December 1, 1996
Statements of Income for years ended November 30, 1997 and
December 1, 1996
Statements of Retained Earnings for years ended November 30,
1997 and December 1, 1996
Statements of Cash Flow for the years ended November 30, 1997
and December 1, 1996
Notes to Financial Statements
2. Schedules.
All schedules other than Schedule II, Valuation and Qualifying
Accounts, set forth below, are omitted as the required information is
inapplicable or is presented in the financial statements or related notes which
are incorporated herein by reference.
3. Exhibits.
3.1 Certificate of Incorporation of Registrant (a)
3.1(a) Amended Certificate of Incorporation of Registrant (a)
3.2 Bylaws of Registrant (a)
28
<PAGE> 30
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Form of Common Stock Certificate of Registrant (a)
9. Copy of Voting Trust Agreement by and among the registrant,
Frank M. Ward and Eileen M. Ward, Francis J. Ward, Eileen C.
Ward, Thomas J. Ward, Julianne Ward, Stephen P. Ward of
Registrant (a)
9.2 Form of Revocable Trust Agreement of Registrant (a)
10.1 Copy of Registrant's Incentive and Non-Statutory Stock Option
Plan of Registrant (a)
10.1(a) Copy of Amendment to Registrant's Incentive and Non-Statutory
Stock Option Plan of Registrant (a)
10.2 Copy of Share Purchase Agreement dated October 1, 1992
(CML-Delaware) of Registrant (a)
10.3 Copy of the Agreement for the Sale of Assets and Intellectual
Property Rights dated October 20, 1992 (CML-Delaware) of
Registrant (a)
10.4 Copy of Asset Purchase Agreement dated March 1, 1993 (Glolite
Sales, Ltd.) of Registrant (a)
10.5 Copy of Contract for Purchase and Sale of Stock dated March
31, 1994 (IDI) of Registrant (a)
10.6 Copy of Agreement of Merger (Xenell Corp.) of Registrant (a)
10.7 Copy of Collective Bargaining Agreement between Local 3 Bakery
and Confectionery Workers International Union of America,
AFL-CIO of Registrant (a)
10.8 Copy of Executive Employment Agreement with Frank M. Ward of
Registrant (b)
10.9 Copy of Bill of Sale dated February 25, 1994 between the
Registrant and Mr. Ward, Quit Claim Deed and Demand Note
relating to the purchase by the Registrant of ht Pauls Valley
facility of Registrant (a)
10.10 Copy of Lease Agreement between the Registrant and Paul and
Antoinette Nigito (IDI location) of Registrant (a)
10.11 Copy of Lease Agreement between the Registrant and TCC Chevy
Chase Business Park Partnership (Chicago) of Registrant (a)
10.12 Copy of Lease Agreement between the Registrant and PV
Investors (Oklahoma) of Registrant (a)
10.13 Copy of Contract for Purchase and Sale of Stock by and between
the shareholders of Plastomer Inc. and the Registrant of
Registrant (a)
29
<PAGE> 31
10.14 Copy of Collective Bargaining Agreement between Plastomer Inc.
and Local 722, United Rubber, Cork, Linoleum and Plastic
Workers of America of Registrant (a)
10.15 Copy of Third Amended and Restated Credit Agreement between
the Company, Industrial Devices, Inc. and Bank IV Oklahoma,
N.A. dated June 30, 1995 (c)
(a) First Amendment and Modification Agreement to Third Amended
and Restated Credit Agreement among the Company, Industrial
Device, Inc. and Bank IV Oklahoma, N.A. dated December 6, 1995
(d)
(b) Second Amendment and Modification Agreement to Third Amended
and Restated Credit Agreement with Bank IV Oklahoma, N.A.
dated February 23, 1995 (d)
(c) Third Amendment and Modification Agreement to Third Amended
and Restated Credit Agreement with Bank IV Oklahoma, N.A.
dated April 26, 1996 (b)
(d) Fourth Amendment and Modification Agreement to Third Amended
and Restated Credit Agreement with Bank IV Oklahoma, N.A.
dated July 22, 1996 (h)
(e) Fifth Amendment and Modification Agreement to Third Amended
and Restated Credit Agreement with Bank IV Oklahoma, N.A.
dated August 2, 1996 (h)
10.16 Copy of Commitment letter dated July 1, 1996 from Bank IV
Oklahoma, N.A. of Registrant (h)
10.17 Copy of Contract for Purchase and Sale of Stock dated August
11, 1995 (Fredon) (c)
10.18 Copy of Agreement for purchase of assets dated November 10,
1995 (Badalex) (e)
10.19 Copy of Contract for Purchase and Sale of Stock dated December
1, 1995 (CML-Fiberoptics) (c)
10.20 Copy of Agreement for purchase of assets of Phoenix Lighting
(UK) Limited by and among Phoenix Lighting (UK) Limited, Lynn
Robert Bailey, Christopher John Barlow and Chicago Miniature
Lamp Limited dated December 18, 1995 (d)
10.21 Copy of Lease Agreement by and between Industrial Devices,
Inc. and Park Street Associates dated December 19, 1995 (d)
10.22 Aircraft Purchase and Sale Agreement with Rigi, Inc. dated
December 21, 1995 (d)
10.23 Copy of Agreement on Sale and Transfer of Shares and Interests
in the Alba/Albrecht Group dated May 15, 1996 (f)
10.24 Copy of Contract for Exchange of Stock by and between Werner
A. Arnold and the Company dated May 15, 1996 (f)
10.25 Copy of Contract for Purchase and Sale of Stock of Alba Lamps,
Inc. by and between Werner A. Arnold and the Company dated May
15, 1996 (f)
10.26 Copy of Contract for Purchase and Sale of Stock of
Alba-Malaysia by and between Werner A. Arnold and the Company
dated May 15, 1996 (f)
10.27 Copy of Employment Agreement with Werner A. Arnold dated May
30, 1996 (f)
30
<PAGE> 32
10.28 Copy of Contract for Purchase and Sale of Stock of Valmont
Electric, Inc. by and between the Company and Schott
Enterprises, Inc. (i)
10.29 Copy of Joint Venture Agreement between Schott Corporation,
Chicago Miniature Lamp, Inc., CML Fiberoptics, Inc., Electro
Fiberoptics Corp. and Schott CML Fiberoptics LLC, dated
January 28, 1997(j)
10.30 Copy of Stock Purchase Agreement between the Company and
Sylvania Lighting International, B.V. (k)
21.0 List of subsidiaries*
23.1 (a) Consent of Ernst & Young LLP*
(b) Consent of Hards Pearson*
27.0 Financial Data Schedule (for SEC use only)
- --------------------
* Filed herewith
(a) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-1, File No. 33-90416
(b) Incorporated by reference to the Exhibits included in the Company's Form
10-Q for the quarter ended June 2, 1996, File No. 0-25848
(c) Incorporated by reference to the Exhibits included in the Company's Form
10-K for the year ended December 3, 1995, File No. 0-25848
(d) Incorporated by reference to the Exhibits included in the Company's Form
10-Q for the quarter ended March 3, 1996, File No. 0-25848
(e) Incorporated by reference to the Exhibits included in the Company's Form
8-K dated November 22, 1995, File No. 0-25848
(f) Incorporated by reference to the Exhibits included in the Company's Form
8-K dated June 14, 1996, File No. 0-25848
(g) Incorporated by reference to the Exhibits included in the Company's Form
8-K dated November 10, 1995, File No. 0-25848
(h) Incorporated by reference to the Exhibits included in the Company's
Registration Statement on Form S-1, File No. 333-11041
(i) Incorporated by reference to the Exhibit included in the Company's Form
8-K dated January 30, 1997, File No. 0-25848
(j) Incorporated by reference to the Exhibit included in the Company's Form
10-K dated December 1, 1996, File No. 0-25848
(k) Incorporated by reference to the Exhibit included in the Company's Form
8-K dated September 10, 1997 File No. 0-25848
(b) Reports on Form 8-K.
Report on Form 8-K, dated September 10, 1997, reporting the Registrant's
acquisition of all of the outstanding shares of capital stock of Sylvania
Lighting, Inc.
31
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 9, 1998 CHICAGO MINIATURE LAMP, INC.
By: /s/ Frank M. Ward
----------------------------------------------------
Frank M. Ward, Chief Executive and Financial Officer
By: /s/ Richard F. Parenti
----------------------------------------------------
Richard F. Parenti, Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Frank M. Ward Director March 9, 1998
- ------------------------------
Frank M. Ward
/s/ Werner Arnold Director March 9, 1998
- ------------------------------
Werner Arnold
/s/ Donald S. Dewsnap Director March 9, 1998
- ------------------------------
Donald S. Dewsnap
/s/ Richard Ingram Director March 9, 1998
- ------------------------------
Richard Ingram
/s/ Norman Scoular Director March 9, 1998
- ------------------------------
Norman Scoular
Director March __, 1998
- ------------------------------
Fred Howard
</TABLE>
32
<PAGE> 34
INDEX TO EXHIBITS FILED HEREWITH
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hards Pearson
27.0 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 35
Chicago Miniature Lamp, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended November 30, 1997,
December 1, 1996, and December 3, 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors................................................1
Consolidated Financial Statements
Consolidated Balance Sheets...................................................2
Consolidated Statements of Income.............................................4
Consolidated Statements of Stockholders' Equity ..............................5
Consolidated Statements of Cash Flows.........................................6
Notes to Consolidated Financial Statements....................................7
</TABLE>
<PAGE> 36
Report of Independent Auditors
The Board of Directors and Shareholders
Chicago Miniature Lamp, Inc.
We have audited the accompanying consolidated balance sheets of Chicago
Miniature Lamp, Inc. and subsidiaries as of November 30, 1997 and December 1,
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for the years ended November 30, 1997, December 1, 1996, and
December 3, 1995. Our audits also included the financial statement schedule for
the years ended November 30, 1997, December 1, 1996, and December 3, 1995,
listed in the index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits. We
did not audit the financial statements of Chicago Miniature Lamp (Canada), Inc.,
a wholly owned subsidiary, which statements reflect total assets of $10,469,000
and $9,887,000 as of November 30, 1997 and December 1, 1996, respectively, and
total revenues of $14,605,000 and $13,031,000 for the years ended November 30,
1997 and December 1, 1996 and $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 Chicago Miniature Lamp (Canada), Inc., is
based solely on the report of the other auditors.
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 and the report of other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Chicago Miniature Lamp, Inc. and
subsidiaries at November 30, 1997 and December 1, 1996, and the consolidated
results of their operations and their cash flows for the years ended November
30, 1997, December 1, 1996, and December 3, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule for the years ended November 30, 1997, December 1, 1996, and
December 3, 1995, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
Chicago, Illinois
January 9, 1998,
except for the 1998 stock split as described in Note 2, as to which the date is,
February 11, 1998
1
<PAGE> 37
Chicago Miniature Lamp, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
----------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 73,416 $109,027
Accounts receivable, less allowances for
doubtful accounts of
$7,889 in 1997 and $524 in 1996 140,380 18,532
Receivable from stockholder - 594
Inventories 124,086 16,186
Prepaid expenses and other 12,120 1,496
--------------------------
Total current assets 350,002 145,835
Property, plant, and equipment, net 269,650 52,151
Other assets:
Goodwill, net of accumulated amortization 7,651 6,931
Other intangible assets, net of
accumulated amortization 12,039 7,030
Other 12,319 55
-------------------------
Total assets $651,661 $212,002
=========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 38
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
---------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes payable $ 5,432 $ 21,560
Current portion of long-term debt 9,389 3,614
Accounts payable 102,104 6,404
Accrued expenses 107,616 12,907
Income taxes payable 7,855 3,042
-------------------------------
Total current liabilities 232,396 47,527
Long-term debt, less current portion 185,434 5,607
Other liabilities:
Deferred income taxes 5,532 6,116
Other long-term liabilities 62,037 1,542
-------------------------------
Total other liabilities 67,569 7,658
Minority interests 211 46
Commitments -- --
Stockholders' equity:
Preferred stock, $.01 par value - Authorized
- 5,000,000 shares, none issued and outstanding -- --
Common stock, $.01 par value - Authorized
- 100,000,000 shares
- Issued - 29,301,979 and
29,185,873 shares in 1997 and
1996, respectively 293 292
Additional paid-in capital 126,835 126,005
Retained earnings 45,218 24,277
Foreign currency translation adjustment 2,377 590
Less: Treasury stock at cost, 643,345 shares in 1997 (8,672) --
-------------------------------
Total stockholders' equity 166,051 151,164
-------------------------------
Total liabilities and stockholders' equity $651,661 $212,002
===============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 39
Chicago Miniature Lamp, Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
NOVEMBER 30 DECEMBER 1 DECEMBER 3
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 329,959 $ 94,171 $ 57,402
Cost of products sold 231,933 61,147 36,726
------------------------------------------------------
Gross margin 98,026 33,024 20,676
Selling, general. and administrative
expenses 65,549 14,552 8,462
Restructuring costs 5,115 -- --
------------------------------------------------------
Operating income 27,362 18,472 12,214
Other (income) expenses:
Interest expense, net 1,156 301 803
Other, net (2,326) (1,294) (47)
------------------------------------------------------
Income before income taxes 28,532 19,465 11,458
Income taxes 7,591 6,029 2,993
Net income $ 20,941 $ 13,436 $ 8,465
======================================================
Net income per common share, as adjusted for
1998 stock split described in Note 2 $ .73 $ .55 $ .41
======================================================
Weighted-average shares outstanding, as
adjusted for 1998 stock split described in
Note 2 28,760,505 24,357,099 20,880,169
======================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 40
Chicago Miniature Lamp, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
FOREIGN
ADDITIONAL CURRENCY
NUMBER OF PAID-IN CAPITAL RETAINED TRANSLATION TREASURY
SHARES PAR VALUE EARNINGS ADJUSTMENT STOCK
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 28, 1994 18,743,625 $187 $ 110 $ 2,376 $ - $ -
Net income - - - 8,465 - -
Issuance of common stock:
Initial public offering,
including over allotment,
net of offering costs 4,792,500 48 23,636 - - -
Other stock issuance 21,229 1 59 - - -
Translation adjustment (net of
deferred taxes of $24) - - - - 39 -
--------------------------------------------------------------------------------------
Balance at December 3, 1995 23,557,354 236 23,805 10,841 39 -
Net income - - - 13,436 - -
Issuance of common stock:
Public offering, including over
allotment, net of offering 5,287,125 53 98,291 - - -
costs
Alba acquisition 225,000 2 3,248 - - -
Exercise of stock options 116,394 1 661 - - -
Translation adjustment (net of
deferred taxes of $180) - - - - 551 -
--------------------------------------------------------------------------------------
Balance at December 1, 1996 29,185,873 292 126,005 24,277 590 -
Net income - - - 20,941 - -
Issuance of common stock:
Additional offering costs - - (212) - - -
A&S acquisition 4,500 - 100 - - -
Exercise of stock options 111,606 1 942 - - -
Repurchase shares for treasury
(643,345 shares) - - - - - (8,672)
Translation adjustment (net of
deferred taxes of $771) - - - - 1,787 -
======================================================================================
Balance at November 30, 1997 29,301,979 $293 $126,835 $45,218 $2,377 $(8,672)
======================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 41
Chicago Miniature Lamp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
NOVEMBER 30 DECEMBER 1 DECEMBER 3
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 20,941 $ 13,436 $ 8,465
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,252 3,165 1,901
Deferred income taxes (3,094) 907 155
Stock issued to employees - - 60
Minority interest in income of joint venture 162 - -
Loss on disposal of property, plant, and
equipment 876 - -
Changes in operating assets and liabilities:
Accounts receivable (15,597) (5,110) (1,728)
Inventories 695 (4,873) (623)
Prepaid expenses and other (182) (440) (272)
Accounts payable 21,051 (3,478) (95)
Accrued expenses (4,669) 1,452 (579)
Income taxes payable (1,825) (652) 2,092
Stockholder payable/receivable 594 (594) (1,079)
Other long-term liabilities 5,455 (3,402) (155)
Other - (18) (54)
--------------------------------------------------
Net cash provided by operating activities 31,659 393 8,088
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (23,992) (8,921) (2,465)
Acquisitions, net of cash acquired (165,325) (10,293) (10,308)
Maturities (purchases) of held-to-maturity
investments - 2,102 (2,102)
--------------------------------------------------
Net cash used for investing activities (189,317) (17,112) (14,875)
FINANCING ACTIVITIES
Net borrowings (repayments) of line of credit (4,541) 1,804 (7,055)
Proceeds from borrowings 189,105 24,442 9,046
Payments of long-term debt (52,128) (3,214) (19,441)
Payment of deferred financing costs (2,616) (297) -
Proceeds from issuance of common stock - Net of
offering costs - 98,344 23,684
Repurchase of shares for treasury (8,672) - -
Exercise of stock options 943 662 -
Other (212) - -
--------------------------------------------------
Net cash provided by financing activities 121,879 121,741 6,234
Effect of exchange rate changes on cash 168 - -
---------------------------------------------------
Net increase (decrease) in cash and cash equivalents (35,611) 105,022 (553)
Cash and cash equivalents, beginning of year 109,027 4,005 4,558
===================================================
Cash and cash equivalents, end of year $ 73,416 $109,027 $ 4,005
===================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 2,097 $ 936 $ 1,155
===================================================
Income taxes $ 7,447 $ 3,802 $ 629
===================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 42
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. ORGANIZATION AND ACQUISITIONS
Chicago Miniature Lamp, Inc. (an Oklahoma corporation) and subsidiaries
(collectively, the Company) designs, manufactures and sells lighting systems
which are comprised of lamps, fixtures and ballasts. The Company offers a
complete range of lamps (incandescent, flourescent, compact flourescent, high
intensity discharge, halogen, miniature incandescent, neon, LED's, and special
lamps), a near complete range of fixtures, and fiber optic lighting systems. The
Company serves a diverse international customer base and markets, has major
plants in 13 countries and operates throughout the world.
In March 1995, the Company initiated operations at IDI Internacional, S.A.
located in Costa Rica. Operations at this facility include the manufacture of
value-added lighting assemblies.
On March 30, 1995, the Company acquired all of the capital stock of Chicago
Miniature Lamp (Canada) Inc. (CML Canada; formerly named Plastomer, Inc.), a
Canadian company, for $5.0 million Canadian in cash. The foreign currency
exchange rate as of March 30, 1995, was 0.713 U.S. dollars to one Canadian
dollar. CML Canada manufactures injection molded components for the automotive
industry.
In August 1995, the Company 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 for approximately $4.2 million in
cash. The Company also assumed liabilities of up to $4.8 million. At the end of
1995, the purchase allocation was preliminary. In 1996, adjustments were made to
goodwill in the amount of $2.8 million. Badalex designs and manufactures lamp
machinery.
On December 1, 1995, the Company acquired all of the outstanding stock of
Electro Fiberoptics, Inc. for $1.6 million in cash. This acquisition was made
through the Company's wholly owned subsidiary, CML Fiberoptics, Inc.
(Fiberoptics). In January 1997, the Company entered into a joint venture
agreement with Schott Corporation forming Schott CML Fiberoptics L.L.C. In
connection with the joint venture agreement, the Company contributed
substantially all the assets of Fiberoptics and approximately $300,000 cash in
exchange for 51% of the units of the joint venture.
In December 1995, the Company through Badalex acquired certain assets of Phoenix
Lighting (UK) Limited for approximately $2,400,000 in cash.
7
<PAGE> 43
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND ACQUISITIONS (CONTINUED)
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 equity
interests in their affiliates (collectively Alba) for approximately $8.5 million
in cash, 225,000 shares of common stock of the Company, and the assumption of
approximately $4.9 million of bank debt (total consideration of approximately
$16,650,000). Alba is a manufacturer and supplier of miniature lamps,
value-added assemblies and instrument backed lighting systems.
In January 1997, the Company through Alba, acquired all the capital stock of
Gustav Bruckner GmbH (Bruckner) for DM 400,000 and the assumption of
approximately DM 2.4 million in bank debt (total consideration of approximately
$1,652,000).
On January 30, 1997, the Company acquired all the outstanding capital stock of
Valmont Electric, Inc. for approximately $22.3 million in cash and changed the
entity name to Power Lighting Products, Inc. (PLP). PLP is a manufacturer of
magnetic and electronic ballasts.
Effective September 1, 1997, the Company acquired all the outstanding capital
stock of Sylvania Lighting International, B.V. and its subsidiaries (SLI) for
$161.5 million in cash financed with the Company's cash and a new credit
facility (Note 4). SLI is an integrated designer, manufacturer, and seller of
lighting systems. SLI has a total of 13 manufacturing facilities in Europe,
Latin America, and Australia and sells to customers throughout the world.
In September 1997, the Company, through Alba, acquired an additional 38% of A&S
Electric s.r.o., Czech Republic for DM 150,000 and 4,500 shares of common stock
of the Company (total consideration of approximately $185,000).
On November 24, 1997, the Company acquired certain assets of Solium, Inc. for
$2,500,000 in cash.
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 excess of purchase price over fair market value of net
assets acquired is reflected in the accompanying consolidated balance sheets as
goodwill. The PLP and SLI allocations are based on preliminary information and
are subject to adjustment.
8
<PAGE> 44
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND ACQUISITIONS (CONTINUED)
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 consolidated since December 4, 1995:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30 DECEMBER 1
1997 1996
---------------------------
<S> <C> <C>
Net sales $755,364 $808,372
Net income 22,264 17,071
Net income per share, as adjusted for
1998 stock split, as described in
Note 2 .77 .70
</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
December 4, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated from the consolidated financial statements.
The minority interests represent the separate ownership of A&S Electric s.r.o.,
Czech Republic (A&S) (40% in 1996 and up to September 1997, 2% thereafter), Alba
Technology (M) Sdn. Bdn., Malaysia (30% in 1996 and 1997), and Schott CML
Fiberoptics L.L.C. (49% in 1997).
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 January 1998, the Company changed its financial reporting year-end to the
Sunday nearest to December 31 of each year. Previously, the fiscal year ended
the Sunday nearest December 1.
9
<PAGE> 45
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVESTMENTS
Management determines the appropriate classification of investments at the time
of purchase and reevaluates such designation 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 cost adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion is included
in interest expense, net.
INVENTORIES
Inventories are stated at the lower cost, determined by the first in, first out
(FIFO) method, or market. Inventories consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
---------------------------------
<S> <C> <C>
Raw materials $ 28,262 $ 7,240
Work in process 14,693 5,916
Finished goods 81,131 3,030
=================================
$124,086 $16,186
=================================
</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.
10
<PAGE> 46
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $593,000 and $377,000 at November 30,
1997 and December 1, 1996, respectively. Amortization expense was approximately
$216,000, $200,000, and $53,000, for the years ended November 30, 1997, December
1, 1996, and 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 related to the business 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 $2,290,000 and
$1,810,000 at November 30, 1997 and December 1, 1996, respectively. Amortization
expense was approximately $480,000, $392,000, and $380,000 for the years ended
November 30, 1997, December 1, 1996, and December 3, 1995, respectively.
WARRANTY COSTS
PLP provides a limited warranty on all of its products. The warranty period is
two years from the date of manufacture for magnetic ballasts and five years
(three years prior to June 1994) from the date of manufacture for electronic
ballasts. Under the terms of the warranty policy, PLP will replace any ballast
that fails during the warranty period. Provision for the estimated warranty
costs is made in the period in which such costs become probable. As a result of
the change in the length of the warranty period in 1994 and changes in the
product design, PLP has limited history for electronic ballasts from which
warranty costs may be estimated. It is therefore reasonably possible that actual
warranty costs may differ from the amount accrued in the accompanying balance
sheet.
11
<PAGE> 47
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TREASURY STOCK
In February 1997, the board of directors authorized, subject to certain business
and market conditions, the repurchase of shares of the Company's stock. At
November 30, 1997, a total of 643,345 shares have been repurchased.
FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce its exposure to
adverse fluctuations in interest and foreign exchange rates. Financial
instruments are not used for trading purposes.
The Company and its subsidiaries utilize forward foreign currency exchange
contracts to minimize the impact of currency movements, principally on
anticipated intercompany inventory purchases and loans denominated in currencies
other than their functional currencies.
The Company may enter into interest rate swap agreements to limit the effect of
increases in the interest rates on any floating rate debt. The differential is
accrued as interest rates change and is recorded in interest expense.
REVENUE RECOGNITION
Revenues from product sales are recognized at the time of shipment.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations in the year incurred
and totaled $1,926,000 in 1997. The costs incurred in 1996 and 1995 were not
material.
INCOME TAXES
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.
12
<PAGE> 48
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 foreign
affiliates are translated at current exchange rates, and income statement
accounts are translated at the average rates during the period. Related
translation adjustments are reported as a component of stockholders' equity.
STOCK SPLITS AND RECAPITALIZATION
The Company effected a 99-for-1 recapitalization on December 1, 1994, and a
stock split effected in the form of a dividend of 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.
On February 11, 1998, 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 is to be paid on March 6, 1998 to shareholders of record February 23,
1998.
All share and per share data have been adjusted to reflect these stock splits
and recapitalization as of the earliest period presented.
STOCK-BASED COMPENSATION
Stock-based compensation awards are accounted for under APB Opinion No. 25
Accounting for Stock Issued to Employees. In October 1995, Statement of
Financial Accounting Standards No. 123 (FASB No. 123), Accounting for
Stock-Based Compensation was issued. FASB No. 123 establishes an alternative
method of accounting for stock-based employee compensation plans (Note 10).
13
<PAGE> 49
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE
Pursuant to certain Securities and Exchange Commission requirements, earnings
per common share have been computed giving retroactive effect to the stock
dividends and recapitalization described above.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted by the Company in
fiscal 1998. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating earnings per share, the dilutive
effect of stock options will be excluded from basic earnings per share, but
included in the computation of diluted earnings per share. The Company has
historically excluded the dilutive effect of common stock equivalents in the
calculation of primary and fully diluted earnings per share as the effect has
been less than 3%. As such, basic earnings per share under the new standard will
remain unchanged from primary earnings per share. The impact on diluted earnings
per share for the year ended November 30, 1997 is not expected to be material.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131), which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
company will adopt the new requirements retroactively in 1998. Management has
not completed its evaluation of Statement 131, but does not anticipate that the
adoption of this statement will have a significant effect on the Company's
reported segments.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform with the 1997 presentation.
14
<PAGE> 50
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
-------------------------------
(Dollars in Thousands)
<S> <C> <C>
Land $ 8,051 $ 2,857
Buildings and improvements 66,726 13,114
Machinery and equipment 189,748 35,074
Molds 10,662 5,999
Furniture and fixtures 6,493 747
-------------------------------
281,680 57,791
Less: Accumulated depreciation 12,030 5,640
===============================
$269,650 $52,151
===============================
</TABLE>
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
----------------------------
(Dollars in Thousands)
<S> <C> <C>
Operating revolving credit loan,
due October 30, 1998,
unless extended, interest
payable monthly at LIBOR plus 2.25%,
repaid in 1997 $ - $ 3,636
Short-term notes denominated in
Japanese yen due August and
November 1997 - 21,560
Acquisition and other revolving
credit loans, due August 31,
2002, variable interest payable quarterly 183,375 -
Note payable to bank, due in full in
1998, interest payable
monthly at LIBOR plus 1.5% 8,418 -
Acquisition loan, due October 30, 1998,
unless extended, interest
payable at LIBOR plus 2.25%, repaid in 1997 - 1,893
Other loans, due in monthly installments
plus interest at rates
of 4.8% to 8.0% 8,462 2,786
Lines of credit with interest payable
monthly at average rate of
7.5%, repaid in 1997 - 906
-----------------------------
200,255 30,781
Less: Current portion 14,821 25,174
=============================
$185,434 $ 5,607
=============================
</TABLE>
15
<PAGE> 51
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. DEBT (CONTINUED)
On September 8, 1997, the Company entered into a $250,000,000 credit agreement
that provides for acquisition loans, a maximum of $15,000,000 under letters of
credit and bankers' acceptances, revolving loans, and a maximum of $10,000,000
in swing loans. Borrowings under this agreement, which expires August 31, 2002,
totaled $183,375,000 at November 30, 1997. The U.S. dollar loans bear interest
at LIBOR (6.03% at November 30, 1997) plus a margin or prime (8.5% at November
30, 1997) plus a margin, payable quarterly. Foreign-denominated loans bear
interest at local spot rates. The interest rate margin (1.5% for LIBOR loans and
.5% for prime loans at November 30, 1997) fluctuates based on the Company's
leverage ratio. The agreement provides for a quarterly commitment fee (.25% to
.375%), based on the Company's leverage ratio. Mandatory prepayments are
required upon the occurrence of certain events, as defined in the agreement.
The credit agreement is secured by substantially all the Company's assets and
requires the Company to comply with a number of affirmative and negative
covenants. Among other things, the credit agreement requires the Company to
satisfy certain financial tests and ratios and restricts the payment of cash
dividends.
At November 30, 1997, long-term debt includes $18,977,000 denominated in
Deutsche Marks and $3,311,000 denominated in Belgian Francs under the credit
agreement. The Deutsche Mark loan bears interest at 5.35% per annum and the
Belgian Franc loan bears interest at 5.40% per annum. The amounts outstanding at
November 30, 1997, have been adjusted based on the exchange rate at that date
and an unrealized gain of $401,000 has been recorded.
Interest expense was $5,238,000, $936,000, and $1,155,000 for the years ended
November 30, 1997, December 1, 1996 and December 3, 1995, respectively.
As of November 30, 1997, annual debt principal payments required were as follows
(dollars in thousands):
<TABLE>
<S> <C>
1998 $ 14,821
1999 1,000
2000 191
2001 191
2002 183,566
Thereafter 486
--------
$200,255
========
</TABLE>
16
<PAGE> 52
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
The following is a summary of income before income taxes (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30 DECEMBER 1 DECEMBER 3
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Domestic operations $14,005 $ 9,280 $ 8,289
Foreign operations 14,527 10,185 3,169
=====================================================
$28,532 $19,465 $11,458
=====================================================
</TABLE>
The following is a summary of the provision for income taxes (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30 DECEMBER 1 DECEMBER 3
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $7,729 $3,082 $2,278
Deferred (3,002) 632 77
-----------------------------------------------------
4,727 3,714 2,355
State:
Current 1,005 425 408
Deferred (413) (49) (26)
-----------------------------------------------------
592 376 382
Foreign:
Current 1,951 1,615 152
Deferred 321 324 104
-----------------------------------------------------
2,272 1,939 256
=====================================================
$7,591 $6,029 $2,993
=====================================================
</TABLE>
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 $1,393,000 or $.05 per share for the year ended November 30,
1997, $1,309,000 or $.05 per share for the year ended December 1, 1996, and
$742,000 or $.04 per share for the year ended December 3, 1995.
17
<PAGE> 53
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
A reconciliation between the provision for income taxes computed at statutory
rates and the amount reflected in the accompanying consolidated statements of
operations is as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30 DECEMBER 1 DECEMBER 3
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Computed federal tax provision at
statutory rates $9,986 $6,618 $3,896
Increase (decrease) in taxes resulting from:
Amortization of goodwill 86 35 24
Nonstatutory stock options (185) - -
State income taxes, net of federal benefit 396 205 252
Effect of different income taxes of other
countries (573) (1,484) (841)
Utilization of net operating loss
carryforwards (2,211) - -
Other 92 655 (338)
===============================================
$7,591 $6,029 $2,993
===============================================
</TABLE>
The significant items comprising deferred tax liabilities are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
-----------------------------
<S> <C> <C>
Assets:
Net operating loss carryforwards $46,065 $ -
Reserves 5,181 217
Other 416 322
-----------------------------
Total assets 51,662 539
Liabilities:
Differences between book and tax
bases of depreciable assets (9,984) (5,873)
Other (2,383) (782)
-----------------------------
Total liabilities (12,367) (6,655)
-----------------------------
39,295 (6,116)
Less: Valuation allowance for net operating loss
carryforwards (44,827) -
=============================
Net deferred tax liabilities $(5,532) $(6,116)
=============================
</TABLE>
SLI had net operating loss (NOL) carryforwards for tax purposes of approximately
$144,806,000 at September 1, 1997. The valuation allowance originated
18
<PAGE> 54
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
in 1997 upon the acquisition of SLI (see Note 1) and has been reduced through
the utilization of NOL carryforwards of $2,211,000. SLI has NOL carryforwards
for tax purposes of approximately $135,977,000 at November 30, 1997, of which
approximately $37,900,000 expire through 2007 and $98,077,000 do not expire.
Approximately 25% of these NOL carryforwards relate to operations in France
(which expire through 2002), approximately 25% relate to operations in Belgium
(which do not expire) and the remaining NOL carryforwards relate to operations
in various other tax jurisdictions outside the United States.
Bruckner had NOL carryforwards for tax purposes of approximately $1,906,000 at
January 7, 1997 (see Note 1). Bruckner has NOL carryforwards for tax purposes of
approximately $2,295,000 at November 30, 1997, which do not expire.
6. ACCRUED EXPENSES
Accrued expenses consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
--------------------------------
<S> <C> <C>
Payroll and related expenses $ 27,596 $ 319
Warranty and customer rebates 27,036 -
Restructuring expenses 17,147 -
Value-added taxes payable 7,249 -
Other 28,588 12,588
--------------------------------
$107,616 $12,907
================================
</TABLE>
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
--------------------------------
<S> <C> <C>
Pension $18,240 $ -
Restructuring expenses 18,831 -
Other 24,966 1,542
================================
$62,037 $1,542
================================
</TABLE>
19
<PAGE> 55
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. RESTRUCTURING
In fiscal 1997, the Company approved a restructuring plan which resulted in a
charge of approximately $5.1 million. This restructuring plan was put into
effect to consolidate certain operations, reduce operating cost structure and
improve future operating results. The provision relates to the consolidation of
certain North American and European operations and includes costs associated
with the excess of net book value over estimated recoverable value for certain
assets, severance payments, and the probable closure or transfer of certain
assets.
Additionally, the Company approved a restructuring plan as part of the SLI
purchase in fiscal 1997. The purchase liabilities recorded included
approximately $16.8 million for severance and related costs and $8.2 million for
costs associated with the shutdown and consolidation of certain acquired
facilities. At November 30, 1997, liabilities for approximately $16.2 million in
severance costs and $8.2 million for facility-related costs remained on the
balance sheet. The Company expects to substantially complete its termination of
employees and consolidation of facilities by the end of fiscal 1999.
9. COMMITMENTS
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 November 30, 1997, the aggregate minimum future commitments under
operating leases are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 5,277
1999 4,292
2000 3,020
2001 2,317
2002 1,813
Thereafter 4,977
=========
$21,696
=========
</TABLE>
Rent expense for the years ended November 30, 1997, December 1, 1996, and
December 3, 1995, was $2,846,000, $948,000 and $593,000, respectively.
20
<PAGE> 56
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. STOCK OPTION PLAN
In January 1995, the Company's Board of Directors approved a stock option plan
for up to 675,000 shares (amended to 3,000,000 shares on July 2, 1997) 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 September 1997, the Board of Directors approved the Special 1997 Stock Option
Plan for up to 3,000,000 shares of common stock. The plan provides for the
granting of incentive stock options to employees outside the U.S. and Canada and
certain other persons. The Board of Directors may determine the terms and prices
of each grant, except that no option may be exercisable after the expiration of
10 years from the date of grant. The Board granted options for 2,026,500 shares
under this plan in September 1997.
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB No. 123 requires use
of option valuation models that were not developed for the use in valuing
employee stock options. Pro forma information regarding net income is required
by FASB No. 123, which also requires that the information be determined as if
the Company had accounted for the employee stock options granted subsequent to
December 3, 1995, under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for the
years ended November 30, 1997 and December 1, 1996, respectively: risk-free
interest rates of 6.1% and 6.5%; no dividend yield; and a weighted-average
expected life of the option of 7 years. The volatility factor was assumed to be
0.3.
21
<PAGE> 57
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. STOCK OPTION PLAN (CONTINUED)
The Black-Scholes option valuation model was developed for the use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
option, the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the respective
option. Because FASB No. 123 is applicable only to options granted subsequent to
December 3, 1995, its pro forma impact will not be fully reflected until 2000.
The Company's pro forma net income and pro forma net income per share on a
historical basis would be $18,248 and $.63 and $13,039 and $.54 and $8,174 and
$.39 for the years ended November 30, 1997, December 1, 1996, and December 3,
1995, respectively.
The table below summarized option activity through November 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
RANGE OF AVERAGE
NUMBER OF EXERCISE EXERCISE
OPTIONS PRICES PRICE
----------------------------------------------
<S> <C> <C> <C>
Outstanding at November 27, 1994 - - -
Options granted during 1995 517,500 $ 5.555-7.889 $ 6.471
----------
Outstanding at December 3, 1995 517,500 5.555-7.889 6.471
Options granted during 1996 339,750 9.111-15.554 13.257
Options exercised during 1996 (116,391) 5.555-7.167 6.440
Options canceled during 1996 (198,752) 5.555-9.111 7.568
----------
Outstanding at December 1, 1996 542,107 5.555-15.554 10.328
Options granted during 1997 3,086,700 12.917-18.667 17.810
Options exercised during 1997 (111,606) 5.555-12.667 8.449
Options canceled during 1997 (61,425) 12.667-18.667 14.165
==========
Outstanding at November 30, 1997 3,455,776 5.555-18.667 17.003
==========
</TABLE>
355,765 options were exercisable at November 30, 1997, at a weighted average
exercise price of $10.175.
22
<PAGE> 58
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company sponsors separate noncontributory, defined-benefit pension plans
(the Plans) covering eligible employees, including employees in foreign
countries. The domestic plans cover union employees of Chicago Miniature Lamp,
Inc. (formerly Industrial Devices, Inc.) and substantially all employees of
Fredon. As a result of the SLI acquisition in 1997, the Company also has plans
covering employees in various foreign locations. The principal locations are
Germany, the United Kingdom, and Switzerland. Benefits are based on years of
service and compensation. The Plans' 1997 and 1996 combined funded status (based
on the most recent valuations) and the amounts recognized in the accompanying
consolidated balance sheets are as follows (dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30 DECEMBER 1
1997 1996
--------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 49,099 $1,094
Nonvested benefits 2,143 117
--------------------------
Accumulated benefit obligation 51,242 1,211
Effect of future salary increases 5,762 57
--------------------------
Projected benefit obligation 57,004 1,268
Plan assets at fair value, primarily
common stocks and fixed
income securities 41,879 1,063
--------------------------
Plan assets less than projected benefit obligation (15,125) (205)
Unrecognized transition amount 75 80
Unrecognized net (gain) loss 1,196 141
Unamortized prior service cost 14 16
==========================
(Accrued) prepaid pension cost $(13,840) $ 32
==========================
</TABLE>
The components of net periodic pension cost for the significant locations are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
NOVEMBER 30 DECEMBER 1 DECEMBER 3
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Service cost $ 608 $ 44 $ 99
Interest cost on projected benefit obligation
1,149 81 67
Actual return on plan assets (814) (63) (71)
Net amortization and deferral - (7) 12
======================================
Net pension cost $ 943 $ 55 $107
======================================
</TABLE>
23
<PAGE> 59
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The assumptions used for the significant locations were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------
(U.S. only) (U.S. only)
<S> <C> <C> <C>
Discount rate used to determine present
value of the projected benefit
obligations 4.5% to 7.5% 6.5% to 7.5% 7.5%
Expected long-term rate of return
on assets 5.0% to 8.5% 6.5% to 9.0% 9.0%
Assumed rate of increase in future
compensation levels 2.5% to 5.0% 5.0% 5.0%
</TABLE>
Alba and Bruckner also maintain defined benefit plans with benefit obligations
of approximately $4.4 million and $3.2 million at November 30, 1997 and December
1, 1996, respectively. The pension expense for these plans, consisting primarily
of interest cost, for the periods ended November 30, 1997 and December 1, 1996
was $344,000 and $124,000. The Alba plan was suspended in 1996.
DEFINED CONTRIBUTION PLANS
The Company sponsors a number of defined contribution plans. Participation in
these plans is available to all U.S. non-union employees and employees in
various other countries. Company contributions to these plans are based on
either a percentage of employee contributions or on a specified amount per hour
based on the provisions of each plan. The Company's expense under these plans
was approximately $650,000, $38,000, and $41,000 for the years ended November
30, 1997, December 1, 1996 and December 3, 1995, respectively.
12. CAPITAL STOCK
In December 1996, the Company amended its Articles of Incorporation to increase
the authorized shares of common stock to 100,000,000 shares.
At November 30, 1997, 5,772,003 shares of common stock have been reserved for
future issuance upon the exercise of stock options.
24
<PAGE> 60
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Interest Rate Risk Management
The Company uses interest rate swaps to reduce the impact on interest expense of
fluctuating interest rates on its variable rate debt. Under the Company's
interest rate swap agreement, the Company agreed with the counterparty to
exchange, at quarterly intervals, the difference between the Company's fixed pay
rate and the counterparty's variable pay rate of three-month LIBOR. At November
30, 1997, the notional principal amounts of fixed interest rate swap agreements
was $40 million having a fixed rate of 5.82%.
In connection with the interest swap agreement, the Company sold an option to
the counterparty whereby the counterparty may terminate the swap agreement on
January 29, 1999. The fair value of the option at November 30, 1997, was
estimated to be approximately $388,000.
Foreign Exchange Risk Management
The Company hedges certain foreign currency transactions and firm foreign
currency commitments by entering into forward exchange contracts (forward
contracts). Gains and losses associated with currency rate changes on forward
contracts hedging foreign currency transactions are recorded currently in
income. Gains and losses on forward contracts hedging firm foreign currency
commitments are deferred off-balance sheet and included as a component of the
related transaction, when recorded; however, a loss is not deferred if deferral
would lead to the recognition of a loss in future periods. The aggregate foreign
exchange gains recorded in 1997 and 1996 were approximately $1,664,000 and
$1,283,000, respectively.
The forward contracts have maturities of one to 12 months. The counterparties to
the Company's forward contracts consist of a number of major international
financial institutions. The credit ratings and concentration of risk of these
financial institutions are monitored on a continuing basis and management
believes they present no significant credit risk to the Company.
At November 30, 1997 and December 1, 1996, the Company had foreign currency
forward contracts with notional amounts totaling $28.8 million and $8 million,
respectively.
25
<PAGE> 61
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
short-term borrowings, accounts payable, and accruals are a reasonable estimate
of their fair value due to the short-term nature of these instruments. The
Company's domestic long-term borrowings have variable interest rates and
carrying value approximates fair value at November 30, 1997. The following table
summarizes the estimated fair value of the Company's remaining financial
instruments at November 30, 1997 and December 1, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-----------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Foreign currency forward contracts $ (657) $ (681) $ - $ 7,801
Short-term Yen-denominated loans - - 21,560 21,560
Long-term foreign denominated loans
22,289 22,289 - -
</TABLE>
14. SELECTED QUARTERLY FINANCIAL DATA
The following is a summary of unaudited quarterly financial data for the fiscal
years ended November 30, 1997 and December 1, 1996.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
1997
Net sales $34,130 $51,861 $45,826 $198,142
Gross margin 10,043 14,645 13,898 59,440
Net income 4,985 4,811 3,184 7,961
Net income per common share .17 .17 .11 .28
1996
Net sales $19,401 $22,126 $25,091 $27,553
Gross margin 6,520 7,764 8,682 10,058
Net income 2,471 2,903 3,106 4,956
Net income per common share .11 .12 .13 .19
</TABLE>
26
<PAGE> 62
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. 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 commenced operations in Costa Rica and during
fiscal 1996 in Germany. The SLI acquisition in fiscal 1997 expanded operations
of the Company to include Western Europe, Latin America, and Australia.
Financial information as of and for the years ended November 30, 1997, December
1, 1996, and December 3, 1995, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
UNITED ASIA LATIN
STATES CANADA EUROPE PACIFIC AMERICA ELIMINATIONS CONSOLIDATED
-----------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
TOTAL REVENUES
Unaffiliated customers $129,120 $ 14,605 $135,719 $ 15,621 $ 34,894 $ -- $329,959
Interarea transfers -- 105 9,956 112 1,718 (11,891) --
----------------------------------------------------------------------------------------------
Total $129,120 $ 14,710 $145,675 $ 15,733 $ 36,612 $ -- $329,959
==============================================================================================
Income from operations $ 8,582 $ 3,039 $ 6,880 $ 1,145 $ 7,716 $ -- $ 27,362
==============================================================================================
ASSETS
Identifiable assets $107,228 $ 10,459 $429,418 $ 32,602 $ 51,405 $ -- $631,112
Corporate assets 20,549 -- -- -- -- -- 20,549
----------------------------------------------------------------------------------------------
Total assets $127,777 $ 10,459 $429,418 $ 32,602 $ 51,405 $ -- $651,661
==============================================================================================
1996
TOTAL REVENUES
Unaffiliated customers $ 49,843 $ 13,084 $ 22,801 $ -- $ 8,443 $ -- $ 94,171
Interarea transfers 203 (53) 2,894 -- -- (3,044) --
----------------------------------------------------------------------------------------------
Total $ 50,046 $ 13,031 $ 25,695 $ -- $ 8,443 $ (3,044) $ 94,171
==============================================================================================
Income from operations $ 7,038 $ 2,683 $ 4,574 $ -- $ 4,177 $ -- $ 18,472
==============================================================================================
ASSETS
Identifiable assets $ 41,255 $ 9,887 $ 50,080 $ -- $ 11,314 -- 112,536
Corporate assets 99,466 -- -- -- -- -- 99,466
----------------------------------------------------------------------------------------------
Total assets $140,721 $ 9,887 $ 50,080 $ -- $ 11,314 $ -- $212,002
==============================================================================================
</TABLE>
27
<PAGE> 63
Chicago Miniature Lamp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
UNITED ASIA LATIN
STATES CANADA EUROPE PACIFIC AMERICA ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995
TOTAL REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
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
===========================================================================================
</TABLE>
Interarea transfers primarily represent shipments of work in process and
finished goods inventory to subsidiaries and affiliates. 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 cash equivalents.
28
<PAGE> 64
AUDITORS' REPORT
To the Shareholder of
CHICAGO MINIATURE LAMP (CANADA) INC.
We have audited the balance sheet of CHICAGO MINIATURE LAMP (CANADA) INC. as at
November 30, 1997 and the statements of income, retained earnings 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 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 November 30, 1997 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in the
United States.
Barrie, Canada,
December 31, 1997.
Chartered Accountants
<PAGE> 65
CHICAGO MINIATURE LAMP (CANADA) INC.
BALANCE SHEET
As at November 30
(with comparative figures as at December 1, 1996)
<TABLE>
<CAPTION>
1997 1996
$ $
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash 1,476,387 985,424
Accounts Receivable 2,996,235 2,630,575
Inventory [note 3] 1,360,003 1,661,931
Prepaid expenses 45,695 31,019
TOTAL CURRENT ASSETS 5,878,320 5,308,949
Fixed assets [note 4] 8,007,320 6,779,361
Goodwill [note 5] 1,143,277 1,261,167
- -------------------------------------------------------------------------------------
15,028,917 13,349,477
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued charges 1,503,962 1,350,297
Income taxes payable 73,301 614,565
Due to related parties [note 6] 1,684,026 1,824,850
- -------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,261,289 3,789,712
Accrued start-up costs -- 333,058
Deferred income taxes 1,919,672 1,683,081
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,180,961 5,805,851
- -------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock [note 7] 5,000,000 5,000,000
Retained earnings 4,847,956 2,543,626
- -------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 9,847,956 7,543,626
- -------------------------------------------------------------------------------------
15,028,917 13,349,477
=====================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
<PAGE> 66
CHICAGO MINIATURE LAMP (CANADA) INC.
STATEMENT OF INCOME
Year ended November 30
(with comparative figures for the year ended December 1, 1996)
<TABLE>
<CAPTION>
1997 1996
$ $
- -------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES 19,465,058 16,872,470
Direct materials and labour 10,661,542 9,710,805
- -------------------------------------------------------------------------------------
Contributions to overhead 8,803,516 7,161,665
- -------------------------------------------------------------------------------------
OVERHEAD COSTS
Manufacturing expenses 2,686,135 2,557,412
Depreciation and amortization 587,045 491,816
- -------------------------------------------------------------------------------------
3,273,180 3,049,228
Inventory change and capitalized variances 670,242 (290,943)
- -------------------------------------------------------------------------------------
3,943,422 2,758,285
- -------------------------------------------------------------------------------------
GROSS MARGIN 4,860,094 4,403,380
Distribution costs 120,702 117,504
Tooling income (3,058) (15,890)
- -------------------------------------------------------------------------------------
GROSS PROFIT 4,742,450 4,301,766
Administration 563,120 647,470
- -------------------------------------------------------------------------------------
INCOME BEFORE INTEREST, FEES AND INCOME TAXES 4,179,330 3,654,296
Interest on long-term debt -- 55,662
Management fee 525,000 510,000
- -------------------------------------------------------------------------------------
Income before provision for income taxes 3,654,330 3,088,634
- -------------------------------------------------------------------------------------
Provision for income taxes
Current 1,180,000 946,100
Deferred 170,000 152,907
- -------------------------------------------------------------------------------------
1,350,000 1,099,007
- -------------------------------------------------------------------------------------
NET INCOME FOR THE YEAR 2,304,330 1,989,627
=====================================================================================
</TABLE>
See accompanying notes
<PAGE> 67
CHICAGO MINIATURE LAMP (CANADA) INC.
STATEMENT OF RETAINED EARNINGS
Year ended November 30
(with comparative figures for the year ended December 1, 1996)
<TABLE>
<CAPTION>
1997 1996
$ $
- -------------------------------------------------------------------------------------
<S> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR 2,543,626 553,999
Net income for the year 2,304,330 1,989,627
- -------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF 4,847,956 2,543,626
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE> 68
CHICAGO MINIATURE LAMP (CANADA) INC.
STATEMENT OF CASH FLOWS
Year ended November 30
(with comparative figures for the year ended December 1, 1996)
<TABLE>
<CAPTION>
1997 1996
$ $
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income for the year 2,304,330 1,989,627
Add charges to income not resulting in a current outlay of cash
Depreciation and amortization 587,045 494,518
Deferred income taxes 170,000 152,907
Net loss on sale of fixed assets 4,975 83,643
- --------------------------------------------------------------------------------------------------------
3,066,350 2,720,695
Net decrease in accrued start-up costs (333,058) (322,871)
Net change in non-cash working capital balances (466,007) (212,175)
[note 81
- --------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 2,267,285 2,185,649
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in due to related parties (140,824) 89,513
Net change in long-term debt -- (793,400)
- --------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (140,824) (703,887)
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Adjustment to deferred taxes recorded upon
amalgamation 66,591 --
Adjustment to goodwill recorded on
amalgamation 98,663 --
Purchase of fixed assets (1,836,156) (1,645,604)
Proceeds on disposal of fixed assets 35,404 234,954
- --------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (1,635,498) (1,410,650)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH DURING THE YEAR 490,963 71,112
Cash, beginning of year 985,424 914,312
- --------------------------------------------------------------------------------------------------------
CASH, END OF YEAR 1,476,387 985,424
========================================================================================================
</TABLE>
See accompanying notes
<PAGE> 69
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
November 30, 1997
(with comparative figures as at December 1, 1996)
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.
ARTICLES OF AMENDMENT
On May 9, 1997, the company filed articles of amendment to change its name to
Chicago Miniature Lamp (Canada) Inc. The company was formerly known as Plastomer
Inc.
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:
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
these dates are stated at the lower of cost less accumulated depreciation and
net recoverable value. Depreciation is provided on the straight-line basis, with
half rates applied in the year of acquisition, 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>
<PAGE> 70
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
November 30, 1997
(with comparative figures as at December 1, 1996)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
GOODWILL
Goodwill is recorded at cost less accumulated amortization. Amortization is
provided on the straight-line basis over a period of 40 years.
TRANSLATION OF FOREIGN CURRENCY
Transactions arising in foreign currencies [principally United States dollars
and British pounds] 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>
1997 1996
$ $
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials 820,977 1,029,503
Work-in-progress and finished goods 488,337 625,370
Capitalized variances (49,310) (27,175)
Tooling 99,999 34,233
- ------------------------------------------------------------------------------------------------------------------
1,360,003 1,661,931
==================================================================================================================
</TABLE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
1997 1996
-------------------------------------- -----------------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
$ $ $ $
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land 75,000 - 75,000 75,000
Buildings 1,505,615 114,525 1,391,090 1,434,107
Machinery and equipment 5,482,051 840,664 4,641,387 3,475,312
Moulds and dies 1,543,212 282,589 1,260,623 884,760
Software 62,656 31,301 31,355 42,700
Construction-in-progress 607,865 - 607,865 867,482
- -------------------------------------------------------------------------------------------------------------------
9,276,399 1,269,079 8,007,320 6,779,361
===================================================================================================================
</TABLE>
<PAGE> 71
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
November 30, 1997
(with comparative figures as at December 1, 1996)
5. GOODWILL
<TABLE>
<CAPTION>
1997 1996
$ $
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost 1,224,939 1,323,602
Less accumulated amortization (81,662) (62,435)
- ----------------------------------------------------------------------------------------------------------------------
1,143,277 1,261,167
======================================================================================================================
</TABLE>
6. DUE TO RELATED PARTIES
<TABLE>
<CAPTION>
1997 1996
$ $
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CANADIAN DOLLARS
Due from Power Lighting Products, Inc. (12,625) --
BRITISH POUNDS
Due to Badalex Ltd. 54,320 88,962
Exchange 76,048 106,754
UNITED STATES DOLLARS
Chicago Miniature Lamp, Inc. 1,062,004 1,206,739
Exchange 424,767 410,257
IDI Internacional, S.A. (Costa Rica) 58,558 9,058
Exchange 20,954 3,080
- ----------------------------------------------------------------------------------------------------------------------
1,684,026 1,824,850
======================================================================================================================
</TABLE>
IDI Internacional, S.A. was paid $67,374 to provide sub-assembly services for
the company's LED product line.
The company purchased a piece of production equipment from Badalex Ltd. for
$859,297.
Both of the above sister corporations deal on terms that are substantially the
same as to independent customers.
Chicago Miniature Lamp, Inc. pays certain expenditures on behalf of the company
and purchases finished goods. They also provide executive, information system
and marketing services for which they receive a yearly management fee. Finished
goods purchased in the year by this company were $154,189.
<PAGE> 72
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
November 30, 1997
(with comparative figures as at December 1, 1996)
7. CAPITAL STOCK
<TABLE>
<CAPTION>
1997 1996
$ $
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <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 5,000,000
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
8. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
<TABLE>
<CAPTION>
1997 1996
$ $
- ------------------------------------------------------------------------------------------- --------------------------
<S> <C> <C>
Accounts receivable (365,660) 10,922
Income taxes receivable -- 133,139
Inventory 301,928 (205,552)
Prepaid expenses (14,676) 3,637
Accounts payable and accrued 153,665 (768,886)
charges
Income taxes payable (541,264) 614,565
- -----------------------------------------------------------------------------------------------------------------------
(466,007) (212,175)
- -----------------------------------------------------------------------------------------------------------------------
</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.
<PAGE> 73
CHICAGO MINIATURE LAMP (CANADA) INC.
NOTES TO THE FINANCIAL STATEMENTS
November 30, 1997
(with comparative figures as at December 1, 1996)
9. PENSION PLAN
Prior to July 31, 1997 the company maintained a defined benefit pension plan of
which substantially all employees are members. Current and past service costs
are charged to income as incurred and funded as required by actuarial
valuations.
The most recent triennial actuarial valuation, scheduled for January 1, 1997 is
not yet complete. However, the plan's most recent financial statements as at
December 31, 1996 indicate a surplus of $89,335.
The pension expense, all for current service costs, is $62,579 [1996 - $96,8371.
Effective July 1, 1997 the company introduced a Group Registered Retirement
Savings Plan and began the process of winding-up the defined benefit plan. The
accumulated net assets of the defined benefit plan will be distributed to the
members for transfer to a "locked-in" Registered Retirement Savings Plan.
10. OPERATING LEASES
Minimum lease payments over the next four years with respect to vehicle and
office equipment operating leases are as follows:
<TABLE>
<CAPTION>
$
- -------------------------------------------------------------------------------------
<S> <C>
1998 20,828
1999 14,180
2000 9,826
2001 6,212
- -------------------------------------------------------------------------------------
51,046
=====================================================================================
</TABLE>
11. CONTINGENT LIABILITY
During the year, the company pledged an unlimited guarantee in favour of
BANKBOSTON, N.A. over the indebtedness of its parent company, Chicago Miniature
Lamp, Inc.
12. COMMITMENTS
The company has committed to $739,500 of capital asset purchases for the coming
year. Progress payments totaling $571,152 have been made to suppliers as a
result of these commitments. These payments are included under
"Construction-in-progress" [Note 4] in the financial statements.
<PAGE> 74
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CHICAGO MINIATURE LAMP, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning of Costs and at End of
Description Period Expenses Deductions Others Period
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended November 30, 1997:
Reserves and allowances deducted
from asset account:
Allowance for uncollectible accounts $524 $771 $ (367) $ 6,961(1) $ 7,889
Deferred tax asset valuation allowance 0 (2,211) 47,038(2) 44,827
Year ended December 1, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 118 105 70 231(3) 524
Year ended December 3, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible accounts 358 (268) 28(4) 118
</TABLE>
(1) Represents allowance for doubtful accounts acquired as a result of the 1997
acquisitions of PLP, Bruckner and SLI, and the currency transaction
adjustment in the allowance account during the period.
(2) Represents deferred tax asset valuation allowance included in opening
balance sheet of SLI, a 1997 business combination.
(3) Represents allowance for doubtful accounts as a result of the 1996
acquisition of Alba.
(4) Represents allowance for doubtful accounts acquired as a result of the 1995
acquisition of CML Canada.
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
State or Jurisdiction Type of Percent
Subsidiary or Partnership of Incorporation Interest* Owned Owned by
------------------------- ---------------- --------- ----- --------
<S> <C> <C> <C> <C>
Chicago Miniature Lamp (Canada) Inc. Ontario C 100% CML
IDI Internacional S.A. Costa Rica C 100% CML
Badalex Limited England C 100% CML
Chicago Miniature Lamp
Europe Limited England C 100% Badalex
CML Fiberoptics, Inc. Massachusetts C 100% CML
Alba Speziallampen Holding
GmbH ("Alba Holding") Germany LLC 100% CML
Power Lighting Products, Inc. Delaware C 100% CML
Gustav Bruckner GmbH Germany C 100% CML
Chicago Miniature Lamp
Sylvania Lighting International Inc.
("CML/SLI") Delaware C 100% CML
Sylvania Lighting International, B.V. Netherlands C 100% CML/SLI
Schott-CML Fiberoptics, Inc. Delaware LLC 51% CML
</TABLE>
* C=Corporation, LLC=Limited Liability Company, LP=Limited Partnership
Interest, GP=General Partnership Interest
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-99070) pertaining to the Chicago Miniature Lamp, Inc.
1995 Incentive and Non-Statutory Stock Option Plan of our report dated January
9, 1998, except for the 1998 stock split as described in Note 2, as to which the
date is February 11, 1998, with respect to the consolidated financial statements
and schedule of Chicago Miniature Lamp, Inc. included in the Annual Report (Form
10-K) for the year ended November 30, 1997.
Ernst & Young LLP
Chicago, Illinois
March 2, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-99070) pertaining to the Chicago Miniature Lamp, Inc.
1995 Incentive and Non-Statutory Stock Option Plan of our report dated January
2, 1998, with respect to the consolidated financial statements of Chicago
Miniature Lamp (Canada), Inc. included in the Annual Report (Form 10-K) of
Chicago Miniature Lamp, Inc. for the year ended November 30, 1997.
Hards Pearson
Barrie, Ontario, Canada
March 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-02-1996
<PERIOD-END> NOV-30-1997
<CASH> 73,416
<SECURITIES> 0
<RECEIVABLES> 148,269
<ALLOWANCES> (7,889)
<INVENTORY> 124,086
<CURRENT-ASSETS> 350,002
<PP&E> 281,680
<DEPRECIATION> (12,030)
<TOTAL-ASSETS> 651,661
<CURRENT-LIABILITIES> 232,396
<BONDS> 185,434
0
0
<COMMON> 293
<OTHER-SE> 165,758
<TOTAL-LIABILITY-AND-EQUITY> 651,661
<SALES> 329,959
<TOTAL-REVENUES> 329,959
<CGS> 231,933
<TOTAL-COSTS> 302,597
<OTHER-EXPENSES> (2,326)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,156
<INCOME-PRETAX> 28,532
<INCOME-TAX> 7,591
<INCOME-CONTINUING> 20,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,941
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
