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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended October 27, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from ............................... to...............
Commission file number 0-14365
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ALPHA TECHNOLOGIES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0079338
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9465 WILSHIRE BLVD., SUITE 717
BEVERLY HILLS, CA 90212
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 385-1494
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SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.03 par value
(TITLE OF EACH 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 X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$21,129,911 at January 17, 1997
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Common Stock, 6,746,329 shares outstanding at January 17, 1997
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DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement to be filed on or about February
24, 1997 is incorporated by reference into Part III of this report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Alpha Technologies Group, Inc. ("Alpha" or the "Company"), through its
wholly-owned subsidiaries, Wakefield Engineering, Inc. ("Wakefield") and
Uni-Star Industries, Inc. ("Uni-Star"), designs, manufactures and sells thermal
management products and connectors. The Company's thermal management products,
principally heat sinks, which dissipate heat generated by electronic components,
serve the microprocessor, computer, consumer electronics, transportation, power
supply, aerospace and defense industries. The Company's sub-miniature,
micro-miniature and ultra-miniature connector products and its
backplane/midplane-type assemblies, the majority of which are custom
manufactured to meet rigid specifications, serve the aerospace, automotive,
communications, defense, factory automation, industrial controls, medical
electronics, scientific/process instrumentation and test/measurement industries.
The Company was incorporated as Synercom Technology, Inc. in Texas in 1969
and was reincorporated in Delaware in 1983. In April 1995, it changed its name
to Alpha Technologies Group, Inc. In 1993, the Company began its transformation
from a software company to its current business as an electronics components
manufacturer. In September of 1994, the Company sold the remaining aspects of
its software and related services business. Since October 1993, the Company has
grown through a combination of acquisitions and internal growth.
Acquisitions
In August 1996, the Company acquired Lockhart Industries, Inc.
("Lockhart"), a manufacturer of sophisticated thermal management devices used
primarily in the aerospace and military markets. Management anticipates that
Lockhart will expand the Company's thermal management business by providing
access to new markets and expanding its technological capabilities. The
consideration for the transaction was the issuance of 280,556 shares of the
Company's common stock, which is subject to reduction if Lockhart's net working
capital at closing (as defined in the merger agreement) is below certain
thresholds, and subject to increase if the average market price of the Company's
common stock is below $9 per share for the twenty trading days prior to August
21, 1998. The Company believes, based on its audit of Lockhart's closing date
balance sheet, that the number of shares issued to Lockhart's Stockholders may
be reduced by approximately 82,577 shares. The Company also assumed
approximately $500,000 of Lockhart's bank debt.
During fiscal 1996, the Company completed the purchase of the 20% interest
of Uni-Star owned by Uni-Star's former president in exchange for 265,000 shares
of the Company's common stock. See Note 2 to the Financial Statements. The
following table sets forth the other significant acquisitions made by the
Company since October 1993:
MONTH ACQUIRED BUSINESS
- -------------------------------------- ------------------------------------------------------
October 1993.......................... Thermal management operations in Wakefield and Fall
River, Massachusetts ("Wakefield")
June 1994............................. Connector and related product operations in South
Pasadena, California, Colmar, Pennsylvania and
Cincinnati, Ohio ("Uni-Star")
August 1994........................... Thermal management operations in Temecula, California
("Wakefield-Temecula")
June 1995............................. Aluminum extrusion operations in Fullerton, California
("Specialty")
Wakefield is a wholly-owned subsidiary of the Company; Wakefield-Temecula
is a division of Wakefield; and Specialty and Lockhart are wholly-owned
subsidiaries of Wakefield. Uni-Star is a wholly-owned
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subsidiary of the Company and consists of three divisions: Microdot Connectors
in South Pasadena, California; Malco in Colmar, Pennsylvania; and Connector
Industries of America in Cincinnati, Ohio.
PRODUCTS
Thermal Management
Thermal management products are used to dissipate heat generated by
electronic components within electronic systems. The Company designs,
manufactures and sells thermal management products for use in a variety of
industries, including the microprocessor, computer, consumer electronics,
industrial control, medical instrumentation, laser, power supply and conversion,
telecommunication equipment, transportation, welding equipment, aerospace and
defense industries. The principal customers for the Company's thermal management
products are leading original equipment manufacturers (OEM's) of electronic
equipment. See "Description of Business -- Customers".
The Company's principal thermal management products include:
Penguin(TM) Coolers.......... Heat sinks specifically designed to solve thermal
problems for the latest high-speed versions of
microprocessors offered by major manufacturers,
which include Intel's Pentium(R) and
Pentium(R)Pro, AMD's K5 and K6, IBM's and Cyrix's
6x86, and IBM's and Motorola's PowerPC(TM)
products. Other microprocessor-specific products
include fan heat sink assemblies (heat sinks with
electric fans attached to them) and aluminum
impregnated plastic heat sinks, sold under the
Deltem(TM) name.
Extruded Heat Sinks.......... Heat sinks and heat sink assemblies designed for
high power industrial applications, including
transportation equipment and stereo amplifiers
and bonded fin heat sinks used by makers of power
supplies, transportation equipment and other
industrial equipment.
Stamped and Low Power Heat
Sinks........................ Heat sinks designed for heat dissipation in power
semiconductors, transistors, rectifiers, diodes
and other electronic components used in
electronic applications. Typically, these are
smaller components used on printed circuit
boards.
Active Cooling Components.... These products use air or liquid to dissipate
heat. Air-to-air heat exchangers use fans to
exchange heat with cooler air and are used in
high-performance telecommunications, military and
aerospace systems. These products also include
sophisticated precision formed fin/ fluxless
vacuum brazed chassis, heat exchanger and cold
plates used to cool and protect computer, radar
and laser systems for the aerospace, military and
commercial markets. Liquid cooling systems are
used in applications which require the removal of
significantly greater amounts of heat than can be
achieved by air cooling.
Precision Compression
Mounting Clamp Systems....... These products are complete mounting clamp and
heat sink assembly systems for proper
installation, compression and cooling of
high-power compression pack silicon-controlled
rectifiers. These products are used in industrial
welding, transportation and motor control
systems.
Accessory Products........... The Company's accessories include
high-performance thermal compounds, adhesives,
interface materials, and other accessories.
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Connectors
Connectors are electro-mechanical devices which permit electronic
subassemblies such as printed circuit boards, power supplies and input-output
wire harnesses/cable assemblies to be attached and separated. The Company
designs, manufactures and sells high-reliability sub-miniature, micro-miniature
and ultra-miniature connectors used in aerospace, military and high-performance
commercial applications. The Company's connector products are typically produced
in small volumes and are highly customized to meet specific requirements.
Connectors are used by OEM's in a diverse group of industries, including
aerospace, automotive, communications, defense, factory automation, industrial
controls, medical electronics, scientific/process instrumentation and
test/measurement. See "Description of Business -- Customers".
The Company's principal connector products include:
Sub-Miniature,
Micro-Miniature and
Ultra-Miniature Rectangular
Connectors................... Low frequency signal connectors which are
configured in one to four rows with up to 400
contacts and designed for high reliability
aerospace, military and commercial applications.
Coaxial Connectors........... Low to high frequency signal connectors which are
configured to work with 50, 70 and 93 ohm
miniature coaxial, twin-axial and tri-axial
cable. Predominantly used in communication and
test/measurement instrumentation applications.
Circular and Hermetic
Connectors................... The Company produces several families of circular
low frequency signal connectors, including
hermetic connectors. All components of hermetic
connectors are made from materials that resist
corrosion and are made to withstand pressure of
up to 20,000 psi. Hermetic connectors require an
air tight compression seal between the contacts
and its circular body. Hermetic connectors are
designed to perform in harsh environments that
cause ordinary connectors to fail. Typical
applications include: speed sensors on aircraft
engines, test/measurement pressure switches,
temperature probes and fuel flow measurement
instruments.
Backpanels and
Backplanes/Midplanes......... Backpanels are manufactured from aluminum
substrates. Backplanes/midplanes are manufactured
from rigid, multi-layer printed circuit boards.
Backpanels must be wire-wrapped to support
intended end-use. Typical applications for
backpanels include flight vehicles and related
ground support equipment. Backplanes/midplanes
are used predominantly in communications and
data-communications switching, multiplexing and
transmission systems. The Company also provides
automatic wire wrapping services, which permit
engineers to test and de-bug
prototype/preproduction backpanels and
backplanes/midplanes during initial development
and later alpha/beta testing.
Automotive Switches.......... The Company's automotive switches are used for
brake lights, door jams, cruise control, neutral
safety start, junction blocks and other
automotive uses.
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CUSTOMERS
The Company has over three thousand customers. Customers for thermal
management products include leading OEM's of electronic equipment. Connector
customers include major aerospace, communications, defense, medical electronics
and test/measurement equipment OEM's.
No single customer accounted for greater than 10% of the Company's revenues
during its fiscal year 1995 or 1996.
The Company's products must meet its OEM customers' exacting
specifications. A substantial portion of the Company's OEM customers require the
Company to qualify as an approved supplier. In order to qualify, the Company
must satisfy stringent quality control standards and undergo extensive in-plant
inspections of its manufacturing processes, equipment and quality control
systems.
SALES, MARKETING, AND DISTRIBUTION
The Company designs, manufactures and sells both standard and customized
products. The Company seeks to become a strategic supplier to its customers and
to differentiate itself from its competitors by offering a higher level of
service and technical sales support to its customers. The Company has a team of
applications engineers and technicians who are dedicated to providing ongoing
technical support. These engineers and technicians provide solutions to
customers for their thermal management problems, answer customers' questions on
the use and application of the Company's products and provide field support to
customers. The Company strives to establish technical relationships with certain
key microprocessor and computer manufacturers to focus on new product design and
develop new product concepts in advance of rapidly changing computer market
requirements. The Company believes the technical services provided by its
engineers and technicians are an important factor in its sales and product
development efforts.
The Company has entered into a joint marketing relationship with Flomerics,
the developer of FLOtherm, a software program used by engineers to design new
thermal management products, to make joint presentations at trade shows, to
present jointly sponsored technical seminars and for Flomerics to feature
products developed by the Company in its demonstrations.
The Company sells its products through in-house sales personnel and a
network of independent manufacturers' representatives and distributors. In North
America, thermal management products are marketed through a five-person direct
sales force, 23 manufacturer representatives and 49 distributors; and connector
products are marketed through 17 manufacturers' representatives and one
distributor supported by the Company's seven-person sales force. In
international markets, the Company uses 16 manufacturers' representatives and 6
international distributors. International sales of connector products are also
supported by Company facilities located in England and France, which also
assemble and sell micro-miniature connectors to the European market.
In general, the Company's sales representatives and distributors have
entered into agreements that allow for termination by either party upon 30 to 90
days notice. Generally, distributors are permitted to return a small portion of
products purchased by them during the term of the agreements and to return all
products (other than obsolete products) purchased by them upon termination by
the Company. The Company's distributors are generally not precluded from
marketing competitive products.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's product development strategy primarily focuses on engineering
modifications of existing products in response to customer needs. Historically,
the Company has not focused on the development of entirely new products or
materials. However, during fiscal 1996, the Company, working with Intel,
developed a new product concept to cool laptop and notebook computers. Called
APACHE, this product is the first modular system design which uses standardized
components, thus replacing the customized approaches used to date. The APACHE
system can be used in current notebook PC's and those that the Company
anticipates will enter the market during the next two years. During fiscal 1994,
1995 and 1996, the Company spent $674,000, $1,109,000, and $1,448,000,
respectively, on product research and development primarily with
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respect to its thermal management products. The Company believes that its
technical capabilities, in conjunction with collaborative efforts with
customers, will allow it to continue to introduce variations to products
responsively.
The Company is currently developing standard and custom heat sink
assemblies for next generation microprocessors. In addition, the Company plans
to continue expanding its product offerings for many types of stamped and low
power heat sinks and to expand its collaboration programs with manufacturers of
alternative materials to achieve cost reduction and performance improvements for
thermal management components.
The Company intends to continue developing new connector products by
modifying and extending its current products and developing new product lines.
During 1996, the Company completed the design, development, prototyping and
preproduction of a new line of ultra-miniature products for use in missile
systems, test/measurement equipment, digital signal processing systems and
medical equipment.
COMPETITION
The thermal management market is highly competitive. There are many
companies which compete directly with the Company in the thermal management
business and offer products and services similar to those offered by the
Company. Although no one competitor is dominant, there are four principal
competitors in the thermal management market, including the Company. The
Company's three major competitors are Aavid Thermal Technologies, Inc., IERC, a
division of Dynamics Corporation of America, and Thermalloy, a division of
Bowthorpe, plc. Two of the Company's thermal management competitors are
divisions of larger corporations and, as such, may have greater financial,
marketing, and technical resources than the Company. Additional competition
comes from numerous small machine shops, aluminum extruders, and other new
thermal management companies which typically focuses on a single product and do
not offer complete lines of thermal management products.
The connector industry is highly fragmented with competition drawn along
very specific product lines. The Company's principal competition in its
connector operations comes from smaller, niche-oriented companies which, like
the Company, focus on low volume customized products. Occasionally, the Company
competes with smaller divisions of larger firms. The Company's direct
competitors include HCC in the hermetic connector market, CTS's Fabritek
division and Teradyne in the aluminum backpanel and backplane/midplane market,
and Labinal's Cinch division and Microtech in the sub-miniature, micro-miniature
and ultra-miniature connector market.
BACKLOG
The Company's backlog was approximately $21.1 million on each of October
27, 1996 and October 29, 1995. Backlog typically consists of purchase orders
scheduled for shipment within 60 days following the order date for thermal
management products and 75 days for connector products. The Company's backlog at
any time is not indicative of future revenue. The Company has also entered into
supply agreements with several customers for its connector products, including
Lockheed Martin, Raytheon and Boeing North America (previously known as Rockwell
Aerospace), which generally provide that, for a term of 18 months to two years,
such customer will purchase all its requirements, if any, for a particular
product from the Company for a fixed price.
PROPRIETARY RIGHTS
The Company applies for patents with respect to its most significant
patentable developments. It owns 14 patents related to its thermal management
products which expire from 1997 to 2015, and it has five patents pending. The
Company owns 12 patents related to its connector products. Management believes
that its competitive position is not dependent on patents and that patent
expirations will not materially adversely affect the Company's competitive
position.
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RAW MATERIALS
The principal raw material used in thermal management products is aluminum.
The principal raw materials used in connector products are aluminum, copper,
stainless steel and steel alloy. The Company also uses gold, plating chemicals,
plastics, bar metal and wire in its production of connectors. Raw materials
represent a significant portion of the cost of the Company's products. Prices
for raw materials are based upon market prices at the time of purchase.
Historically, the price of aluminum has experienced substantial volatility.
Although thermal management products are generally shipped within 60 days, and
connectors are generally shipped within 75 days of receipt of orders, increases
in raw materials prices cannot always be reflected in product sales price. All
raw materials are readily available from multiple suppliers at competitive
prices. In addition, Specialty supplies a portion of the Company's needs for
extruded aluminum, a raw material used to manufacture heat sinks.
ENVIRONMENTAL
Several aspects of the Company's operations utilize hazardous material, the
removal of which is subject to regulation. At each location, the Company
contracts with licensed third party waste haulers to remove such toxic waste.
While the Company believes that it conducts its operations in substantial
compliance with applicable environmental laws and regulations and has all
environmental permits necessary to conduct its business, more stringent
environmental regulations may be enacted in the future, and there can be no
assurance that the Company will not incur significant costs in the future in
complying with such regulations. Local environmental agencies monitor the
Company's operations for ongoing compliance with environmental requirements, and
the Company is required to correct any violations revealed by such monitoring.
Although the Company is periodically subject to notices of violations with
respect to environmental requirements, it is not aware of any violations or
events that would require the Company to incur material cost, nor has the cost
of complying with environmental laws represented a material cost to the Company.
The Company has received a notice addressed to the predecessor of its
connector business that the California Department of Toxic Substances Control
believes it to be a Potential Responsible Party of a cleanup site. The Company
believes that it has no potential liability with respect to such site because it
purchased the predecessor's assets pursuant to a bankruptcy court order
providing that such assets were being sold free of all liabilities, including
successor and environmental liabilities.
EMPLOYEES
On October 27, 1996, the Company had 816 employees (796 of whom were full
time). Its thermal management operations had 492 employees (481 of whom were
full time), all in domestic operations, and its connector operations had 296
employees in domestic operations (290 of whom were full time) and 17 residents
outside the United States (15 of whom were full time). In addition, the Company
had 11 corporate employees (10 of whom were full time). Employees are not
represented by a labor union. Management believes that employee relations are
excellent.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company has leases for manufacturing facilities at the following
locations:
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET PRINCIPAL FACILITY USE DATE
- -------------------------------------- ----------- ---------------------------- --------------
South Pasadena, California............ 52,696 connectors May 2004
Temecula, California.................. 44,200 thermal management products November 2004
Fullerton, California................. 15,000 thermal management products August 1998
Cincinnati, Ohio...................... 18,000 connectors November 1999
Wakefield, Massachusetts.............. 56,500 thermal management products November 2003
Fall River, Massachusetts............. 60,000 thermal management products April 2000
Colmar, Pennsylvania.................. 37,000 connectors March 2000
Paramount, California................. 36,700 thermal management products October 1999
Paramount, California................. 25,000 thermal management products October 1999
Management feels that these facilities are in good condition suitable for
the purposes for which they are used. The Company has office space for its
corporate staff in Houston, Texas, Beverly Hills, California and New York, New
York.
In addition, the Company currently has approximately 67,000 square feet of
leased space in Houston, Texas, substantially all of which is subleased under
subleases which expire concurrently with the Company's overlease in 1998. See
Note 9 to Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings against the Company and, to
the Company's knowledge, no such proceedings are threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of fiscal 1996 to a
vote of the holders of the Company's common stock, through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET FOR COMMON STOCK
The Company's common stock is traded on The Nasdaq Stock Market, National
Market System (NMS) under the symbol ATGI. Through the facilities of the
NASDAQ/NMS reporting system, actual sales prices of the Company's common stock
are available.
The following table sets forth the high and low sales prices of the
Company's common stock as reported on the NASDAQ National Market System for each
full quarterly period within the Company's two most recent fiscal years:
1995 HIGH LOW
---- ---- ---
First Quarter........................... 6 4 7/8
Second Quarter.......................... 7 1/ 4 7/8
Third Quarter........................... 12 3/8 5 1/4
Fourth Quarter.......................... 13 3/8 8 3/8
1996 HIGH LOW
---- ---- ---
First Quarter........................... 11 3/8 6 7/8
Second Quarter.......................... 8 5/ 6 1/4
Third Quarter........................... 8 5/ 5
Fourth Quarter.......................... 5 3/ 4 1/4
HOLDERS OF RECORD
On December 31, 1996, there were approximately 232 holders of record and
approximately 2,000 beneficial owners of the Company's common stock.
DIVIDENDS
The Company has paid no cash dividends on its common stock during fiscal
years 1995 and 1996. The Board of Directors of the Company currently does not
intend to declare cash dividends on its common stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The Company entered the electronic components business in October 1993 by
acquiring a thermal management business. In September 1994, the Company sold its
software business.
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ITEM 6. SELECTED FINANCIAL DATA -- (CONTINUED)
FOR THE YEARS ENDED
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OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 29, OCTOBER 27,
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AND PER SHARE DATA)
RESULTS OF OPERATIONS
SALES..................................... -- $ 258 $ 30,145 $ 64,116 $ 70,237
COST OF SALES............................. -- 190 20,627 46,888 55,021
--------- --------- --------- --------- ---------
Gross profit.................... -- 68 9,518 17,228 15,216
OPERATING EXPENSES
Research and development................ -- 11 674 1,109 1,448
Selling, general and administrative..... -- 48 6,572 11,941 12,823
Other................................... -- -- -- -- 406
--------- --------- --------- --------- ---------
Total operating expenses........ -- 59 7,246 13,050 14,677
--------- --------- --------- --------- ---------
OPERATING INCOME.......................... -- 9 2,272 4,178 539
INVESTMENT INCOME......................... -- -- 108 258 --
INTEREST AND OTHER INCOME (EXPENSE),
net..................................... 432 337 76 (477) (778)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE TAXES................ 432 346 2,456 3,959 (239)
PROVISION (BENEFIT) FOR INCOME TAXES:
Current................................. 147 101 500 530 60
Deferred................................ -- 17 (1,360) (671) --
--------- --------- --------- --------- ---------
Total provision (benefit) for
income taxes.................. 147 118 (860) (141) 60
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST,
DISCONTINUED OPERATIONS AND
EXTRAORDINARY CREDIT.................... 285 228 3,316 4,100 (299)
LESS: MINORITY INTEREST................... -- -- (384) (352) --
GAIN ON SALE OF DISCONTINUED OPERATIONS,
net of income tax effect................ -- -- 1,380 -- --
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, net of income tax effect.... (4,251) (22) 978 -- --
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
CREDIT.................................. (3,966) 206 5,290 3,748 (299)
EXTRAORDINARY CREDIT: TAX BENEFIT OF NET
OPERATING LOSS CARRYFORWARD............. 138 111 -- -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS)......................... $ (3,828) $ 317 $ 5,290 $ 3,748 $ (299)
========= ========= ========= ========= =========
PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) before minority interest,
discontinued operations and
extraordinary credit................. $ 0.05 $ 0.04 $ 0.52 $ 0.62 $ (0.05)
Minority interest....................... -- -- (0.06) (0.05) --
Gain on sale of discontinued
operations........................... -- -- 0.22 -- --
Discontinued operations................. (0.74) -- 0.15 -- --
Extraordinary credit.................... 0.02 0.01 -- -- --
--------- --------- --------- --------- ---------
Net income (loss)....................... $ (0.67) $ 0.05 $ 0.83 $ 0.57 $ (0.05)
========= ========= ========= ========= =========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON EQUIVALENT SHARE............. 5,732,335 6,017,543 6,343,604 6,605,147 6,277,585
========= ========= ========= ========= =========
OTHER FINANCIAL DATA
Working capital......................... $ 10,031 $ 8,932 $ 15,924 $ 15,696 $ 6,460
Total assets............................ 13,739 16,079 31,689 42,256 47,060
Total debt.............................. -- -- 3,902 9,943 13,909
Stockholders' equity.................... 10,528 10,951 16,544 18,763 22,117
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION.
OVERVIEW
The Company entered the electronic components business in October 1993 by
acquiring a thermal management business, Wakefield Engineering, Inc. The
following table sets forth the significant acquisitions made by the Company
during the last three fiscal years:
MONTH
ACQUIRED BUSINESS PREDECESSOR'S NAME
- ------------- ------------------------------------------------------- --------------------------
June 1994 Connector and related product operations in South Interconnect Systems
Pasadena, California, Colmar, Pennsylvania and Division of Microdot Inc.
Cincinnati, Ohio ("Uni-Star")
August 1994 Thermal management operations in Temecula, California Aham Tor, Inc.
("Wakefield-Temecula")
June 1995 Aluminum extrusion operations in Fullerton, California Specialty Extrusions Ltd
("Specialty")
August 1996 Thermal management operations in Paramount, California Lockhart Industries, Inc.
("Lockhart")
Since their acquisitions, Wakefield-Temecula has been operated as a
division, and Specialty and Lockhart have been operated as subsidiaries of
Wakefield. Each of the plants in the connector business operates as a division
of Uni-Star.
The results of operations of the businesses acquired are included in the
Company's consolidated results of operations only since their respective
acquisition dates. In September 1994, the Company sold the remaining assets of
its software business. The consolidated financial statements of the Company for
the fiscal year ended October 31, 1994 report separately the gain on the sale
and results of operations of such discontinued operation. Such operation is not
included in the following discussion.
RESULTS OF OPERATIONS
Fiscal Year 1996 versus Fiscal Year 1995 Comparison
Sales. Total sales increased 9.5% in fiscal 1996 compared to fiscal 1995.
Thermal management sales increased to $48,980,000, or 11.6%, in fiscal 1996 from
$43,865,000 in fiscal 1995. The 11.6% increase in thermal management sales in
fiscal 1996 was primarily attributable to the inclusion of sales by Specialty
and Lockhart, along with higher sales of Penguin Cooler heat sinks, which serve
the microprocessor and personal computer markets. Specialty was acquired in June
1995 and Lockhart in August 1996. Sales of Penguin Cooler heat sinks increased
35.5% in fiscal 1996 compared to fiscal 1995 although the increase was not as
great as anticipated due to elevated inventory levels throughout the personal
computer industry. The increase in thermal management revenues was partially
offset by lower sales of active cooling components. Without the addition of
sales from Specialty and Lockhart, thermal management sales increased 3.8% in
fiscal 1996 compared to fiscal 1995.
Connector sales were $21,257,000 in fiscal 1996 compared to $20,251,000
during fiscal 1995. The increase in fiscal 1996 compared to 1995 was primarily
due to the addition of the Company's international subsidiaries in France and
England which were established in June and July 1995. Sales from Uni-Star's
foreign subsidiaries accounted for 11.0% of total connector sales in fiscal 1996
versus 1.0% in 1995. Excluding revenues generated in 1995 from a large contract
that was completed in the 1995 fourth quarter and from a highly profitable
product line that reached its end-of-life in 1995, the revenue increases in
fiscal 1996 compared to fiscal 1995 would have been greater.
Gross Profit. The Company's gross profit as a percent of total revenues
("gross profit percentage") for fiscal 1996 was 21.7% versus 26.9% in 1995.
Gross profit percentage decreased in 1996 compared to fiscal 1995
10
12
as a result of the following factors: inclusion of Specialty's sales which have
lower gross margins than the Company's other products, a change in the product
mix sold, higher manufacturing costs incurred to add capacity in anticipation of
a substantial increase in demand for Penguin Cooler heat sinks, which did not
fully materialize, a $170,000 inventory write-down related to products
specifically built for two customers, certain manufacturing inefficiencies at
Uni-Star, which the Company has taken steps to correct, and the decrease in
sales of a particular high margin connector product.
Research and Development Expense. Research and development expense includes
the cost of enhancing existing products and, to a lesser extent, the cost of
developing new products. Research and development expenses were $1,448,000 in
fiscal 1996 compared to $1,109,000 in fiscal 1995. The increase was due
primarily to an increase in engineering staff as well as increased licensing
costs for engineering software.
Selling, General and Administrative Expense. Selling, general and
administrative expenses were $12,823,000, or 18.3% of sales during fiscal 1996,
compared to $11,941,000, or 18.6% of sales during fiscal 1995. The decrease in
selling, general and administrative expenses as a percentage of sales was
primarily attributable to increased sales without a proportionate increase in
selling, general and administrative expenses.
Other Operating Expense. Other operating expenses incurred during fiscal
1996 consisted of nonrecurring charges of $406,000, which included the
settlement of a cancelled purchase commitment, costs related to an acquisition
effort that was terminated and severance payments.
Operating Income. Operating income was $539,000, or 0.8% of sales during
fiscal 1996, compared to $4,178,000, or 6.5% of sales during fiscal 1995. The
decrease in operating income was primarily attributable to the aforementioned
decrease in gross profit and increase in research and development costs and
other operating expenses.
Investment Income. In fiscal year 1995, the Company held marketable
securities for both strategic and investment purposes. Securities held for
investment purposes were reflected at fair market value, and the gain or loss
was reflected in investment income. Securities held for strategic purposes were
reflected at fair market value with the unrealized gain or loss thereon
reflected in stockholders' equity. The gain or loss on such securities was
reflected as investment income only upon sale. Investment income for fiscal 1995
included $35,000 of investment security gains and $219,000 of gains on sales of
strategic investment securities. During fiscal 1996, the Company had no material
investment in marketable securities.
Interest and Other Income (Expense), net. Interest income, which was
$213,000 for fiscal 1996 and $263,000 for fiscal 1995 was earned on excess cash.
Interest expense was $1,073,000 and $775,000 for fiscal 1996 and 1995,
respectively. The increase in interest expense in fiscal 1996 compared to fiscal
1995 was due to an increase in the average outstanding loan balance during
fiscal 1996.
Minority Interest. The Company purchased 80% of the outstanding stock of
Uni-Star in June 1994. In September 1996, the Company purchased the remaining
20% interest in exchange for 265,000 shares of its common stock. Prior to the
September 1996 transaction, the minority interest related to the Uni-Star
business was included in income before provision for income taxes on the
consolidated statement of operations and as a separate item on the consolidated
balance sheet and statement of cash flows.
Fiscal Year 1995 versus Fiscal Year 1994 Comparison
Sales. Total sales increased 112.7% to $64,116,000 in fiscal 1995 compared
to sales of $30,145,000 in fiscal 1994. Thermal management sales increased to
$43,865,000 in fiscal 1995 from $20,758,000 in fiscal 1994. The 111.3% increase
in thermal management sales was primarily attributable to internal growth of
66.1% as a result of higher sales of extruded heat sink products, primarily
Penguin Cooler heat sinks, related to the rapid growth of the high-performance
microprocessor market. In addition, Wakefield-Temecula and Specialty sales were
included in fiscal 1995 from their dates of acquisition.
Connector sales were $20,251,000 during fiscal 1995 compared to $9,387,000
during fiscal 1994. Sales in fiscal year 1994 included only five months of
connector sales following the acquisition of Uni-Star on June 1,
11
13
1994; however, connector sales during the 1994 period were above average because
products were shipped under backorders existing at the time of acquisition.
Gross Profit. The Company's gross profit as a percent of total revenues
("gross profit percentage") was 26.9% for fiscal 1995 versus 31.6% for fiscal
1994. The decrease in gross profit percentage was a result of: (i) the inclusion
in the 1995 period of sales by Wakefield-Temecula and Specialty, which have
lower gross profit percentages than the Company's 1994 average, (ii) an increase
in the cost of aluminum, a portion of which could not be reflected in the sales
price of the Company's products, (iii) a significant increase in sales of
Penguin Coolers, which have a lower gross profit percentage than the Company's
1994 average, (iv) a high gross profit contribution during the 1994 period from
backorders existing at the time of the acquisition of Uni-Star and (v) a change
in the mix of products sold.
Research and Development Expense. Research and development expense includes
the cost of enhancing existing products and, to a lesser extent, the cost of
developing new products. Research and development expenses were $1,109,000 in
fiscal 1995 compared to $674,000 in fiscal 1994. The increase was due primarily
to an increase in engineering staff as well as new licensing costs for
engineering software in fiscal 1995 and the purchase of related workstations in
fiscal 1995.
Selling, General and Administrative Expense. Selling, general and
administrative expenses during fiscal 1995 were $11,941,000, or 18.6% of sales,
compared to $6,572,000, or 21.8% of sales, during the prior fiscal year. The
decrease in selling, general and administrative expenses as a percentage of
sales was primarily attributable to increased sales without a proportionate
increase in selling, general and administrative expenses.
Investment Income. In fiscal years 1994 and 1995, the Company held
marketable securities for both strategic and investment purposes. Securities
held for investment purposes were reflected at fair market value, and the gain
or loss was reflected in investment income. Securities held for strategic
purposes were reflected at fair market value with the unrealized gain or loss
thereon reflected in stockholders' equity. The gain or loss on such securities
was reflected as investment income only upon sale. Investment income for fiscal
1995 included $35,000 of investment security gains and $219,000 of gains on
sales of strategic investment securities. Fiscal 1994 investment income was
derived from securities held for investment purposes. In September 1995, the
Company adopted a policy precluding any equity investments other than for
strategic purposes.
Interest and Other Income (Expense), net. Interest income, which was
$263,000 in fiscal 1995 and $168,000 in fiscal 1994, was earned on excess cash.
Interest expense was $775,000 for fiscal 1995 and $131,000 for fiscal 1994.
Discontinued Operation. The Company sold its software product business in
September 1994 for $4 million. An expense of approximately $800,000 was accrued,
principally representing lease payments and estimated costs that the Company
expected to incur on the space used by the disposed business, less estimated
payments that it expected to receive for subleasing the space. The Company
recognized a gain on the sale of $1,380,000, net of the $800,000 accrual, income
taxes and a reserve to cover contingencies.
12
14
Fiscal Year 1996 versus Fiscal Year 1995 versus Fiscal Year 1994 Comparison
Income Taxes. In fiscal 1994 and 1995, the Company's provision for income
taxes was impacted substantially by tax benefits from net operating loss
carryforwards ("NOL Carryforwards"). The Company's tax provision for the last
three fiscal years is summarized as follows (in thousands):
FISCAL FISCAL FISCAL
1994 1995 1996
------- ------- ------
Income (loss) before tax................................ $ 2,456 $ 3,959 $ (239)
======= ======= ======
Tax at Federal statutory rate (34%)..................... $ 835 $ 1,346 $ (69)
State taxes, net of federal benefit..................... 305 311 0
Valuation Allowance provided (reversed)................. (2,846) (1,972) 493
Foreign income taxes.................................... -- -- 60
Effects of discontinued operations and temporary
differences........................................... 846 174 (424)
------- ------- ------
Income tax provision (benefit).......................... $ (860) $ (141) $ 60
======= ======= ======
On November 1, 1993, the Company implemented Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109").
On that date, the Company had NOL Carryforwards of $23,214,000, which resulted
in a potential future tax benefit of $7,893,000 (34% of the NOL Carryforwards).
In addition to tax benefits related to NOL Carryforwards, the Company had net
tax benefits of $814,000 related to tax credits and $714,000 related to certain
temporary differences. The Company established a net deferred tax asset for the
total of the aforementioned tax benefits of $9,421,000. Due to the lack of
taxable income in several prior years and uncertainty regarding the utilization
of NOL Carryforwards, a valuation allowance equal to the net deferred tax asset
was established (the "Valuation Allowance").
During fiscal 1994, the Company reversed $2,846,000 of the Valuation
Allowance. The reversal represented (a) tax benefits of (i) $1,807,000 (34% of
the $5,314,000 of NOL Carryforwards utilized that year) and (ii) $1,360,000
resulting from Management's estimate of probable future taxable income, offset
by (b) $321,000 related to the tax effects of temporary differences. For fiscal
1995, the Company reversed $1,972,000 of the Valuation Allowance. This reversal
represented (a) tax benefits of (i) $1,232,000 (34% of the $4,647,000 of NOL
Carryforwards utilized, less the portion of the Valuation Allowance previously
allocated to these NOL Carryforwards) and (ii) $924,000 resulting from
Management's estimate of future taxable income, offset by (b) $184,000 related
to the tax effects of temporary differences. These reversals of the Valuation
Allowance are reflected as income tax benefits in the respective periods.
During fiscal 1996 the decrease in the net deferred tax asset was the
result of $369,000 related to temporary differences derived from the acquisition
of Lockhart. The increase in the valuation allowance was due to fully reserving
for the 1996 change in the tax effects of existing temporary differences. The
remaining Valuation Allowance of $5,096,000 (primarily relating to net operating
loss carryforwards of $15,384,000) will be reversed as warranted by future
profitable operations and Management's future estimates of the realization of
the deferred tax asset based on expected taxable income.
On October 27, 1996, the Company had, for tax purposes, remaining NOL
Carryforwards of approximately $15,384,000 available to offset future taxable
income, approximately $650,000 of unused investment and research and development
tax credits available to offset future Federal income taxes, and approximately
$230,000 of alternative minimum tax credits. The NOL Carryforwards will expire
from 2000 to 2011, the investment tax credit and research and development tax
credit carryforwards will expire from 1997 to 2005, and the alternative minimum
tax credit has no expiration. All carryforwards are subject to review and
possible adjustment by the Internal Revenue Service. In addition, Section 382 of
the Internal Revenue Code significantly limits the amount of NOL Carryforwards
usable by a corporation following a more than 50% change in ownership of the
corporation during a three-year period. It is possible that subsequent
transactions involving the Company's capital stock could result in such a
limitation.
13
15
LIQUIDITY AND CAPITAL RESOURCES
On October 27, 1996, the Company had cash of approximately $3,935,000
compared to $6,058,000 on October 29, 1995. Existing cash plus advances under
the Wakefield and Uni-Star loan agreements and funds received from the issuance
of common stock upon the exercise of stock options were used for operating
activities and for purchases of capital equipment.
During fiscal 1996, $2,066,000 were used to fund operations, primarily to
increase inventories and to decrease various accrued liabilities. In addition to
operating activities, $3,860,000 were used to purchase capital equipment
including machinery to increase manufacturing capacity in the thermal management
business and to improve efficiency in the connector business as well as tooling
to expand the low power heat sink product line.
Wakefield (including Specialty and Lockhart) is party to a loan agreement
(the "Agreement") with a commercial bank which provides for revolving loans of
up to $12,500,000, and a $2,250,000 term loan and makes available a $2,500,000
equipment acquisition line, of which $1,900,000 has been borrowed against. The
Agreement expires on April 30, 1997. Wakefield's obligations under the Agreement
are secured by a lien on all of the assets of Wakefield, Specialty and Lockhart.
In October 1996, Wakefield entered into two interest rate swap transactions
with Fleet National Bank. The agreements effectively fixed the interest rate on
floating rate debt at a rate of 8.75% for a notional principal amount of
$2,250,000 through November 1, 2001, and at a rate of 8.85% for a notional
principal amount of $1,900,000 through October 29, 2003.
On August 30, 1995, Uni-Star entered into an accounts receivable loan
agreement which included a revolving credit commitment of up to $2.5 million.
Uni-Star also entered into an equipment term loan in the amount of $750,000
(from which $104,000 of preexisting debt was refinanced) and an equipment
acquisition facility of $300,000. The initial proceeds of $963,000 from the
revolving credit commitment and $646,000 net proceeds from the equipment term
loans were used to repay advances of $1,609,000 from the Company to Uni-Star.
The proceeds from the equipment acquisition facility was used only for the
purchase of capital equipment. Interest on the funds advanced under the
revolving credit commitment ($1.2 million on October 27, 1996) accrues at the
bank's prime corporate rate plus .50% (8 3/4% per annum on October 27, 1996) and
interest on the equipment term loan accrues at the bank's prime rate plus .75%
(9% per annum on October 27, 1996). The principal amount of the equipment term
loan is repayable in 48 equal monthly installments, beginning October 1, 1995.
On September 17, 1996, Uni-Star amended the loan agreement to extend its
termination date to August 31, 1997. The loan agreement includes various
covenants which the Company was in compliance with on October 27, 1996. All
Uni-Star credit facilities are secured by a first lien and assignment of
substantially all Uni-Star's assets, including its accounts receivable,
inventory, equipment and general intangibles.
Working capital on October 27, 1996 was $6,460,000 compared to $15,696,000
on October 29, 1995. The decrease is primarily due to the reclassification of
the revolving credit facilities to short-term. Management intends to renew or
refinance the revolving credit facility and the revolving credit commitment at
or prior to maturity. The Company believes that its currently available cash,
anticipated cash flow from operations and availability under credit facilities
is sufficient to fund its operations in the near-term.
"Safe Harbor" statement under the Private Securities Litigation Reform Act
of 1995:
This document contains forward looking statements that are subject to risks
and uncertainties, including, but not limited to, the impact of competitive
products and pricing, product demand and market acceptance, new product
development, reliance on key strategic alliances, availability of raw material,
the telecommunications regulatory environment, fluctuations in operating results
and other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
Product names mentioned herein are for identification purposes only and may
be trademarks or registered trademarks of their respective companies.
14
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data required pursuant to this Item
are presented on pages F-1 through F-17 and pages S-1 through S-5 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the twenty-four month period preceding October 27, 1996, the Company
has neither changed accountants nor had disagreements with its accountants on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope and procedures.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT.
The information required by this Item will be contained in the Company's
definitive Proxy Statement, which will be filed on or about February 24, 1997,
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be contained in the Company's
definitive Proxy Statement, which will be filed on or about February 24, 1997,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be contained in the Company's
definitive Proxy Statement, which will be filed on or about February 24, 1997,
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be contained in the Company's
definitive Proxy Statement, which will be filed on or about February 24, 1997,
and is incorporated herein by reference.
15
17
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT
NO.
- --------------------
3.1 -- Certificate of Incorporation of the Company, as amended.(1)(2)(3)
3.2 -- By-laws of the Company.(4)
10.1 -- Registrant's 1981 Incentive Stock Option Plan, together with
amendments thereto.(2)
10.2 -- Registrant's 1984 Incentive Stock Option Plan, together with
amendments thereto.(2)
10.3 -- Registrant's 1985 Stock Option Plan, together with amendments
thereto. (2)(5)(6)(7)(8)
10.4 -- Registrant's 401-K Savings/Stock Purchase Plan.(9)
10.5 -- Lease Agreement, dated October 7, 1987, between PIC Realty
Corporation and Issuer.(10)
10.6 -- Lease dated as of October 29, 1993 by and between The Equitable Life
Assurance Society of the United States and Wakefield Engineering,
Inc.(11)
10.7 -- Standard Industrial/Commercial Single-Tenant Lease dated as of June
1, 1994 by and between Pasadena Industrial Associates and Uni-Star
Industries, Inc.(11)
10.8 -- Lease dated as of November 29, 1994 by and between The Goldsmith
Properties Company and Uni-Star Industries, Inc.(11)
10.9 -- Lease Agreement dated as of January 1995 by and between Robert L.
Byers and Joyce F. Byers and Uni-Star Industries, Inc.(11)
10.10 -- Registrant's 1994 Stock Option Plan as amended and restated.(3)
10.11 -- Loan and Security Agreement dated as of June 22, 1994 entered into by
and between Shawmut Bank, N.A. and Wakefield Engineering, Inc.,
together with amendment thereto. (The exhibits and schedules to the
Loan and Security Agreement/Amendment are listed on the last page of
such documents. Such exhibits and schedules have not been filed by
the Issuer, who hereby undertakes to file such exhibits upon request
of the Commission.)(11)(12)(13)(14)
10.11(a) -- Fourth Amendment to Loan and Security Agreement dated as of October
11, 1996 entered into by and between Fleet National Bank of
Massachusetts and Wakefield Engineering, Inc. (The exhibits and
schedules to the Amendment are listed on the last page of such
Amendment. Such exhibits and schedules have not been filed by the
Registrant, who hereby undertakes to file such exhibits upon request
of the Commission.) (Filed Herewith)
10.12 -- Accounts Receivable Loan Agreement between Uni-Star Industries, Inc.
and City National Bank dated as of August 30, 1995 together with
amendment thereto.(3)(15)
10.12(a) -- Second Amendment to Accounts Receivable Loan Agreement dated as of
March 20, 1996 by and between Uni-Star Industries, Inc. and City
National Bank. (Filed Herewith)
10.12(b) -- Third Amendment to Accounts Receivable Loan Agreement dated as of
September 17, 1996 by and between Uni-Star Industries, Inc. and City
National Bank. (Filed Herewith)
16
18
EXHIBIT
NO.
- --------------------
10.13 -- Asset Purchase Agreement dated as of June 30, 1995 among Specialty
Extrusions Ltd., Walter Hastie and William Esparza, and Specialty
Acquisition Corp. (now known as Specialty Extrusion Corp.) and
Wakefield Engineering, Inc.(16)
10.14 -- Lease dated September 1, 1993 between B&K Investment Corp. and
Specialty Extrusions, Ltd., together with assignment thereof dated
June 30, 1995 from Specialty Extrusions, Ltd. to Specialty
Acquisition Corp. (now known as Specialty Extrusion Corp.)(3)
10.15 -- Employment Agreement with Lawrence Butler dated September 29,
1995.(3)
10.16 -- Indenture of Lease Agreement dated as of December 20, 1994 by and
between Richard J. Tobin, as Trustee of JLN Realty Trust, under
Declaration of Trust dated June 15, 1981 and filed with Bristol
County Fall River District Registry of Deeds Land Court Records as
Document 12977, and Wakefield Engineering, Inc.(3)
10.17 -- Industrial Space Lease dated as of September 29, 1995 by and between
Rancon Income Fund I and Wakefield Engineering, Inc.(3)
10.18 -- Employment Agreement with Ernest C. Hartland, Jr. dated April 13,
1996. (The exhibit to the Employment Agreement is listed on the last
page of such Agreement. Such exhibit has not been filed by the
registrant, who hereby undertakes to file such exhibit upon request
of the Commission.)(17)
10.19 -- Agreement and Plan of Merger dated as of August 14, 1996 by and among
Alpha Technologies Group, Inc., Lockie Acquisition Corp., Lockhart
Industries, Inc., Eldon H. Lockhart and Marjorie D. Lockhart. (The
exhibits and schedules to the Agreement and Plan of Merger are listed
on page v of the Table of Contents of such Agreement. Such exhibits
and schedules have not been filed by the Issuer, who hereby
undertakes to file such exhibits upon request of the Commission).
10.20 -- Agreement dated August 15, 1996 between the Company and Neal
Castleman.(17)
10.21 -- Lease dated October 31, 1979 by and between Landcee Investment Co.
and Lockhart Industries, Inc., together with addendum and amendments
thereto. (Filed Herewith)
10.22 -- Lease dated August 29, 1984 by and between Garfield-Pacific
Development Co. and Lockhart Industries, Inc., together with
addendums and amendments thereto. (Filed Herewith)
10.23 -- Employment Agreement with Michael A. Hoffmann dated November 4, 1996.
(Filed Herewith)
10.24 -- International Swap Dealers Association, Inc. Master Agreement dated
as of October 23, 1996 between Fleet National Bank and Wakefield
Engineering, Inc.; Lockhart Industries, Inc; Specialty Extrusion
Corp. (Filed Herewith)
11 -- Computation of net income per share. (Filed Herewith)
21 -- Subsidiaries of Registrant.(11)
23.1(a) -- Consent of Arthur Andersen LLP. (Filed Herewith)
23.1(b) -- Consent of Arthur Andersen LLP. (Filed Herewith)
27 -- Financial Data Schedule. (Filed Herewith)
- ---------------
(1) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (Reg. No. 33-2979), which became effective March 7, 1986.
(2) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed September 28, 1987 (Reg. No. 33-17359).
17
19
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 29, 1995.
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1991.
(5) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed March 17, 1988 (Reg. No. 33-20706).
(6) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed June 30, 1989 (Reg. No. 33-29636).
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1990.
(8) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed June 23, 1992 (Reg. No. 33-48663).
(9) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed January 29, 1987 (Reg. No. 33-11627).
(10) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1987.
(11) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 31, 1994.
(12) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 30, 1995 filed on June 14, 1995.
(13) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended January 28, 1996.
(14) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 28, 1996.
(15) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended July 30, 1995 filed on September 13, 1995.
(16) Incorporated herein by reference to the Company's Form 8-K dated June 30,
1995, filed on or about July 14, 1995.
(17) Incorporated herein by reference to the Company's Form S-3, filed on August
16, 1996 (Reg. No. 333-10311).
REPORTS ON FORM 8-K
No report on Form 8-K was filed during the fourth quarter of the year ended
October 27, 1996.
18
20
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.
ALPHA TECHNOLOGIES GROUP, INC.
Date: January 27, 1997 By: /s/ LAWRENCE BUTLER
------------------------------------
Lawrence Butler
President and
Chief Executive 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.
SIGNATURE TITLE DATE
/s/ MARSHALL D. BUTLER Chairman of the Board
- ---------------------------------------------
(Marshall D. Butler)
/s/ LAWRENCE BUTLER Chief Executive Officer and
- --------------------------------------------- Director (Principal
(Lawrence Butler) Executive Officer)
/s/ JOHNNY J. BLANCHARD Chief Financial Officer
- --------------------------------------------- (Principal Financial and
(Johnny J. Blanchard) Accounting Officer)
/s/ DONALD K. GRIERSON Director January 27, 1997
- ---------------------------------------------
(Donald K. Grierson)
Director
- ---------------------------------------------
(Frederic A. Heim)
/s/ MICHAEL J. KONIGSBERG Director
- ---------------------------------------------
(Michael J. Konigsberg)
Director
- ---------------------------------------------
(Warren G. Lichtenstein)
/s/ KENNETH W. RIND Director
- ---------------------------------------------
(Kenneth W. Rind)
21
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements:
Report of Independent Public Accountants......................................... F-2
Consolidated Balance Sheets -- October 29, 1995 and October 27, 1996............. F-3
Consolidated Statements of Operations -- For the Years Ended October 31, 1994,
October 29, 1995 and October 27, 1996........................................... F-4
Consolidated Statements of Stockholders' Equity -- For the Years Ended October
31, 1994, October 29, 1995 and October 27, 1996................................. F-5
Consolidated Statements of Cash Flows -- For the Years Ended October 31, 1994,
October 29, 1995 and October 27, 1996........................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
Financial Schedules:
Condensed Financial Information.................................................. S-1
Valuation and Qualifying Accounts................................................ S-5
F-1
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Alpha Technologies Group, Inc.:
We have audited the accompanying consolidated balance sheets of Alpha
Technologies Group, Inc., (a Delaware corporation) and subsidiaries as of
October 29, 1995 and October 27, 1996, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended October 27, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alpha Technologies Group,
Inc. and subsidiaries as of October 29, 1995 and October 27, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended October 27, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
December 10, 1996
F-2
23
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OCTOBER 29, OCTOBER 27,
ASSETS 1995 1996
------ ----------- -----------
CURRENT ASSETS:
Cash................................................... $ 6,058 $ 3,935
Accounts receivable, net of reserves of $277 and $294
(Note 8).............................................. 11,982 12,564
Inventories, net (Notes 5 and 8)....................... 8,191 11,170
Prepaid expenses (Note 8).............................. 1,119 1,130
-------- --------
Total current assets.............................. 27,350 28,799
PROPERTY AND EQUIPMENT (Note 8):
Manufacturing equipment, leasehold improvements,
furniture, fixtures and other......................... 10,930 16,465
Less -- Accumulated depreciation and amortization...... 1,313 3,196
-------- --------
Property and equipment, net............................ 9,617 13,269
GOODWILL, net (Notes 2 and 8)............................... 2,813 2,964
OTHER ASSETS, net (Notes 8 and 14).......................... 2,476 2,028
-------- --------
$ 42,256 $ 47,060
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade................................ 5,166 5,594
Accrued compensation and related benefits (Note 6)..... 2,329 1,643
Other accrued liabilities (Note 7)..................... 2,426 2,537
Revolving credit facilities (Note 8)................... -- 11,023
Current portion of long-term debt (Note 8)............. 850 679
Current portion of other long-term liabilities (Note
9).................................................... 883 863
-------- --------
Total current liabilities......................... 11,654 22,339
LONG-TERM DEBT (Note 8)..................................... 9,093 2,207
OTHER LONG-TERM LIABILITIES (Note 9)........................ 1,010 397
COMMITMENTS AND CONTINGENCIES (Note 15)
MINORITY INTEREST (Note 2).................................. 1,736 --
STOCKHOLDERS' EQUITY (Notes 2, 4, 10, 11 and 12):
Preferred stock, $100 par value; shares authorized
180,000............................................... -- --
Common stock, $.03 par value; shares authorized
17,000,000; issued 6,977,845 at October 29, 1995 and
7,681,733 at October 27, 1996......................... 209 230
Additional paid-in capital............................. 39,114 43,474
Retained deficit....................................... (17,459) (17,758)
Cumulative translation adjustments..................... -- (32)
Treasury stock, at cost (935,404 common shares at
October 29, 1995 and 1,017,981 common shares at
October 27, 1996)..................................... (3,101) (3,797)
-------- --------
Total stockholders' equity........................ 18,763 22,117
-------- --------
$ 42,256 $ 47,060
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
24
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
---------- ---------- ----------
SALES (Note 2)......................................... $ 30,145 $ 64,116 $ 70,237
COST OF SALES.......................................... 20,627 46,888 55,021
---------- ---------- ----------
Gross profit................................. 9,518 17,228 15,216
OPERATING EXPENSES
Research and development............................. 674 1,109 1,448
Selling, general and administrative.................. 6,572 11,941 12,823
Other................................................ -- -- 406
---------- ---------- ----------
Total operating expenses..................... 7,246 13,050 14,677
---------- ---------- ----------
OPERATING INCOME....................................... 2,272 4,178 539
INVESTMENT INCOME (Note 4)............................. 108 258 --
INTEREST AND OTHER INCOME (EXPENSE), net (Note 8)...... 76 (477) (778)
---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES............................. 2,456 3,959 (239)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 14):
Current.............................................. 500 530 60
Deferred............................................. (1,360) (671) --
---------- ---------- ----------
Total provision (benefit) for income taxes... (860) (141) 60
---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST AND DISCONTINUED
OPERATIONS........................................... 3,316 4,100 (299)
LESS: MINORITY INTEREST (Note 2)....................... (384) (352) --
GAIN ON SALE OF DISCONTINUED OPERATIONS, net of income
tax effect (Note 3).................................. 1,380 -- --
INCOME FROM DISCONTINUED OPERATIONS, net of income tax
effect (Note 3)...................................... 978 -- --
---------- ---------- ----------
NET INCOME (LOSS)...................................... $ 5,290 $ 3,748 $ (299)
========== ========== ==========
PER COMMON AND COMMON EQUIVALENT SHARE (Note 13):
Income (loss) before minority interest and
discontinued operations........................... $ 0.52 $ 0.62 $ (0.05)
Minority interest.................................... (0.06) (0.05) --
Gain on sale of discontinued operations.............. 0.22 -- --
Discontinued operations.............................. 0.15 -- --
---------- ---------- ----------
Net income (loss).................................... $ 0.83 $ 0.57 $ (0.05)
========== ========== ==========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE.......................... 6,343,604 6,605,147 6,277,585
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
25
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARES)
UNREALIZED
GAIN (LOSS)
COMMON STOCK ADDITIONAL RETAINED ON CUMULATIVE TREASURY STOCK
----------------- PAID IN EARNINGS MARKETABLE TRANSLATION -------------------
SHARES AMOUNT CAPITAL (DEFICIT) SECURITIES ADJUSTMENT SHARES AMOUNT
--------- ------ ---------- --------- ----------- ----------- --------- -------
BALANCE, OCTOBER 31, 1993... 6,281,889 $188 $37,869 $(26,497) $ -- $ -- 461,249 $ (609)
Net Income................ -- -- -- 5,290 -- -- -- --
Issuance to employees
pursuant to stock
options plans (Note
12).................... 445,456 14 801 -- -- -- -- --
Unrealized loss on
marketable securities,
net of income taxes
(Note 4)............... -- -- -- -- (138) -- -- --
Stock repurchase (Note
11).................... -- -- -- -- -- -- 83,000 (374)
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 31, 1994... 6,727,345 202 38,670 (21,207) (138) -- 544,249 (983)
--------- ---- ------- -------- ----- ---- --------- -------
Net Income................ -- -- -- 3,748 -- -- -- --
Issuance to employees
pursuant to stock
options plans (Note
12).................... 250,500 7 444 -- -- -- -- --
Unrealized gain on
marketable securities,
net of income taxes
(Note 4)............... -- -- -- -- 138 -- -- --
Stock repurchase (Note
11).................... -- -- -- -- -- -- 391,155 (2,118)
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 29, 1995... 6,977,845 209 39,114 (17,459) -- -- 935,404 (3,101)
--------- ---- ------- -------- ----- ---- --------- -------
Net Income................ -- -- -- (299) -- -- -- --
Issuance to employees
pursuant to stock
options plans (Note
12).................... 158,332 5 336 -- -- -- -- --
Acquisition of Lockhart
Industries, Inc. (Note
2)..................... 280,556 8 2,355 -- -- -- 82,577 (696)
Purchase of Uni-Star
Industries, Inc.
minority interest (Note
2)..................... 265,000 8 1,669 -- -- -- -- --
Cumulative translation
adjustments............ -- -- -- -- -- (32) -- --
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 27, 1996... 7,681,733 $230 $43,474 $(17,758) $ -- $(32) 1,017,981 $(3,797)
--------- ---- ------- -------- ----- ---- --------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
26
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS)
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................. $ 5,290 $ 3,748 $ (299)
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Net (income) from discontinued operations (Note 3)......... (978) -- --
Deferred income taxes (Note 14)............................ (1,360) (671) --
Gain on sale of marketable securities-available-for-sale
(Note 4)................................................. -- (199) --
Depreciation and amortization.............................. 453 1,274 2,220
Minority interest (Note 2)................................. 384 352 --
Gain on sale of discontinued operations (Note 3)........... (1,380) -- --
Cumulative translation adjustments......................... -- -- (32)
Changes in assets and liabilities net of effects from
acquisitions:
(Increase) decrease in marketable securities -- trading
securities............................................... (27) 27 --
(Increase) decrease in accounts receivable................. 829 (3,085) (21)
(Increase) decrease in notes receivable.................... (2,000) 2,000 --
(Increase) in prepaid expenses............................. (55) (377) (124)
(Increase) in inventories.................................. (34) (2,245) (2,147)
(Increase) decrease in goodwill............................ 22 (952) (176)
Increase (decrease) in accounts payable, trade............. 755 680 (62)
Increase (decrease) in accrued compensation and related
benefits................................................. 99 927 (701)
Increase (decrease) in other accrued liabilities........... 1,541 204 (153)
(Decrease) in other long-term liabilities.................. -- (921) (571)
------- ------- -------
Total adjustments........................................ (1,751) (2,986) (1,767)
------- ------- -------
Net cash provided (used) by continuing operations........ 3,539 762 (2,066)
Net cash provided by discontinued operations (Note 3).... 1,456 -- --
------- ------- -------
Net cash provided (used) by operating activities......... 4,995 762 (2,066)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of short-term investments..... 3,516 -- --
Payments and expenditures for business acquisitions (Notes 2
and 16).................................................... (6,899) (2,560) (479)
Proceeds from sale of discontinued operations................. 2,000 -- --
Purchase of marketable securities -- available-for-sale (Note
4)......................................................... (1,285) (850) --
Proceeds from sale of marketable
securities -- available-for-sale (Note 4).................. 237 2,097 --
Purchase of property and equipment, net....................... (1,427) (5,009) (3,860)
(Increase) in other assets, net............................... (6) (162) (25)
------- ------- -------
Net cash (used) by investing activities.................... (3,864) (6,484) (4,364)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock (Note 12).............. 815 451 341
Payments to repurchase common stock (Note 11)................. (374) (2,118) --
Proceeds from debt, net of payments (Note 8).................. 3,902 6,041 3,966
------- ------- -------
Net cash provided by financing activities.................. 4,343 4,374 4,307
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 5,474 (1,348) (2,123)
------- ------- -------
CASH AND CASH EQUIVALENTS, beginning of year.................... 1,932 7,406 6,058
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.......................... $ 7,406 $ 6,058 $ 3,935
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
27
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Alpha Technologies Group, Inc. ("Alpha" or the "Company") thermal
management products, principally heat sinks, which dissipate heat generated by
electronic components, serve the microprocessor, computer, consumer electronics,
transportation, power supply, aerospace and defense industries. The Company's
sub-miniature, micro-miniature and ultra-miniature connector products and its
backplane/midplane-type printed circuit board assemblies, the majority of which
are custom manufactured to meet rigid specifications, serve the aerospace,
automotive, communications, defense, factory automation, industrial controls,
medical electronics, process instrumentation and test/measurement industries.
Principles of Consolidation
The consolidated financial statements include the accounts of Alpha and its
wholly-owned subsidiaries. All material intercompany transactions and balances
have been eliminated.
Revenue Recognition
Revenue from product sales is generally recognized upon shipment to the
customer.
Use of Estimates and Other Uncertainties
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, trade
receivables, trade payables and debt instruments. The book values of these
instruments are considered to be representative of their respective fair values.
Marketable Securities
Investments in marketable securities are accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property and Equipment
The cost of property and equipment is depreciated using the straight-line
method for financial reporting purposes over the estimated useful lives of such
assets, ranging from three to ten years. Leasehold improvements are amortized on
a straight-line basis over the related lease term.
Goodwill
Goodwill represents the excess of cost over fair value of net assets
acquired and is being amortized over 15 years using the straight-line method.
The accumulated amortization on October 29, 1995 and October 27,
F-7
28
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
1996 was approximately $163,000 and $371,000, respectively. Amortization expense
of approximately $6,500, $156,500 and $209,000 was recorded in fiscal 1994, 1995
and 1996, respectively.
Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes,"
("Statement 109") on November 1, 1993. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using current enacted
tax rates. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations
in the period that includes the enactment date.
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated
into U. S. dollars at the current exchange rate in effect at the balance sheet
date, and revenues and expenses are translated at the average exchange rate for
the period in accordance with SFAS No. 52, "Foreign Currency Translation".
Resulting translation adjustments are reported as a separate component of
shareholders' equity.
Interest Rate Swap Agreement
The Company has entered into interest swap agreements as a means of
managing its interest rate exposure. These agreements have the effect of
converting two of the Company's variable rate obligations to fixed rate
obligations. Net amounts paid or received are reflected in interest expense.
New Accounting Pronouncements
SFAS No. 123, "Accounting for Stock-Based Compensation", was issued in
October 1995 and applies to the Company's fiscal 1997 financial statements.
Adopting this statement will not have a material effect.
Fiscal Year
For fiscal 1995, the Company adopted a 52/53 week fiscal calendar ending on
the last Sunday of October, therefore fiscal years 1995 and 1996 ended on
October 29, 1995 and October 27, 1996, respectively. Fiscal years 1995 and 1996
both include 52 weeks of operations.
2. ACQUISITIONS
On June 1, 1994, the Company, through Uni-Star Industries, Inc.
("Uni-Star"), a then 80% owned subsidiary, acquired substantially all of the
assets and business and assumed certain liabilities of the Interconnect Systems
Division of Microdot Inc. On September 3, 1996, the Company purchased the
remaining 20% interest of Uni-Star in exchange for 265,000 shares of its common
stock. Uni-Star is now a wholly-owned subsidiary of the Company. On August 31,
1994, Wakefield Engineering, Inc. ("Wakefield"), a wholly-owned subsidiary of
the Company, acquired substantially all of the assets and business of Aham Tor,
Inc. ("ATI"). Effective June 30, 1995, Wakefield acquired substantially all of
the assets and business of Specialty Extrusion Ltd. ("Specialty").
On August 21, 1996, the Company, through a newly-organized, wholly-owned
subsidiary Lockie Acquisition Corp. ("LAC"), purchased all of the outstanding
stock of Lockhart Industries, Inc. ("LII"), a thermal management company,
pursuant to an Agreement and Plan of Merger dated as of August 14, 1996
F-8
29
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
(the "Merger Agreement"). Pursuant to the Merger Agreement, the Company issued
280,556 shares of its common stock in exchange for all of the issued and
outstanding common stock of LII. Following the merger, the Company transferred
all of LAC's shares to Wakefield and changed LAC's name to Lockhart Industries,
Inc. ("Lockhart"). In addition, Wakefield paid off an aggregate of $506,000 of
LII's debt. The purchase price is subject to reduction based upon decreases in
LII's working capital and collection of accounts receivable. In addition, the
number of shares issued is subject to increase in the event that the Company's
common stock is not trading at $9 or more two years from the date of closing.
The acquisitions have been accounted for as purchase transactions, and
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed for each acquisition. Adjustments to the purchase price may
be made during the 12 months following the date of acquisition as a result of
resolutions of uncertainties existing at the acquisition date. The operating
results of Uni-Star, ATI, Specialty and Lockhart have been included in the
Company's consolidated results of operations since their respective acquisition
dates.
The following unaudited pro forma summary is not necessarily indicative
either of results of operations that would have occurred had the purchases been
made on November 1, 1993, or of future results of operations of the combined
companies. Total revenues included in the following unaudited pro forma summary
reflect the effect of accounting for its software division as a discontinued
operation. Net income included in the following unaudited pro forma summary does
not reflect the effect of income from discontinued operations or the gain on
sale of discontinued operations. Lockhart's results of operations were not
material in relation to the Company's consolidated results of operations and are
not included in the following unaudited pro forma summary.
For the Periods Ended (Unaudited):
OCTOBER 31, OCTOBER 29,
1994 1995
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Total revenues.............................................. $51,420 $67,732
Net income.................................................. 3,680 3,747
Net income per common and common equivalent share........... $ .58 $ .57
Number of shares used in computing earnings per share....... 6,344 6,605
3. DISCONTINUED OPERATION
Effective September 21, 1994, the Company sold the assets of its software
division for $4,000,000. The sale resulted in a gain of approximately
$1,380,000, net of income tax expense of $49,000 and reserves relating to leased
premises. See Note 9 to Financial Statements.
F-9
30
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DISCONTINUED OPERATION -- (CONTINUED)
Summary operating results of the discontinued operation are as follows for
the fiscal year ended October 31:
1994
--------------
(IN THOUSANDS)
Revenues........................................................ $8,184
Costs and expenses.............................................. 7,186
------
Income before taxes............................................. 998
Income tax provision............................................ 20
------
Net income...................................................... $ 978
======
4. MARKETABLE SECURITIES
During fiscal year 1995, the Company disposed of all its marketable
securities. The Company currently has no material investments in marketable
securities. On October 31, 1994, available-for-sale securities were valued at
$910,000 and trading securities were valued at $27,000. A net unrealized holding
loss on available-for-sale securities of $138,000, which is net of income taxes,
was included in stockholders' equity on October 31, 1994. Proceeds from the sale
of available-for-sale securities totaled approximately $2,097,000 for fiscal
year 1995. A gain of $199,000 was realized on those sales and was included in
investment income for the year ended October 29, 1995.
5. INVENTORIES
Inventories consisted of the following on:
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
Raw materials and components.................................. $ 5,260 $ 6,176
Work in process............................................... 1,803 2,593
Finished goods................................................ 1,548 3,541
------- -------
8,611 12,310
Valuation reserve............................................. (420) (1,140)
------- -------
$ 8,191 $11,170
======= =======
6. ACCRUED COMPENSATION AND RELATED BENEFITS
Accrued compensation and related benefits consisted of the following on:
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
Accrued salaries and wages.................................... $ 742 $ 530
Accrued vacation pay.......................................... 499 578
Other......................................................... 1,088 535
------- -------
$ 2,329 $ 1,643
======= =======
F-10
31
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following on:
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
Accrued commissions......................................... $ 849 $ 961
Other....................................................... 1,577 1,576
------ ------
$2,426 $2,537
====== ======
8. DEBT AND REVOLVING CREDIT FACILITIES
Debt and revolving credit facilities consisted of the following on:
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
Variable-rate revolving credit facility (effective interest
rates of 7.875% and 8.75% at October 27, 1996), interest
payable monthly, principal is repaid and reborrowed based
on cash requirements...................................... $6,104 $ 9,823
Variable-rate revolving credit commitment (effective
interest rate of 8.75% at October 27, 1996), interest
payable monthly, principal is repaid and reborrowed based
on cash requirements...................................... 1,000 1,200
Variable-rate term notes (effective interest rates of 8.75%
to 9.0% at October 27, 1996), payable in monthly
installments ranging from $3,444 to $37,500, plus accrued
interest, with maturities ranging from September of 1999
through November of 2001.................................. 2,839 2,886
------ -------
9,943 13,909
Less current portion.............................. 850 11,702
------ -------
$9,093 $ 2,207
====== =======
The revolving credit facility and a $2,250,000 variable term loan relate to
a Loan and Security Agreement (the "Loan Agreement") was entered into by
Wakefield in June of 1994. The Loan Agreement was amended in May 1995 to
increase the revolving credit facility from a maximum aggregate commitment of
$4,000,000 to $7,000,000 and to extend the term of such facility to April 30,
1997. The equipment credit facility was increased from a maximum aggregate
amount of $600,000 to $1,050,000. The proceeds from the equipment credit
facility may be used only for the purchase of capital equipment. In addition,
Wakefield entered into an equipment term note in the amount of $265,000. The
Second Amendment dated January 30, 1996 increased the revolving credit facility
from $7,000,000 to $9,000,000, made Specialty Extrusion Corp. ("Specialty"), a
wholly-owned subsidiary of Wakefield, a co-borrower under the Loan Agreement and
extended revolving loans to Specialty and made available to Specialty a $200,000
Equipment Facility Loan which was used to repay, in part, borrowings from Alpha.
On March 29, 1996, Wakefield entered into the Third Amendment to allow for
interest payable on the Revolving Credit Loans to be computed based on a margin
above the Prime Rate and/or a margin above the London Interbank Offered Rate
("LIBOR"). The Fourth Amendment to the Loan Agreement was entered into October
11, 1996 to make Lockhart a co-borrower under the Loan Agreement and extend
revolving loans to Lockhart, to increase the maximum amount of Revolving Loans
that may be available to Wakefield, Specialty and Lockhart from $9,000,000 to
$12,500,000, to consolidate the outstanding term loans into a $2,250,000 term
loan, to make available a $2,500,000 equipment acquisition line
F-11
32
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT AND REVOLVING CREDIT FACILITIES -- (CONTINUED)
on Lockhart's equipment and to permit Wakefield to use up to $506,000 of the
Revolving Loan proceeds to repay advances to Alpha. At October 27, 1996 interest
on $6,500,000 of the revolving credit facility accrues at the relevant adjusted
LIBOR rate plus 2.25% (7.875% per annum on October 27, 1996), and the remainder
of the revolving credit facility accrues at the bank's prime rate plus .25%
(8.5% per annum on October 27, 1996). There is an unused line fee equal to .25%
per annum on the difference between $12,500,000 and the greater of (a) the
average daily outstanding principal balance of Revolving Loans during each of
the Company's fiscal quarters and (b) $10,500,000, payable quarterly in arrears
on the first day of each fiscal quarter. The $2,250,000 term note accrues
interest at the adjusted LIBOR rate plus 225 basis points (8.75% per annum on
October 27, 1996), and is payable in fifty-nine (59) equal monthly installments
of $37,500 commencing December 1, 1996 and a final installment equal to all
unpaid principal on October 11, 2001, together, in each instance, with interest
thereon to the date of payment. On October 29, 1996, $1,900,000 was borrowed
against the equipment acquisition line. This note accrues interest at 8.85%, and
is payable in eighty-three (83) equal monthly installments of $22,619 commencing
December 1, 1996 and a final installment equal to all unpaid principal on
October 29, 2003, together, in each instance, with interest thereon to the date
of payment. The obligations under the Loan Agreement are secured by a first lien
on and assignment of all of the assets of the thermal management operations
which in aggregate total $30,459,000. The terms of the Loan Agreement include
various covenants which provide for, among other things, the maintenance of a
tangible capital base at various levels throughout the commitment period. On
October 27, 1996, Wakefield was in compliance with these covenants. On October
27, 1996, $9,823,000 was drawn on the revolving credit facility.
In October 1996, Wakefield entered into two interest rate swap transactions
with Fleet National Bank. The agreements effectively fixed the interest rate on
floating rate debt at a rate of 8.75% for a notional principal amount of
$2,250,000 through November 1, 2001, and at a rate of 8.85% for a notional
principal amount of $1,900,000 through October 29, 2003.
On August 30, 1995, Uni-Star entered into an Accounts Receivable Loan
Agreement which included a revolving credit commitment in the aggregate
principal amount of $2,500,000 of which $1,200,000 was drawn on at October 27,
1996. Uni-Star also entered into an equipment term loan in the amount of
$750,000 and an equipment acquisition facility of $300,000. Interest on the
revolving credit commitment accrues at the bank's prime rate plus one half of
one percent and interest on the equipment term loan accrues at the bank's prime
rate plus three-quarters of one percent. The equipment term loan is repayable in
48 equal monthly installments of principal of $15,625 plus accrued interest,
payable on the first day of each month beginning October 1, 1995. On September
17, 1996, Uni-Star amended the loan agreement to extend its termination date to
August 31, 1997. All of the Uni-Star credit facilities are secured by a first
lien and assignment of substantially all of its assets, including without
limitation, accounts receivable, inventory, equipment and general intangibles
which in aggregate totals $9,643,000. The Accounts Receivable Loan Agreement
includes various covenants with which Uni-Star was in compliance on October 27,
1996.
Cash paid for interest on all outstanding debt amounted to approximately
$116,000 in fiscal year 1994, approximately $693,000 in fiscal year 1995 and
approximately $898,000 in fiscal year 1996.
F-12
33
8. DEBT AND REVOLVING CREDIT FACILITIES -- (CONTINUED)
Aggregate payments of debt and revolving credit facilities outstanding as
of October 27, 1996 for the next five years are summarized below:
FISCAL YEARS AMOUNT
------------ -----------
1997........................................................ $11,702,000
1998........................................................ 679,000
1999........................................................ 629,000
2000........................................................ 450,000
2001........................................................ 450,000
-----------
$13,910,000
===========
Management intends to renew or refinance the revolving credit facility and
the revolving credit commitment at or prior to maturity.
9. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following on:
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
Accrued lease differential.................................. $1,362 $ 789
Other....................................................... 531 471
------ ------
1,893 1,260
Less current portion........................................ (883) (863)
------ ------
$1,010 $ 397
====== ======
The accrued lease differential primarily represents the lease payments and
estimated costs that the Company expects to incur related to office space in
Houston, Texas less estimated payments that it expects to receive for subleasing
this space. Approximately $800,000 of the accrued lease differential was
expensed in fiscal year 1994 as an offset to the gain on the sale of the
discontinued operation.
10. PREFERRED STOCK
On October 29, 1995 and October 27, 1996, the Company had authorized
180,000 shares of unissued, preferred stock with a par value of $100 per share.
The Board of Directors has the authority to issue such preferred stock and to
set the terms thereof, including the dividend rate, conversion rights,
redemption rights, voting rights and liquidation preferences. There are no
shares of preferred stock outstanding as of October 27, 1996.
11. REPURCHASE OF COMMON STOCK
In September of 1994, the Board of Directors of the Company approved a plan
to purchase up to $2,500,000 of the Company's common stock. Pursuant to the
stock repurchase plan, the Company purchased 83,000 shares of common stock
during fiscal year 1994 at an aggregate price of $374,137. During fiscal year
1995, 391,155 shares of common stock were purchased at an aggregate price of
$2,118,173. This repurchase program has been completed.
F-13
34
12. STOCK OPTION PLANS
The Company has in effect nonqualified and incentive stock option plans
under which shares are available for exercise. As of October 27, 1996, the Board
of Directors has reserved 1,447,000 shares of common stock for issuance under
the plans. The prices at which substantially all stock options outstanding have
been granted have been equal to or in excess of the fair market value of the
Company's stock at the time of the grant. These options vest over periods up to
five years. On October 27, 1996, there were 268,666 shares available for future
grants. The following table summarizes activity under the plans:
SHARES
UNDER OPTION PRICE RANGE
------------ --------------
Outstanding on October 31, 1993......................... 1,226,997 $1.16 - $ 7.12
Granted............................................... 363,000 2.93 - 4.53
Forfeited............................................. (48,524) 1.50 - 7.12
Exercised............................................. (445,456) 1.47 - 4.06
Expired............................................... (42,600) 4.50
--------- --------------
Outstanding on October 31, 1994......................... 1,053,417 $1.16 - $ 4.53
Granted............................................... 457,000 5.13 - 5.98
Forfeited............................................. (10,000) 2.69
Exercised............................................. (250,500) 1.16 - 4.19
Expired............................................... (2,917) 4.50
--------- --------------
Outstanding on October 29, 1995......................... 1,247,000 $1.16 - $ 5.98
Granted............................................... 373,000 4.56 - 10.09
Forfeited............................................. (283,334) 4.53 - 10.09
Exercised............................................. (158,332) 1.59 - 4.53
--------- --------------
Outstanding on October 27, 1996......................... 1,178,334 $1.16 - $10.09
========= ==============
Exercisable on October 27, 1996......................... 588,334 $1.16 - $ 5.98
========= ==============
In October 1996, the Board of Directors authorized a reduction in the
exercise price of each outstanding, unvested option to purchase shares of common
stock granted in fiscal 1996, to an amount equal to the fair market value of the
common stock on such date. Options held by nonemployee directors of the Company
and options with an exercise price below the fair market value of the common
stock were not impacted. The repricing has been treated as the surrender and
cancellation of outstanding stock options in conjunction with the grant of
replacement options with an exercise price of $4.56 per share.
13. NET INCOME (LOSS) PER SHARE
Net income (loss) per common and common equivalent share was computed using
the weighted average number of shares of common stock and common equivalent
shares outstanding during each year. Common equivalent shares included the
number of shares issuable upon exercise of options, less the number of shares
that could have been purchased with the exercise proceeds. For fiscal year 1996,
common equivalent shares were not considered in the computation as their effect
would have been antidilutive.
14. INCOME TAXES
On November 1, 1993, the Company adopted Statement 109 through a cumulative
catch-up adjustment. The implementation of this statement did not have a
material effect on the Company's balance sheet or results of operations. The
Company's profitable operations during the years ended October 31, 1994 and
October 31, 1995 resulted in the utilization of net operating loss
carryforwards, the tax benefit of which was fully reserved upon implementation
of Statement 109.
F-14
35
14. INCOME TAXES -- (CONTINUED)
Income (loss) before income taxes was as follows for the fiscal years
ending October 31, 1994, October 29, 1995, and October 27, 1996:
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
Domestic.......................................... $3,316 $4,048 $(325)
Foreign........................................... -- (89) 121
------ ------ -----
$3,316 $3,959 $(204)
====== ====== =====
The provision (benefit) for income taxes were as follows for the fiscal
years ending October 31, 1994, October 29, 1995, and October 27, 1996:
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
Federal income tax................................ $ 51 $ 1,221 $(69)
State income tax.................................. 449 458 --
Foreign income tax................................ -- -- 60
------- ------- ----
500 1,679 (9)
Valuation reserve provided (reversed)-Statement
109............................................. (1,360) (1,820) 69
------- ------- ----
$ (860) $ (141) $ 60
======= ======= ====
The differences in the income taxes provided for and the amounts determined
by applying the Federal statutory rate to income before taxes of the Company are
summarized as follows:
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
Federal income statutory rate..................... 34.0% 34.0% (34.0)%
State income taxes, net of federal income tax
benefit......................................... 18.3% 7.6% --
Valuation reserve provided (reversed)............. (55.3)% (46.0)% 34.0%
Other............................................. -- .8% --
Foreign income taxes.............................. -- -- 29.4%
Benefit of net operating loss carryforwards....... (32.0)% -- --
----- ----- -----
(35.0)% (3.6)% 29.4%
===== ===== =====
No provision was made in fiscal 1996 for U.S. income taxes on the
undistributed earnings of the foreign subsidiaries as it is the Company's
intention to utilize those earnings in the foreign operations for an indefinite
period of time or to repatriate such earnings only when tax effective to do so.
At October 27, 1996 undistributed earnings of the foreign subsidiaries amounted
to $79,000.
F-15
36
14. INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities and their changes during the
year ended October 27, 1996 were as follows (in thousands):
DEFERRED
OCTOBER 29, (PROVISION) OCTOBER 27,
1995 BENEFIT 1996
----------- ----------- -----------
Deferred Tax Assets:
Net operating loss carryforwards................ $ 4,506 $ 725 $ 5,231
Tax credits..................................... 747 132 879
Accrued liabilities............................. 818 (273) 545
Other........................................... 1,109 (79) 1,030
------- ----- -------
Total gross deferred tax assets................. 7,180 505 7,685
Less: Valuation allowance....................... (4,603) (493) (5,096)
------- ----- -------
Deferred tax assets............................. $ 2,577 $ 12 $ 2,589
======= ===== =======
Deferred Tax Liabilities:
Amortization and depreciation................... (465) (417) (882)
Other........................................... (81) 36 (45)
------- ----- -------
Deferred tax liabilities........................ (546) (381) (927)
------- ----- -------
Net deferred tax asset.......................... $ 2,031 $(369) $ 1,662
======= ===== =======
Due to the Company's historical results of operations prior to fiscal 1994,
a valuation allowance was provided for the deferred tax assets upon adoption of
Statement 109. Because the Company generated taxable income and was able to
utilize net operating loss carryforwards during fiscal 1994 and 1995 and
forecasted future profitability which increased the likelihood of the future
realization of the net deferred tax asset, the Company reversed $1,360,000 and
$1,820,000, respectively, of the valuation allowance. During fiscal 1996 the
decrease in the net deferred tax asset was the result of (a) ($369,000) related
to the acquisition of Lockhart Industries, Inc. and (b) $493,000 related to the
tax effects of temporary differences which were entirely offset by an increase
in the valuation allowance.
On October 27, 1996, the Company had, for tax purposes, net operating loss
carryforwards of approximately $15,384,000, unused investment and research and
development tax credits of approximately $650,000, and $230,000 of alternative
minimum tax credits available to offset future taxable income and Federal income
taxes. The net operating loss carryforwards will expire from 2000 to 2011; the
investment tax credit and research and development tax credit carryforwards will
expire from 1997 to 2005; and the alternative minimum tax credit has no
expiration.
All carryforwards are subject to review and possible adjustment by the
Internal Revenue Service. In compliance with the Tax Reform Act of 1986,
investment tax credits carried forward were reduced by 35%. The Company's
ability to utilize the net operating loss carryforwards to offset alternative
minimum taxable income is limited to 90% for tax years after fiscal 1987.
Additionally, Section 382 of the Internal Revenue Code limits the amounts
of net operating loss carryforwards usable by a corporation following a more
than 50 percentage point change in ownership of the corporation during a
three-year period. It is possible that subsequent transactions involving the
Company's capital stock could result in such a limitation. As of October 27,
1996, Management believes that a 50 percentage point change in ownership has not
occurred during a three-year period.
During fiscal 1994, 1995 and 1996, cash paid for income taxes amounting to
approximately $16,000, $996,000 and $194,000, respectively.
F-16
37
15. COMMITMENTS AND CONTINGENCIES
The Company has operating lease commitments for certain office equipment
and manufacturing, administrative and support facilities. Minimum lease payments
under noncancellable leases on October 27, 1996 are as follows:
OPERATING
FISCAL YEARS LEASES
------------ --------------
(IN THOUSANDS)
1997................................................... $ 2,999
1998................................................... 2,115
1999................................................... 1,685
2000................................................... 1,180
2001................................................... 979
Thereafter............................................. 2,457
-------
Minimum lease payments................................. $11,415
=======
Rent expense (exclusive of operating expenses and net of sublease rents)
for all operating leases was approximately $869,000, $1,339,000 and $1,556,000
in fiscal years 1994, 1995 and 1996, respectively. Expected sublease payments
for each fiscal year are as follows: 1997 $607,000; 1998 $152,000; and 1999 and
thereafter $0. See Note 9 to Financial Statements.
Through September 30, 1994, the Company, for its software division, had a
partially self-funded insurance program for its group health insurance plan.
Effective January 1, 1995 through December 31, 1995, Wakefield implemented the
same type of program for its group health insurance plan. Under these plans, the
Company assumed liability for payment of medical claims below a specific dollar
amount related to any one individual. The Company is also insured if claims
should exceed a specific aggregate dollar amount for all covered individuals.
Asserted and unasserted medical/health insurance claims are accrued for based on
the Company's experience and the advice of an independent claims manager. Group
health insurance plans for fiscal 1996 were not self-funded insurance programs.
16. RELATED-PARTY TRANSACTIONS
For services rendered in connection with the acquisitions made during
fiscal year 1994, further described in Note 2 -- Acquisitions, the Company paid
$57,500 each to two corporations, which are general partners of a partnership
having a greater than 5% ownership of the Company. The sole stockholder of one
of the aforementioned corporations is currently an employee director of the
Company, and the sole stockholder of the other corporation is currently a
director of the Company. In fiscal 1994, the two individuals were each granted
five-year nonincentive stock options to purchase an aggregate of 120,000 shares
of the Company's common stock. The options were granted at an exercise price
equal to the fair value of the common stock on the dates of grant. The right to
exercise these options vests in equal installments over three years.
F-17
38
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS -- OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
CURRENT ASSETS:
Cash...................................................... $ 5,192 $ 3,153
Accounts receivable, net of reserves of $71 and $0........ 133 30
Prepaid expenses.......................................... 361 199
-------- --------
Total current assets.............................. 5,686 3,382
INVESTMENT IN SUBSIDIARIES.................................. 7,173 9,754
DUE FROM SUBSIDIARIES....................................... 5,720 8,394
OTHER ASSETS, net........................................... 2,091 1,737
-------- --------
Total assets...................................... $ 20,670 $ 23,267
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade................................... $ 78 $ 108
Accrued compensation and related benefits................. 182 33
Other accrued liabilities................................. 377 367
Current Portion -- other long-term liabilities............ 554 554
-------- --------
Total current liabilities......................... 1,191 1,062
OTHER LONG-TERM LIABILITIES................................. 716 88
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $100 par value; shares authorized
180,000................................................ -- --
Common stock, $.03 par value; shares authorized
17,000,000; issued 6,977,845 at October 29, 1995 and
7,684,733 at October 27, 1996.......................... 209 230
Additional paid-in capital................................ 39,114 43,474
Retained earnings......................................... (17,459) (17,758)
Cumulative translation adjustments........................ -- (32)
Treasury stock, at cost (935,404 common shares at October
29, 1995 and 1,107,981 common shares at October 27,
1996).................................................. (3,101) (3,797)
-------- --------
Total stockholders' equity.................................. 18,763 22,117
-------- --------
$ 20,670 $ 23,267
======== ========
S-1
39
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
INCOME AND (EXPENSE)
Interest, investment and other income, net................ 380 782 209
Equity in earnings of subsidiaries, net of taxes.......... 2,554 3,608 783
Corporate general and administrative...................... (1,382) (1,608) (1,201)
Other operating expense................................... -- -- (256)
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES..................................................... 1,552 2,782 (465)
BENEFITS FOR INCOME TAXES................................... 1,380 966 166
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS.................... 2,932 3,748 (299)
GAIN ON SALE OF DISCONTINUED OPERATIONS, net of income tax
effect.................................................... 1,380 -- --
INCOME FROM DISCONTINUED OPERATIONS, net of income tax
effect.................................................... 978 -- --
--------- --------- ---------
NET INCOME (LOSS)........................................... $ 5,290 $ 3,748 $ (299)
========= ========= =========
PER COMMON AND COMMON EQUIVALENT SHARE Continuing
operations................................................ $ 0.46 $ 0.57 $ (0.05)
Gain on sale of discontinued operations................... $ 0.22 $ 0.00 $ 0.00
Discontinued operations................................... $ 0.15 $ 0.00 $ 0.00
--------- --------- ---------
Net income (loss)......................................... $ 0.83 $ 0.57 $ (0.05)
--------- --------- ---------
SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE........ 6,343,604 6,605,147 6,277,585
========= ========= =========
S-2
40
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARES)
UNREALIZED
GAIN (LOSS)
COMMON STOCK ADDITIONAL RETAINED ON TREASURY STOCK
----------------- PAID IN EARNINGS MARKETABLE -------------------
SHARES AMOUNT CAPITAL (DEFICIT) SECURITIES OTHER SHARES AMOUNT
--------- ------ ---------- --------- ----------- ----- --------- -------
BALANCE, OCTOBER 31, 1993........ 6,281,889 $188 $37,869 $(26,497) $ -- $ -- 461,249 $ (609)
Net Income..................... -- -- -- 5,290 -- -- -- --
Issuance to employees pursuant
to stock options plans...... 445,456 14 801 -- -- -- -- --
Unrealized loss on marketable
securities, net of income
taxes....................... -- -- -- -- (138) -- -- --
Stock repurchase............... -- -- -- -- -- -- 83,000 (374)
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 31, 1994........ 6,727,345 202 38,670 (21,207) (138) -- 544,249 (983)
--------- ---- ------- -------- ----- ---- --------- -------
Net Income..................... -- -- -- 3,748 -- -- -- --
Issuance to employees pursuant
to stock options plans...... 250,500 7 444 -- -- -- -- --
Unrealized gain on marketable
securities, net of income
taxes....................... -- -- -- -- 138 -- -- --
Stock repurchase............... -- -- -- -- -- -- 391,155 (2,118)
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 29, 1995........ 6,977,845 209 39,114 (17,459) -- -- 935,404 (3,101)
--------- ---- ------- -------- ----- ---- --------- -------
Net Income (loss).............. -- -- -- (299) -- -- -- --
Issuance to employees pursuant
to stock options plans...... 158,332 5 336 -- -- -- -- --
Acquisition of Lockhart
Industries, Inc............. 280,556 8 2,355 -- -- -- 82,577 (696)
Purchase of Uni-Star
Industries, Inc. minority
interest.................... 265,000 8 1,669 -- -- -- -- --
Cumulative translation
adjustments................. -- -- -- -- -- (32) -- --
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 27, 1996........ 7,681,733 $230 $43,474 $(17,758) $ -- $(32) 1,017,981 $(3,797)
--------- ---- ------- -------- ----- ---- --------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
S-3
41
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS)
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES.................... $ (772) $ 506 $(1,727)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations............. 2,000 -- --
Purchase of marketable securities -- available-for-sale... (1,285) (850) --
Proceeds from sale of marketable
securities -- available-for-sale....................... 237 2,097 --
Advances to subsidiaries, net............................. 907 (1,663) (638)
(Increase) in other assets, net........................... 120 19 (15)
------- ------- -------
Net cash provided (used) by investing
activities...................................... 1,979 (397) (653)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 815 451 341
Payments to repurchase common stock....................... (374) (2,118) --
------- ------- -------
Net cash provided (used) by financing
activities...................................... 441 (1,667) 341
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,648 (1,558) (2,039)
------- ------- -------
CASH AND CASH EQUIVALENTS, beginning of year................ 5,102 6,750 5,192
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year...................... $ 6,750 $ 5,192 $ 3,153
======= ======= =======
S-4
42
SCHEDULE II
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ----------
Reserve for doubtful accounts deducted from
accounts receivable in the balance sheet --
1996.................................. $ 277,420 $271,586 $ 254,711(1) $ 294,295
1995.................................. 110,598 191,043 24,221(1) 277,420
1994.................................. 180,477 101,777 171,656(1) 110,598
Reserve for obsolete inventory deducted from
inventories in the balance sheet --
1996.................................. $ 419,855 908,215 282,362(2) 1,045,708
1995.................................. 144,500 353,032 77,677(2) 419,855
1994.................................. 21,235 144,500 21,235(2) 144,500
Valuation allowance related to deferred tax
asset --
1996.................................. $4,602,691 492,917(3) -- 5,095,608
1995.................................. 6,575,543 -- 1,972,852(3) 4,602,691
1994.................................. $9,421,527 -- 2,845,984(3) 6,575,543
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory written off at cost, net of value recovered.
(3) Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("Statement
109"). In adopting Statement 109, the Company recorded a deferred tax asset
of $9,421,527, which was fully reserved. The deductions consist of
utilization of net operating loss carryforwards and reversals in 1994 and
1995 of $1,360,000 and $1,820,000, respectively, of the valuation allowance
based on Management's estimate of future utilization of net operating loss
carryforwards. In fiscal 1996, the valuation allowance was increased to
offset an increase in the net deferred tax asset resulting from the tax
effects of temporary differences.
S-5
43
INDEX TO EXHIBITS
EXHIBIT
NO.
-------
3.1 -- Certificate of Incorporation of the Company, as
amended.(1)(2)(3)
3.2 -- By-laws of the Company.(4)
10.1 -- Registrant's 1981 Incentive Stock Option Plan, together
with amendments thereto.(2)
10.2 -- Registrant's 1984 Incentive Stock Option Plan, together
with amendments thereto.(2)
10.3 -- Registrant's 1985 Stock Option Plan, together with
amendments thereto. (2)(5)(6)(7)(8)
10.4 -- Registrant's 401-K Savings/Stock Purchase Plan.(9)
10.5 -- Lease Agreement, dated October 7, 1987, between PIC
Realty Corporation and Issuer.(10)
10.6 -- Lease dated as of October 29, 1993 by and between The
Equitable Life Assurance Society of the United States and
Wakefield Engineering, Inc.(11)
10.7 -- Standard Industrial/Commercial Single-Tenant Lease dated
as of June 1, 1994 by and between Pasadena Industrial
Associates and Uni-Star Industries, Inc.(11)
10.8 -- Lease dated as of November 29, 1994 by and between The
Goldsmith Properties Company and Uni-Star Industries,
Inc.(11)
10.9 -- Lease Agreement dated as of January 1995 by and between
Robert L. Byers and Joyce F. Byers and Uni-Star
Industries, Inc.(11)
10.10 -- Registrant's 1994 Stock Option Plan as amended and
restated.(3)
10.11 -- Loan and Security Agreement dated as of June 22, 1994
entered into by and between Shawmut Bank, N.A. and
Wakefield Engineering, Inc., together with amendment
thereto. (The exhibits and schedules to the Loan and
Security Agreement/Amendment are listed on the last page
of such documents. Such exhibits and schedules have not
been filed by the Issuer, who hereby undertakes to file
such exhibits upon request of the
Commission.)(11)(12)(13)(14)
10.11(a) -- Fourth Amendment to Loan and Security Agreement dated as
of October 11, 1996 entered into by and between Fleet
National Bank of Massachusetts and Wakefield Engineering,
Inc. (The exhibits and schedules to the Amendment are
listed on the last page of such Amendment. Such exhibits
and schedules have not been filed by the Registrant, who
hereby undertakes to file such exhibits upon request of
the Commission.) (Filed Herewith)
10.12 -- Accounts Receivable Loan Agreement between Uni-Star
Industries, Inc. and City National Bank dated as of
August 30, 1995 together with amendment thereto.(3)(15)
10.12(a) -- Second Amendment to Accounts Receivable Loan Agreement
dated as of March 20, 1996 by and between Uni-Star
Industries, Inc. and City National Bank. (Filed Herewith)
10.12(b) -- Third Amendment to Accounts Receivable Loan Agreement
dated as of September 17, 1996 by and between Uni-Star
Industries, Inc. and City National Bank. (Filed Herewith)
10.13 -- Asset Purchase Agreement dated as of June 30, 1995 among
Specialty Extrusions Ltd., Walter Hastie and William
Esparza, and Specialty Acquisition Corp. (now known as
Specialty Extrusion Corp.) and Wakefield Engineering,
Inc.(16)
44
EXHIBIT
NO.
- -------
10.14 -- Lease dated September 1, 1993 between B&K Investment
Corp. and Specialty Extrusions, Ltd., together with
assignment thereof dated June 30, 1995 from Specialty
Extrusions, Ltd. to Specialty Acquisition Corp. (now
known as Specialty Extrusion Corp.)(3)
10.15 -- Employment Agreement with Lawrence Butler dated September
29, 1995.(3)
10.16 -- Indenture of Lease Agreement dated as of December 20,
1994 by and between Richard J. Tobin, as Trustee of JLN
Realty Trust, under Declaration of Trust dated June 15,
1981 and filed with Bristol County Fall River District
Registry of Deeds Land Court Records as Document 12977,
and Wakefield Engineering, Inc.(3)
10.17 -- Industrial Space Lease dated as of September 29, 1995 by
and between Rancon Income Fund I and Wakefield
Engineering, Inc.(3)
10.18 -- Employment Agreement with Ernest C. Hartland, Jr. dated
April 13, 1996. (The exhibit to the Employment Agreement
is listed on the last page of such Agreement. Such
exhibit has not been filed by the registrant, who hereby
undertakes to file such exhibit upon request of the
Commission.)(17)
10.19 -- Agreement and Plan of Merger dated as of August 14, 1996
by and among Alpha Technologies Group, Inc., Lockie
Acquisition Corp., Lockhart Industries, Inc., Eldon H.
Lockhart and Marjorie D. Lockhart. (The exhibits and
schedules to the Agreement and Plan of Merger are listed
on page v of the Table of Contents of such Agreement.
Such exhibits and schedules have not been filed by the
Issuer, who hereby undertakes to file such exhibits upon
request of the Commission).
10.20 -- Agreement dated August 15, 1996 between the Company and
Neal Castleman.(17)
10.21 -- Lease dated October 31, 1979 by and between Landcee
Investment Co. and Lockhart Industries, Inc., together
with addendum and amendments thereto. (Filed Herewith)
10.22 -- Lease dated August 29, 1984 by and between
Garfield-Pacific Development Co. and Lockhart Industries,
Inc., together with addendums and amendments thereto.
(Filed Herewith)
10.23 -- Employment Agreement with Michael A. Hoffmann dated
November 4, 1996. (Filed Herewith)
10.24 -- International Swap Dealers Association, Inc. Master
Agreement dated as of October 23, 1996 between Fleet
National Bank and Wakefield Engineering, Inc.; Lockhart
Industries, Inc; Specialty Extrusion Corp. (Filed
Herewith)
11 -- Computation of net income per share. (Filed Herewith)
21 -- Subsidiaries of Registrant.(11)
23.1(a) -- Consent of Arthur Andersen LLP. (Filed Herewith)
23.1(b) -- Consent of Arthur Andersen LLP. (Filed Herewith)
27 -- Financial Data Schedule. (Filed Herewith)
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(1) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (Reg. No. 33-2979), which became effective March 7, 1986.
(2) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed September 28, 1987 (Reg. No. 33-17359).
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 29, 1995.
45
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1991.
(5) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed March 17, 1988 (Reg. No. 33-20706).
(6) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed June 30, 1989 (Reg. No. 33-29636).
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1990.
(8) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed June 23, 1992 (Reg. No. 33-48663).
(9) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed January 29, 1987 (Reg. No. 33-11627).
(10) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1987.
(11) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 31, 1994.
(12) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 30, 1995 filed on June 14, 1995.
(13) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended January 28, 1996.
(14) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 28, 1996.
(15) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended July 30, 1995 filed on September 13, 1995.
(16) Incorporated herein by reference to the Company's Form 8-K dated June 30,
1995, filed on or about July 14, 1995.
(17) Incorporated herein by reference to the Company's Form S-3, filed on August
16, 1996 (Reg. No. 333-10311).